UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q


(Mark
One)





xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934FOR THE QUARTERLY PERIOD
ENDEDMarch 31,
2009





oTRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.





Commission
File No. 000-27147





CelLynx
Group, Inc.





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





Nevada
            
            95-4705831(State
      or other jurisdiction of incorporation or
            
            (IRS
      Employer Identificationorganization)
            
            No.)





25910
Acero, Suite 370


Mission
Viejo, California 92691





(Address
of principal executive offices)





(949)
305-5290





(Registrant's
telephone number, including area code)





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





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






Large Accelerated
      filero
            Non-Accelerated
      FileroAccelerated
      Filer  o
            Smaller Reporting
      Company x


The
registrant is a shell company (as defined by Rule 12b-2 of the Exchange
Act). YesoNox




APPLICABLE
ONLY TO CORPORATE ISSUERS:





Indicate
the number of shares outstanding of each issuer's classes of common stock, as of
the latest practicable date: 126,513,489 issued and outstanding as of May
18, 2009.












TABLE OF
CONTENTS




PagePART
      I
            FINANCIAL
      INFORMATION
            3Item
      1.
            Financial
      Statements
            3Item
      2.
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
            24Item
      3.
            Quantitative
      and Qualitative Disclosures About Market Risk
            30Item
      4.
            Controls
      and Procedures
            30PART
      II
            OTHER
      INFORMATIONItem
      1.
            Legal
      Proceedings
            30Item
      1A.
            Risk
      Factors
            30Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            30Item
      3.
            Defaults
      Upon Senior Securities
            31Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            31Item
      5.
            Other
      Information
            31Item
      6.
            Exhibits
            31








2




Part
I – FINANCIAL INFORMATION





Item
1.  Financial Statements





CELLYNX
      GROUP, INC.(A
      Development Stage Company)CONSOLIDATED
      BALANCE SHEETSAS
      OF MARCH 31, 2009 AND SEPTEMBER 30, 2008March
      31,
            
            
            September
      30,2009
            
            
            2008(unaudited)ASSETSCURRENT
      ASSETS:Cash
            
            $
            5,687
            
            
            $
            599,024Other
      current assets
            
            
            40,500
            
            
            
            6,862TOTAL
      CURRENT ASSETS
            
            
            46,187
            
            
            
            605,886EQUIPMENT,
      net
            
            
            14,003
            
            
            
            9,658INTANGIBLE
      ASSETS, net
            
            
            94,777
            
            
            
            70,776OTHER
      ASSETS
            
            
            16,190
            
            
            
            11,526TOTAL
      ASSETS
            
            $
            171,157
            
            
            $
            697,846LIABILITIES AND STOCKHOLDERS'
      DEFICITCURRENT
      LIABILITIES:Accrued
      liabilities
            
            $
            556,203
            
            
            $
            206,298Accrued
      interest
            
            
            19,517
            
            
            
            12,507Advances
      from related parties
            
            
            38,470
            
            
            
            -Accrued
      derivative liabilities
            
            
            -
            
            
            
            5,677,156Convertible
      stockholder notes, net of debt discount of $9,084 and
    $28,943as
      of March 31, 2009 and September 30, 2008, respectively
            
            
            93,916
            
            
            
            11,057Convertible
      notes, current portion
            
            
            100,000
            
            
            
            -TOTAL
      CURRENT LIABILITIES
            
            
            808,106
            
            
            
            5,907,018LONG
      TERM LIABILITIES:Convertible
      promissory note, net of debt discount of  $184,087 and
      $241,067as
      of March 31, 2009 and September 30, 2008, respectively
            
            
            78,269
            
            
            
            21,289Convertible
      stockholder notes, net of debt discount of  $0 and $17,031

                as
      of March 31, 2009 and September 30, 2008,
    respectively
            
            
            -
            
            
            
            2,969TOTAL
      LIABILITIES
            
            $
            886,375
            
            
            $
            5,931,276STOCKHOLDERS'
      DEFICIT:Series
      A Preferred Stock, $0.001 par value;100,000,000 shares
      authorized:nil
      and 45,516,034  shares issued and outstanding

                as
      of March 31, 2009 and September 30, 2008,
    respectively
            
            
            -
            
            
            
            45,516Common
      stock, $0.001 par value, 400,000,000 authorized; 126,513,489
      and80,552,812
      shares issued and outstanding as of March  31,
    2009and
      September 30, 2008, respectively
            
            
            126,514
            
            
            
            80,553Additional
      paid in capital
            
            
            8,689,369
            
            
            
            2,335,949Deficit
      accumulated during the development stage
            
            
            (9,531,101
            )
            
            
            (7,695,448
            )Total
      stockholders' deficit
            
            
            (715,218
            )
            
            
            (5,233,430
            )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT
            
            $
            171,157
            
            
            $
            697,846The
      accompanying notes are an integral part of these consolidated financial
      statements.




3




CELLYNX
      GROUP, INC.(A
      Development Stage Company)CONSOLIDATED
      STATEMENTS OF OPERATIONSFOR
      THE THREE AND SIX MONTHS ENDED MARCH 31, 2009 AND 2008 AND FOR
      THE PERIODFROM
      OCTOBER 11, 2005 (DATE OF INCEPTION) TO MARCH 31, 2009For
      the periodfrom
      October 11, 2005Three
      Months Ended
                    
                    
                    Three
      Months Ended
                    
                    
                    Six
      Months Ended
                    
                    
                    Six
      Months Ended
                    
                    
                    (date
      of inception)March
      31, 2009
                    
                    
                    March
      31, 2008
                    
                    
                    March
      31, 2009
                    
                    
                    March
      31, 2008
                    
                    
                    to
      March 31, 2009(unaudited)
                    
                    
                    (unaudited)
                    
                    
                    (unaudited)
                    
                    
                    (unaudited)
                    
                    
                    (unaudited)Net
      Revenue
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Cost
      of Revenue
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Gross
      profit
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Operating
      expensesResearch
      and development
                    
                    
                    60,572
                    
                    
                    
                    53,068
                    
                    
                    
                    212,099
                    
                    
                    
                    53,068
                    
                    
                    
                    811,924General
      and administrative
                    
                    
                    729,414
                    
                    
                    
                    492,225
                    
                    
                    
                    1,351,227
                    
                    
                    
                    668,984
                    
                    
                    
                    6,484,253Total
      operating expenses
                    
                    
                    789,986
                    
                    
                    
                    545,293
                    
                    
                    
                    1,563,326
                    
                    
                    
                    722,052
                    
                    
                    
                    7,296,177Loss
      from operations
                    
                    $
                    (789,986
                    )
                    
                    $
                    (545,293
                    )
                    
                    $
                    (1,563,326
                    )
                    
                    $
                    (722,052
                    )
                    
                    $
                    (7,296,177
                    )Non-operating
      income (expense):Interest
      income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    961
                    
                    
                    
                    -
                    
                    
                    
                    7,253Interest
      and financing costs
                    
                    
                    (54,124
                    )
                    
                    
                    (8,620
                    )
                    
                    
                    (105,127
                    )
                    
                    
                    (348,713
                    )
                    
                    
                    (1,049,712
                    )Change
      in fair value of accrued beneficial conversion liability
                    
                    
                    -
                    
                    
                    
                    41,499
                    
                    
                    
                    251,410
                    
                    
                    
                    37,087
                    
                    
                    
                    (900,582
                    )Change
      in fair value of accrued warrant liability
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (419,571
                    )
                    
                    
                    -
                    
                    
                    
                    (291,883
                    )Total
      non-operating income (expense)
                    
                    
                    (54,124
                    )
                    
                    
                    32,879
                    
                    
                    
                    (272,327
                    )
                    
                    
                    (311,626
                    )
                    
                    
                    (2,234,924
                    )Loss
      before provision for income taxes
                    
                    
                    (844,110
                    )
                    
                    
                    (512,414
                    )
                    
                    
                    (1,835,653
                    )
                    
                    
                    (1,033,678
                    )
                    
                    
                    (9,531,101
                    )Provision
      for income taxes
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Net
      loss
                    
                    $
                    (844,110
                    )
                    
                    $
                    (512,414
                    )
                    
                    $
                    (1,835,653
                    )
                    
                    $
                    (1,033,678
                    )
                    
                    $
                    (9,531,101
                    )Weighted
      average shares outstanding - Basic and Diluted:
                    
                    
                    126,449,818
                    
                    
                    
                    31,095,485
                    
                    
                    
                    116,753,891
                    
                    
                    
                    29,140,755
                    
                    
                    
                    40,274,498Earnings
      per share - Basic and Diluted:
                    
                    $
                    (0.01
                    )
                    
                    $
                    (0.02
                    )
                    
                    $
                    (0.02
                    )
                    
                    $
                    (0.04
                    )
                    
                    $
                    (0.24
                    )The
      accompanying notes are an integral part of these consolidated financial
      statements.




4


CELLYNX
      GROUP, INC.(A
      Development Stage Company)CONSOLIDATED
      STATEMENT OF STOCKHOLDERS' DEFICITFOR
      PERIOD FROM OCTOBER 11, 2005 (DATE OF INCEPTION) TO MARCH 31,
      2009




DeficitAccumulatedAdditional
                
                
                During
                  the
                
                
                TotalPreferred
      Stock
                
                
                Common
      Stock
                
                
                Paid-in
                
                
                Development
                
                
                Stockholders'Shares
                
                
                Amount
                
                
                Shares
                
                
                Amount
                
                
                Capital
                
                
                Stage
                
                
                DeficitBalance,
      October 11, 2005 (Date of Inception)
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Shares
      issued for cash
                
                
                28,120,280
                
                
                
                28,120
                
                
                
                18,800,734
                
                
                
                18,801
                
                
                
                215,043
                
                
                
                -
                
                
                
                261,964Shares
      issued for services
                
                
                2,222,540
                
                
                
                2,223
                
                
                
                1,523,576
                
                
                
                1,523
                
                
                
                294,054
                
                
                
                -
                
                
                
                297,800Options
      issues to employees and non employees
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                16,652
                
                
                
                -
                
                
                
                16,652Net
      loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (690,669
                )
                
                
                (690,669
                )Balance,
      September 30, 2006
                
                
                30,342,820
                
                
                $
                30,343
                
                
                
                20,324,310
                
                
                $
                20,324
                
                
                $
                525,749
                
                
                $
                (690,669
                )
                
                $
                (114,253
                )Shares
      issued for services
                
                
                10,764,576
                
                
                
                10,764
                
                
                
                6,829,678
                
                
                
                6,830
                
                
                
                122,273
                
                
                
                -
                
                
                
                139,867Net
      loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (346,243
                )
                
                
                (346,243
                )Balance,
      September 30, 2007
                
                
                41,107,396
                
                
                $
                41,107
                
                
                
                27,153,988
                
                
                $
                27,154
                
                
                $
                648,022
                
                
                $
                (1,036,912
                )
                
                $
                (320,629
                )Shares
      issued for cash
                
                
                -
                
                
                
                -
                
                
                
                938,897
                
                
                
                939
                
                
                
                745,345
                
                
                
                -
                
                
                
                746,284Shares
      issued for services
                
                
                4,408,638
                
                
                
                4,409
                
                
                
                4,362,037
                
                
                
                4,362
                
                
                
                563,231
                
                
                
                -
                
                
                
                572,002Fair
      value of stock options reclassified to share-basedcompensation
      liability
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (89,618
                )
                
                
                -
                
                
                
                (89,618
                )Shares
      issued in merger with Norpac Technologies, Inc.
                
                
                -
                
                
                
                -
                
                
                
                48,097,890
                
                
                
                48,098
                
                
                
                1,200,650
                
                
                
                
                
                
                
                1,248,748Fair
      value of warrants transferred to liability
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (731,681
                )
                
                
                -
                
                
                
                (731,681
                )Net
      loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (6,658,536
                )
                
                
                (6,658,536
                )Balance,
      September 30, 2008
                
                
                45,516,034
                
                
                $
                45,516
                
                
                
                80,552,812
                
                
                $
                80,553
                
                
                $
                2,335,949
                
                
                $
                (7,695,448
                )
                
                $
                (5,233,430
                )Conversion
      of preferred shares to common shares upon theincrease of
      authorized shares
                
                
                (45,516,034
                )
                
                
                (45,516
                )
                
                
                45,516,034
                
                
                
                45,516
                
                
                
                -
                
                
                
                -
                
                
                
                -Reclassify
      share based compensation liability to equity
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,701,572
                
                
                
                -
                
                
                
                2,701,572Fair
      value of share based compensation for employees and
      consultants
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                345,836
                
                
                
                -
                
                
                
                345,836Reclassify
      beneficial conversion liability to equity
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,120,181
                
                
                
                -
                
                
                
                2,120,181Reclassify
      warrant liability to equity
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,023,564
                
                
                
                -
                
                
                
                1,023,564Issuance
      of shares for purchase of licensing rights
                
                
                -
                
                
                
                -
                
                
                
                57,143
                
                
                
                57
                
                
                
                7,372
                
                
                
                -
                
                
                
                7,429Issuance
      of shares for promissory note
                
                
                -
                
                
                
                -
                
                
                
                37,500
                
                
                
                38
                
                
                
                4,208
                
                
                
                -
                
                
                
                4,246Issuance
      of warrants for consulting services
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                88,037
                
                
                
                -
                
                
                
                88,037Issuance
      of shares for accounting services
                
                
                -
                
                
                
                -
                
                
                
                350,000
                
                
                
                350
                
                
                
                62,650
                
                
                
                -
                
                
                
                63,000Net
      loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,835,653
                )
                
                
                (1,835,653
                )Balance,
      March 31, 2009 (unaudited)
                
                
                -
                
                
                $
                -
                
                
                
                126,513,489
                
                
                $
                126,514
                
                
                $
                8,689,369
                
                
                $
                (9,531,101
                )
                
                $
                (715,218
                )




Effective
July 24, 2008, the Company effected a 1.2579 for 1 forward stock split of the
authorized, issued and outstanding common stock, without a change to the par
value. All share amounts
have been retroactively adjusted for all periods presented.




Effective
July 24, 2008, the Company issued Series A Preferred Stock on a pro rata basis
to the shareholders of CelLynx, Inc. All share amounts have been
retroactively adjusted
for all periods presented.




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


5




CELLYNX
      GROUP, INC.(A
      Development Stage Company)CONSOLIDATED
      STATEMENTS OF CASH FLOWSFOR
      THE SIX MONTHS ENDED MARCH 31, 2009 AND 2008 AND FOR THE
      PERIODFROM
      OCTOBER 11, 2005 (DATE OF INCEPTION) TO MARCH 31, 2009For
      the periodfrom
      October 11, 2005Six
      Months Ended
            
            
            Six
      Months Ended
            
            
            (date
      of inception)March
      31, 2009
            
            
            March
      31, 2008
            
            
            to
      March 31, 2009(unaudited)
            
            
            (unaudited)
            
            
            (unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
            
            $
            (1,835,653
            )
            
            $
            (1,033,678
            )
            
            $
            (9,531,101
            )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Depreciation
      and amortization
            
            
            3,139
            
            
            
            406
            
            
            
            6,236Warrants
      issued for consulting services
            
            
            88,037
            
            
            
            -
            
            
            
            88,037Stock
      issued for services
            
            
            22,500
            
            
            
            43,600
            
            
            
            1,032,169Stock
      compensation expense for options issued to employees and
      consultants
            
            
            345,836
            
            
            
            206,649
            
            
            
            2,987,594Change
      in fair value of accrued beneficial conversion liability
            
            
            (251,410
            )
            
            
            (37,087
            )
            
            
            900,582Change
      in fair value of accrued warrant liability
            
            
            419,571
            
            
            
            -
            
            
            
            291,883Non-cash
      financing costs
            
            
            -
            
            
            
            328,630
            
            
            
            833,321Amortization
      of debt discount
            
            
            98,115
            
            
            
            15,734
            
            
            
            184,200Changes
      in operating assets and liabilities:Change
      in other assets
            
            
            2,198
            
            
            
            (4,396
            )
            
            
            (16,190
            )Change
      in accrued liabilities
            
            
            355,915
            
            
            
            114,447
            
            
            
            585,710Net
      cash used in operating activities
            
            $
            (751,752
            )
            
            $
            (365,695
            )
            
            $
            (2,637,559
            )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of equipment
            
            
            (6,663
            )
            
            
            (1,728
            )
            
            
            (18,809
            )Increase
      in intangible assets
            
            
            (16,392
            )
            
            
            (17,323
            )
            
            
            (87,777
            )Net
      cash acquired in merger with Norpac Technologies, Inc.
            
            
            -
            
            
            
            -
            
            
            
            1,250,114Net
      cash provided by (used in) investing activities
            
            $
            (23,055
            )
            
            $
            (19,051
            )
            
            $
            1,143,528CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from notes payable
            
            
            75,000
            
            
            
            7,000
            
            
            
            325,000Proceeds
      from related parties
            
            
            68,000
            
            
            
            -
            
            
            
            68,000Proceeds
      from issuance of common stock
            
            
            -
            
            
            
            466,904
            
            
            
            1,008,248Advances
      from related parties
            
            
            38,470
            
            
            
            -
            
            
            
            38,470Proceeds
      from stockholders notes
            
            
            -
            
            
            
            -
            
            
            
            60,000Net
      cash provided by financing activities
            
            $
            181,470
            
            
            $
            473,904
            
            
            $
            1,499,718NET
      (DECREASE) INCREASE IN CASH
            
            
            (593,337
            )
            
            
            89,158
            
            
            
            5,687CASH,
      BEGINNING OF PERIOD
            
            
            599,024
            
            
            
            2,371
            
            
            
            -CASH,
      END OF PERIOD
            
            $
            5,687
            
            
            $
            91,529
            
            
            $
            5,687SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Interest
      paid
            
            $
            -
            
            
            $
            -
            
            
            $
            -Income
      taxes paid
            
            $
            -
            
            
            $
            -
            
            
            $
            -SUPPLEMENTAL
      DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Issuance
      of stock for licensing agreement
            
            $
            7,429
            
            
            $
            -
            
            
            $
            7,429Increase
      in convertible promissory note for interest payable
            
            $
            -
            
            
            $
            -
            
            
            $
            12,356Reclassify
      share- based compensation liability to additional paid-in
      capital
            
            $
            2,701,572
            
            
            $
            -
            
            
            $
            2,701,572Reclassify
      accrued  beneficial conversion liability to additional paid-in
      capital
            
            $
            2,120,181
            
            
            $
            -
            
            
            $
            2,120,181Reclassify
      accrued warrant liability to additional paid-in capital
            
            $
            1,023,564
            
            
            $
            -
            
            
            $
            1,023,564




The
accompanying notes are an integral part of these consolidated financial
statements
 6




CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (unaudited)
  Note
1 - Organization and Basis of Presentation





The
unaudited consolidated financial statements have been prepared by CelLynx Group,
Inc. (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 and six months ended March
31, 2009 are not necessarily indicative of the results to be expected for the
full year ending September 30, 2009.





Organization and Line of
Business





CelLynx Group, Inc. formerly known as NorPac Technologies,
Inc. (hereinafter referred to as “CelLynx” or 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 the Share Exchange Agreement (described
below), the Company entered into a Regulation S Subscription Agreement pursuant
to which the Company issued 10,500,000 shares of its common stock and warrants
to purchase 10,500,000 shares of 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
(23) CelLynx-California shareholders who, immediately prior to the closing of
the transaction collectively held 100% of CelLynx-California’s issued and
outstanding shares of capital stock.  As a result, the
CelLynx-California shareholders were to receive 77,970,956 shares of the
Company’s common stock in exchange for 100% or 61,983,580 shares of capital
stock of CelLynx-California’s common stock.  However, the Company had
only 41,402,110 authorized, unissued and unreserved shares of common stock
available, after taking into 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 were an insufficient number of
authorized but unissued and unreserved common stock to complete 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 Series A Convertible Preferred Stock
(“Series A Preferred Stock”) and issue that number of shares of Series A
Preferred Stock such that the common stock underlying the Series A Preferred
Stock plus the common stock actually issued to the CelLynx-California
shareholders would equal the total number of shares of common stock due to the
CelLynx-California shareholders under the Share Exchange
Agreement.  As a result, the Company issued to the CelLynx-California
shareholders an aggregate of 32,454,922 shares of common stock and 45,516,034
shares of Series A Preferred Stock.  The Series A Preferred Stock
automatically converts into common stock on a one-to-one ratio upon the
authorized capital stock of the Company being increased to include not less than
150,000,000 shares of common stock.





7
 
  CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (unaudited)


On
November 7, 2008, the Company amended the Articles of Incorporation to increase
the number 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 of shares with CelLynx-California was accounted for as a reverse
acquisition under the purchase method of accounting since the shareholders of
CelLynx-California obtained control of the Company. On August 5, 2008, NorPac
Technologies, Inc. changed its name to CelLynx Group,
Inc.  Accordingly, the merger of CelLynx-California into the Company
was recorded as a recapitalization of CelLynx-California, with
CelLynx-California being treated as the continuing entity. The historical
financial statements presented are the financial statements of
CelLynx-California. The Share Exchange Agreement has been treated as a
recapitalization and not as a business combination; therefore, no pro forma
information is disclosed. At the date of this transaction, the net assets of the
legal acquirer (CelLynx Group, Inc. formerly NorPac Technologies, Inc.) were
$1,248,748.





As a
result of the reverse merger transactions described above the historical
financial statements presented are those of CelLynx-California, the operating
entities.  The CelLynx-California shareholder received 1.2579292
shares of stock in the Company for each share of CelLynx-California capital
stock.  The consolidated statement of stockholders’ deficit and all
shares and per-share information have been retroactively restated for all
periods presented to reflect the reverse 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 agree with 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 a cell phone signal amplifier. As of March 31,
2009, the Company has not commenced planned operations.





Development Stage Company
and Going Concern





The
Company is considered to be in the development stage as defined in Statement of
Financial Accounting Standards (“SFAS”) No. 7, "Accounting and Reporting by
Development Stage Enterprises." The Company is in the development stage since
planned principal activities have not commenced and the Company has not
generated any revenue. In a development stage company, management devotes most
of its activities to developing a market for its products and services. These
financial statements have been prepared on a going concern basis, which implies
the Company will continue to realize its assets and discharge its liabilities in
the normal course of business. The Company is unlikely to pay dividends or
generate significant earnings in the immediate or foreseeable future. The
continuation of the Company as a going concern and the ability of the Company to
emerge from the development stage is dependent upon the continued financial
support from its stockholders, the ability of the Company to obtain necessary
equity and debt financing to continue operations and to generate sustainable
revenue. There is no guarantee that the Company will be able to raise adequate
equity or debt financing or generate profitable operations. For the six months
ended March 31, 2009 and 2008, and for the period from October 11, 2005 (Date of
Inception) to March 31, 2009, the Company incurred net losses of $1,835,653,
$1,033,678, and $9,531,101, respectively. As of March 31, 2009 and September 30,
2008, the Company has a deficit accumulated during the development stage of
$9,531,101 and $7,695,448, respectively. These consolidated financial statements
do not include any adjustments to the recoverability 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
to raise additional funds through equity or debt financing.




8




CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (unaudited)
  Note
2 - Summary of Significant Accounting Policies





Basis of
Presentation





The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America,
and have been consistently applied.  The accompanying consolidated
financial statements include the accounts of CelLynx Group, Inc. and its 100%
owned subsidiary, CelLynx, Inc.  All intercompany accounts and
transactions have been eliminated in consolidation.





Use of
Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could materially differ from those
estimates, upon which the carrying values were based.





Concentration of Credit
Risk





Cash
includes deposits in accounts maintained in the United States. Certain financial
instruments, which subject the Company to concentration of credit risk, consist
of cash. The Company maintains balances at financial institutions which, from
time to time, may exceed Federal Deposit Insurance Corporation insured limits
for the banks located in the United States. As of September 30, 2008, the
Company had deposits in excess of federally-insured limits totaling
$399,204.  As of March 31, 2009, the Company did not have any amounts
in excess of federally-insured limits.  The Company has not
experienced any losses in such accounts.





Equipment





Equipment
is stated at cost less accumulated depreciation.  Major renewals are
charged directly to the equipment accounts, while replacements, maintenance, and
repairs which do not improve or extend the respective lives of the assets are
expensed currently.  Depreciation is computed using the straight-line
method over the estimated useful lives of the assets, which are reviewed
periodically to ensure that the depreciation method and period are consistent
with the anticipated pattern of future economic benefits. Gains and losses on
disposals are included in the results of operations. The useful life of the
equipment is being depreciated over three years.





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.




9




CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (unaudited)
  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. Licensing right is amortized on a straight-line over a period of
10 years.





Impairment or Disposal of
Long-lived Assets





The
Company applies the provisions of SFAS No. 144, “Accounting for the Impairment
or Disposal of Long-Lived Assets.”  SFAS No. 144 clarifies the
accounting for the impairment of long-lived assets and for long-lived assets to
be disposed of, including the disposal of business segments and major lines of
business. Long-lived assets are reviewed when facts and circumstances indicate
that the carrying value of the asset may not be recoverable. When necessary,
impaired assets are written down to estimated fair value based on the best
information available. Estimated fair value is generally based on either
appraised value or measured by discounting estimated future cash flows.
Considerable management judgment is necessary to estimate discounted future cash
flows. Accordingly, actual results could vary significantly from such
estimates.  Based on its review, the Company believes that as of March
31, 2009 and September 30, 2008, there were no significant impairments of its
long-lived assets.





Revenue
Recognition





The
Company's financial statements are prepared under the accrual method of
accounting.  Revenues will be recognized in the period the products
are shipped.





Accrued Warrant Liability
and Accrued Beneficial Conversion Liability




Pursuant
to Emerging Issues Task Force (“EITF”) No. 00-19, “Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock,” the Company recorded the fair value of all outstanding options,
warrants, and beneficial conversion features as accrued liabilities at September
30, 2008 since the Company did not have enough authorized shares to satisfy the
exercise of its outstanding, options, warrants, and the conversion of the
convertible promissory notes.  The Company reclassified the
liabilities into additional paid-in capital on November 7, 2008 when the Company
increased the number of authorized shares to 400,000,000.





Fair Value of Financial
Instruments





SFAS No.
107, “Disclosures about Fair Value of Financial Instruments,” requires
disclosure of the fair value of financial instruments held by the Company. SFAS
No. 157, “Fair Value Measurements” (“SFAS 157”), adopted in January 1, 2008,
defines fair value, and establishes a three-level valuation hierarchy for
disclosures of fair value measurement that enhances disclosure requirements for
fair value measures.  The carrying amounts reported in the
consolidated balance sheets for other current assets and current liabilities
each qualify as financial instruments and are a reasonable estimate of their
fair values because of the short period of time between the origination of such
instruments and their expected realization and their current market rate of
interest. The three levels of valuation hierarchy are defined as
follows:




10




CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (unaudited)




·
            Level
      1 inputs to the valuation methodology are quoted prices (unadjusted) for
      identical assets or liabilities in active
  markets.




·
            Level
      2 inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets, and inputs that are observable
      for the asset or liability, either directly or indirectly, for
      substantially the full term of the financial
  instrument.




·
            Level
      3 inputs to the valuation methodology are unobservable and significant to
      the fair value measurement.





As of
March 31, 2009, the Company did not identify any assets and liabilities that are
required to be presented on the balance sheet at fair value.





SFAS No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities –
Including an amendment of FASB Statement No. 115,” became effective for the
Company on October 1, 2008. SFAS No. 159 provides the Company with the
irrevocable option to elect fair value for the initial and subsequent
measurement for certain financial assets and liabilities on a
contract-by-contract basis with the difference between the carrying value before
election of the fair value option and the fair value recorded upon election as
an adjustment to beginning retained earnings. The Company chose not to elect the
fair value option.





Income
Taxes





Income
taxes are provided based upon the liability method of accounting in accordance
with SFAS No. 109, “Accounting for Income Taxes.”  Deferred income
taxes are recognized for the tax effect of temporary differences between the
basis of assets and liabilities for financial statement and income tax
purposes.  Pursuant to SFAS No. 109 the Company is required to compute
deferred income tax assets for net operating losses carried forward. The
potential benefits of net operating losses have not been recognized in the
accompanying consolidated financial statements because the Company cannot be
assured it is more likely than not it will utilize the net operating losses
carried forward in future years.





The
Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No.
48, (“Fin 48”) “Accounting for Uncertainty in Income Taxes,” during 2007. 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. The adoption had no effect on the Company’s consolidated financial
statements.





EarningsPer
Share





The
Company reports earnings per share in accordance with the provision of SFAS No.
128, “Earnings Per Share.” SFAS No. 128 requires presentation of basic and
diluted losses per share in conjunction with the disclosure of the methodology
used in computing such losses per share. Basic net loss per share is computed by
dividing the net loss for the period by the weighted average number of common
shares outstanding during the period. Diluted net loss per share is computed by
dividing the net loss for the period by the weighted average number of common
shares outstanding during the period, plus the potential dilutive effect of
common shares issuable upon exercise or conversion of outstanding stock options
and warrants during the period.  Due to the net loss, none of the
potential dilutive securities have been included in the calculation of dilutive
earning per share since their effect would be anti-dilutive.




11




CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (unaudited)
  Stock-Based
Compensation





The
Company records stock-based compensation in accordance with SFAS No. 123(R),
“Share-Based Payment” (“SFAS 123R”). SFAS 123R 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 SFAS 123R, 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.





The
Company uses the Black-Scholes option-pricing model which was developed for use
in estimating the fair value of options. Option-pricing models require the input
of highly complex and subjective variables including the expected life of
options granted and the Company’s expected stock price volatility over a period
equal to or greater than the expected life of the options. Because changes in
the subjective assumptions can materially affect the estimated value of the
Company’s employee stock options, it is management’s opinion that the
Black-Scholes option-pricing model may not provide an accurate measure of the
fair value of the Company’s employee stock options. Although the fair value of
employee stock options is determined in accordance with SFAS 123R using an
option-pricing model, that value may not be indicative of the fair value
observed in a willing buyer/willing seller market transaction.





The
Company recognizes in the statement of operations the grant-date fair value of
stock options and other equity-based compensation issued to employees and
non-employees.





Recent Accounting
Pronouncements





In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS
141R”) which replaces SFAS No .141. SFAS 141R retains the purchase method of
accounting for acquisitions, but requires a number of changes, including changes
in the way assets and liabilities are recognized in the purchase accounting as
well as requiring the expensing of acquisition-related costs as incurred.
Furthermore, SFAS 141R provides guidance for recognizing and measuring the
goodwill acquired in the business combination and determines what information to
disclose to enable users of the financial statements to evaluate the nature and
financial effects of the business combination. SFAS 141R is effective for fiscal
years beginning on or after December 15, 2008. Earlier adoption is prohibited.
The Company is evaluating the impact, if any, that the adoption of this
statement will have on its consolidated results of operations or consolidated
financial position.





In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements — An Amendment of ARB No. 51” (“SFAS 160”).
SFAS 160 amends ARB 51 to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. It is intended to eliminate the diversity in practice regarding the
accounting for transactions between equity and noncontrolling interests by
requiring that they be treated as equity transactions. Further, it requires
consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the noncontrolling interest. SFAS 160 also
establishes a single method of accounting for changes in a parent’s ownership
interest in a subsidiary that do not result in deconsolidation, requires that a
parent recognize a gain or loss in net income when a subsidiary is
deconsolidated, requires expanded disclosures in the consolidated financial
statements that clearly identify and distinguish between the interests of the
parent’s owners and the interests of the noncontrolling owners of a subsidiary,
among others.  SFAS 160 is effective for fiscal years beginning on or
after December 15, 2008, with early adoption permitted, and it is to be applied
prospectively. The Company is evaluating the impact that SFAS 160 will have on
its consolidated financial position or results of operations.




12




CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (unaudited)


In March
2008, the FASB issued SFAS 161, "Disclosures about Derivative Instruments and
Hedging Activities." SFAS 161 is intended to improve financial reporting of
derivative instruments and hedging activities by requiring enhanced disclosures
to enable financial statement users to better understand the effects of
derivatives and hedging on an entity's financial position, financial performance
and cash flows. The provisions of SFAS 161 are effective for interim periods and
fiscal years beginning after November 15, 2008, with early adoption encouraged.
The Company does not anticipate that the adoption of SFAS 161 will have a
material impact on its consolidated results of operations or consolidated
financial position.





In May
2008, the FASB issued SFAS 162, "The Hierarchy of Generally Accepted Accounting
Principles." SFAS 162 is intended to improve financial reporting by identifying
a consistent framework, or hierarchy, for selecting accounting principles to be
used in preparing financial statements that are presented in conformity with
GAAP for nongovernmental entities. SFAS 162 is effective 60 days following the
SEC's approval of the Public Company Accounting Oversight Board (“PCAOB”)
amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with
Generally Accepted Accounting Principles." The Company does not expect the
adoption of SFAS 162 will have a material impact on its consolidated results of
operations or consolidated financial position.




On May 9,
2008, the FASB issued FASB FSP APB 14-1, "Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement)." FSP APB 14-1 clarifies that convertible debt instruments that may
be settled in cash upon conversion (including partial cash settlement) are not
addressed by paragraph 12 of APB Opinion No. 14, "Accounting for Convertible
Debt and Debt Issued with Stock Purchase Warrants." Additionally, FSP APB 14-1
specifies that issuers of such instruments should separately account for the
liability and equity components in a manner that will reflect the entity's
nonconvertible debt borrowing rate when interest cost is recognized in
subsequent periods. FSP APB14-1 is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years. The Company is currently evaluating the impact that FSP APB 14-1
will have on its consolidated results of operations or consolidated financial
position.





On June
16, 2008, the FASB issued FSP EITF 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities,” to
address the question of whether instruments granted in share-based payment
transactions are participating securities prior to vesting. FSP EITF 03-6-1
indicates that unvested share-based payment awards that contain rights to
dividend payments should be included in earnings per share calculations. The
guidance will be effective for fiscal years beginning after December 15, 2008.
The Company is currently evaluating the requirements of FSP EITF 03-6-1 and the
impact that its adoption will have on the consolidated results of operations or
consolidated financial position.




13




CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (unaudited)


In June
2008, the FASB issued EITF 07-5, “Determining whether an Instrument (or Embedded
Feature) is indexed to an Entity’s Own Stock.” EITF 07-5 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. Early application is not
permitted. Paragraph 11(a) of SFAS No. 133 “Accounting for Derivatives and
Hedging Activities,” specifies that a contract that would otherwise meet the
definition of a derivative but is both (a) indexed to the Company’s own stock
and (b) classified in stockholders’ equity in the statement of financial
position would not be considered a derivative financial instrument. EITF 07-5
provides a new two-step model to be applied in determining whether a financial
instrument or an embedded feature is indexed to an issuer’s own stock and thus
able to qualify for the SFAS 133 paragraph 11(a) scope exception. This standard
triggers liability accounting on all options and warrants exercisable at strike
prices denominated in any currency other than the functional currency of the
operating entity. The Company does not expect the adoption of this statement to
have a material impact on its consolidated financial statements.




In June
2008, FASB issued EITF 08-4, “Transition Guidance for Conforming Changes to
Issue No. 98-5.”  The objective of EITF 08-4 is to provide transition
guidance for conforming changes made to EITF 98-5, “Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios,” that result from EITF 00-27, “Application of Issue No. 98-5
to Certain Convertible Instruments,” and SFAS 150, “Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity.” EITF
08-4 is effective for financial statements issued for fiscal years ending after
December 15, 2008. Early application is permitted. The adoption of EITF 08-4 is
not expected to have a material impact on the Company’s consolidated results of
operations or consolidated financial position.





In
January 2009, the FASB issued FSP EITF 99-20-1, “Amendments to the Impairment
Guidance of EITF Issue No. 99-20, and EITF Issue No. 99-20, Recognition of
Interest Income and Impairment on Purchased and Retained Beneficial Interests in
Securitized Financial Assets” (“FSP EITF 99-20-1”). FSP EITF 99-20-1 changes the
impairment model included within EITF 99-20 to be more consistent with the
impairment model of SFAS No. 115. FSP EITF 99-20-1 achieves this by amending the
impairment model in EITF 99-20 to remove its exclusive reliance on “market
participant” estimates of future cash flows used in determining fair value.
Changing the cash flows used to analyze other-than-temporary impairment from the
“market participant” view to a holder’s estimate of whether there has been a
“probable” adverse change in estimated cash flows allows companies to apply
reasonable judgment in assessing whether an other-than-temporary impairment has
occurred. The adoption of FSP EITF 99-20-1 did not have a material impact on the
Company’s consolidated financial statements.




In April
2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly” (“FSP
FAS 157-4”). FSP FAS 157-4 provides additional guidance for estimating
fair value measurements in accordance with FASB Statement No. 157 when
there is not an active market or where the price inputs being used represent
distressed sales. FSP FAS 157-4 provides additional guidance on the major
categories for which equity and debt securities disclosures are to be presented
and amends the disclosure requirements of FASB Statement No. 157 to require
disclosure in interim and annual periods of the inputs and valuation
technique(s) used to measure fair value and a discussion of changes in valuation
techniques and related inputs, if any, during the period. FSP FAS 157-4
shall be applied prospectively and is effective for interim and annual reporting
periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009. An entity early adopting this FSP must
also early adopt FSP No. FAS 115-2 and FAS 124-2, Recognition and
Presentation of Other-Than-Temporary Impairment (“FSP FAS 115-2 and
FAS 124-2”). The Company is in the process of evaluating the impact, if
any, of applying this FSP on its consolidated financial
statements.


14
  CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (unaudited)


In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2. This FSP amends SFAS 115,
“Accounting for Certain Investments in Debt and Equity Securities,” SFAS 124,
“Accounting for Certain Investments Held by Not-for-Profit Organizations,” and
EITF Issue No. 99-20, “Recognition of Interest Income and Impairment on
Purchased Beneficial Interests and Beneficial Interests That Continue to Be Held
by a Transferor in Securitized Financial Assets,” to make the
other-than-temporary impairments guidance more operational and to improve the
presentation of other-than-temporary impairments in the financial statements.
This FSP will replace the existing requirement that the entity’s management
assert it has both the intent and ability to hold an impaired debt security
until recovery with a requirement that management assert it does not have the
intent to sell the security, and it is more likely than not it will not have to
sell the security before recovery of its cost basis. This FSP provides increased
disclosure about the credit and noncredit components of impaired debt securities
that are not expected to be sold and also requires increased and more frequent
disclosures regarding expected cash flows, credit losses, and an aging of
securities with unrealized losses. Although this FSP does not result in a change
in the carrying amount of debt securities, it does require that the portion of
an other-than-temporary impairment not related to a credit loss for a
held-to-maturity security be recognized in a new category of other comprehensive
income and be amortized over the remaining life of the debt security as an
increase in the carrying value of the security. This FSP shall be effective for
interim and annual periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009. An entity may early
adopt this FSP only if it also elects to early adopt FSP FAS 157-4. Also, if an
entity elects to early adopt either FSP FAS 157-4 or FSP FAS 107-1 and APB 28-1,
the entity also is required to early adopt this FSP.  The Company is
currently evaluating this new FSP but does not believe that it will have a
significant impact on its consolidated financial statements.





In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, “Interim
Disclosures about Fair Value of Financial Instruments” (“FSP FAS 107-1 and
APB 28-1”). FSP FAS 107-1 and APB 28-1 requires companies to disclose in
interim financial statements the fair value of financial instruments within the
scope of FASB Statement No. 107, Disclosures about Fair Value of Financial
Instruments. However, companies are not required to provide in interim periods
the disclosures about the concentration of credit risk of all financial
instruments that are currently required in annual financial statements. The
fair-value information disclosed in the footnotes must be presented together
with the related carrying amount, making it clear whether the fair value and
carrying amount represent assets or liabilities and how the carrying amount
relates to what is reported in the balance sheet. FSP FAS 107-1 and APB
28-1 also requires that companies disclose the method or methods and significant
assumptions used to estimate the fair value of financial instruments and a
discussion of changes, if any, in the method or methods and significant
assumptions during the period. The FSP shall be applied prospectively and is
effective for interim and annual periods ending after June 15, 2009, with
early adoption permitted for periods ending after March 15, 2009. An entity
early adopting FSP FAS 107-1 and APB 28-1 must also early adopt FSP
FAS 157-4 as well as FSP FAS 115-2 and FAS 124-2. The Company
will adopt the disclosure requirements of this pronouncement for the quarter
ended June 30, 2009, in conjunction with the adoption of FSP
FAS 157-4, FSP FAS 115-2 and FAS 124-2.





Note 3 -
Equipment





Equipment
consists of the following:




15




CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (unaudited)
  March
      31,
                
                
                September
      30,2009
                
                
                2008Office
      furniture & equipment
                
                $
                9,879
                
                
                $
                4,211Computer
      equipment
                
                
                8,930
                
                
                
                7,93518,809
                
                
                
                12,146Accumulated
      depreciation
                
                
                (4,806
                )
                
                
                (2,488
                )Equipment,
      net
                
                $
                14,003
                
                
                $
                9,658


The
Company recorded depreciation expense of $1,463 and $2,318, for the three and
six months ended March 31, 2009, respectively, $0 and $406, for the three and
six months ended March 31,2008, respectively, and $4,806 for the period from
October 11, 2005 (date of inception) to March 31, 2009.





Note
4 - Intangible Assets





The
Company incurred legal costs in acquiring patent and trademark rights. These
costs are projected to generate future positive cash flows in the near term and
have been capitalized to intangible assets in the period 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.




March
      31,
              
              
              September
      30,2009
              
              
              2008Patents
              
              $
              75,590
              
              
              $
              59,198Trademarks
              
              
              12,187
              
              
              
              12,187License
      rights
              
              
              8,429
              
              
              
              -96,206
              
              
              
              71,385Accumulated
      depreciation
              
              
              (1,429
              )
              
              
              (609
              )Intangibles,
      net
              
              $
              94,777
              
              
              $
              70,776


The
Company recorded amortization expense related to the trademarks of $516 and $821
for the three and six months ended March 31, 2009, respectively, and $1,430 for
the period from October 11, 2005 (date of inception) to March 31,
2009.  The Company did not record any amortization for the three and
six months ended March 31, 2008.





No
amortization has been recorded for the patents as of March 31, 2009, as the
patents have not been issued to the Company.





Note
5 - Convertible Promissory Notes





Convertible Promissory Note
Issued August 15, 2006





On August
15, 2006, the Company issued a secured promissory note (the “August 2006 Note”)
for $250,000 to an unrelated entity (the “Holder”).  On November 10,
2007, the August 15, 2006 Note was amended (the “Amended Note”).  At
the date of the amendment, the Company was obligated to pay to the Holder
$262,356 which represented the principal and accrued interest and the Holder was
entitled to purchase shares of the Company’s securities pursuant to a Warrant to
Purchase Common Stock dated August 15, 2006 (“August 2006
Warrant”).  In contemplation of the completion of the reverse merger,
the Company and the Holder reached an agreement whereby this Amended Note
superseded the August 2006 Note and canceled the August 2006
Warrant.  The principal amount of the Amended Note is $262,356, is
unsecured and is convertible into 6,340,029 shares of common stock of the
Company and bears interest at 4% per annum, computed on the basis of the actual
number of days elapsed and a year of 365 days.  All unpaid principal,
together with any then accrued but unpaid interest, shall be due and payable
upon the earlier of (i) November 9, 2010 at the written request of the holder to
the Company, or (ii) when, upon or after the occurrence of an event of
default.  At the date of conversion, the Company determined that the
Amended note had a beneficial conversion feature with a fair value of $767,047.
The Company recorded a debt discount of $262,356 and expensed as financing costs
the $504,691 of the beneficial conversion feature that exceeded the principal
balance.




16




CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (unaudited)
  Convertible Promissory Note
Issued February 19, 2009





On
February 18, 2009, the Company issued to an unrelated third party, (1) an
unsecured convertible promissory note for an aggregate principal balance of
$75,000 with a conversion price of $0.20 per share and (2) 37,500 shares of the
Company’s restricted common stock.  The interest rate on the note is
4.0% per annum and had an original maturity date of March 31, 2009 with was
subsequently amended to May 31, 2009.  The Company determined the
relative fair value of the convertible promissory note and the stock on the date
of issuance.  The fair value of the stock was $4,246 which was
recorded as a debt discount and was amortized over the original maturity date
and included in financing expenses in the accompanying consolidated financial
statements.





Convertible Promissory Note
Issued March 3, 2009





On March
3, 2009, the Company issued an unsecured convertible promissory note to an
unrelated third party for an aggregate principal balance of $25,000 with a
conversion price of $0.20.  The convertible promissory note was due on
April 30, 2009 and is non-interest bearing.  However, the note was
subsequently amended to extend the due date to May 31, 2009.





The
Company recorded interest expense relating to the convertible promissory notes
of $2,933, and $5,549, for the three and six months ended March 31, 2009,
respectively, $2,500 and $5,000, for the three and six months ended March 31,
2008, respectively, and $26,605 for the period ended October 11, 2005 (date of
inception) to March  31, 2009.





The
Company amortized $28,177 and $61,226 of the debt discount for the three and six
months ended March 31, 2009, respectively, and $78,269 for the period from
October 11, 2005 (date of inception) to March 31, 2009.  As of March
31, 2009 and September 30, 2008, the unamortized debt discount is $184,087
and $241,067, respectively.







17




CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (unaudited)
  The
following table summarized the convertible promissory notes:
 Description
              
              BalanceBalance, September
      30, 2008, net
              
              $
              21,289Issue convertible
      note, February 19, 2009
              
              
              75,000Issue convertible
      note, March 3, 2009
              
              
              25,000Additional debt
      discounts
              
              
              (4,246
              )Amortization of debt
      discounts
              
              
              61,226Balance, March 31,
      2009, net (unaudited)
              
              
              178,269Less, current
      portion (unaudited)
              
              
              (100,000
              )Convertible note,
      long term (unaudited)
              
              $
              78,269


Note
6 - Convertible Promissory Notes - Related Parties





Stockholder
NotesIssued
March 27, 2007





On March
27, 2007, the Company issued convertible promissory notes to two stockholders of
the Company.  The principal of each convertible promissory note was
$20,000 for a combined total of $40,000.  The convertible promissory
notes bear interest at 4% per annum, computed on the basis of the actual number
of days elapsed and a year of 365 days and was scheduled to mature on March 27,
2009; however, the maturity date was extended to July 31, 2009. All or a portion
of the outstanding principal amount and accrued interest was originally
convertible at the option of the note holder at $0.01 per share (adjusted to
reflect subsequent stock dividends, stock splits, combinations or
recapitalizations). All unpaid principal, together with any then unpaid and
accrued interest and any other amounts payable hereunder, shall be due and
payable on the earlier of (i) that date which is two years after the issue
date listed above, or (ii) when, upon or after the occurrence of an Event
of Default as defined in the promissory note.





Subsequent
to this convertible promissory note and prior to September 30, 2007, the
stockholders advanced the Company an additional $6,200 each for a combined total
of $12,400.  The amount due under all notes to the stockholders at
September 30, 2007 was $52,400.





On
October 25, 2007, the Company issued convertible promissory notes to the above
stockholders.  Each note was for $10,000 which included the $6,200
that was previously advanced and an additional $3,800.  The combined
total for the two convertible promissory notes was $20,000.  The
promissory notes bear interest at 4% per annum, computed on the basis of the
actual number of days elapsed and a year of 365 days and mature on October 25,
2009.





Pursuant
to the reverse merger transaction, $40,000 of CelLynx-California convertible
notes with a conversion price of $0.01 per share were converted into $40,000 of
the Company’s convertible notes with a conversion price of approximately $0.0079
per share, and $20,000 of CelLynx-California convertible notes with a conversion
price of $0.10 per share were converted into $20,000 of the Company’s
convertible notes with a conversion price of approximately $0.0795 per
share.  With the conversion of the notes, the Company expensed the
unamortized debt discount at July 24, 2008.  The fair value of the
conversion liability at July 24, 2008 was $743,163.  The change in
value of the convertible promissory notes before the merger and at the merger
date was $397,177, which was allocated $60,000 to discount on notes and $337,177
as change in the conversion liability.




18




CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (unaudited)


The
Company recorded interest expense related to the notes of $591 and $1,199 for
the three months and six months ended March 31, 2009, respectively, $600 and
$1,418, for the three and six months ended March 31, 2008, and $4,625 for the
period from October 11, 2005 (date of inception) to March 31, 2009.





The
Company amortized $17,913 and $36,890 of the debt discount for the three and six
months ended March 31, 2009, and $50,916 for the period from October 11, 2008
(date of inception) to March 31, 2009.  The Company did not amortize
any debt discount for the three and six months ended March 31,
2008.  As of March 31, 2009, the unamortized debt discount is
$9,084.





Stockholder NoteIssued February 4,
2009





On
February 4, 2009, the Company issued an unsecured convertible promissory note to
a related party for an aggregate principal amount of $43,000.  The
convertible promissory note has a conversion price of $0.20.  The
convertible promissory note was due on March 31, 2009 and was non-interest
bearing.  However, the note was subsequently amended to extend the due
date to May 31, 2009 and accrue interest from the inception of the note at a
rate of 4.0%.





The
Company recorded interest expense related to the note of $264 for the three and
six months ended March 31, 2009 and for the period from October 11, 2005
(date of inception) to March 31, 2009.





Note
7 - License Agreement





On
January 12, 2009, the Company entered into a License Agreement with an unrelated
party.  The License Agreement gave the Company the right to
manufacture, use, import, offer to sell, lease, distribute or otherwise
exploit the 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 sheets and is being
amortized over ten years.





Note
8 - 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 price for the warrants is as follows:




Number
      ofwarrants
      issued
            
            Exercise
      Price300,000
            
            $0.10
      per share500,000
            
            $0.15
      per share600,000
            
            $0.20
      per share600,000
            
            $0.25
      per share2,000,000






19




CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (unaudited)
  The
vesting schedule is as follows:




Number
      ofwarrants
      issued
              
              Exercise
      Price
              
              Vesting
      dates300,000
              
              $0.10
      per share
              
              Immediately500,000
              
              $0.15
      per share
              
              Immediately50,000
              
              $0.20
      per share
              
              Immediately550,000
              
              $0.20
      per share
              
              At
      time of extension600,000
              
              $0.25
      per share
              
              12
      months after the execution of consulting agreement2,000,000


As of
March 31, 2009, the fair value of the vested warrants was
$88,037.  The fair value was computed using the Black-Scholes option
pricing model under the following assumptions: (1) expected life of 5 years; (2)
volatility of 110%; (3) risk free interest of 2.22% and (4) dividend rate of
0%.  The Company recorded as consulting expense $88,037 for the six
month period ended March 31, 2009.  The Company will determine the
fair value of the unvested warrants at each reporting date and expense the fair
value over the vesting periods.





Note
9 - Stockholder’s Equity





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 awards under the
Plan.  The Plan will be administered by the Board.  The
Board shall have 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 to increase
the number of awards from 25,000,000 to 75,000,000.




The
following table summarizes information with respect to options issuable under
the Plan and outside the Plan.




20




CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (unaudited)
  Number
      of
                
                
                Weighted
      Average
                
                
                AggregateShares
                
                
                Exercise
      Price
                
                
                Intrinsic
      ValueOutstanding,
      October 11, 2005 (date of inception)
                
                
                -Granted
                
                
                5,660,682
                
                
                $
                0.015Forfeited
                
                
                (4,245,512
                )Exercised
                
                
                -Outstanding,
      September 30, 2006
                
                
                1,415,170
                
                
                $
                0.015Granted
                
                
                -Canceled
                
                
                -Exercised
                
                
                -Outstanding
      at September 30, 2007
                
                
                1,415,170
                
                
                $
                0.015Granted
                
                
                52,486,693
                
                
                $
                0.075Canceled
                
                
                -Exercised
                
                
                -Outstanding
      at Sepember 30, 2008
                
                
                53,901,863
                
                
                $
                0.072Granted
                
                
                3,495,480
                
                
                $
                0.12Canceled
                
                
                (4,002,101
                )
                
                $
                0.09Exercised
                
                
                -Outstanding
      at March 31, 2009
                
                
                53,395,242Exercisable
      at March 31, 2009
                
                
                18,671,002
                
                
                $
                0.070
                
                
                $
                1,488,270
  The
number and weighted average exercise prices of all options outstanding as of
March 31, 2009 are as follows:




Options
      outstandingWeightedWeighted
              
              
              AverageNumber
              
              
              Average
              
              
              RemainingRange
      of
              
              
              Outsanding
              
              
              Exercise
              
              
              Contractual
      LifeExercise
      Price
              
              
              March
      31, 2009
              
              
              Price
              
              
              (Years)$
              0.014
              
              
              
              943,447
              
              
              $
              0.014
              
              
              
              6.58$
              0.016
              
              
              
              471,723
              
              
              $
              0.016
              
              
              
              6.76$
              0.072
              
              
              
              25,426,065
              
              
              $
              0.072
              
              
              
              3.68$
              0.079
              
              
              
              23,058,527
              
              
              $
              0.079
              
              
              
              3.88$
              0.180
              
              
              
              48,000
              
              
              $
              0.180
              
              
              
              4.70$
              0.120
              
              
              
              2,032,520
              
              
              $
              0.120
              
              
              
              0.08$
              0.110
              
              
              
              1,414,960
              
              
              $
              0.110
              
              
              
              1.4453,395,242
              
              
              $
              0.070
              
              
              
              3.65


21
 
  CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (unaudited)
  Warrants





On July
23, 2008, the Company issued warrants to purchase 10,500,000 shares of its
common stock at an exercise price of $0.20.  The Warrants expire on
July 22, 2010 except in the event that at any time the Company has manufactured
25 or more of its mobile or home repeater units, then the Company may, at its
option, accelerate the expiration of the warrants by giving notice to the
holder.  If the holder does not exercise the warrant within 30 days of
the giving of the notice of acceleration, the warrants will expire and the
holder will have no further rights to acquire any shares of the company under
the warrants.  The Company gave notice of acceleration on February 27,
2009.  The Company canceled the 10,500,000 warrants as none of them
had been exercised within the required 30 days.





The
following table summarizes the warrant activity for the six months ended March
31, 2009:




Number
      ofWarrantsOutstanding,
      Sepember 30, 2008
              
              
              10,500,000Granted
              
              
              2,000,000Canceled
              
              
              (10,500,000
              )Exercised
              
              
              -Outstanding,  March
      31, 2009 (unaudited)
              
              
              2,000,000




Note
10 - Operating Lease





On
February 21, 2008, the Company entered into a one year lease for office space
for its El Dorado Hills, California, office, which was amended to extend the
lease term to March 31, 2010.  The lease requires monthly payments of
$2,198. On August 26, 2008, the Company entered into an eighteen month lease for
office space for its Mission Viejo, California, office beginning on October 1,
2008 and expiring on March 31, 2010.  The lease requires monthly
payments of $4,664.





The
Company recorded rent expense of $22,915 and $43,601, for the three and six
months ended March 31, 2009, respectively, $2,198 and $2,198, for the three and
six months ended March 31, 2008, respectively, and $56,789, for the period from
October 11, 2005 (date of inception) to March 31, 2009.





The
minimum further payments listed as follows:




Year ending March
      31, 2010
            
            $
            82,344Year ending March
      31, 2011 and after
            
            
            -Total
            
            $
            82,344






22




CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes to
Consolidated Financial Statements
 (unaudited)
  Note
11 – Subsequent Events





On April
23, 2009, the Company entered into a Securities Issuance Agreement (“Securities
Agreement”) with four related parties (the “Investor”).  Pursuant to
the Securities Agreement, The Company agrees to sell and issue to the Investor
2,785,000 shares of its Common Stock and warrants to purchase 2,785,000 shares
of Common Stock at $0.10 per share for an aggregate purchase price of
$278,500.  As of May 18, 2009, the Company had received $216,500 of
this amount.  Under the Agreement, the Company accepted the
resignation of Mr. Legendre as Executive Chairman of the Board of Directors of
the Company.  The Company agreed that all of Mr. Legendre’s 12,234,608
options would be immediately canceled.  As full compensation for his
services to the Company to date, he would receive 2,000,000 shares of
common stock.  In addition, the Company agreed that all of Mr.
Risheq’s, a director, 9,645,889 options would be immediately
canceled.  As full compensation for his services to the Company to
date, he would receive 1,500,000 shares of common stock.





On May 6,
2009, the Company entered into a one year agreement with its new Executive
Chairman that provides for monthly payments of $10,000 and the issuance of
100,000 options to purchase shares of the Company’s common stock for $0.16 per
share.








23





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





Forward
Looking Statements





Certain
statements in the Management’s Discussion and Analysis (“MD&A”), other than
purely historical information, including estimates, projections, statements
relating to our business plans, objectives and expected operating results, and
the assumptions upon which those statements are based, are “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act
of 1995, Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934. These forward-looking statements generally
are identified by the words “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
differ materially from the forward-looking statements.  We undertake
no obligation to update or revise publicly any forward-looking statements,
whether as a result of new information, future events, or
otherwise.




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.




Overview




On July
24, 2008, we acquired all of the outstanding shares of CelLynx-California in
exchange for the issuance by us of 32,454,922 restricted shares of our common
stock to the CelLynx Owners, which represented approximately 40.3% of our-issued
and outstanding common stock (including the shares issued in the Financing), and
45,516,034 restricted shares of our Preferred Stock, which automatically convert
into 45,516,034 shares of our common stock upon the filing of a Certificate of
Amendment to the our Articles of Incorporation increasing the number of
authorized common stock to at least 150,000,000 shares. As a result of this
reverse merger transaction, CelLynx-California became our wholly owned
subsidiary, and then we acquired the business and operations of
CelLynx-California.




Just
prior to the closing of the share exchange transaction, on July 23, 2008, we
raised $1,575,000 in a private placement by issuing 10,500,000 shares of our
common stock and warrants to purchase 10,500,000 shares of our common stock to
investors at an exercise price of $0.20 per share.   These
warrants were subsequently canceled in the 2nd fiscal
quarter of 2009.




We have
not generated any revenue since the commencement of our operations on October
11, 2005.  We have financed our operations primarily through proceeds
from the issuance of common stock and convertible promissory
notes.  At this time, we believe that our current cash position will
not be sufficient to meet our anticipated cash needs.  We will need to
raise additional capital in order to remain operational beyond this
point.





If we are
unable to raise additional capital, we will be required to severely reduce, or
even cease, our operations.




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.




24


While our
significant accounting policies are more fully described in Note 2 to our
consolidated financial statements attached hereto as Exhibit 99.1, we believe
that the following accounting policies are the most critical to aid you in fully
understanding and evaluating this management discussion and
analysis:





Fair Value of Financial
Instruments





SFAS No.
107, “Disclosures about Fair Value of Financial Instruments,” requires
disclosure of the fair value of financial instruments held by us. SFAS No. 157,
“Fair Value Measurements” (“SFAS 157”), adopted on January 1, 2008, defines fair
value, and establishes a three-level valuation hierarchy for disclosures of fair
value measurement that enhances disclosure requirements for fair value
measures.  The carrying amounts reported in the consolidated balance
sheets for other current assets and current liabilities each qualify as
financial instruments and are a reasonable estimate of their fair values because
of the short period of time between the origination of such instruments and
their expected realization and their current market rate of interest. The three
levels of valuation hierarchy are defined as follows:




·
            Level
      1 inputs to the valuation methodology are quoted prices (unadjusted) for
      identical assets or liabilities in active
  markets.




·
            Level
      2 inputs to the valuation methodology include quoted prices for similar
      assets and liabilities in active markets, and inputs that are observable
      for the asset or liability, either directly or indirectly, for
      substantially the full term of the financial
  instrument.




·
            Level
      3 inputs to the valuation methodology are unobservable and significant to
      the fair value measurement.





As of
March 31, 2009, we did not identify any assets and liabilities that are required
to be presented on the balance sheet at fair value.





Use of
Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could materially differ from those
estimates.





Income
Taxes





Income
taxes are provided based upon the liability method of accounting in accordance
with SFAS No. 109, “Accounting for Income Taxes.”  Deferred income
taxes are recognized for the tax effect of temporary differences between the
basis of assets and liabilities for financial statement and income tax
purposes.  Pursuant to SFAS No. 109, we are required to compute
deferred income tax assets for net operating losses carried forward. The
potential benefits of net operating losses have not been recognized in these
financial statements because the Company cannot be assured it is more likely
than not it will utilize the net operating losses carried forward in future
years.





We
adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 48,
(“Fin 48”) “Accounting for Uncertainty in Income Taxes,” during 2007. 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. The adoption had no effect on our consolidated financial
statements.




25


Stock-Based
Compensation





We
account for our stock-based compensation for employees in accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 123R, "Share-Based
Payment, an Amendment of Financial Accounting Standards Board (“FASB”) Statement
No. 123." We recognize in the statement of operations the grant-date fair value
of stock options and other equity-based compensation issued to employees and
non-employees.  We use the Black-Scholes option pricing model to value
the options issued.





Shares Issued for
Services





From time
to time, we issued stock for services.  Since we were a private
company, we used the most recent stock issuance price to determine the value of
the services performed.





Intangible
Assets





Acquired
patents 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
cost 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. Licensing right is amortized on a straight-line basis over a
period of 10 years.





Plan
of Operations





Overview





We are an
early-stage producer of the next generation of cell phone boosters (also
known as repeaters or amplifiers) for the small office, home office (SOHO)
and vehicle.  This next generation product line, CelLynx 5BARzTM , uses
our patent pending technology to create a 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 being used
indoors or in vehicles.





We have
developed a mobile “Universal Unit” designed primarily for use in vehicles, or
for single-room coverage in the home or office that is presently going into
commercialization with the initial mass production run scheduled for completion
in July.  The Company recently received an order for 10,000 units from a
leading e-commerce marketer of cellular accessories. The Unit will produce up to
45 dB of gain offering higher performance than the competition within the
interior of a vehicle cabin or single room, while minimizing the signal
degrading effects of cabling.  Initially envisioned as a plug ‘n play
mobile unit to be used in vehicles with a 12 volt cigarette lighter power
adapter, the 5BARz Universal Unit has also proven highly effective for
single-room coverage in a home or office. Accordingly, we plan to introduce the
5BARz Universal Unit with a 110 volt power cord for indoor single-room use, as
well as with an accessory portable battery pack that can be used virtually
anywhere a weak signal exists. Using the 5BARz Universal Unit with Bluetooth®
extends the effective coverage range to that of the Bluetooth®
signal.    The Universal Unit is an adaptation of the SOHO Unit
described below.




26




We have
recently completed a prototype SOHO Unit which delivers 45 decibel (dB) of gain
in a Single Band PCS environment providing up to 1,500 square feet of indoor
coverage.  We plan to commercialize this technology, with production
and distribution scheduled to begin, in the forth calendar quarter of 2009. This
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 SOHO cellular amplifiers currently on the market
require a receiving tower or antenna, usually placed in an attic or on a
rooftop, and a transmitting tower or antenna to be placed at least 35 feet from
the other antenna with each connected to the amplifier by cable.  Our
patent pending technology is designed to eliminate the need to distance the
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 thereby allowing for
coverage of 2,500 to 3,000 square feet.  This dual-band unit would work
with all current wireless carriers 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-Mobile operate on the
Cellular network at 1900 MHz.  Management is confident that all of the
critical functions required for this dual-band unit have been identified and
that their engineering team has the capability to complete development leading
to commercialization.




Our
product line is being manufactured by contract manufacturers located in
Philippines, with whom CelLynx has established manufacturing and supply chain
relationships.   These manufacturers allow us to capitalize on
the full advantages of multiple manufacturing locations with a trained and
experienced technical work force, state of the art facilities and knowledge
of all aspects of supply chain management, operational execution, global
logistics and reverse logistics. The marketing and sales functions will be
handled in house incorporating a multi-channel strategy that includes
distribution partners, wireless service providers, retail outlets and
international joint ventures.





Material
Impact of Known Events on Liquidity





There are
no known events that are expected to have a material impact on our short-term or
long-term liquidity.





Results
of Operations





Results
of Operations for the Six Months Ended March 31, 2009 and 2008,
respectively.





During
the six months ended March 31, 2009, we incurred $212,099 of research and
development expenses compared to $53,068 incurred during the six months ended
March 31, 2008.  Research and development expenses relate to our
ongoing development and testing of our cell phone boosters.  Our
research and development costs were higher in 2009 compared to 2008 due to
increase in personnel costs, consultant costs and materials.  We
expect our research and development costs to increase as we continue to grow and
develop our products.





During
the six months ended March 31, 2009, we incurred $1,351,227 of general and
administrative expenses, compared to $668,984 incurred during the six months
ended March 31, 2008.  The increase is primarily due to an increase in
salaries and the payroll taxes of approximately $225,000, an increase in
insurance expense of approximately $64,040, an increase professional services of
approximately $290,649, and an increase of rent expense of approximately
$43,000.




27




During
the six months ended March 31, 2009, we incurred $272,327 of non-operating
expense, compared to $311,626 incurred during the six months ended March 31,
2008.  The decrease is due to a gain on the change in the fair value
of the accrued beneficial conversion liability of $251,410, and a loss on the
change in the fair value of the accrued warrant liability of
$419,571.  Interest and financing costs decreased because the Company
recorded non-cash financing costs of $328,630 during the six months ended March
31, 2008 for which there was no such charge for the six months ended March 31,
2009.





Results
of Operations for the Three Months Ended March 31, 2009 and 2008,
respectively.





During
the three months ended March 31, 2009, we incurred $60,572 of research and
development expenses compared to $53,068 incurred during the three months ended
March 31, 2008.  Research and development expenses relate to our
ongoing development and testing of our cell phone boosters.  Our
research and development costs were higher in 2009 compared to 2008 due to
increase in personnel costs, consultant costs and materials.  We
expect our research and development costs to increase as we continue to grow and
develop our products.





During
the three months ended March 31, 2009, we incurred $729,414 of general and
administrative expenses, compared to $492,225 incurred during the three months
ended March 31, 2008.  The increase is primarily due to an increase in
professional fees of approximately $119,237, and an increase in share based
compensation expenses of approximately $113,577.





During
the three months ended March 31, 2009, we incurred $54,124 of non-operating
expense, compared to $32,879 of non-operating income  during the three
months ended March 31, 2008 for a change of $87,003  The change is due
to increase in interest and financing cost of $45,504 related to an increase in
convertible notes and amortization of debt discounts. Also, during the three
months ended March 31, 2008, we recorded a  gain on the change in the
fair value of the accrued beneficial conversion liability of
$41,499.  During the three months ended March 31, 2009, we did not
recognized a change in the accrued beneficial conversion liability as it was
reclassified to equity subsequent in November 2008.





Liquidity
and Capital Resources





Financial
Condition





As
of  March 31, 2009, we had a working capital deficit of $761,919,
compared to $5,301,132 as of September 30, 2008   The decrease in
working capital deficit is due to the reclassification of the share based
compensation liability, accrued beneficial conversion liability and accrued
warrant liability to additional paid-in capital on November 7, 2008, due to the
increase of our authorized shares to 400,000,000 which provided sufficient
shares to cover the potential conversion of the options, warrants and the
convertible promissory notes.





For the
three and six months ended March 31, 2009, we incurred net losses of
$844,110 and $1,835,653, respectively, and for the three and six months ended
March 31, 2008, we incurred net losses of $512,414 and $1,033,678, respectively.
As of March 31, 2009 and September 30, 2008, we have a deficit accumulated
during the development stage of $9,531,101 and $7,695,448,
respectively.





The
report of our independent registered public accounting firm for the fiscal year
ended September 30, 2008 states that due to our net operating cash flow deficits
and the deficit accumulated during the development stage,  there is a
substantial doubt about our ability to continue as a going concern.





Capital
Resources




During
the six months ended March 31, 2009, we received approximately $143,000 from the
issuance of convertible promissory notes and $38,470 as a related party
advance.  We also entered into a Securities Purchase Agreement on
April 23, 2009 with four related parties.  Pursuant to the Securities
Purchase Agreement, we agreed to sell and issue to 2,785,000 shares of our
Common Stock and warrants to purchase 2,785,000 shares of Common Stock at $0.10
per share for an aggregate purchase price of $278,500.  Through the
date of this filing, we have received $216,500.




28




We have a
distribution agreement that upon us delivering 200 units requires the
distributor to contribute $1 million in capital to us in order to maintain its
distribution rights for our products.  There can be no assurance that
we will be able to deliver these 200 units or the distributor will contribute
the $1 million.





We
believe that our current cash, anticipated cash flow from operations, and net
proceeds from the private placement financing will not be sufficient to meet our
anticipated cash needs, including our cash needs for working capital and capital
expenditures. We will need to raise additional capital in order to remain
operational beyond this point.   To the extent it becomes necessary to
raise additional cash in the future, we may seek to raise it through the sale of
debt or equity securities, funding from joint-venture or strategic partners,
debt financing or loans, issuance of common stock or a combination of the
foregoing. We currently do not have any binding commitments for, or readily
available sources of, additional financing. We cannot provide any assurances
that we will be able to secure the additional cash or working capital we may
require in order to continue our operations, either now or in the
future.





Contractual
Obligations and Off-Balance Sheet Arrangements





Contractual
Obligations





We have
certain fixed contractual obligations and commitments that include future
estimated payments. Changes in our business needs, cancellation provisions,
changing interest rates, and other factors may result in actual payments
differing from the estimates. We cannot provide certainty regarding the timing
and amounts of payments. We have presented below a summary of the most
significant assumptions used in our determination of amounts presented in the
tables, in order to assist in the review of this information within the context
of our financial position, results of operations, and cash flows.





The
following table summarizes our contractual obligations as of March 31 2009, and
the effect these obligations are expected to have on our liquidity and cash
flows in future periods.




Less
      thanContractual
      obligation
              
              Total
              
              
              1
      year
              
              
              1-3
      yearsNote
      Payable
              
              $
              362,356
              
              
              $
              100,000
              
              
              $
              262,356Stockholder
      notes
              
              
              103,000
              
              
              
              103,000
              
              
              
              -Operating
      lease
              
              
              82,344
              
              
              
              82,344
              
              
              
              -$
              547,700
              
              
              $
              285,344
              
              
              $
              262,356
  Off-Balance
Sheet Arrangements





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.




29


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 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 controls and procedures are designed to ensure that information
required to be disclosed by us in the reports we file under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms and that such information is
accumulated and communicated to our management, including the CEO and CFO, as
appropriate, to allow timely decisions regarding required disclosure;
and





(ii) our
disclosure controls and procedures are not effective.





Changes
in Internal Control 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 March 31, 2009 that have materially affected,
or are reasonably likely to materially affect our internal control over
financial reporting.





PART
II - OTHER INFORMATION





ITEM 1.LEGAL PROCEEDINGS





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.





ITEM
1A.   RISK FACTORS





Not applicable.




ITEM 2.UNREGISTERED SALES OF EQUITY
SECURITIES AND USE OF PROCEEDS





None.




30


ITEM 3.DEFAULTS UPON SENIOR
SECURITIES





None.





ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS


None.





ITEM 5.OTHER INFORMATION




(a)
            None.





(b)
            There
      were no changes to the procedures by which security holders may recommend
      nominees to our board of directors.





ITEM 6.EXHIBITS





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
    *


__________________


*
      Filed Herewith.







31




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:
      May 20, 2009
            By:
            /s/
      Daniel R. AshDaniel
      R. AshChief
      Executive Officer











32