UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
|
|
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
|
For the Quarterly Period Ended March 31, 2012
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OR
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|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from ______________ to
______________
Commission File No. 000-27147
CelLynx
Group,
Inc.
(Exact name of small business issuer
as specified in its charter)
NEVADA
(State or other jurisdiction
of
incorporation or organization)
|
|
95
-
4705831
(I.R.S. Employer
Identification No.)
|
4014 Calle Isabella, San Clemente, California 92672
(Address of principal executive offices)
(949)
30
5
-
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.
Yes
x
No
o
Indicate
by
check mark whether the registrant
has
submitted electronically
and posted on
its
corporate
Web
site,
if any,
every
Interactive Data
File required
to be submitted and posted pursuant to Rule 405 of Regulation
S
-
T during the preceding 12
months (or for
such
shorter period
that
the registrant
was required to
submit
and post
such
files).
Yes
x
No
o
Indicate
by
check mark
whether
the registrant is a
large accelerated filer, an
accelerated filer, a
no
n
-
accelerated
filer, or
a
smaller reporting
company. See the
definitions of
“large
accelerated filer,”
“accelerated filer”
and “smaller reporting
company” in
Rule
12
b
-
2
of
the
Exchange
Act.
(Check one):
Large Accelerated filer
o
Non-Accelerated Filer
o
Accelerated Filer
o
Smaller Reporting Company
x
Indicate
by check mark
whether
the
registrant
is a
shell
company
(as
defined by Rule
12
b
-
2
of
the
Exchange
Act).
Yes
o
No
x
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: The total
shares outstanding for this company is 1,031,634,657 shares outstanding as of May 8, 2012.
1
TABLE
OF CONTENTS
PART
I
|
FINANCIAL
INFORMATION
|
3
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|
|
|
Item
1.
|
Financial
Statements
|
3
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|
|
|
Item
2.
|
Management's
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations
|
24
|
|
|
|
Item
3.
|
Quantitative
and
Qualitative
Disclosures
About Market Risk
|
33
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|
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|
Item
4.
|
Controls and
Procedures
|
33
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|
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PART
II
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OTHER INFORMATION
|
34
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|
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Item
1.
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Legal Proceedings
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34
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Item
2.
|
Unregistered
Sales of
Equity Securities and
Use of
Proceeds
|
34
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|
Item
3.
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Defaults
Upon
Senior Securities
|
34
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Item
4.
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(Removed and
Reserved)
|
34
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Item
5.
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Other Information
|
34
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Item
6.
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Exhibits
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35
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2
Part
I
–
FINANCIAL INFORMATION ITEM
1. FINANCIAL STATEMENTS
CELLYNX GROUP, INC.
|
CONSOLIDATED BALANCE SHEETS
|
AS OF MARCH 31, 2012 AND SEPTEMBER 30, 2011
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|
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March 31,
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September 30,
|
|
|
2012
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|
2011
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|
|
(unaudited)
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|
|
ASSETS
|
CURRENT ASSETS:
|
|
|
|
|
|
|
Cash
|
|
$
|
3,246
|
|
$
|
178
|
Accounts receivable
|
|
|
-
|
|
|
-
|
Other receivable
|
|
|
|
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|
1,200,651
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Investment in 5Barz - current
|
|
|
400,000
|
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|
-
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Prepaids and other current assets
|
|
|
-
|
|
|
20,090
|
TOTAL CURRENT ASSETS
|
|
|
403,246
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|
|
1,220,919
|
|
|
|
|
|
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|
EQUIPMENT, net
|
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2,113
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|
2,900
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INTANGIBLE ASSETS, net
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44,718
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|
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53,967
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Investment in 5Barz - long termt
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1,400,000
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|
|
-
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TOTAL ASSETS
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|
$
|
1,850,076
|
|
$
|
1,277,786
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|
|
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|
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LIABILITIES AND STOCKHOLDERS' DEFICIT
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CURRENT LIABILITIES:
|
|
|
|
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Accounts payable and accrued expenses
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|
$
|
1,752,628
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|
$
|
1,622,307
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Accrued interest
|
|
|
58,808
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|
51,692
|
Accrued derivative liabilities
|
|
|
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102,286
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Deferred gain
|
|
|
|
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1,200,651
|
Line of credit net of debt discount of $126,861
|
|
|
459,664
|
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|
241,038
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Convertible promissory notes, net of debt discount of $20,180 and $29,533
|
|
|
|
|
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|
as of March 31, 2012 and September 30, 2011, respectively
|
|
|
403,076
|
|
|
379,823
|
TOTAL CURRENT LIABILITIES
|
|
|
2,674,177
|
|
|
3,597,797
|
|
|
|
|
|
|
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BCF liability
|
|
|
5,856,633
|
|
|
|
Warrant liability
|
|
|
3,442
|
|
|
|
TOTAL LIABILITIES
|
|
|
8,534,252
|
|
|
3,597,797
|
|
|
|
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|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
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|
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STOCKHOLDERS' DEFICIT:
|
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Series A preferred stock, $0.001 par value; 100,000,000 shares authorized;
|
|
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|
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nil shares issued and outstanding
|
|
|
-
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|
-
|
Common stock, $0.001 par value, 1000,000,000 shares authorized; 690,165,000 and 195,991,082
|
|
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|
shares issued and outstanding as of March 31, 2012 and September 30, 2011, respectively
|
690,165
|
|
|
195,991
|
Additional paid-in capital
|
|
|
13,823,314
|
|
|
14,113,270
|
Accumulated deficit
|
|
|
(21,197,656)
|
|
|
(16,629,272)
|
Total stockholders' deficit
|
|
$
|
(6,684,177)
|
|
$
|
(2,320,011)
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
1,850,076
|
|
|
1,277,786
|
|
|
|
|
|
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|
The accompanying notes are
an integral part of these consolidated financial statements.
3
CELLYNX GROUP, INC.
|
CONSOLIDATED STATEMENTS OF OPERATIONS
|
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|
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Three Months Ended
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|
Six Months Ended
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March 31, 2012
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|
March 31, 2011
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|
March 31, 2012
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|
March 31, 2011
|
|
|
(unaudited)
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|
(unaudited)
|
|
(unaudited)
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenue
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
Cost of Revenue
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
Gross profit
|
|
|
-
|
|
|
-
|
|
|
-
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|
|
-
|
Operating expenses
|
|
|
|
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|
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Research and development
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|
-
|
|
|
-
|
|
|
-
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|
|
-
|
General and administrative
|
|
|
218,109
|
|
|
473,913
|
|
|
373,238
|
|
|
1,129,684
|
Total operating expenses
|
|
|
218,109
|
|
|
473,913
|
|
|
373,238
|
|
|
1,129,684
|
|
|
|
|
|
|
|
|
|
|
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|
|
Loss from operations
|
|
$
|
(218,109)
|
|
$
|
(473,913)
|
|
$
|
(373,238)
|
|
|
(1,129,684)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating income (expense):
|
|
|
|
|
|
|
|
|
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|
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Interest and financing costs, net
|
|
|
(51,291)
|
|
|
(25,146)
|
|
|
(92,131)
|
|
|
(49,991)
|
Change in fair value of accrued beneficial conversion liability,
|
|
|
(5,621,028)
|
|
|
(521)
|
|
|
(5,595,012)
|
|
|
(652)
|
Change in fair value of accrued warrant liability
|
|
|
0
|
|
|
(82,948)
|
|
|
2,718
|
|
|
(160,848)
|
Gain on settlement of debt
|
|
|
3,766
|
|
|
|
|
|
3,766
|
|
|
|
Gain on sale of intangible assets
|
|
|
1,482,563
|
|
|
-
|
|
|
1,485,513
|
|
|
-
|
Total non-operating income (expense), net
|
|
|
(4,185,990)
|
|
|
(108,615)
|
|
|
(4,195,146)
|
|
|
(211,491)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,404,099)
|
|
$
|
(582,528)
|
|
$
|
(4,568,384)
|
|
$
|
(1,341,175)
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
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|
Weighted average shares outstanding - Basic and Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
211,946,779
|
|
|
186,667,298
|
|
|
267,598,489
|
|
|
180,380,815
|
|
|
|
|
|
|
|
|
|
|
|
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|
Loss per share - Basic and Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(0.02)
|
|
$
|
(0.00)
|
|
$
|
(0.02)
|
|
$
|
(0.01)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
4
CELLYNX GROUP, INC.
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
FOR THE SIX MONTHS ENDED MARCH 31, 2012 AND 2011
|
|
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|
|
|
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|
|
2012
|
|
2011
|
|
|
(unaudited)
|
|
(unaudited)
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,568,384)
|
|
$
|
(1,341,175)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
4,571
|
|
|
2,436
|
Warrants issued for services
|
|
|
-
|
|
|
|
Stock issued for services
|
|
|
-
|
|
|
228,015
|
Note payable issued for services
|
|
|
50,000
|
|
|
|
Stock compensation expense for options issued to employees and consultants
|
|
79,618
|
|
|
198,996
|
Change in fair value of accrued beneficial conversion liability
|
|
|
5,595,012
|
|
|
652
|
Change in fair value of accrued warrant liability
|
|
|
(2,718)
|
|
|
160,848
|
Amortization of debt discount
|
|
|
92,131
|
|
|
42,761
|
Gain on sale of intangibles
|
|
|
(1,485,513)
|
|
|
|
Gain on settlement of debt
|
|
|
(3,766)
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Change in accounts receivable
|
|
|
-
|
|
|
1,925
|
Change in inventory
|
|
|
-
|
|
|
|
Change in other assets
|
|
|
20,090
|
|
|
165,411
|
Change in accounts payable, accrued expenses and accrued interest
|
|
|
119,921
|
|
|
91,120
|
Net cash used in operating activities
|
|
|
(99,038)
|
|
|
(449,011)
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
Purchase of intangible assets
|
|
|
|
|
|
(1,090)
|
Net cash used in investing activities
|
|
|
-
|
|
|
(1,090)
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
Payments of shareholders convertible notes
|
|
|
|
|
|
|
Payments of convertible notes
|
|
|
|
|
|
|
Proceeds from issuance of convertible notes
|
|
|
15,000
|
|
|
132,500
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|
Proceeds from advances for asset purchase agreement
|
|
|
-
|
|
|
260,434
|
Proceeds from line of credit
|
|
|
87,106
|
|
|
60,000
|
Net cash provided by financing activities
|
|
|
102,106
|
|
|
452,934
|
|
|
|
|
|
|
|
NET DECREASE IN CASH
|
|
|
3,068
|
|
|
2,833
|
|
|
|
|
|
|
|
CASH, BEGINNING OF PERIOD
|
|
|
178
|
|
|
6,601
|
|
|
|
|
|
|
|
CASH, END OF PERIOD
|
|
$
|
3,246
|
|
$
|
9,434
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
$
|
0
|
Cash paid for income taxes
|
|
$
|
-
|
|
$
|
0
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING:
|
|
|
|
Conversion of convertible note payable to common stock
|
|
$
|
52,700
|
|
$
|
55,000
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
5
CELLYNX
GROUP, INC
AND
SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
March 31,
2012 and
2011
(Unaudited)
Not
e
1 – Organization and Basis of Presentation
The unaudited
consolidated financial statements have been prepared by CelLynx Group, Inc., formerly known as NorPac Technologies, Inc. (hereinafter
referred to as “CelLynx” or the “Company”), pursuant to the rules and regulations of the Securities and
Exchange Commission. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments)
which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain
information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These consolidated
financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in
the Company’s Annual Report on Form 10-K. The results for the three and six months ended March 31, 2012, are not necessarily
indicative of the results to be expected for the full year ending September 30, 2012.
Organization
and Line of Business
CelLynx Group,
Inc. (the “Company”)
was originally incorporated under the laws of the
State of Minnesota on April 1, 1998.
On July 23, 2008, prior
to the closing of a Share Exchange Agreement (described below), the Company entered into a Regulation S Subscription Agreement
pursuant 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 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 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 was 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 would
convert
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.
On March 23, 2012, the
Company
amended
the
Articles
of Incorporation to increase
the
number of authorized shares to 1,000,000,000. On May 7, 2012 the Company
amended
the
Articles
of Incorporation to increase
the
number of authorized shares authorized shares to 2,000,000,000.
6
CELLYNX
GROUP, INC
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
March 31,
2012 and
2011
(Unaudited)
The exchange of
shares
with CelLynx
-
California was
accounted for
as
a reverse acquisition
under the
purchase
method
of
accounting because 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 the reverse
merger
transaction,
the net assets of the legal acquirer
CelLynx
Group,
Inc.
were
$1,248,748.
As
a
result of
the
reverse
merger
transactions described
above,
the
historical financial statements
presented are
those of
CelLynx
-
California,
the
operating
entity. Each
CelLynx
-
California shareholder received 1.2579292
shares
of stock
in the Company
for each
share
of CelLynx- California
capital
stock.
All shares
and per
-
share
information have been
retroactively restated
for
all
periods
presented to
reflect the
reverse merger transaction.
On October 27, 2008,
the Board of Directors approved a change of the Company’s fiscal year end from June 30 to September 30 to correspond to the
fiscal year of CelLynx
-
California. The fiscal year end change was effective for the
year ended September 30, 2008.
The Company develops
and manufactures cellular network extenders which enable users to obtain stronger signals and better reception.
Going
Concern
and
Exiting Development Stage
These consolidated
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
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
and six months
ended March 31, 2012, the
Company incurred a net
loss
of
$4,404,099 and $4,568,384,
respectively. As
of
March 31, 2012, the
Company had an accumulated
deficit of $21,197,656.
Further, as of March 31, 2012 and September 30, 2011, the Company had negative working capital of $2,270,931 and $2,376,878,
respectively, and had negative
cash flows from operations of $99,038 and $449,011
for the six months ended March 31, 2012 and
2011, respectively. These consolidated
financial
statements
do not
include any
adjustments to the
recoverability
and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable
to continue as a going concern.
Management intends to
raise additional
funds through equity or
debt financing
and to
generate
cash from the sale of
the Company’s products and from license fees as
further described below.
The
Company was
in
the
development stage through
June 30,
2009.
In
July
2009, the
Company received
the
first
220
units of
the
Company’s cellular
network
extender,
The Road Warrior, from its
manufacturer. As
of
July 2009, the
Company was fully operational and as
such was longer considered a development
stage company.
During the period that the Company
was considered a development
stage company,
the Company incurred accumulated losses of approximately $10,948,625.
7
CELLYNX
GROUP, INC
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
March 31,
2012 and
2011
(Unaudited)
Note 2
–
Summary of
Significant
Accounting
Policies
Basis
of
Presentation
The accompanying
consolidated financial statements have been prepared in accordance with
accounting principles
generally accepted
in
the
United States of
America. The accompanying consolidated financial statements
include the accounts of
CelLynx Group,
Inc.,
and its 100%
wholly
-
owned subsidiary, CelLynx,
Inc. All
intercompany
accounts
and transactions have
been
eliminated
in
consolidation.
Cash
Cash and cash equivalents include cash
in hand and cash in time deposits, certificates of
deposit and all highly liquid
debt instruments with
original maturities
of
three months or
less.
Inventory
Inventory consists of finished goods ready
for sale and is valued at the lower of cost (determined on
a
first
-
in,
first
-
out
basis)
or
market. The Company reviews its
reserves for slow
moving and obsolete inventories. As of September 30, 2011, the Company
wrote off its entire inventory balance.
Accounts Receivable
The Company maintains
reserves for potential credit losses for
accounts
receivable. Management reviews
the
composition
of
accounts
receivable and analyzes historical
bad debts,
customer
concentrations, customer
credit
worthiness, current
economic
trends
and changes
in
customer
payment
patterns to evaluate
the adequacy of
these
reserves. Reserves
are recorded based on
the Company’s
historical
collection history. Receivables
are
written
off when they are
determined to
be
uncollectible. As
of
March 31,
2012 and September 30,
2011,
the
Company determined that
allowance for
bad
debt was not
necessary.
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.
Concentration of Credit Risk
Cash includes deposits
in accounts maintained at financial institutions. 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
March 31, 2012 and September 30, 2011, the Company did
not
have
any deposits in
excess
of
federall
y
-
insured
limits. To
date, the
Company has
not
experienced
any losses in
such
accounts.
8
CELLYNX
GROUP, INC
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
March 31,
2012 and
2011
(Unaudited)
Equipment
Equipment is recorded
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.
Intangible Assets
Acquired patents,
licensing rights and trademarks are capitalized at their acquisition cost or
fair
value. The legal costs,
patent
registration
fees, and models and drawings required for filing patent applications are capitalized if they relate
to
commercially
viable
technologies.
Commercially viable technologies are those technologies that
are projected to generate future positive cash
flows
in
the
near
term. Legal
costs associated with
applications
that
are not
determined to be commercially
viable
are
expensed as
incurred.
All
research and development
costs incurred in
developing
the
patentable idea
are expensed as
incurred.
Legal fees from the costs incurred in successful defense to the
extent
of
an
evident increase
in
the
value
of
the
patents are
capitalized.
Capitalized costs for
patents
are amortized on
a
straight
-
line basis over the remaining twenty
-
year
legal life of
each patent
after the costs
have
been incurred. Once each patent
or
trademark is issued,
capitalized costs are amortized on
a
straight
-
line
basis over
a
period not
to
exceed 20 years
and 10 years,
respectively. The licensing
right
is
amortized on a
straight
-
line
basis over
a
period of
10 years.
Impairment or
Disposal
of
Long- lived Assets
The Company applies
the provisions of Accounting Standards Codification (“ASC”) Topic
360,
“Property,
Plant,
and Equipment,”
which
addresses financial accounting and reporting
for the impairment
or
disposal of
long
-
lived assets. ASC 360
requires
impairment
losses to be recorded
on
long - lived assets
used in operations when indicators of
impairment
are present and the undiscounted cash flows estimated to
be
generated by those
assets are less
than the assets’ carrying amounts. In
that
event, a
loss is recognized based
on
the
amount
by which
the
carrying amount
exceeds the
fair
value of
the long
-
lived
assets. Loss
on
long
-
lived
assets
to be
disposed
of
is determined in
a
similar manner, except
that
fair
values are
reduced for
the
cost of
disposal. Based
on
its review, the Company believes that
as
of
March 31, 2012 and September 30, 2011, there was no
significant impairment
of
its long
-
lived assets.
Revenue Recognition
The Company's revenue
recognition policies are in compliance with ASC Topic
605,
“Revenue Recognition.”
Revenue is recognized at the
date
of shipment
to customers, and
when the price is fixed
or
determinable,
the delivery is completed, no
other
significant
obligations of
the
Company exist and collectability
is reasonably assured.
The gain on sale of intangibles is fully
reflected as income in the period of sale as the sale proceeds were fully paid at the date of sale, March 29, 2012.
9
CELLYNX
GROUP, INC
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
March 31,
2012 and
2011
(Unaudited)
Fair Value of Financial Instruments
ASC Topic
820,
“Fair
Value Measurements
and Disclosures,” requires
disclosure of
the
fair value
of
financial
instruments held by the
Company.
ASC Topic
825,
“Financial Instruments,”
defines fair
value, and establishes
a
three
-
level valuation hierarchy
for
disclosures
of
fair
value
measurement that enhances disclosure requirements for fair value measures.
The carrying amounts reported in the consolidated balance
sheets
for
cash, accounts receivable, accounts payable, and other current liabilities
each qualify as financial instruments and are a reasonable estimate of
their
fair values because of the short period of time between the origination of such instruments and their expected realization
and their
current
market rate
of interest. The three levels
of
the
valuation hierarchy
are
defined as
follows:
●
|
Level
1
|
inputs to
the
valuation methodology
are
quoted
prices 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.
|
The Company’s
warrant
liability is carried at fair
value
totaling $3,442 and $6,160,
as
of
March 31, 2012 and September 30,
2011,
respectively.
The Company’s conversion option liability is carried at fair value totaling $5,856,633 and $96,126 as of March 31, 2012 and
September 30,
2011, respectively. The Company used Level 2 inputs for its valuation
methodology for the warrant
liability and conversion option liability as
their
fair values were determined by using
the
Blac
k-
Scholes option pricing
model
using
the
following assumptions:
March 31, 2012
|
Annual dividend yield
|
—
|
Expected life (years)
|
0.75 – 3.70
|
Risk-free interest rate
|
0.01% - 0.81%
|
Expected volatility
|
145%
|
Expected volatility
is
based
primarily on historical
volatility.
Historical volatility
was
computed using daily
pricing
observations
for
recent periods
that correspond to the
term of
the warrants and conversion options.
We
believe this method
produces
an
estimate that
is representative of
our
expectations of
future volatility over the expected term of
these
warrants and conversion options.
We have
no reason
to
believe future volatility
over
the
expected remaining life of
these
warrants
is likely
to
differ
materially from historical volatility. The expected life
is based
on the
remaining term
of
the
warrants and conversion options.
The
ris
k
-
free interest rate
is based on
U.S.
Treasury securities
with
maturity terms
similar to
the
expected remaining term
of the
warrants
and conversion options.
At March 31, 2012,
the
Company identified the
following
assets
and liabilities that
are
required to
be
presented on the
balance
sheet
at fair
value:
10
CELLYNX
GROUP, INC
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
March 31,
2012 and
2011
(Unaudited)
|
|
Fair Value
As of
March 31, 2012
|
Fair Value Measurements
at
March 31,
2012
Using Fair Value Hierarchy
|
Liabilities
|
|
|
Level 1
|
|
Level 2
|
Level 3
|
|
Warrant liability
|
$
|
3,442
|
|
$
|
3,442
|
|
|
Conversion option liability
|
$
|
5,856,633
|
|
$
|
5,856,633
|
|
|
Total accrued derivative liabilities
|
$
|
5,860,075
|
|
$
|
5,860,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six
months ended March 31, 2012, the Company recognized a gain of
$0 and $2,718 for
the
change
in
the
fair
value
of accrued warrant liability and the Company recognized a gain of $26,016 and a loss of $5,621,028 for the change in fair
value of accrued
beneficial
conversion liability,
respectively.
The Company did
not
identify any other
no
n
-
recurring
assets
and liabilities that
are
required to
be
presented in
the
consolidated balance
sheets
at fair value
in
accordance with
ASC 825.
Income Taxes
The Company accounts
for income taxes in accordance with ASC Topic 740, “Income Taxes.” ASC 740
requires
a
company
to
use
the
asset and liability method
of accounting for income taxes, whereby deferred
tax assets are recognized for
deductible
temporary differences, and deferred tax liabilities are recognized
for taxable temporary
differences. Temporary differences are the differences
between
the reported amounts of
assets
and liabilities and their tax bases. Deferred tax assets
are reduced by a
valuation allowance when, in
the
opinion
of
management, it
is more
likely
than not that
some portion,
or
all
of,
the deferred tax
assets
will
not
be
realized. Deferred tax
assets
and liabilities are
adjusted
for
the
effects of
changes
in
tax laws
and rates
on the
date
of
enactment.
Under ASC 740, a tax
position is recognized as a benefit only if it is “more likely than not” that the
tax
position
would
be
sustained in
a
tax examination, with a tax examination being presumed to occur. The amount recognized is the
largest
amount
of
tax
benefit that
is greater than
50% likely of
being realized on
examination.
For tax positions not
meeting
the “more
likely
than not” test,
no tax
benefit is recorded. The adoption
had no effect on
the Company’s consolidated financial statements. Penalties and interest incurred related to underpayment of
income tax
are
classified
as income tax expense
in the period incurred. No significant penalties or
interest relating to income taxes
have
been
incurred during
the
three and six months ended March 31,
2012 and 2011.
11
CELLYNX
GROUP, INC
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
March 31,
2012 and
2011
(Unaudited)
Basic and Diluted
Net Loss Per Share
The Company reports
loss per share in accordance with the ASC Topic 260, “Earnings Per Share.”
Basic
earnings-per-share is based upon the weighted
average
number
of
common
shares
outstanding. Diluted
earnings-per
-
share
is based
on the
assumption
that
all dilutive convertible shares
and
stock warrants were converted or
exercised. Diluted
net loss-per
-
share is computed by
dividing
the net loss for the period by
the weighted
average
number of
common shares outstanding during
the
period,
plus
the potential dilutive effect
of
common shares
issuable
upon exercise
or
conversion of outstanding
stock options and warrants during
the period. Due
to
the
net
loss for
the
three and six months
ended March 31,
2012 and 2011, none of
the
potential dilutive securities have
been
included
in the calculation of
dilutive earning
per
share
because their
effect would
be
ant
i
-
dilutive.
Stock - Based
Compensation
The Company records
stoc
k
-
based compensation in accordance with
ASC Topic 718, “Compensation – Stock
Compensation.” ASC 718
requires companies to measure compensation cost for stoc
k
-
based
employee compensation at fair value at the grant
date
and recognize the expense
over
the
employee’s requisite service period. Under ASC 718, the Company’s volatility is based on
the historical volatility of the Company’s stock
or
the expected volatility of similar companies. The expected life assumption is primarily based
on historical exercise
patterns and employee post
-
vesting
termination
behavior. The ris
k
-
free
interest rate
for the expected term of
the
option is based on
the U.S. Treasury yield curve
in
effect at the
time
of grant.
The Company uses the
Blac
k-
Scholes optio
n
-
pricing
model which was developed for use in estimating the fair value of
options.
Option
-
pricing models require
the
input of
highly complex and subjective variables including the
expected life
of
options granted
and the
Company’s
expected stock price
volatility over a
period equal to or
greater
than the expected life of
the options.
Because
changes
in the subjective assumptions can
materially
affect the estimated value
of
the
Company’s
employee stock
options,
it
is management’s opinion that
the
Blac
k-
Scholes optio
n
-
pricing
model
may not provide an accurate measure of the fair value of the Company’s employee
stock options. Although the fair value
of
employee
stock
options is determined in accordance with ASC 718 using an optio
n
-
pricing
model, that value may not be indicative of the fair value observed
in
a
willing buyer/seller
market transaction.
The Company recognizes
in the statement of operations the gran
t
-
date
fair value of stock options and other
equit
y
-
based
compensation issued
to employees and no
n
-
employees.
Recent Accounting
Pronouncements
In December 2011,
the FASB issued guidance on offsetting (netting) assets and liabilities. Entities are required to disclose both gross information
and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments
and transactions subject to an agreement similar to a master netting arrangement. The new guidance is effective for annual periods
beginning after January 1, 2013.
In September 2011,
the FASB issued guidance on testing goodwill for impairment. The new guidance provides an entity the option to first perform a
qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its
carrying amount. If an entity determines that this is the case, it is required to perform the currently prescribed two-step goodwill
impairment test to
12
CELLYNX
GROUP, INC
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
March 31,
2012 and
2011
(Unaudited)
identify potential
goodwill impairment and measure the amount of goodwill impairment loss to be recognized for that reporting unit (if any). If an
entity determines that the fair value of a reporting unit is no less than its carrying amount, the two-step goodwill impairment
test is not required. The new guidance is effective for annual and interim goodwill impairment tests performed for fiscal years
beginning after December 15, 2011, with early adoption permitted.
In June 2011, the
FASB issued guidance on presentation of comprehensive income. The new guidance eliminates the current option to report other comprehensive
income and its components in the statement of changes in equity. Instead, an entity will be required to present either a continuous
statement of net income and other comprehensive income or in two separate but consecutive statements. The new guidance is effective
for annual periods beginning after December 15, 2011. In December 2011, the FASB issued a deferral of certain portion of this guidance.
In May 2011, the FASB
issued guidance to amend the accounting and disclosure requirements on fair value measurements. The new guidance limits the highest-and-best-use
measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counter-party
credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts. Additionally,
the new guidance expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and
assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable
inputs. The new guidance is effective for annual periods beginning after December 15, 2011.
Note 3
–
Equipment
Equipment consisted
of
the
following at March 31,
2012 and September 30,
2011:
|
March 31,
2012
|
|
September 30,
2011
|
Office furniture and equipment
|
$
|
9,879
|
|
$
|
9,879
|
Computer equipment
|
|
|
|
|
8,930
|
|
$
|
9,879
|
|
$
|
18,809
|
Accumulated depreciation
|
|
(7,766)
|
|
|
(15,909)
|
Equipment, net
|
$
|
2,113
|
|
$
|
2,900
|
The Company recorded
depreciation expense of $1,045 and $1,405 for the three and six months ended March 31, 2012, respectively, and $208 and $579 for
the three and six months ended March 31, 2010, respectively.
13
CELLYNX
GROUP, INC
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
March 31,
2012 and
2011
(Unaudited)
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:
|
|
March 31, 2012
|
|
September 30, 2011
|
Patents
|
|
$
|
42,318
|
|
$
|
49,586
|
Trademarks
|
|
|
4,994
|
|
|
6,243
|
Licensing
rights
|
|
|
4,214
|
|
|
4,214
|
|
|
|
51,526
|
|
|
60,043
|
Accumulated Amortization
|
|
|
(6,809)
|
|
|
(6,076)
|
Intangibles, net
|
|
$
|
44,717
|
|
$
|
53,967
|
Amortization on the sale of intangibles will
be calculated from the date that the patents are issued and that the Company commences its initial substantive revenue based upon
those intangible assets.
Note 5
–
Convertible Promissory
Notes
Convertible
Promissory
Note Issued February
22,
2011
On February 22,
2011, the Company entered into a
Securities Purchase Agreement (the “SPA”)
with
an unrelated entity (the “Holder”), in
connection with
the
purchase by the
Holder of
a
Convertible Promissory
Note (the “February 2011
Note”).
Pursuant to the February
2012 Note, the Holder loaned to the Company the principal amount of
$40,000. The February
2011 Note bears interest at a
rate
of
8%, and is due on November 17,
2011.
The
Holder may convert principal and unpaid
interest on the
note into shares
of
the
Company’s common stock,
with the number of
shares issuable
determined by
dividing
the
amount
to
be
converted
by the
conversion price which
is equal
to
63% of the average of the three lowest trading
prices of the Company’s
common stock
over the ten trading
days
prior
to
the date of the conversion.
The Company recorded
a
$23,492 debt discount
related to
the
beneficial
conversion feature. The loan was fully repaid on November 17, 2011.
Convertible Promissory
Note Issued March
10,
2011
On March 10,
2011, the Company entered into a Securities Purchase Agreement (the “SPA”)
with
an unrelated entity (the “Holder”), in
connection with
the
purchase by the Holder of
a
Convertible Promissory
Note (the “March 2011
Note”).
14
CELLYNX
GROUP, INC
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
March 31,
2012 and
2011
(Unaudited)
Pursuant to the
March
2011 Note,
the Holder loaned
to
the
Company the
principal amount
of
$42,500. The
March
2011 Note bears
interest at a
rate
of
8%, and was due on
December 7, 2011. Subject to a revision of that note agreement dated January 6, 2012, the Holder may convert
principal and unpaid
interest on
the
note into shares
of
the
Company’s
common stock, with the number of shares issuable determined as
the lesser of a fixed rate of $0.00015 per share or a variable rate calculated by
dividing
the amount to be converted
by the
conversion
price which
is equal
to
25%
of
the average of the three
lowest trading prices of the Company’s common stock over the ten trading days prior to
the
date
of
the
conversion. The Holder is prohibited under the March 2011 Note from converting
amounts if principal and interest that
would
result
in
The Holder receiving shares,
which
when combined with shares of
the Company’s
common stock
held by The Holder,
would
result
in
The Holder holding more
than 4.99%
of
the
Company’s
then- outstanding common stock. No registration rights were granted
in connection with the purchase of the
March
2011
Note,
and the
shares
of common
stock,
if any,
issued
upon conversion,
will be
restricted securities
as
defined
pursuant
to
the
terms
of
Rule
144. The loan was repaid in full via conversion by April 12, 2012.
Convertible Promissory
Note Issued May
18,
2011
On May 18, 2011,
the Company entered into a Securities Purchase Agreement (the “SPA”) with an unrelated holder, in
connection with
the
purchase by Holder
of
a
Convertible Promissory
Note in the principle amount of $32,500. The May
2011 Note bears
interest at a rate of 8%, and is due on
February 23, 2012. Pursuant to the terms
of a January 6, 2012 amendment agreement between the Company and holder, the note may be converted into shares
of
the
Company’s
common stock, with the number of shares issuable determined to be the lesser of a fixed rate of $0.00015 per share or a
variable rate calculated by
dividing the amount to be converted
by the
conversion price which
is equal
to
25%
of
the average of the three lowest trading prices of the Company’s common stock over the ten trading days prior to
the
date
of
the
conversion. Asher is prohibited under the Asher May 2011 Note from converting
amounts if principal and interest that
would
result
in
Asher receiving shares,
which
when combined with shares of the Company’s common stock held by
Asher,
would result in Asher holding more than 4.99% of the
Company’s
then- outstanding common stock. No registration rights were granted in connection with the purchase of the Asher May 2011
Note, and the
shares
of common
stock,
if any,
issued
upon conversion,
will be
restricted
securities
as
defined pursuant
to
the
terms
of
Rule
144. At the date of issuance
of this report, $1,000 plus interest remains outstanding on this note.
Convertible Promissory
Note Issued January 10,
2012
On January 10, 2012, the Company entered
into a Securities Purchase Agreement (the “SPA”) with an unrelated holder, in
connection
with
the
purchase by Holder of
a
Convertible Promissory
Note in
the principle amount of $15,000. The January 2012 note bears
interest at a rate of 8%,
and is due on
October 10
, 2012. Pursuant to the terms of a January 6, 2012 amendment
agreement between the Company and holder, the note may be converted into shares
of
the
Company’s
common stock,
with the number of shares issuable determined to be the lesser of a fixed rate of $0.00015 per share or a variable rate calculated
by
dividing the amount to be converted
by
the
conversion price which
is equal
to
25%
of
the average of the three lowest trading prices of the Company’s common stock over the ten trading days prior to
the
date
of
the
conversion. Asher is prohibited under the Asher May 2011 Note from converting
amounts if principal and interest that
would
result
in
Asher receiving shares,
which
when combined with shares of the Company’s common stock held by
Asher,
would result in Asher holding more than 4.99% of the
Company’s
then- outstanding common stock. No registration rights were granted in connection with the purchase of the Asher May 2011
Note, and the
shares
of common
stock,
if any,
issued
upon conversion,
will be
restricted
securities
as
defined pursuant
to
the
terms
of
Rule
144.
Pursuant to the terms of
the Note, while there remains any unpaid
amounts owing on
the Note, the Company may not
incur
additional
debt without Holder’s approval except for (i) debt that was owed or committed as of the date of the SPA and of which the
Company had informed
holder;
(ii) indebtedness
to
trade creditors
or
financial
institutions in
the
ordinary course
of
business;
(c)
debt which
in
the
aggregate does
not
exceed $250,000; or (d)
debt the
proceeds
of
which
are
used
to
repay
the
Note.
15
CELLYNX
GROUP, INC
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
March 31,
2012 and
2011
(Unaudited)
The Company has the right
to pre
-
pay the Note during the first 120 days following the date of the Note by
paying to Holder 150% of
the
then-
outstanding principal amount
and any accrued
and
unpaid
interest,
penalties, or
other
amounts owing.
Pursuant to the SPA,
the Company agreed to grant
to Asher a
right
of
first
refusal for
any subsequent
transactions occurring during
the
twelve
month period following
the Closing Date, which was defined as May 23, 2011. The right of first refusal does not apply to
any transactions in
excess
of $250,000.
Yaretz Convertible Promissory
Note Issued April
5,
2011 –
Related
Party
On April 5, 2011,
the Company entered into a Securities Purchase Agreement (the “SPA”)
with
one of
its
directors, Dwayne Yaretz
(“Yaretz”), in connection with
the
purchase
by Yaretz of
a
Convertible Promissory
Note (the “Yaretz
Note”).
Pursuant to the Yaretz
Note, Yaretz loaned to the Company the principal amount
of
$50,000. The Yaretz Note bears
interest at a
rate
of
8%,
and is due on January 5,
2012. Yaretz
may
convert principal and unpaid
interest
on
the
note
into
shares
of the
Company’s common
stock,
with the
number of shares issuable
determined by
dividing the amount
to
be converted by
the conversion price which
is
equal to 63% of
the average
of
the
three lowest trading prices of the Company’s common stock over the
ten trading days prior to the
date
of
the
conversion. Yaretz is prohibited under
the
Yaretz Note from converting amounts if principal and interest that would
result in Yaretz receiving shares, which when combined with
shares
of
the Company’s
common stock
held by
Yaretz,
would result in Yaretz holding
more
than 4.99% of
the Company’s
then
-
outstanding common stock. No registration rights were granted
in connection with the purchase of
the Yaretz Note, and the
shares
of
common
stock,
if any,
issued
upon conversion, will be
restricted securities
as
defined pursuant
to
the
terms
of
Rule
144.
Pursuant to the terms
of
the Yaretz Note, while there remains any unpaid
amounts owing on
the Yaretz Note,
the
Company may not
incur
additional debt
without Yaretz’s approval except for (i) debt that was owed or committed as of
the
date
of
the
SPA
and of
which
the
Company had informed Yaretz; (ii) indebtedness to trade creditors or
financial institutions in the
ordinary course
of
business;
(c)
debt which
in
the
aggregate does
not
exceed $250,000;
or
(d)
debt the
proceeds of
which
are
used
to
repay
the
Yaretz Note.
The Company has
the
right
to
pre
-
pay the
Yaretz Note during
the
first
120
days
following the
date
of
the
Yaretz Note by paying
to
Yaretz 150%
of
the then
-
outstanding principal amount
and
any accrued
and unpaid
interest,
penalties, or
other
amounts owing.
The Company determined
that
the Yaretz Note contained a
beneficial
conversion feature because the
conversion rate
was less
than the
share
price at the
date
of
issuance. The Company recorded
a
$29,365
debt discount related to
the
beneficial
conversion feature.
Convertible promissory
notes
The Company recorded
interest expense relating to the convertible promissory notes of $5,973 and $9,941 for the three and six months ended March 31,
2012, respectively and $3,584 and $6,010 for the three and six months ended March 31, 2011, respectively.
The Company amortized
$22,609 and $47,988 of the debt discount for the three and six months ended March 31, 2012 respectively and $20,343 and $42,762
of the debt discount for the three and six months ended March 31, 2011, respectively.
The following table
summarizes the
convertible promissory notes
at
March 31,
2012 and September 30,
2011:
16
CELLYNX
GROUP, INC
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
March 31,
2012 and
2011
(Unaudited)
|
|
March 31,
|
|
|
September 30,
|
|
|
|
2012
|
|
|
2011
|
|
|
|
|
|
|
|
|
Issued August 2006, amended November 2007
|
|
$
|
262,356
|
|
|
$
|
262,356
|
|
Issued July 22, 2010
|
|
|
-
|
|
|
|
-
|
|
Less: Debt discount
|
|
|
-
|
|
|
|
-
|
|
Issued July 2010 through March 2012
|
|
|
288,600
|
|
|
|
220,000
|
|
Less amounts converted
|
|
|
(127,700
|
)
|
|
|
(73,000
|
)
|
Less: Debt discount
|
|
|
(20,180
|
)
|
|
|
(29,533
|
)
|
Convertible promissory notes, net
|
|
$
|
403,076
|
|
|
$
|
379,823
|
|
Note 6
–
License
Agreement
On January 12, 2009,
the Company entered into a Licensing Agreement with an unrelated party. The Licensing Agreement gives the Company the right to
manufacture, have manufactured, use, import, and offer to sell, lease, distribute or otherwise exploit certain technology rights
and intellectual rights. The License Agreement has a term of ten years. As consideration for the License Agreement, the Company
issued 57,143 shares of its common stock and paid $1,000 in cash. The Company determined the fair value of the License Agreement
to be $7,429 based on the market value of its common stock on the date of the agreement plus the $1,000, for a total acquisition
cost of $8,429, which is included in the accompanying consolidated balance sheet.
The Company recorded
amortization expense related to the licensing agreement of $105 and $210 for the three and six months ended March 31, 2012, and
$211and $421 for the three and six months ended March 31, 2011, respectively.
Note 7 - Consulting
Agreement
On March 31, 2009, the
Company entered into a Consulting Agreement with an outside third party. In connection with this Consulting Agreement, the Company
issued warrants to purchase 2,000,000 shares of its Common Stock. The exercise prices for the warrants are as follows:
Number of
|
|
|
Exercise
|
Warrants Issued
|
|
|
Price
|
300,000
|
|
|
$0.10 per share
|
500,000
|
|
|
$0.15 per share
|
600,000
|
|
|
$0.20 per share
|
600,000
|
|
|
$0.25 per share
|
2,000,000
|
|
|
|
17
CELLYNX
GROUP, INC
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
March 31,
2012 and
2011
(Unaudited)
The vesting schedule is
as follows:
Number of Warrants Issued
|
|
|
Exercise Price
|
|
Vesting Dates
|
300,000
|
|
$
|
0.10 per share
|
|
Immediately
|
500,000
|
|
$
|
0.15 per share
|
|
Immediately
|
50,000
|
|
$
|
0.20 per share
|
|
Immediately
|
550,000
|
|
$
|
0.20 per share
|
|
At time of extension
|
600,000
|
|
$
|
0.25 per share
|
|
March 31, 2010
|
2,000,000
|
|
$
|
|
|
|
On January 15, 2010,
the Company entered into a consulting agreement with Seahawk Capital Partners, Inc. The Company issued 1,000,000 shares of Company
restricted stock and 2,000,000 warrants upon signing of agreement. In addition, the Company agreed to issue an additional 50,000
shares of restricted Company stock.
The exercise prices of
the warrants are as follows:
Number of Warrants Issued
|
|
|
Exercise Price
|
285,714
|
|
$
|
0.10 per share
|
285,714
|
|
$
|
0.75 per share
|
285,714
|
|
$
|
01.5 per share
|
285,714
|
|
$
|
2.00 per share
|
285,714
|
|
$
|
3.00 per share
|
285,714
|
|
$
|
3.50 per share
|
285,716
|
|
$
|
4.00 per share
|
2,000,000
|
|
|
|
18
CELLYNX
GROUP, INC
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
March 31,
2012 and
2011
(Unaudited)
Note 8
–
5BARz International, Inc. Agreement
On December 31, 2010,
the Company consented to the transfer of three agreements that they had entered into with Dollardex Group Corp. to 5BARz
International, Inc. as follows;
(i)
|
An “Amended and Restated Master Global Marketing and Distribution Agreement.”
|
(ii)
|
An “Asset Purchase Agreement”
|
(iii)
|
A “Revolving line of credit agreement and security agreement”.
|
These agreements with provide
for the exclusive global marketing and distribution of the 5BARz line of products and related accessories
and a 50% ownership interest in the 5BARz intellectual property. In addition, a revolving line of credit facility has been
made available to Cellynx.
On March 29, 2012, the
Company and 5BARz International, Inc. entered into an agreement which provided several amendments to the agreement
referred to above. As a result of those amendments, the following arrangements between the Companies were established;
(iv)
|
5BARz International, Inc. acquired a 60% interest in the patents and trademarks held by Cellynx Group Inc., referred to as the “5BARz™” technology. That interest in the technology was acquired for proceeds comprised of 9,000,000 shares of the common stock of the Company, valued at the date of acquisition at $0.20 per share or $1,800,000 USD. The acquisition agreement also clarified that the ownership interest in the intellectual property does represent that proportionate interest in income earned from the intellectual property.
|
(v)
|
5BARz International, Inc. agreed to make available to Cellynx Group, Inc., a revolving line of credit facility in the amount of $2.2 million dollars of which $636,606 has been advanced as of March 31, 2012. This revolving line of credit facility expires on October 5, 2013. Under the terms of the line of credit facility, the Company has the right to convert amounts due under the facility into common stock of Cellynx, at a conversion rate which is the lesser of a fixed conversion rate of $0.00015 per share or a variable rate which is calculated at 25% of the average lowest three closing bid prices of the Cellynx Group, Inc. common stock for a period which is ten (10) days prior to the date of conversion. At March 31, 2012, the Company converted $78,500 of the amount due under the revolving line of credit facility for 350,000,000 shares of the capital stock of Cellynx Group, Inc. As a result, Cellynx became a consolidated subsidiary of 5Barz International Inc., on March 29, 2012.
|
(vi)
|
Pursuant to the Master Global Marketing and Distribution agreement between 5Barz International Inc. and Cellynx Group, Inc., 5BARz International, Inc. was obligated to pay to Cellynx Group, Inc., a royalty fee amounting to 50% of the Company’s Net Earnings. That fee would be paid on a quarterly basis, payable in cash or immediately available funds and shall be due and payable not later than 45 days following the end of each calendar quarter of the year. The asset acquisition agreement amendment referred to herein specified that the royalties would be paid in relation to the ownership of the intellectual property.
|
19
CELLYNX
GROUP, INC
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
March 31,
2012 and
2011
(Unaudited)
Note 9 –
Stockholder’s Equity
On December 14, 2010,
the Board of Directors approved the cancellation of 13,412,638 options that were previously granted to Daniel Ash, the former CEO
and Director of the Company, and agreed instead to issue Mr. Ash 13,412,638 shares of the Company's common stock.
On January 31, 2011,
the Company issued 534,759 shares of common stock pursuant to the conversion of $10,000 principal of the Asher Note. The conversion
rate was $.0187.
On February 8, 2011,
the Company issued 662,983 shares of common stock pursuant to the conversion of $12,000 principal of the Asher Note. The conversion
rate was $.0181.
On February 22, 2011,
the Company issued 609,756 shares of common stock pursuant to the conversion of $10,000 principal of the Asher Note. The conversion
rate was $.0164.
On March 2, 2011,
the Company issued 921,986 shares of common stock pursuant to the conversion of $13,000 principal of the Asher Note. The conversion
rate was $.0141.
On March 10, 2011,
the Company issued 1,034,483 shares of common stock pursuant to the conversion of $10,000 principal and $2,000 accrued interest
of the Asher Note. The conversion rate was $.0097.
On March 24, 2011,
the Company issued 633,333 shares of common stock to a consultant for services rendered. The shares were valued at $13,933 which
was the fair market value of the shares on the date of grant.
On August 23, 2011,
the Company issued 1,666,667 shares of common stock pursuant to the conversion of $8,000 principal of the Asher Note. The conversion
rate was $.0048.
During the three
months ended December 31, 2011, the Company issued 33,506,911 shares of common stock pursuant to the conversion of $34,500 principal
of the Asher Note. The conversion rate was $.00103.
During
the three months ended March 31, 2012, the Company issued 110,666,666 shares of common stock pursuant to the conversion of $16,600
principal of the Asher Note. The conversion rate was $.
0.00015.
Stock Options
On December 3, 2007,
the Board of Directors adopted the 2007 Stock Incentive Plan (the “Plan”) of CelLynx, Inc. All of the Company’s
employees, officers, directors, consultants and advisors are eligible to be granted options, restricted stock awards, or other
stock-based awards
under the Plan. The Plan is administered by the Board. The Board
has authority to grant awards and to adopt, amend and repeal such administrative rules, guidelines and practices relating to the
Plan as it shall deem advisable. Subject to certain adjustments, awards may be made under the Plan for up to 25,000,000 shares
of common stock of the Company. The Board shall establish the exercise price at the time each option is granted. In July 2008,
the Company amended the Plan to increase the number of awards available under the Plan from 25,000,000 to 75,000,000.
On December 14, 2010,
the Company granted 1,000,000 options to the Chairman of the Board of Directors and 1,000,000 options to the acting Chief Financial
Officer. The options vest immediately, are convertible at $0.02 per share and expire on the December 14, 2015. The Company calculated
the value of the options using the Black-Scholes model using the following assumptions:
20
CELLYNX
GROUP, INC
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
March 31,
2012 and
2011
(Unaudited)
March
31,
2012
Expected life
(years)
|
5.00
|
Risk
-
free
interest rate
|
2.08
|
Expected volatility
|
145%
|
Expected dividend
yield
|
0%
|
The weighted average gran
t
-
date
fair value was $0.015 per option.
The Company fair value of $30,324 was
recorded as
an
expense
in
the accompanying consolidated statement of
operations.
The following table summarizes information
with
respect
to
options outstanding under
the
Plan
and outside the
Plan.
|
Number of
Shares
|
|
Weighted Average
Exercise Price
|
Weighted Average
Contractual Life
|
|
Aggregate
Intrinsic Value
|
Outstanding at September. 30, 2011
|
21,775,412
|
|
$
|
0.111
|
|
|
|
|
Granted
|
-
|
|
|
-
|
|
|
|
|
Cancelled
|
-
|
|
|
-
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2012
|
21,775,412
|
|
$
|
0.111
|
2.75
|
|
$
|
0
|
Exercisable at March 31, 2012
|
19,041,494
|
|
$
|
0.107
|
2.68
|
|
$
|
0
|
The number and weighted average exercise prices
of all options outstanding as of March 31, 2012, are as follows:
Options outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
Number
|
|
|
Average
|
|
|
Remaining
|
|
Range of
|
|
|
Outstanding as of
|
|
|
Exercise
|
|
|
Contractual Life
|
|
Exercise Price
|
|
|
March 31, 2012
|
|
|
Price
|
|
|
(Years)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.014 - 0.05
|
|
|
|
3,415,170
|
|
|
|
0.018
|
|
|
|
3.93
|
|
$
|
0.06 - 0.100
|
|
|
|
4,506,184
|
|
|
|
0.074
|
|
|
|
1.95
|
|
$
|
0.110 - 0.150
|
|
|
|
9,555,457
|
|
|
|
0.125
|
|
|
|
2.73
|
|
$
|
0.160 - 0.200
|
|
|
|
2,556,961
|
|
|
|
0.172
|
|
|
|
3.46
|
|
$
|
0.210 - 0.260
|
|
|
|
1,741,640
|
|
|
|
0.217
|
|
|
|
2.57
|
|
|
|
|
|
|
21,775,412
|
|
|
|
|
|
|
|
|
|
21
CELLYNX
GROUP, INC
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
March 31,
2012 and
2011
(Unaudited)
The number and weighted average
exercise prices of all options exercisable as of March 31, 2012, are as follows:
Options Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
Number
|
|
|
Average
|
|
|
Remaining
|
|
Range of
|
|
|
Outstanding as of
|
|
|
Exercise
|
|
|
Contractual Life
|
|
Exercise Price
|
|
|
March 31, 2012
|
|
|
Price
|
|
|
(Years)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.014 - 0.05
|
|
|
|
3,415,170
|
|
|
|
0.018
|
|
|
|
3.93
|
|
$
|
0.06 - 0.100
|
|
|
|
4,007,338
|
|
|
|
0.074
|
|
|
|
0.96
|
|
$
|
0.110 - 0.150
|
|
|
|
8,566,279
|
|
|
|
0.126
|
|
|
|
2.86
|
|
$
|
0.160 - 0.200
|
|
|
|
1,792,667
|
|
|
|
0.177
|
|
|
|
2.68
|
|
$
|
0.210 - 0.260
|
|
|
|
1,260,040
|
|
|
|
0.217
|
|
|
|
2.43
|
|
|
|
|
|
|
19,041,494
|
|
|
|
|
|
|
|
|
|
Warrants
The following table
summarizes the warrant activity:
|
Number of
Warrants
|
Weighted Average
Exercise Price
|
Average Remaining
Contractual Life
|
Aggregate
Intrinsic Value
|
Outstanding at September 30, 2011
|
36,114,757
|
$ 0.12
|
|
|
Granted
|
—
|
—
|
|
|
Exercised
|
—
|
—
|
|
|
Expired
|
—
|
—
|
|
|
Outstanding at March 31, 2012
|
36,114,757
|
$ 0.27
|
1.18
|
$ 0
|
Exercisable at March 31, 2012w
|
36,114,757
|
$ 0.27
|
1.18
|
$ 0
|
Note
10
–
Commitments
and
Contingencies
Operating
Leases
On
March
5,
2010,
the
Company
entered
into
an
amended
agreement
to
a
lease dated
February
21, 2008. The
lease
was renewed
for two years and requires
monthly payments of
$1,962
commencing April
1,
2010 with a 4% increase of
the
base rent beginning on
month
thirteen,
terminating on March 31, 2012,
for office space
for its El
Dorado Hills, California, office.
22
CELLYNX
GROUP, INC
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
March 31,
2012 and
2011
(Unaudited)
On
December 31, 2009,
the
Company
entered
into
an
amended
agreement
to
a
lease dated
August
26, 2008. The lease
was renewed
for
25
months and requires monthly payments of
$3,710
commencing on May 1,
2010 with a $106 increase of
the
base rent beginning on
the
fourteenth month, terminating on
April 30, 2012,
for office space
for its Mission Viejo,
California, office.
During the current fiscal
year those lease facilities were vacated by the Company.
The Company recorded
rent expense of $11,830 and $11,830 for three months and six months ended March 31, 2012 and $39,080 and $70,577 for three and
six months ended March 31, 2011, respectively.
Litigation
As earlier reported
in the Company’s Form 10K and 10Q, the
Company was a Defendant in an
action brought by
Dophinshire L.P. regarding its office space in Mission Viejo,
CA. That action has since been dismissed. Dolphinshire L.P.,
a California limited partnership
v. CelLynx Group, Inc.,
a Nevada
corporation
and
Does
1
-
10
,
Superio
r
Cour
t
of
California, Orange County, Case
No. 00521213.
On
November 8,
2011,
plaintiff brought suit against the
Company
for
unlawful
detainer of
office
s
locate
d
a
t
2591
0
Acero
,
Suit
e
370
,
Missio
n
Viejo
,
C
A
9269
1
pursuan
t
t
o
a
leas
e
agreement
,
seekin
g
a
n
unspecifie
d
amoun
t
o
f
damages
not
to exceed
$25,000. The
Company
has
engaged in settlement
negotiations
with the
plaintiff and
management
expected
to settle
before eviction.
The Company has since, by agreement, vacated the leased premises and continues to negotiate a payout of past due rent and penalties
and has moved the general office to 4014 Calle Isabella, San Clemente, CA 92672.
A
similar action for
past due rent has been
filed
as
to
its
facility in
El
Dorado Hills,
CA. CSS Properties, v. CelLynx Group,
Inc., and Does 1
-
10
,
Superio
r
Cour
t
o
f
California
,
E
l
Dorad
o
County
,
Cas
e
No
.
PC
U 2
0
110442.
On
October 12,
2010, plaintiff brought suit against
the
Company for
unlawful detainer of
offices
located
at 5047 Robert
J Matthews
Parkway, El Dorado Hills, CA 95762 pursuant to a lease agreement, seeking an unspecified amount of damages not to exceed $25,000.
The Company has engaged in settlement negotiations with the plaintiff and management expected to settle before eviction. The Company
has since, by agreement, vacated the leased premises and continues to negotiate a payout of past due rent and penalties.
As had
been previously reported
in
the Company’s
Form 10K
and
10Q, the
Company was
facing
claims
for
back wages
by
some of
its
former employees. Some
of
those
claims have
been
partially paid and others were
expected
to
be
paid in
the
normal course of
business or
were
to
be otherwise
defended.
Those claims have
now been
incorporated into California Labor Commission awards in
favor
of
those
former employees. Those awards
total approximately $312,986.45 depending on interest charges. The first award has been converted into a judgment in the amount
of $118,224. Management had negotiated a monthly payment plan amounting to $10,000 per month commencing on February 1, 2012 and
every month thereafter until the judgment has been satisfied. This agreement is now in the process of revision.
The Company
has received a Cease
Trading Order
from
the British
Columbia Securities Commission
(BCSC) alleging that the Company
is in violation of the British Colombia reporting
requirements. The BCSC has assumed that since two the Company's Directors are domiciled in BC that the company is controlled out
of BC and therefore subject to its reporting requirements. The Company denies that premise and is appealing the issuance of the
CTO.
Note
11
–
Subsequent
Events
The Company has evaluated
all subsequent events that occurred up to the time of the Company's issuance of its financial statements.
On May 7, 2012, the Company
amended the Articles of Incorporation by increasing the authorized shares to a total of 2,000,000,000.
23
ITEM
2. MANAGEMENT
’
S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
.
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.
Plan of Operations
W
e
ar
e a
produce
r
o
f
th
e
nex
t
generatio
n
o
f
cellula
r
networ
k
extender
s
fo
r
th
e
smal
l
office
,
hom
e
offic
e
an
d
vehicle/marin
e
markets
.
Thi
s
next
generation product line, CelLynx 5BARz™, uses our patent
-
pending technology
to create a single
-
piece, plug’n play unit that strengthens weak cellular signals
to
deliver higher quality signals for voice, data and video reception on cell phones
and other cellular devices being used indoors
o
r
i
n
vehicles.
Our first product,
The Road Warrior, has passed FCC Certification, and in July 2009, we commenced the ordering of production units.
While we have
completed the first
prototype of the @Home
units
which will
eventually deliver
70 decibel (dB)
of gain
in a Single Band
PCS environment
providing up
to
2500
square feet of
indoor coverage,
the completion of
its
development
and its
commercialization has been
delaye
d
s
o
tha
t
resource
s
ca
n
b
e
allocate
d
t
o
th
e
Roa
d
Warrio
r
an
d
it
s
existin
g
orders
.
A
s
a
result
,
th
e
Roa
d
Warrio
r
order
s
presentl
y
consisting
of 16,000 units will
be ready
for
shipment
pending
approval
of COFETEL, The
Mexican
Federal Telecommunications Commission on the following
schedule:
The first 4,000 of those units will be shipped
within 90 days of approval
and the remaining 12,000 units will be shipped within 180 days thereafter.
Our @Home unit measures
6.5 x 7.5 x 2.5 inches, weighs approximately one pound and does not require the installation of antennas or cables in order to
function. Most small office home office (“SOHO”)
cellular network extenders
currently
on the market require a
receiving
tower or antenna, usually placed in
an attic or on a
rooftop, and a
transmitting tower
or
antenna to
be placed at
least 35 feet from
the other
antenna with each
connected
to
the amplifier
by
cable.
Our patent
pending
technology
is
designed
to
eliminate the need
to
distance
the receiving and transmitting towers, allowing the two towers to be
placed directly inside the amplifier, resulting in a more affordable, one
-
piece unit
sometimes referred to as ‘plug ’n play,’ i.e., requiring no installation other than plugging the unit into a
power source. In order to optimize marketability, we are developing an improved model which is expected to operate in a dual band,
PCS and Cellular, environment delivering 65 dB of gain, thereby
allowin
g
fo
r
coverag
e
o
f
2,50
0
t
o
3,00
0
squar
e
feet
.
Thi
s
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
-
Mobil
e
operat
e
o
n
th
e
cellula
r
networ
k
a
t
190
0
MHz
.
Managemen
t
believe
s
tha
t
al
l
o
f
th
e
critica
l
function
s
require
d
fo
r
thi
s
dual
-
band
unit have been identified and that we have the capability to complete development leading to commercialization.
Our Road Warrior
product line is
being manufactured by contract manufacturers located in
the Philippines, with whom CelLynx has established manufacturing and supply
chain
relationships.
These manufacturers
allow
us
to
capitalize on
the full advantages of
multiple manufacturing locations with a trained
and experienced technical work force, state
-
of
-
the
-
art
facilities and knowledge of all aspects
of supply
chain management, operational execution, global logistics
and
reverse logistics. The
marketing and
sales
functions will
be handled
by 5BARz
International, Inc.,
in accordance with
the
M&D
Agreement discussed below, incorporating a multi
-
channel
strategy
that includes
distribution partners,
wireless service providers, retail outlets and international joint ventures.
24
Agreement;
5BARz
International,
Inc
.
On December 31, 2010, the Company
consented to the transfer of three agreements that they had entered into with
Dollardex Group Corp. to 5BARz
International, Inc. as follows;
(i)
An “Amended and Restated Master Global Marketing and Distribution Agreement.”
(ii)
An “Asset Purchase Agreement”
(iii)
A “Revolving line of credit agreement and security agreement”.
These agreements with provide
for the exclusive global marketing and distribution of the 5BARz line of products and
related accessories and a 50%
ownership interest in the 5BARz intellectual property. In addition, a revolving line
of credit facility has been made
available to Cellynx.
On March 29, 2012, the Company
and 5BARz International, Inc. entered into an agreement which provided several amendments to the agreement referred to above. As
a result of those amendments, the following arrangements between the Companies were established;
(iv)
5BARz International, Inc. acquired a 60% interest in the patents and trademarks held by Cellynx Group Inc., referred to as the
“5BARz™” technology. That interest in the technology was acquired for proceeds comprised of 9,000,000 shares
of the common stock of the Company, valued at the date of acquisition at $0.20 per share or $1,800,000 USD. The acquisition agreement
also clarified that the ownership interest in the intellectual property does represent that proportionate interest in income earned
from the intellectual property.
(v)
5BARz International, Inc. agreed to make available to Cellynx Group, Inc. a revolving line of credit facility in the amount of $2.2
million dollars of which $636,606 has been advanced as of March 31, 2012. This revolving line of credit facility expires on October
5, 2013. Under the terms of the line of credit facility, the Company has the right to convert amounts due under the facility into
common stock of Cellynx, at a conversion rate which is the lesser of a fixed conversion rate of $0.00015 per share or a variable
rate which is calculated at 25% of the average lowest three closing bid prices of the Cellynx Group, Inc. common stock for a period
which is ten (10) days prior to the date of conversion. At March 31, 2012, the Company converted $78,500 of the amount due under
the revolving line of credit facility for 350,000,000 shares of the capital stock of Cellynx Group, Inc. As a result, Cellynx became
a consolidated subsidiary of 5Barz International Inc., on March 29, 2012.
25
CELLYNX
GROUP, INC
AND SUBSIDIARY
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
March 31,
2012 and
2011
(Unaudited)
(vi)
Pursuant to the Master Global Marketing and Distribution agreement between 5Barz International Inc. and Cellynx Group, Inc., 5BARz
International, Inc. was obligated to pay to Cellynx Group, Inc. a royalty fee amounting to 50% of the Company’s Net Earnings.
That fee would be paid on a quarterly basis, payable in cash or immediately available funds and shall be due and payable not later
than 45 days following the end of each calendar quarter of the year. The asset acquisition agreement amendment referred to herein
specified that the royalties would be paid in relation to the ownership of the intellectual property.
Convertible Promissory Notes
Convertible
Promissory
Note
Issued
February
22,
2011
On
February
22,
2011,
the
Company
entered
into
a
Securities
Purchase
Agreement
(the
“SPA”)
with
an unrelated
entity (the
“Holder”), in
connection
with
the purchase by the Holder of a Convertible
Promissory
Note
(the
“February 2011 Note”).
Pursuant to the
February 2012 Note, the Holder loaned to the
Company the
principal amount of
$40,000. The
February
2011 Note
bears interest
at
a
rate
of
8%,
and is due on November
17,
2011.
The Holder
may convert principal
and unpaid
interest
on the note into
shares
of the Company’s common
stock,
with the
number
of
shares
issuable
determined by
dividing the amount to
be
converted
by the conversion
price which is equal
to
63% of
the average
of the three
lowest trading prices of the Company’s
common
stock over
the ten trading days prior
to
the date of the conversion. The
Company
recorded
a $23,492 debt discount
related to
the
beneficial conversion
feature. The loan was fully repaid on November 17, 2011.
Convertible
Promissory
Note
Issued
March 10,
2011
On
March
10, 2011, the
Company entered
into a Securities Purchase Agreement (the
“SPA”)
with
an unrelated entity (the
“Holder”),
in
connection
with
the purchase by the Holder of a Convertible
Promissory
Note
(the
“March 2011 Note”).
Pursuant
to the March 2011 Note,
the Holder
loaned
to
the Company
the principal amount
of $42,500. The
March 2011 Note
bears
interest
at a
rate
of
8%,
and was
due on
December 7,
2011. Subject
to a revision of that note agreement dated January 6, 2012, the Holder may convert principal and unpaid interest
on
the note into
shares
of the Company’s
common stock, with the
number of
shares issuable determined as the lesser of a fixed rate of $0.00015
per share or a variable rate calculated by dividing the
amount to be
converted by the conversion price which is equal
to
25% of the average of
the
three
lowest trading prices of
the
Company’s
common stock over the
ten
trading days
prior
to
the date of the conversion. The
Holder
is prohibited under the
March
2011 Note from converting amounts if
principal and interest that would
result in
The Holder
receiving shares,
which when
combined
with shares
of
the
Company’s common
stock
held by The Holder,
would
result in
The Holder
holding more than
4.99%
of the Company’s
then- outstanding
common stock. No
registration rights were granted in connection with the
purchase of
the March 2011 Note,
and
the shares
of common
stock, if any,
issued
upon conversion,
will
be
restricted securities as defined pursuant
to
the terms of Rule 144. The loan was repaid in full via conversion by April
12, 2012.
26
Convertible
Promissory
Note
Issued
May 18,
2011
On
May 18, 2011, the
Company entered into a Securities Purchase Agreement (the
“SPA”) with an unrelated holder, in
connection
with
the purchase by Holder of a Convertible
Promissory
Note
in the principle amount
of $32,500
. The
May 2011 Note
bears
interest
at a rate of
8%, and was
due on February 23, 2012. Pursuant to the terms of a January 6, 2012 amendment agreement between the Company and holder, the note
may be converted into
shares
of the Company’s
common stock, with the
number of
shares
issuable determined to be the lesser of a fixed rate of $0.00015 per share or a variable rate calculated by dividing the
amount to be
converted by the conversion price which is equal
to
25% of the average of
the
three lowest trading prices of
the
Company’s
common stock over the
ten
trading days
prior
to
the date of the conversion. Asher
is prohibited under
the
Asher May
2011
Note
from
converting
amounts
if principal and
interest
that would
result in
Asher receiving shares, which when combined with shares of
the
Company’s common stock held by Asher, would result in Asher holding more than 4.99% of
the Company’s
then- outstanding common stock. No
registration rights were granted in connection with the
purchase of
the
Asher May 2011 Note, and the shares
of common
stock, if any,
issued
upon conversion,
will
be
restricted securities as defined pursuant
to
the terms of Rule 144. At the date of issuance of this report, $1,000 plus interest remains outstanding on this note.
Convertible
Promissory
Note
Issued
January 10,
2012
On January 10, 2012, the
Company entered into a Securities Purchase Agreement (the “SPA”) with an unrelated holder, in
connection
with
the purchase by Holder
of a Convertible
Promissory
Note
in the principle amount of $15,000
. The
January 2012 note
bears
interest
at a rate of
8%, and is due on October 10, 2012. Pursuant to the terms of a January 6, 2012 amendment agreement between the Company and
holder, the note may be converted into
shares
of
the Company’s
common stock, with the
number
of
shares issuable determined to be the lesser of a fixed rate of $0.00015 per share
or a variable rate calculated by dividing the
amount to be
converted by the conversion price which is equal
to
25% of the average of
the
three
lowest trading prices of
the
Company’s
common stock over the
ten
trading days
prior
to
the date of the conversion. Asher
is prohibited under
the
Asher May
2011
Note
from
converting
amounts
if principal and
interest
that would
result in
Asher receiving shares, which when combined with shares of
the
Company’s common stock held by Asher, would result in Asher holding more than 4.99% of
the Company’s
then- outstanding common stock. No
registration rights were granted in connection with the
purchase of
the
Asher May 2011 Note, and the shares
of common
stock, if any,
issued
upon conversion,
will
be
restricted securities as defined pursuant
to
the terms of Rule 144.
Pursuant
to the
terms of
the
Note,
while there
remains any unpaid
amounts owing
on
the
Note,
the
Company
may not incur additional
debt without Holder’s approval except
for (i) debt that was owed or
committed as
of
the
date of
the
SPA and of
which the
Company
had informed
holder;
(ii) indebtedness to
trade creditors
or
financial
institutions in
the ordinary
course of business;
(c) debt which in
the
aggregate
does not exceed $250,000; or (d)
debt
the proceeds of which are used to
repay the Note.
The Company has the
right to pre-pay the
Note during the
first
120 days following the
date of
the
Note by paying to Holder 150% of the then- outstanding
principal amount and any
accrued
and unpaid
interest,
penalties,
or other amounts
owing.
Pursuant
to the
SPA,
the
Company
agreed
to grant to Asher
a right of first refusal for
any subsequent
transactions
occurring
during the twelve
month
period following the
Closing Date, which was defined as
May 23, 2011. The right of
first
refusal
does not
apply to
any transactions
in
excess of $250,000.
27
At March 31, 2012 the
Company had $13,400 due under the terms of the promissory notes described above.
At May 15, 2012 the
Company had a principle balance of $16,000 due under the terms of the promissory notes described above, of which $1,000 was current
due and $15,000 may be repaid by July 10, 2012.
Dwayne
Yaretz
Agreement
On April
5, 2011,
CelLynx
Group,
Inc.,
(“the Company”),
finalized
a transaction
pursuant
to
a Securities Purchase
Agreement
(the
“SPA”)
with
one of its
directors,
Dwayne Yaretz, in
connection
with
the purchase by Mr.
Yaretz
of a Convertible
Promissory
Note
(the
“Note”).
Pursuant
to the
Note,
Mr.
Yaretz loaned
to
the Company
the principal amount of $50,000.
The
Note
bears
interest
at a rate of 8%, and
due on January 5,
2012
(the
“Due
Date”). Mr. Yaretz
may
convert principal and unpaid interest
on
the
note into
shares
of
the
Company’s
common
stock, with
the number
of
shares
issuable
determined by
dividing the amount to
be
converted
by the conversion price (the
“Conversion Price”) which is equal
to
63% of
the
average
of
the
three
lowest trading
prices of
the
Company’s common
stock
over the
ten
trading
days prior
to the
date of
the
conversion. Mr. Yaretz
is
prohibited under
the
Note
from
converting
amounts if
principal and interest
that
would
result in Mr. Yaretz
receiving shares,
which
when combined
with shares
of
the
Company’s common
stock
held by
Mr. Yaretz, would
result
in Mr. Yaretz
holding more than 4.99%
of
the Company’s then-outstanding common
stock. No
registration rights
were
granted
in
connection
with
the purchase of the Note,
and the shares
of common
stock, if any,
issued
upon conversion,
will
be
restricted securities as defined pursuant
to
the terms of Rule 144.
Pursuant
to
the terms of the Note,
while there
remains any unpaid
amounts
owing
on the Note,
the Company
may not
incur additional
debt without Mr. Yaretz’s approval
except for
(i)
debt that
was
owed
or
committed
as
of
the
date of the SPA and of which the Company
had informed
Mr.
Yaretz;
(ii) indebtedness to
trade creditors
or
financial
institutions in
the ordinary
course of business;
(c) debt which in
the
aggregate
does not exceed $250,000; or (d)
debt
the proceeds of which are used to
repay the Note.
The
Company
has
the
right
to pre-pay the
Note
during the
first
120
days following
the
date of
the
Note
by
paying to Mr. Yaretz 150%
of the then outstanding
principal amount and any accrued
and unpaid
interest,
penalties,
or other amounts
owing.
Pursuant
to the
SPA,
the
Company
agreed
to grant to Mr. Yaretz
a
right
of
first
refusal for
any subsequent
transactions occurring
during the twelve month
period
following
the Closing Date,
which was
defined as April
5, 2011. The
right of first refusal does not apply to
any transactions
in
excess of $250,000.
By
way of
background, the
SPA and the
Note
were
on
the same terms as those
recently invested
in
by Asher Enterprises,
Inc. a Delaware
corporation
(“Asher”), as disclosed
in
a Current
Report
filed with
the Commission
on March 17,
2011.
In
the
above transaction, the
Note
was issued to an accredited investor pursuant
to
the exemption
from
registration
provided by Section 4(2) of the Securities
Act of 1933,
as amended, and rules
promulgated pursuant
thereto. Additionally,
the underlying shares
of common
stock, if any,
issued
upon conversion of
the
Note
will
be
issued
pursuant
to
the exemption
from
registration
provided by Section
4(2) of the Securities Act of 1933,
as amended, and rules promulgated pursuant thereto.
All
certificates for such shares will contain the
appropriate legends
restricting their transferability
absent registration or
applicable exemption. The
accredited investor received information
concerning
the Company
and had the ability
to
ask
questions about the Company.
28
These descriptions of
the
SPA and the
Note are
not
complete, and are
qualified in
their entirety
by reference to
the SPA and
the Note
themselves, which are included
in
this filing
as exhibits and which are incorporated herein
by this reference.
The
status
of this transaction
remains
the same as of the date of this filing.
Results
of Operations
Comparison of the
three months ended
March 31,
2012
and 2011
|
Three months ended March 31,
|
|
|
|
|
|
2012
|
|
|
2011
|
|
$ Change
|
% Change
|
|
REVENUE
|
$
|
|
|
$
|
|
|
|
|
|
COST OF REVENUE
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
218,109
|
|
|
473,913
|
|
(255,804)
|
53.97
|
%
|
NON OPERATING INCOME (EXPENSES)
|
|
(4,185,990)
|
|
|
(108,615)
|
|
4,077,375
|
3,754
|
%
|
NET LOSS
|
$
|
(4,404,099)
|
|
$
|
(582,528)
|
|
3,521,571
|
604
|
%
|
|
|
|
|
|
|
|
|
|
|
Revenue
and Cost
of Revenue
During
the
three
months
ended March 31,
2012
and 2011,
we
generated
$0 and $0, respectively.
Cost of
revenues was $0 and $0,
respectively
,
resulting
in
a gross
profit of $0.
Operating Expenses
Total operating
expenses incurred for the three and six months ended March 31, 2012 were $218,109 and $373,238, respectively, compared to $473,913
and $1,129,684 for the three and six months ended March 31, 2011, which decreased by $255,804 and $756,446. The decrease was due
to a significant decrease in salaries and wages.
Non
Operating Income and Expenses
Total
non-operating income
(expenses)
incurred
for
the
three
months
ended March 31,
2012
was
$4,185,970 compared
to $108,615
for
the three months ended March 31,
2011
which was
an increase
of
$4,077,375 or 3,754%. The
difference was
due to the increased in Beneficial Conversion Factor for
the three months
ended March 31,
2011.
29
Liquidity
and Capital Resources
Financial
Condition
As of
March 31,
2012,
we
had cash of
$3,246, and we
had a
working capital
deficit
of
$2,270,931 compared
to cash of
$178
and a working
capital deficit of
$2,376,878
as
of
December 31, 2011, which was a decrease
on working capital deficit of $105,947 or 4.4%.
During
the
six months
ended March 31,
2012,
cash
used in
operating activities
was
$99,038.
During the period, the Company incurred a loss arising from the mark to market valuation of convertible features that were provided
to the holders of convertible debt an January 6, 2012 as well as the convertible features provide to 5BARz International Inc. under
the terms of the revolving line of credit agreement as amended on March 29, 2012. That expense item of $5.5 million was not a cash
loss. In addition the gain on sale of intangibles were not a cash transaction as the sale proceeds were paid to Cellynx in share
capital.
The Company received
$102,106
from
financing activities
for
the
six months
ended
March 31,
2012,
comprised of advances from 5BARz International Inc. of $87,106
and proceeds from other convertible debt in the amount of
$15,000.
Going Concern
In
our
Annual
Report on
Form
10-K
for
the year
ended
September
30,
2011,
our
independent auditors included
an
explanatory
paragraph in
its
report relating
to our
consolidated financial
statements
for
the
years
ended September
30,
2011
and 2010,
which states that we
have
incurred negative
cash flows from
operations
since inception,
and expect to incur additional
losses
in
the future
and have a substantial
accumulated deficit.
These conditions give rise to substantial
doubt
about our
ability
to continue
as
a
going
concern.
Our
ability
to expand
operations
and generate
additional
revenue and our
ability
to obtain
additional
funding
will
determine
our
ability
to
continue
as a going
concern.
Our
condensed
consolidated financial
statements
do not include
any adjustments
that
might
result from
the outcome
of this uncertainty.
We have
prepared
our
consolidated financial
statements
assuming that
we
will
continue
as
a
going
concern,
which contemplates realization
of assets and the
satisfaction of
liabilities in the
normal
course of business. As of March 31,
2012,
we
had an
accumulated deficit
of $21,197,656, negative cash flows from operations since inception, and expect
to
incur additional losses in the
future as
we
continue to develop and grow our business. We have
funded our
losses
primarily
through
the sale
of common
stock
and warrants
in
private placements;
borrowings
from
related parties and
other investors;
and revenue
provided by
the
sales
of our
5Barz
unit.
The
further development
of our
business
will
require capital. Our
operating
expenses
will
consume a material
amount of our
cash
resources.
Our current cash levels,
together with the
cash flows we generate from operating activities, are not sufficient
to
enable us to
execute
our
business strategy.
We require
additional
financing to execute
our
business
strategy and to
satisfy our
near-term
working
capital
requirements. In the event
that we
cannot
obtain
additional
funds on
a
timely
basis
or
our
operations do
not generate sufficient cash flow,
we
may
be
forced
to
curtail
or cease
our activities,
which would likely result in the loss
to investors of all or a substantial portion of
their investment.
We
are actively seeking
to
raise additional capital through the
sale of
shares of
our capital stock
to institutional investors and through
strategic
investments.
If management deems necessary, we
might also
seek additional
loans
from
related parties. However,
there
can be
no
assurance
that
we
will
be
able to
consummate any of these
transactions,
or that these transactions
will
be
consummated
on a timely
basis or on terms favorable to
us.
30
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.
Critical
Accounting Policies and Estimates
Our management’s
discussion and analysis of
our financial condition and results of
operations are
based
on our
consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the
United States
of America. The
preparation
of these
consolidated financial statements requires us to make estimates and assumptions that affect the
reported amounts of
assets and liabilities and the disclosure of
contingent
assets and liabilities at
the
date of
the
financial
statements
as
well as the reported
net sales
and expenses
during the reporting
periods. On
an
ongoing
basis,
we
evaluate our
estimates
and assumptions.
We
base
our
estimates
on historical
experience
and on various
other factors that we
believe
are
reasonable
under
the circumstances, the results
of which form
the basis for
making judgments
about the carrying value
of assets
and
liabilities
that are not readily apparent
from
other sources. Actual
results may differ from
these estimates
under
different
assumptions
or conditions.
While our
significant
accounting policies
are
more fully
described
in Note
2 to our
consolidated financial
statements,
we
believe
that
the
following accounting policies
are
the most
critical to
aid you in
fully understanding
and evaluating
this
management discussion
and analysis.
Intangible
Assets
Acquired patents,
licensing rights and trademarks are
capitalized at their acquisition cost
or fair
value.
The
legal
costs,
patent registration
fees, and models and drawings required for filing patent applications are
capitalized
if
they relate to
commercially
viable technologies.
Commercially viable technologies are
those
technologies that
are
projected to generate future
positive cash
flows in
the near
term.
Legal
costs associated with
applications
that
are
not determined to be
commercially viable are expensed as incurred.
All research and development
costs incurred in
developing
the patentable
idea are
expensed as
incurred.
Legal
fees
from
the
costs
incurred in successful defense
to the extent of an
evident
increase
in
the value
of the patents are capitalized.
Capitalized costs
for
patents
are
amortized
on
a
straight-line
basis
over the
remaining twenty-year legal
life
of
each patent after the
costs
have been
incurred.
Once
each patent or
trademark is
issued,
capitalized costs
are
amortized
on
a
straight-line basis over
a period
not to
exceed 20 years
and 10 years,
respectively. The
licensing
right is amortized
on a straight-line basis over
a period
of
10 years.
Impairment
or
Disposal
of Long- lived Assets
The
Company
applies
the
provisions of ASC
Topic
360, “Property,
Plant, and Equipment,”
which addresses
financial
accounting
and reporting
for
the impairment or disposal of long -lived assets. ASC 360 requires impairment
losses to be recorded on long -lived assets used in
operations
when indicators of
impairment are
31
present and
the
undiscounted cash flows estimated to be generated by those assets are
less
than the assets’
carrying amounts. In
that
event,
a
loss
is
recognized
based
on the amount by
which the carrying amount exceeds the fair
value
of
the long -lived assets.
Loss on long -lived assets to be
disposed
of
is
determined
in a similar manner, except that fair values
are reduced for
the
cost of disposal.
Based on its
review,
the Company
believes
that as of
March 31,
2012 and September
30,
2011,
there
was
no significant
impairment
of
its
long -lived assets.
Revenue Recognition
The
Company's
revenue
recognition policies
are
in compliance
with ASC
Topic 605, “Revenue
Recognition.” Revenue
is
recognized at the date of shipment to customers,
and when
the
price
is
fixed or
determinable, the
delivery
is
completed,
no
other significant
obligations of
the Company
exist and collectability
is
reasonably
assured.
The revenue earned
on the sale of intangibles is realized at the time that proceeds are paid in full for that intellectual property comprised of shares
in the capital stock of 5Barz International, Inc.
Income Taxes
The Company accounts
for income taxes in accordance with ASC Topic 740, “Income Taxes.” ASC 740 requires a company
to
use
the asset
and liability method of
accounting for income taxes, whereby deferred tax
assets are
recognized for
deductible
temporary differences,
and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences are
the
differences between the
reported amounts
of assets
and liabilities and their tax
bases.
Deferred
tax
assets are
reduced by a valuation
allowance
when,
in
the opinion of management, it is
more likely
than not that
some
portion,
or
all
of, the
deferred tax assets
will
not be
realized. Deferred tax assets
and
liabilities
are adjusted
for
the effects of changes in
tax laws and rates on the date of enactment.
Under ASC 740, a tax
position is recognized as a benefit only if it is “more likely than not” that the tax position would
be
sustained
in
a tax examination, with a tax
examination being presumed to occur. The amount
recognized is
the largest
amount of tax benefit
that is greater than 50% likely
of
being
realized
on
examination. For
tax positions
not meeting the “more
likely
than not” test,
no tax
benefit is recorded. Penalties
and interest incurred relate to underpayment of
income
tax
are classified as income
tax expense in
the period
incurred.
No significant
penalties or interest
relating
to
income
taxes have been incurred during
the three months
ended
March 31,
2012 and 2011.
Stock Based
Compensation
The Company records
stock-based compensation in accordance with ASC Topic 718, “Compensation – Stock
Compensation.” ASC
718 requires companies
to measure compensation cost
for
stock-based
employee
compensation at
fair value
at
the
grant date and recognize
the
expense over
the employee’s
requisite service period. Under ASC 718, the
Company’s volatility is based on
the
historical volatility of
the
Company’s stock
or the expected volatility of
similar companies. The expected life assumption is primarily
based
on historical
exercise
patterns and
employee
post-vesting termination behavior.
The
risk-free interest
rate
for
the
expected
term of
the
option
is
based
on
the
U.S. Treasury yield curve in
effect at the time
of grant.
32
ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 4. CONTROLS
AND PROCEDURES
Evaluation of
Disclosure Controls and Procedures
Regulations under
the Securities Exchange Act of 1934 (the "Exchange Act") require public companies to maintain
"disclosure
controls and procedures," which are defined to mean a
company's controls and other procedures that are designed to ensure that information
required
to
be disclosed in the
reports that
it
files or submits under
the Securities
Exchange Act of 1934 is recorded,
processed, summarized and reported,
within
the time periods specified in the
Commission's rules and forms. Our Chief Executive Officer ("CEO") and a consultant providing
services commonly provided by
a
Chief
Financial Officer
("CFO") carried out an
evaluation
of the effectiveness
of
our
disclosure controls and procedures
as
of the end of the period
covered by this report.
Based on those
evaluations, as of the Evaluation Date, our
CEO and CFO
believe
that:
|
(i)
|
our
disclosure controls
and procedures are
designed
to ensure that
information
required to
be
disclosed
by us in
the reports we
file
under the Securities
Exchange
Act of 1934 is recorded,
processed,
summarized
and reported within
the
time
periods
specified in the SEC's
rules
and forms and that
such information
is accumulated and communicated
to
our
management, including the CEO and CFO,
as appropriate, to
allow timely
decisions
regarding
required disclosure; and
|
|
(ii)
|
disclosure controls and procedures were
effective as of the date of the evaluation
|
Changes
in Internal
Control
over Financial
Reporting
There were
no
changes
in
our
internal
control over
financial
reporting
(as
defined in
Rules
13a-15(f)
and 15d-15(f) under
the Securities Exchange Act of
1934,
as
amended)
during the
quarter
ended March 31,
2012
that
have
materially affected, or
are
reasonably
likely
to materially affect
our
internal control over
financial
reporting.
33
PART II
–
OTHER
INFORMATION
ITEM
1. LEGAL
PROCEEDINGS
As
earlier
reported
in
the
Company’s
For
m
10
K
an
d
10Q
,
th
e
Compan
y
wa
s a
Defendan
t
i
n
a
n
actio
n
brough
t
b
y
Dophinshir
e
L.P
.
regardin
g
its
office space in Mission Viejo, CA. That action has since been dismissed.
However, a new action is in process and is currently being negotiated. Management
expects
to
settle this
action.
A
similar
action
for past due rent
has been filed as to
its facility
in
El Dorado
Hills, CA. This action
too
is
being negotiated and Management
expect
s
t
o
settl
e
thi
s
actio
n
a
s
well.
A
s
ha
d
bee
n
previousl
y
reporte
d
i
n
th
e
Company
’s
Form 10K and 10Q, the
Company
was facing
claims for
back wages by
some of
its
former employees.
Some of those
claims
have been partially
paid and others
were expected
to
be paid in
the normal
course
of business
or were to
be otherwise
defended.
Those
claims
have now been incorporated
into California Labor
Commission
awards
in
favor of those former
employees.
Those
awards
total
approximately $312,986.45 depending on
interest
charges.
The
first
award
has
been
converted into
a
judgment in
the
amount of
$118,224. Management
had
negotiated a
monthly payment plan
amounting to
$10,000 per
month
commencing on
February 1,
2012
and
every month thereafter until
the
judgment has
been satisfied. This agreement is now in the process of revision.
Th
e
Compan
y
ha
s
receive
d
a
Ceas
e
Tradin
g
Orde
r
fro
m
th
e
Britis
h
Columbi
a
Securitie
s
Commissio
n
(BCSC
)
allegin
g
tha
t
th
e
Compan
y
i
s
i
n violation of
the
British
Colombia reporting requirements. The
BCSC
has
assumed that
since
two
the
Company's Directors are
domiciled in
BC
that
the
company
is controlled out
of
BC
and
therefore
subject
to its
reporting
requirements.
The
Company
denies
that
premise
and
is appealing the
issuance of
the
CTO.
With the exception
of the actions reported above,
we
know
of
no
material,
existing or
pending legal proceedings against us, nor are we involved as a plaintiff
in
any material proceeding or
pending litigation.
There
are no
proceedings in
which any of
our
directors, officers
or
affiliates, or
any registered or
beneficial stockholder, is an
adverse
party
or
has
a
material interest adverse
to
our
company.
ITEM
2.
UNREGISTERED SALES OF
EQUITY
SECURITIES AND USE OF
PROCEEDS
None
ITEM
3.
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM
4.
(REMOVED AND RESERVED)
ITEM
5.
OTHER
INFORMATION
None
34
ITEM
6. EXHIBITS
EXHIBIT
INDEX
Exhibit
Number
|
Description
|
31.1
|
Section 302 Certification by the Corporation’s Chief Executive Officer *
|
31.2
|
Section 302 Certification by the Corporation’s Chief Financial Officer *
|
32.1
|
Section 906 Certification by the Corporation’s Chief Executive Officer *
|
32.2
|
Section 906 Certification by the Corporation’s Chief Financial Officer *
|
Exhibit
Number
|
Description
|
101.INS
|
XBRL Instance Document
|
101.SCH
|
XBRL Schema Document
|
101.CAL
|
XBRL Calculation Linkbase Document
|
101.DEF
|
XBRL Label Linkbase Document
|
101.LAB
|
XBRL Presentation Linkbase Document
|
101.PRE
|
XBRL Definition Linkbase Document
|
35
SIGNATURES
Pursuant to
the requirements of
the Securities Exchange Act of
1934, the registrant has
duly caused
this
report to
be
signed on
its
behalf
by
the undersigned thereunto duly authorized.
CELLYNX GROUP, INC.
(Registrant)
Date: May 21, 2012
By:
/s/
Norman Collins
Norman Collins
Chief
Executive
Officer
36