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 ENDEDDecember 31,
2008





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 370Mission
      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 Filero
              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: 126,068,846 issued and outstanding as of
February 17, 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
            22Item
      3.
            Quantitative
      and Qualitative Disclosures About Market Risk
            27Item
      4.
            Controls
      and Procedures
            27PART
      II
            OTHER
      INFORMATIONItem
      1.
            Legal
      Proceedings
            28Item
      1A.
            Risk
      Factors
            28Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            28Item
      3.
            Defaults
      Upon Senior Securities
            28Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            28Item
      5.
            Other
      Information
            28Item
      6.
            Exhibits
            28











2


Part
I – FINANCIAL INFORMATION





Item
1.  Financial Statements





CELLYNX
      GROUP, INC.(A
      Development Stage Company)CONSOLIDATED
      BALANCE SHEETSDecember
      31,
              
              
              September
      30,2008
              
              
              2008(unaudited)ASSETSCURRENT
      ASSETS:Cash
              
              $
              27,716
              
              
              $
              599,024Other
      current assets
              
              
              6,862
              
              
              
              6,862Total
      current assets
              
              
              34,578
              
              
              
              605,886EQUIPMENT,
      net
              
              
              13,067
              
              
              
              9,658INTANGIBLE
      ASSETS, net
              
              
              78,226
              
              
              
              70,776OTHER
      ASSETS
              
              
              16,190
              
              
              
              11,526TOTAL
      ASSETS
              
              $
              142,061
              
              
              $
              697,846LIABILITIES AND
      STOCKHOLDERS' DEFICITCURRENT
      LIABILITIES:Accrued
      liabilities
              
              $
              300,025
              
              
              $
              206,298Accrued
      interest
              
              
              15,731
              
              
              
              12,507Share-based
      compensation liability
              
              
              -
              
              
              
              2,714,724Accrued
      beneficial conversion liability
              
              
              -
              
              
              
              2,358,439Accrued
      warrant liability
              
              
              -
              
              
              
              603,993Convertible
      stockholder notes, net of debt discount of $26,998 and
    $28,943
              
              
              33,002
              
              
              
              11,057Total
      current liabilities
              
              
              348,758
              
              
              
              5,907,018LONG
      TERM LIABILITIESConvertible
      promissory note, net of debt discount of  $212,264 and
      $241,067
              
              
              50,092
              
              
              
              21,289Convertible
      stockholder notes, net of debt discount of  $0 and
      $17,031
              
              
              -
              
              
              
              2,969Total
      liabilities
              
              $
              398,850
              
              
              $
              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
              
              
              -
              
              
              
              45,516Common
      stock, $0.001 par value, 400,000,000 authorized; 126,068,846 and80,552,812
      shares issued and outstanding
              
              
              126,069
              
              
              
              80,553Additional
      paid in capital
              
              
              8,304,133
              
              
              
              2,335,949Deficit
      accumulated during the development stage
              
              
              (8,686,991
              )
              
              
              (7,695,448
              )Total
      stockholders' deficit
              
              
              (256,789
              )
              
              
              (5,233,430
              )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT
              
              $
              142,061
              
              
              $
              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 MONTHS ENDED DECEMBER 31, 2008 AND 2007  AND THE
      PERIODFROM
      OCTOBER 11, 2005 (DATE OF INCEPTION) TO DECEMBER 31,
  2008





For
      the periodfrom
      October 11, 2005Three
                Months
                Ended
              
              
              Three
                Months
                Ended
              
              
              (date
      of
                inception)
                toDecember
      31,
                2008
              
              
              December
      31,
                2007
              
              
              December
      31,
                2008(unaudited)
              
              
              (unaudited)
              
              
              (unaudited)Net
      Revenue
              
              $
              -
              
              
              $
              -
              
              
              $
              -Cost
      of Revenue
              
              
              -
              
              
              
              -
              
              
              
              -Gross
      profit
              
              
              -
              
              
              
              -
              
              
              
              -Operating
      expensesResearch
      and development
              
              
              151,527
              
              
              
              -
              
              
              
              751,352General
      and administrative
              
              
              621,813
              
              
              
              176,759
              
              
              
              5,754,839Total
      operating expenses
              
              
              773,340
              
              
              
              176,759
              
              
              
              6,506,191Loss
      from operations
              
              $
              (773,340
              )
              
              $
              (176,759
              )
              
              $
              (6,506,191
              )Non-operating
      income (expense):Interest
      income
              
              
              961
              
              
              
              -
              
              
              
              7,253Interest
      and financing costs
              
              
              (51,003
              )
              
              
              (340,093
              )
              
              
              (995,588
              )Change
      in fair value of accrued beneficial conversion liability
              
              
              251,410
              
              
              
              (4,412
              )
              
              
              (900,582
              )Change
      in fair value of accrued warrant liability
              
              
              (419,571
              )
              
              
              -
              
              
              
              (291,883
              )Total
      non-operating (expense)
              
              
              (218,203
              )
              
              
              (344,505
              )
              
              
              (2,180,800
              )Loss
      before provision for income taxes
              
              
              (991,543
              )
              
              
              (521,264
              )
              
              
              (8,686,991
              )Provision
      for income taxes
              
              
              -
              
              
              
              -
              
              
              
              -Net
      loss
              
              $
              (991,543
              )
              
              $
              (521,264
              )
              
              $
              (8,686,991
              )Weighted
      average shares outstanding :Basic
              
              
              107,268,745
              
              
              
              27,207,273
              
              
              
              33,685,051Diluted
              
              
              107,268,745
              
              
              
              27,207,273
              
              
              
              33,685,051Earnings
      per share:Basic
              
              $
              (0.01
              )
              
              $
              (0.02
              )
              
              $
              (0.26
              )Diluted
              
              $
              (0.01
              )
              
              $
              (0.02
              )
              
              $
              (0.26
              )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 DECEMBER 31,
      2008DeficitAccumulatedAdditional
              
              
              During
              
              
              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 compensations for employees and
      consultants
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              122,867
              
              
              
              -
              
              
              
              122,867Reclassify
      beneficial conversion liability to equity
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              2,120,181
              
              
              
              -
              
              
              
              2,120,181Reclassify
      warrant liability to equity
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,023,564
              
              
              
              -
              
              
              
              1,023,564Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (991,543
              )
              
              
              (991,543
              )Balance,
      December 31, 2008 (unaudited)
              
              
              -
              
              
              $
              -
              
              
              
              126,068,846
              
              
              $
              126,069
              
              
              $
              8,304,133
              
              
              $
              (8,686,991
              )
              
              $
              (256,789
              )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
      presentedEffective
      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 retroactivelyadjusted
      for all periods presentedThe
      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 THREE MONTHS ENDED DECEMBER 31, 2008 AND 2007 AND THE
      PERIODFROM
      OCTOBER 11, 2005 (DATE OF INCEPTION) TO DECEMBER 31, 2008For
      the periodfrom
                October
      11,
                2005Three
                Months
                Ended
              
              
              Three
                Months
                Ended
              
              
              (date
      of
                inception)
                to'December
      31,
                2008
              
              
              December
      31,
                2007
              
              
              December
      31,
                2008(unaudited)
              
              
              (unaudited)
              
              
              (unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
              
              $
              (991,543
              )
              
              $
              (521,264
              )
              
              $
              (8,686,991
              )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Depreciation
      and amortization
              
              
              1,159
              
              
              
              -
              
              
              
              4,256Stock
      issued for services
              
              
              -
              
              
              
              -
              
              
              
              1,009,669Stock
      compensation expense for options issued to employees and
      consultants
              
              
              122,867
              
              
              
              97,257
              
              
              
              2,764,625Change
      in fair value of accrued beneficial conversion liability
              
              
              (251,410
              )
              
              
              4,412
              
              
              
              900,582Change
      in fair value of accrued warrant liability
              
              
              419,571
              
              
              
              -
              
              
              
              291,883Non
      cash financing costs
              
              
              -
              
              
              
              328,630
              
              
              
              833,321Amortization
      of debt discount
              
              
              47,779
              
              
              
              8,508
              
              
              
              133,864Changes
      in operating assets and liabilities:
              
              
              
              
              
              
              
              
              
              
              -Change
      in other assets
              
              
              (4,664
              )
              
              
              -
              
              
              
              (23,052
              )Change
      in accrued liabilities
              
              
              96,951
              
              
              
              61,086
              
              
              
              326,746Net
      cash used in operating activities
              
              $
              (559,290
              )
              
              $
              (21,371
              )
              
              $
              (2,445,097
              )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of equipment
              
              
              (4,263
              )
              
              
              -
              
              
              
              (16,409
              )Increase
      in intangible assets
              
              
              (7,755
              )
              
              
              -
              
              
              
              (79,140
              )Net
      cash acquired in merger with Norpac Technologies, Inc.
              
              
              -
              
              
              
              -
              
              
              
              1,250,114Net
      cash provided by (used in) investing activities
              
              $
              (12,018
              )
              
              $
              -
              
              
              $
              1,154,565CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from notes payable
              
              
              -
              
              
              
              19,000
              
              
              
              250,000Proceeds
      from issuance of common stock
              
              
              -
              
              
              
              -
              
              
              
              1,008,248Proceeds
      from stockholders note payable
              
              
              -
              
              
              
              -
              
              
              
              60,000Net
      cash provided by financing activities
              
              $
              -
              
              
              $
              19,000
              
              
              $
              1,318,248NET
      (DECREASE) INCREASE IN CASH
              
              
              (571,308
              )
              
              
              (2,371
              )
              
              
              27,716CASH,
      BEGINNING OF PERIOD
              
              
              599,024
              
              
              
              2,371
              
              
              
              -CASH,
      END OF PERIOD
              
              $
              27,716
              
              
              $
              -
              
              
              $
              27,716SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Interest
      paid
              
              $
              -
              
              
              $
              -
              
              
              $
              -Income
      taxes paid
              
              $
              -
              
              
              $
              -
              
              
              $
              -
  SUPPLEMENTAL
      DISCLOSURE OF NON-CASH INVESTING AND FINANCING:Increase
      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





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.





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.





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


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 as took place on
October 11, 2005.





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 would be effective for
the year ending September 30, 2008.





The
Company develops and manufactures a cell phone signal amplifier. As of December
31, 2008, 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 three months
ended December 31, 2008 and for the period from October 11, 2005 (Date of
Inception) to December 31, 2008, the Company incurred net losses of $991,543 and
$8,686,991, respectively. As of December 31, 2008 and September 30, 2008, the
Company has a deficit accumulated during the development stage of $8,686,991 and
$7,695,448, respectively. These 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.





Basis of
Presentation





The
accompanying consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of
America.  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
within the consolidation.





Note
2 - Summary of Significant Accounting Policies





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 December 31, 2008 and
September 30, 2008, the Company had deposits in excess of federally insured
limits totaling $0 and $399,204, respectively. The Company has not experienced
any losses in such accounts and believes it is not exposed to any significant
risks on its cash in bank accounts.




8
 CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (unaudited)







Equipment





Equipment
is stated at historical cost and is depreciated using the straight-line method
over their estimated useful lives.  The useful life and depreciation
method are reviewed periodically to ensure that the depreciation method and
period are consistent with the anticipated pattern of future economic benefits.
Expenditures for maintenance and repairs are charged to operations as incurred
while renewals and betterments are capitalized. Gains and losses on disposals
are included in the results of operations. The useful life of the equipment is
being depreciated over three 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
December 31, 2008 and 2007, 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





On
January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements.”
SFAS No. 157 defines fair value, establishes a three-level valuation hierarchy
for disclosures of fair value measurement and enhances disclosures requirements
for fair value measures. The carrying amounts reported in the balance sheets for
receivables and current liabilities each qualify as financial instruments and
are a reasonable estimate of fair value 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 are defined as
follows:


9
 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
December 31, 2008, the Company 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 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 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 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.





The
Company adopted FASB Interpretation 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 affect on the
Company’s financial statements.





Net Loss Per
Share





The
Company reports loss 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. For the three months ended December 31, 2008 and
2007 the following potential dilutive shares were excluded from diluted loss per
share for all periods presented because of their anti-dilutive
effect.




10
 CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (unaudited)


December
      31,
                2008
              
              
              December
      31,
                2007Options
              
              $
              53,949,863
              
              
              $
              26,842,766Warrants
              
              
              10,500,000
              
              
              
              -Total
              
              $
              64,449,863
              
              
              $
              26,842,766






Stock-Based
Compensation





The
Company accounts for its stock-based compensation for employees in accordance
with SFAS No. 123R, "Share-Based Payment, an Amendment of Financial Accounting
Standards Board (“FASB”) Statement No. 123." 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.





Patents and
Trademarks





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.





Recent Accounting
Pronouncements





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities”. This Statement permits entities to
choose to measure many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected are reported in earnings. SFAS No. 159 is effective as of the beginning
of an entity’s first fiscal year that begins after November 15, 2007. The
Company adopted SFAS No. 159 on January 1, 2008. The Company chose not to elect
the option to measure the fair value of eligible financial assets and
liabilities.




In June
2007, the FASB issued FASB Staff Position No. EITF 07-3, “Accounting for
Nonrefundable Advance Payments for Goods or Services Received for use in Future
Research and Development Activities” (“FSP EITF 07-3”), which addresses whether
nonrefundable advance payments for goods or services that used or rendered for
research and development activities should be expensed when the advance payment
is made or when the research and development activity has been performed. The
Company does not expect the adoption of EITF 07-3 to have a significant impact
on its results of operations or financial position.


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





In
December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business
Combinations.” SFAS No. 141 (Revised 2007) changes how a reporting
enterprise accounts for the acquisition of a business. SFAS No. 141
(Revised 2007) requires an acquiring entity to recognize all the assets acquired
and liabilities assumed in a transaction at the acquisition-date fair value,
with limited exceptions, and applies to a wider range of transactions or events.
SFAS No. 141 (Revised 2007) is effective for fiscal years beginning on or
after December 15, 2008 and early adoption and retrospective application is
prohibited.




In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”, which is an amendment of Accounting Research
Bulletin (“ARB”) No. 51.  This statement clarifies that a
noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements.  This statement changes the way the consolidated
income statement is presented, thus requiring consolidated net income to be
reported at amounts that include the amounts attributable to both parent and the
noncontrolling interest.  This statement is effective for the fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008.  Based on current conditions, the Company does not
expect the adoption of SFAS 160 to have a significant impact on its results of
operations or financial position.




In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities - an amendment of FASB Statement No. 133” (“SFAS 161”),
which changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under Statement 133 and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance and cash flows.
SFAS 161 is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008. The Company has not
determined the effect of the application of SFAS 161 on its consolidated
financial statements.





In April
2008, the FASB issued FSP SFAS 142-3 “Determination of the useful life of
Intangible Assets,” which amends the factors a company should consider when
developing renewal assumptions used to determine the useful life of an
intangible asset. FSP SFAS 142-3 is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. SFAS 142 requires companies to consider whether renewal can
be completed without substantial cost or material modification of the existing
terms and conditions associated with the asset. FSP SFAS 142-3 replaces the
previous useful life criteria with a new requirement—that an entity consider its
own historical experience in renewing similar arrangements. If historical
experience does not exist, then the Company would consider market participant
assumptions regarding renewal including 1) highest and best use of the asset by
a market participant, and 2) adjustments for other entity-specific factors
included in SFAS 142. The Company is currently evaluating the impact that
adopting FSP SFAS No.142-3 will have on its consolidated financial
statements.





In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.”  This Statement identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (GAAP) in
the United States (the GAAP hierarchy).  This Statement has no impact
on the Company’s financial statements.





In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts, an interpretation of FASB Statement No. 60.”  The
scope of this Statement is limited to financial guarantee insurance (and
reinsurance) contracts, as described in this Statement, issued by enterprises
included within the scope of Statement 60. Accordingly, this Statement does not
apply to financial guarantee contracts issued by enterprises excluded from the
scope of Statement 60 or to some insurance contracts that seem similar to
financial guarantee insurance contracts issued by insurance enterprises (such as
mortgage guaranty insurance or credit insurance on trade receivables). This
Statement also does not apply to financial guarantee insurance contracts that
are derivative instruments included within the scope of FASB Statement No. 133,
“Accounting for Derivative Instruments and Hedging Activities.” This Statement
will not have an impact on the Company’s financial statements.




12
 CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (unaudited)





In June
2008, the FASB issued EITF No. 07-5 “Determining whether an Instrument (or
Embedded Feature) is indexed to an Entity’s Own Stock” (“EITF 07-5”). 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 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. The Company has not determined the
effect of the application of EITF 07-5 on its consolidated financial
statements.





In June
2008, FASB issued EITF Issue No. 08-4, “Transition Guidance for Conforming
Changes to Issue No. 98-5 (“EITF No. 08-4”).” The objective of EITF No.08-4
is to provide transition guidance for conforming changes made to EITF No. 98-5,
“Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios,” that result from EITF No. 00-27
“Application of Issue No. 98-5 to Certain Convertible Instruments,” and SFAS No.
150, “Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity.” This Issue is effective for financial statements issued
for fiscal years ending after December 15, 2008. Early application is
permitted. Management is currently evaluating the impact of adoption of
EITF No. 08-4 on the accounting for the convertible notes and related warrants
transactions.





On
October 10, 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active,” which clarifies
the application of SFAS 157 in a market that is not active and provides an
example to illustrate key considerations in determining the fair value of a
financial asset when the market for that financial asset is not active. FSP
157-3 became effective on October 10, 2008, and its adoption did not have a
material impact on the financial position or results for the three months ending
December 31, 2008.





Note 3 -
Equipment





Equipment
consisted of the following at December 31, 2008 and September 30,
2008:





December
      31,
              
              
              September
      30,2008
              
              
              2008Office
      furniture & equipment
              
              $
              7,479
              
              
              $
              4,211Computer
      equipment
              
              
              8,930
              
              
              
              7,93516,409
              
              
              
              12,146Accumulated
      depreciation
              
              
              (3,342
              )
              
              
              (2,488
              )Equipment,
      net
              
              $
              13,067
              
              
              $
              9,658


13
 CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (unaudited)





The
Company recorded depreciation expense of $854, $0 and $3,342, for the three
months ended December 31, 2008 and 2007, and the period ended October 11, 2005
(date of inception) to December 31, 2008, respectively.





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.





Intangible
assets consist of the following:





December
      31,
              
              
              September
      30,2008
              
              
              2008Patents
              
              $
              66,953
              
              
              $
              59,198Trademarks
              
              
              12,187
              
              
              
              12,18779,140
              
              
              
              71,385Accumulated
      amortization
              
              
              (914
              )
              
              
              (609
              )Intangibles,
      net
              
              $
              78,226
              
              
              $
              70,776





The
Company recorded amortization expense related to the trademarks of $305, $0 and
$914, for the three months ended December 31, 2008 and 2007, and the period
ended October 11, 2005 (date of inception) to December 31, 2008,
respectively.





No
amortization has been recorded for the patents as of December 31, 2008, as the
patents have not been issued to the Company.





The
following table summarizes the amortization over the next 5 years:





Year Ended September 30,
            
            Amount2009
            
            4,1792010
            
            4,1792011
            
            4,1792012
            
            4,179





Note
5 – Convertible Promissory Note





On August
15, 2006, the Company issued a secured promissory note (the “August 2006 Note”)
for $250,000 to an unrelated entity “Holder”.  On November 10, 2007,
the August 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.






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




The
effective conversion rate based on the $262,356 principal amount and the
6,340,029 common shares that are received upon conversion is $0.0414 and the
share price was $0.15.  Therefore, the Company determined that the
Amended Note contained a beneficial conversion feature.  At the time
the Amended Note was issued and the number of shares determined, the Company did
not have enough authorized shares to satisfy the conversion of the Amended Note
into common stock; therefore, the beneficial conversion feature is considered an
embedded derivative which is required to be bifurcated from the host contract
and accounted for separately.  Pursuant to EITF No. 00-19, “Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock”, the Company has recorded the fair value of the beneficial
conversion feature as an accrued beneficial conversion liability.





The fair
value of the beneficial conversion feature was $767,047.  The fair
value was computed using the Black-Scholes model under the following
assumptions: (1) expected life of 2.3 years; (2) volatility of 100%; (3) risk
free interest of 2.61% and (4) dividend rate of 0%.  The Company
recorded a discount on the convertible note up to the principal amount of
$262,356 and expensed as financing costs the $504,691 of the beneficial
conversion feature that exceeded the principal balance.





On
November 7, 2008, the Company increased the authorized number of shares to
400,000,000.  The fair value of the beneficial conversion feature on
November 7, 2008 was $1,049,955.  The fair value was computed using
the Black-Scholes model under the following assumptions: (1) expected life of
2.01 years; (2) volatility of 100%; (3) risk free interest of 1.33% and (4)
dividend rate of 0%.  The Company reclassified this amount into
additional paid-in capital.





The
Company recorded interest expense related to the convertible promissory note of
$2,616, $2,137 and $26,454 for the three months ended December 31, 2008 and 2007
and the period ended October 11, 2005 (date of inception) to
December  31, 2008, respectively.





The
Company amortized $28,803 of the debt discount for the three months ended
December 31, 2008.  As of December 31, 2008 the unamortized debt
discount is $212,264.





Note
6 – Convertible Promissory Note - Related Party





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 mature on March 27,
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.


15
 CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (unaudited)





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.





On
October 1, 2007, the Company did not have enough authorized shares to satisfy
the conversion of notes; therefore, the Company recorded an accrued conversion
feature liability for the fair value of the conversion option for the two
$20,000 convertible promissory notes on October 1, 2007 and the two $10,000
convertible promissory notes on October 25, 2007.





The fair
value of the conversion feature for the two $20,000 notes was
$368,630.  The fair value was computed using the Black-Scholes model
under the following assumptions: (1) expected life of 1.49 years; (2) volatility
of 100%; (3) risk free interest of 4.11% and (4) dividend rate of
0%.  The Company recorded a discount on the convertible promissory
notes up to the principal amount of $40,000 and expensed as financing costs the
$328,630 of the fair value of the conversion feature that exceeded the principal
balance.





The fair
value of the beneficial conversion feature for the two $10,000 convertible
promissory notes was $10,770.  The fair value was computed using the
Black-Scholes model under the following assumptions: (1) expected life of 2
years; (2) volatility of 100%; (3) risk free interest of 3.74% and (4) dividend
rate of 0%.  The Company recorded a discount on the convertible
promissory notes of $10,770.





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.





On
November 7, 2008, the Company increased the authorized number of shares to
400,000,000.  The fair value of the beneficial conversion feature on
November 7, 2008 was $1,035,683 and $34,543 for the two $20,000 notes and the
two $10,000 notes, respectively.  The fair value was computed using
the Black-Scholes model under the following assumptions: (1) expected life
ranging between .38 and .96 years; (2) volatility of 100%; (3) risk free
interest ranging between .83% and 1.20% and (4) dividend rate of
0%.  The Company reclassified these amounts into additional paid-in
capital.





The
Company recorded interest expense related to the notes of $608, $818 and $3,768
for the three months ended December 31, 2008 and 2007 and the period ended
October 11, 2005 (date of inception) to December 31, 2008,
respectively.





The
Company amortized $18,977 of the debt discount for the three months ended
December 31, 2008.  As of December 31, 2008 the unamortized debt
discount is $26,998.





16
 CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (unaudited)


Note
7 – Stockholder’s Equity





Stock
Options





On
October 27, 2005 and December 31, 2005, the Company granted 3,773,788 and
1,886,894 stock options to two board of directors in consideration of the
services to be rendered to the Company.  The options vested equally
every six months from the grant date.  On August 26, 2006, both
directors resigned from the Company and unvested options totaling 4,245,512 were
forfeited.





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.  During July 2008, the 2007 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.





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
                
                
                48,000
                
                
                $
                0.180Canceled
                
                
                -Exercised
                
                
                -Outstanding
      at December 31, 2008, (unaudited)
                
                
                53,949,863
                
                
                $
                0.074Exercisable
      at December 31, 2008 (unaudited)
                
                
                16,161,368
                
                
                $
                0.069
                
                $
                1,303,535




The
number and weighted average exercise prices of all options outstanding as of
December 31, 2008 are as follows:


17
 CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (unaudited)





Options
      outstandingWeightedWeighted
              
              
              AverageNumber
              
              
              Average
              
              
              RemainingRange
      of
              
              
              Outsanding
              
              
              Exercise
              
              
              Contractual
      LifeExercise
      Price
              
              
              December
      31, 2008
              
              Price
              
              
              (Years)$
              0.014
              
              
              
              943,447
              
              
              $
              0.014
              
              
              
              6.82$
              0.016
              
              
              
              471,723
              
              
              $
              0.016
              
              
              
              7.00$
              0.072
              
              
              
              29,428,166
              
              
              $
              0.072
              
              
              
              3.97$
              0.079
              
              
              
              23,058,527
              
              
              $
              0.079
              
              
              
              4.13$
              0.180
              
              
              
              48,000
              
              
              $
              0.180
              
              
              
              4.9553,949,863
              
              
              $
              0.074
              
              
              
              4.12







Options
      ExercisableWeightedWeighted
              
              
              AverageOptions
              
              
              Average
              
              
              RemainingRange
      of
              
              
              exercisable
              
              
              Exercise
              
              
              Contractual
      LifeExercise
      Price
              
              
              December
      31, 2008
              
              Price
              
              
              (Years)$
              0.014
              
              
              
              943,447
              
              
              $
              0.014
              
              
              
              6.82$
              0.016
              
              
              
              471,723
              
              
              $
              0.016
              
              
              
              7.00$
              0.0720
              
              
              
              9,302,907
              
              
              $
              0.072
              
              
              
              3.86$
              0.079
              
              
              
              5,442,091
              
              
              $
              0.079
              
              
              
              3.93$
              0.180
              
              
              
              1,200
              
              
              $
              0.180
              
              
              
              4.9516,161,368
              
              
              
              0.069
              
              
              
              4.15




The
assumptions used in calculating the fair value of options granted using the
Black-Scholes option-pricing model are as follows:





December
      31, 2008
                
                
                September
      30, 2008Expected
      life (years)
                
                2.05
      to 3.98
                
                
                2.6
      to 4.0Risk-free
      interest rate
                
                .76
      % to 1%
                
                
                1.9%
      to 4.1%Expected
      volatility
                
                
                1000/0
                
                
                
                1000/0Expected
      dividend yield
                
                
                00/0
                
                
                
                00/0





18
 CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (unaudited)


The
weighted average grant-date fair value for the options granted during the three
months ended December 31, 2008 and the year ended September 30, 2008 was $0.18
and $0.06, respectively.





The
compensation expense related to the unvested options as of December 31, 2008 is
$1,682,818 which will be recognized over the weighted average period of 2.17
years. Stock-based compensation expense to employees and non employees for the
three months ended December 31, 2008, December 31, 2007 and the period ended
October 11, 2005 (date of inception) to December 31, 2008, respectively 
was $122,867, $97,257 and $2,764,625, respectively.





The
Company granted 17,020,485 options on October 1, 2007 which increased the total
amount of potential outstanding shares over the authorized 60 million shares;
therefore, the Company was required to report the potential exercise of the
options as a liability.  The options that were fully vested at the
issuance of the options were valued at fair value on October 1, 2007 with the
fair value of $89,618 being recorded as a liability and a corresponding
reduction to additional paid in capital.





On
November 7, 2008, the Company increased the authorized number of shares to
400,000,000.  The fair value of the share-based compensation liability
on November 7, 2008 was $2,701,572.  The fair value was computed using
the Black-Scholes model under the following assumptions: (1) expected life
ranging between 2.08 and 4.2 years; (2) volatility of 100%; (3) risk free
interest ranging between 1.3% and 2.6% and (4) dividend rate of
0%.  The Company reclassified this amount into additional paid-in
capital.





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.





At the
time the warrants were issued, the Company did not have enough authorized shares
to satisfy the exercising of the warrants into common stock.  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 has recorded the fair value of the warrants as an accrued
warrant liability.





The fair
value of the warrant liability at the date of issuance was
$731,681.  The fair value was computed using the Black-Scholes model
under the following assumptions: (1) expected life of 2 years; (2) volatility of
100%; (3) risk free interest of 2.81% and (4) dividend rate of
0%.





On
November 7, 2008, the Company increased the authorized number of shares to
400,000,000.  The fair value of the accrued warrant liability on
November 7, 2008 was $1,023,564.  The fair value was computed using
the Black-Scholes model under the following assumptions: (1) expected life of
1.7 years; (2) volatility of 100%; (3) risk free interest of 1.3% and (4)
dividend rate of 0%.  The Company reclassified this amount into
additional paid-in capital.





Note
8 – Taxes





We have
provided no current income taxes due to the losses incurred from October 11,
2005 (date of inception) through December 31, 2008.  Net operating
losses of approximately $2,474,661 at December 31, 2008 are available
for carryover.  The net operating losses will expire from 2021
through 2023.  We have provided a 100% valuation allowance
for the deferred tax benefit resulting from the net operating loss carryover due
to our limited operating history.  In addressing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be
realized.  The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences are deductible.  When we demonstrate
a history of profitable operation we will reduce our valuation allowance at that
time.




19
 CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (unaudited)





A
reconciliation of the statutory Federal income tax rate and the effective income
tax rate for the three months ended December 31, 2008 and the year ended
September 30, 2008 follows:





December
      31,
              
              
              September
      30,2008
              
              
              2008Statutory
      federal income tax rate
              
              
              (0.34
              )
              
              
              (0.34
              )State
      income taxes (benefit), net of federal taxes
              
              
              (0.06
              )
              
              
              (0.06
              )Equity
      instruments issued for compensation/services
              
              
              0.05
              
              
              
              0.19Change
      in derivative liabilities
              
              
              0.08
              
              
              
              0.06Non-cash
      financing costs
              
              
              -
              
              
              
              0.05Valuation
      allowance
              
              
              0.27
              
              
              
              0.10Effective
      income tax rate
              
              
              -
              
              
              
              -





Significant
components of deferred tax assets and liabilities are as follows:





December
      31,
              
              
              September
      30,2008
              
              
              2008Deferred
      tax assets:Net
      operating loss carryforwards
              
              $
              1,081,358
              
              
              $
              836,646Valuation
      allowance
              
              
              (1,081,358
              )
              
              
              (836,646
              )Net
      deferred tax assets
              
              $
              -
              
              
              $
              -





The
Company adopted FIN No. 48 on January 1, 2007.  There were no
unrecognized tax benefits as of the date of adoption and there are no
unrecognized tax benefits included in the balance sheet at December 31, 2008,
that would, if recognized, affect the effective tax rate.





Note
9 – Operating Lease





On
February 21, 2008, the Company entered into a one year lease for office space
for its El Dorado Hills, California office.  The lease requires
monthly payments of $2,198.  The Company recorded rent expense of
$6,594, $0 and $33,874, for the three months ended December 31, 2008, and 2007
and for the period from October 11, 2005 (date of inception) to December
31, 2008, respectively.





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 a rent expense of $14,092 for the three months ended December
31, 2008.





20
 CelLynx
Group, Inc.
 (A
Development Stage Company)
 Notes
to Consolidated Financial Statements
 (unaudited)


Note
10 – Subsequent Events





On
January 6, 2009, the Company entered into a Note and Restricted Stock Purchase
Agreement (the “Agreement”).  Pursuant to the Agreement, the Company (i)
issued an unsecured convertible promissory note (“Convertible Note”) in the
principal amount of $100,000 which is convertible into the Company’s common
stock at a conversion price of $0.20 per share, and (ii) issued 50,000 shares of
the Company’s restricted stock.  The Convertible Note is interest free and
is due on January 30, 2009.  The Convertible Note is currently in
default.






































21





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.   See Item
1.01 of our Form 8-K filed on July 30, 2008 for additional details regarding
this equity financing.




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.  At this time, we believe that our
current cash position will not be sufficient to meet our anticipated cash needs
beyond February 2009.  We will need to raise additional capital in
order to remain operational beyond this point.





If we are
unable to raise additional capital in February 2009, 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.  The preparation of these 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.





22


While our
significant accounting policies are more fully described in Note 2 to our
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





On
January 1, 2008, the Company adopted SFAS No. 157, “Fair Value Measurements.”
SFAS No. 157 defines fair value, establishes a three-level valuation hierarchy
for disclosures of fair value measurement and enhances disclosures requirements
for fair value measures. The carrying amounts reported in the balance sheets for
receivables and current liabilities each qualify as financial instruments and
are a reasonable estimate of fair value 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 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
December 31, 2008, the Company 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 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 FASB Interpretation 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 affect on our financial
statements.





23


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.





Patents and
Trademarks





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.





Plan
of Operations





Overview





We are an
early-stage developer of patent-pending technology that allows for the
production 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, CelLynx 5BARz, is a single
piece unit that strengthens weak cellular signals to deliver higher quality
signals for voice, data and video reception on cell phones being used indoors or
in vehicles.  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.  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 eliminates
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 it
expects 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
accomplish development leading to commercialization.





24


We have
also developed a mobile unit designed primarily for use in vehicles, or for
single-room coverage in the home or office.   The mobile is an
adaptation of the SOHO Unit described above.  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.





Our
product line is expected to be manufactured by contract manufacturers located in
South East Asia.   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 Three Months Ended December 31, 2008 and 2007,
respectively.





During
the three months ended December 31, 2008, we incurred $151,527 of research and
development expenses compared to $0 incurred during the three months ended
December 31, 2007.  Research and development expenses relate to our
ongoing development and testing of our cell phone boosters.  Our
research and development costs were higher in 2008 compared to 2007 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 December 31, 2008, we incurred $621,813 of general and
administrative expenses, compared to $176,759 incurred during the three months
ended December 31, 2007.  The increase is primarily due to an increase
in salaries of approximately $193,000 an increase of payroll taxes of
approximately $65,000, an increase in insurance expense of approximately
$41,000, and an increase of rent expense of approximately $20,000.





During
the three months ended December 31, 2008, we incurred $218,203 of non-operating
expense, compared to $344,505 incurred during the three months ended December
31, 2007.  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 and a
decrease in interest and financing costs of $289,090.  Interest and
financing costs decreased because during the three months ended December 31,
2007, the Company recorded to financing costs the fair value of the beneficial
conversion liability that exceeded the face amount of the convertible
debt.





25


Financial
Condition





As
of  December 31, 2008, we had a working capital deficit of $314,180,
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 months ended December 31, 2008 and 2007 and for the period from October
11, 2005 (Date of Inception) to December 31, 2008, we incurred net losses of
$991,543, $521,264 and $8,686,991, respectively. As of December 31, 2008 and
2007, we have a deficit accumulated during the development stage of $8,686,991
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




We have
financed our operations primarily through proceeds from the issuance of common
stock.  From January to June 2008, we received approximately $750,000
in equity financing. In July 2008, we also received proceeds of $1,575,000 from
a private placement financing transaction.  We believe that our
current cash, anticipated cash flow from operations, and net proceeds from the
private placement financing will be sufficient to meet our anticipated cash
needs, including our cash needs for working capital and capital expenditures for
only the next month.  We will need to raise additional capital in
order to remain operational beyond this point.  We believe we will
raise an additional $2,100,000 by the Investors exercising the warrants they
were issued in the private placement financing transaction referenced above;
however, the Investors are under no obligation to exercise their warrants and
there can be no assurances that they will exercise their warrants.  We
also believe we will receive an additional $10,000,000 from the Distribution
Agreement we entered into with Dollardex, however, this funding is contingent on
our meeting certain milestones and there can be no assurances that we will meet
those milestones.  If we receive these funds, we believe we will have
sufficient capital to meet our needs for the foreseeable future.  If
these funds do not materialize, we will need to seek additional financing
elsewhere.  In addition, we may require additional cash due to changes
in business conditions or other future developments, including any investments
or acquisitions we may decide to pursue. 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.





We raised
$100,000 on January 6, 2009 through the issuance of an unsecured convertible
promissory note and the issuance of 50,000 restricted shares of common
stock.  The promissory note is due on January 30, 2009 and is interest
free. The note is currently in default.





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.





26


The
following table summarizes our contractual obligations as of December 31 2008,
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
              
              
              $
              262,356
              
              
              $
              -
              
              
              $
              262,356Stockholder
      notes
              
              
              
              60,000
              
              
              
              60,000
              
              
              
              -Operating
      lease
              
              
              
              69,960
              
              
              
              55,968
              
              
              
              13,992Total
      Contractual Obligations
              
              
              $
              392,316
              
              
              $
              115,968
              
              
              $
              276,348





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.





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 he 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 December 31, 2008 that have materially
affected, or are reasonably likely to materially affect our internal control
over financial reporting.


27





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.





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.
 
 (1)
              Filed
      on January 9, 2008 as an exhibit to our Current Report on Form 8-K, and
      incorporated herein by reference.(2)
              Filed
      on May 27, 2008 as an exhibit to our Current Report on Form 8-K, and
      incorporated herein by reference.(3)
              Filed
      as an exhibit to our Registration Statement on Form 10SB originally filed
      on August 26, 1999, as amended, an incorporated herein by
      reference.(4)
              Filed
      as an exhibit to our Quarterly Report on Form 10-QSB for the fiscal period
      ended September 30, 2003, and incorporated herein by
      reference.(5)
              Filed
      on July 15, 2008 as an exhibit to our Current Report on Form 8-K, and
      incorporated herein by reference.(6)
              Filed
      on July 23, 2008 as an exhibit to our Current Report on Form 8-K, and
      incorporated herein by reference.(7)
              Filed
      on July 30, 2008 as an exhibit to our Current Report on Form 8-K, and
      incorporated herein by reference.(8)
              Filed
      on August 8, 2008 as an exhibit to our Current Report on Form 8-K, and
      incorporated herein by reference.(9)
              Filed
      on November 21, 2008 as an exhibit to our Current Report on Form 8-K, and
      incorporated herein by reference.








28


SIGNATURES





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




CELLYNX
      GROUP, INC.(Registrant)Date:
      February 23, 2009
            By:
            /s/
      Daniel R. AshDaniel
      R. AshChief
      Executive Officer
























29




INDEX TO
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.
          30