UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(X)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF


THE
SECURITIES EXCHANGE ACT OF 1934


For
the quarterly period ended September 30,
2008





OR





(
) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)


OF
THE SECURITIES EXCHANGE ACT OF 1934


For
the transition period from ______to_____





Commission
File Number 0-11730





BayHill
Capital Corporation


(Exact
Name of Registrant as Specified in its Charter)





Colorado
            84-1089377(State
      or other jurisdiction of
            (I.R.S.
      Employerincorporation
      or organization)
            Identification
      No.)





10757
S. Riverfront Pkwy, Suite 125


South
Jordan, Utah 84095


(Address
of Principal Executive Offices)





801-816-2529


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





Large
      accelerated filer  o
            
            Accelerated
      filer  oNon-accelerated
      filer  o
            
            Smaller
      reporting company  x








Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes o  No x











State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date.





Class
            Outstanding
      at
                November
      10 , 2008Common
      Stock, $0.0001 par value
            1,959,428


























Part
      I - FINANCIAL INFORMATIONItem
      1.  Consolidated Financial Statements
              Page
      2Unaudited Consolidated Statements
      of Operations
              Page
      3Unaudited Consolidated Statements
      of Cash Flows
              Page
      4Supplemental Disclosures of Cash
      Flow Information and Non-Cash Transactions
              Page
      5Notes to Unaudited Consolidated
      Financial Statements
              Page
      6Item 2.  Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
              Page
      11Item 3.  Quantitative
      and Qualitative Disclosures About Market Risk
              Page
      12Item 4.  Controls and
      Procedures
              Page
      12Part
      II – OTHER INFORMATIONItem 2.  Unregistered
      Sales of Equity Securities and Use of Proceeds
              Page
      13Item
      6.  Exhibits
              Page
      13Signature
              Page
      14








BAYHILL
CAPITAL CORPORATION
 
 PART
I – FINANCIAL INFORMATION
 
 Item
1.  Consolidated Financial Statements
 
 Consolidated
Balance Sheets
 September
      30,
                  June
      30,2008
                  2008(Unaudited)
 AssetsCurrent
      assetsCash
      and cash equivalents
              
              $
              75,275
              
              
              $
              -Marketing commissions receivable,
      net
              
              
              392,985
              
              
              
              437,752Other current
    assets
              
              
              3,600
              
              
              
              7,200Total current
    assets
              
              
              471,860
              
              
              
              444,952Non-current
      assetsIntangible assets,
      net
              
              
              577,780
              
              
              
              644,446Deposits
      and other assets
              
              
              -
              
              
              
              8,807Total non-current
      assets
              
              
              577,780
              
              
              
              653,253Total
      assets
              
              $
              1,049,640
              
              
              $
              1,098,205Liabilities
      and Stockholders' DeficitCurrent
      liabilitiesAccounts payable
              
              $
              234,864
              
              
              $
              517,693Accrued
liabilities
              
              
              136,248
              
              
              
              80,949Commissions
payable
              
              
              652,857
              
              
              
              531,595Financing
    arrangements
              
              
              263,424
              
              
              
              171,614Net current liabilities of
      discontinued operations
              
              
              38,883
              
              
              
              38,883Total current
      liabilities
              
              
              1,326,276
              
              
              
              1,340,734Total
      liabilities
              
              
              1,326,276
              
              
              
              1,340,734Commitments
      and contingenciesStockholders'
      deficitPreferred stock $0.0001 par value,
      400,000 shares authorized, no shares are issued and
      outstanding
              
              
              -
              
              
              
              -Common stock $0.0001 par value,
      100,000,000 shares authorized; 1,959,428 issued and outstanding as
      of  September 30, 2008 and 1,885,470 shares issued and
      outstanding as of June 30, 2008
              
              
              196
              
              
              
              188Additional paid-in
      capital
              
              
              16,188,709
              
              
              
              16,082,635Accumulated
deficit
              
              
              (16,465,541
              )
              
              
              (16,325,352
              )Total stockholders’
      deficit
              
              
              (276,636
              )
              
              
              (242,529
              )Total
      liabilities and stockholders’ deficit
              
              $
              1,049,640
              
              
              $
              1,098,205
 
 See
Notes to Consolidated Financial Statements








2


BAYHILL
CAPITAL CORPORATION





Unaudited
Consolidated Statements of Operations








Three
      Months EndedSeptember
      30,2008
            
            
            2007(Unaudited)
            
            
            (Unaudited)Revenue
      - marketing commissions
            
            $
            706,304
            
            
            $
            1,221,416Operating
      expenses:Marketing
    commissions
            
            
            453,463
            
            
            
            809,862Selling, general and
      administrative
            
            
            304,183
            
            
            
            456,373Depreciation and
      amortization
            
            
            74,954
            
            
            
            -Total operating
      expenses
            
            
            832,600
            
            
            
            1,266,235Loss
      from continuing operations
            
            
            (126,296
            )
            
            
            (44,819
            )Interest
      expense
            
            
            (13,893
            )
            
            
            (212,449
            )Loss
      from continuing operations before income taxes
            
            
            (140,189
            )
            
            
            (257,268
            )Income
      taxes
            
            
            -
            
            
            
            -Loss
      from continuing operations
            
            
            (140,189
            )
            
            
            (257,268
            )Loss
      from discontinued operations
            
            
            -
            
            
            
            (77,327
            )Net
      loss
            
            
            (140,189
            )
            
            
            (334,595
            )Preferred
      dividends
            
            
            -
            
            
            
            (10,000
            )Loss
      attributable tocommon
      stockholders
            
            $
            (140,189
            )
            
            $
            (344,595
            )Loss
      per common share-basic and diluted:Continuing
      operations
            
            $
            (.10
            )
            
            $
            (1.25
            )Discontinued
      operations
            
            
            -
            
            
            
            (.37
            )$
            (.10
            )
            
            $
            (1.62
            )Weighted
      average number of common shares outstanding:
              Basic
      and Diluted
            
            
            1,394,964
            
            
            
            206,388





See
Notes to Consolidated Financial Statements





3


BAYHILL
CAPITAL CORPORATION





Unaudited
Consolidated Statements of Cash Flows





Three
      Months EndedSeptember
      30,2008
            
            
            2007Cash
      flows from operating activities
            
            Unaudited
            
            
            UnauditedNet loss
            
            $
            (140,189
            )
            
            $
            (334,595
            )Adjustments to reconcile net loss
      to net cash provided by (used in) operating activities:Depreciation and
      amortization
            
            
            74,954
            
            
            
            45,874Bad debt
expense
            
            
            -
            
            
            
            128,000Amortization of note discount
      included in interest expense
            
            
            2,123
            
            
            
            155,191Issuance of stock as
      compensation
            
            
            -
            
            
            
            8,658Changes in assets and
      liabilities:Marketing commissions
      receivable
            
            
            44,767
            
            
            
            32,796Other assets
            
            
            4,119
            
            
            
            3,640Accounts payable
            
            
            (189,807
            )
            
            
            204,125Accrued
    liabilities
            
            
            55,299
            
            
            
            (26,315
            )Commissions
    payable
            
            
            121,262
            
            
            
            (123,912
            )Other liabilities
            
            
            -
            
            
            
            (851
            )112,717
            
            
            
            427,206Net cash (used in) provided by
      continuing operations
            
            
            (27,472
            )
            
            
            92,611Net cash provided by discontinued
      operations
            
            
            -
            
            
            
            12,492Net cash (used in) provided by
      operating activities
            
            
            (27,472
            )
            
            
            105,103Cash
      flows from investing activitiesSale of Cognigen Business Systems,
      Inc.
            
            
            -
            
            
            
            (14,458
            )Decrease in other
      assets
            
            
            -
            
            
            
            (588
            )Net cash used in investing
      activities
            
            
            -
            
            
            
            (15,046
            )Net cash used in investing
      activities
            
            
            -
            
            
            
            (15,046
            )Cash
      flows from financing activitiesProceeds from notes
      payable
            
            
            102,747
            
            
            
            30,000Payments towards notes
      payable
            
            
            -
            
            
            
            (120,057
            )Net cash provided by (used in)
      financing activities
            
            
            102,747
            
            
            
            (90,057
            )Net
      increase in cash and cash equivalents
            
            
            75,275
            
            
            
            -Cash
      and cash equivalents-beginning of period
            
            
            -
            
            
            
            -Cash
      and cash equivalents-end of period
            
            $
            75,275
            
            
            $
            -





See
Notes to Consolidated Financial Statements








4


BAYHILL
CAPITAL CORPORATION





Supplemental
Disclosures of Cash Flow Information and Non-Cash Transactions





Cash
payments for interest expense during the three months ended September 30, 2008
and 2007 were $7,265 and $57,258, respectively.





During
the three months ended September 30, 2008, we issued the following restricted
shares of our common stock for those reasons and values identified
below:





Shares
            
            
            
            ValueSettlement
      of accounts payable
            
            
            35,930
            
            
            $
            46,485Directors
      fees payable
            
            
            38,028
            
            
            $
            46,534





The values we recorded for the
settlement of accounts payable and director fees payable were at prices ranging
from $1.20 per share to $1.30 per share based on negotiated
settlements.  The closing market price of our common stock on the date
our Board of Directors approved the issuances was $1.25 per share.The differences
between the market price of our common stock and negotiated settlements, on the
date of issuance, was approved by the Board of Directors and does not materially
impact the financial statements.





During
the three month period ended September 30, 2008, we recorded a beneficial
conversion feature of $13,058 on a convertible promissory note.  As of
September 30, 2008, $2,123 of the beneficial conversion feature was accreted to
interest expense.





In
September 2007, we repurchased 24,921 shares of our common stock as partial
consideration for the sale of 100% of the equity interests of our subsidiary,
Cognigen Business Systems, Inc.  Immediately following our repurchase
of these common shares, we cancelled such shares, which we deemed to have a net
value of $42,984.





During
the three months ended September 30, 2007, we issued 1,154 shares of our common
stock valued at $8,658 as consideration for certain accounts
payables.

























5




NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS







Note 1 – Description of
Business





BayHill Capital Corporation (“we,” “us”
or “BHCC”, formerly Cognigen Networks, Inc.), was incorporated in May 1983 in
the State of Colorado.  Through our wholly-owned subsidiary,
Commission River Corporation (“Commission River”), we market and sell services
and products through commission-based marketing agents who use the Internet as a
platform to provide customers and subscribers with a variety of
telecommunications and technology-based products and
services.  Historically, we have generated revenues in two
ways:





First, we have generated marketing
commission revenues from vendors who are represented on web sites operated by
independent agents and for whom we sell products and services via contractual
agreements. Generally, we enter into contractual agreements with these vendors,
who pay commissions based on the volume of products and services sold by
independent sales agents.  We then pay a portion of those commission
revenues to the independent sales agents responsible for making the sales upon
which the commissions were based. A significant portion of our commission
revenues is attributable to the sale of domestic long distance services and
commercial telecommunications services; however, we also generate commission
revenues from the sale of wireless communications, residential broadband
services, Voice over Internet (“VoIP”) services and prepaid calling
cards/PINs.





Second, we have, at times, also generated revenues from sales of proprietary
products and services. Generally, we have acquired or developed these
proprietary products and services with the intention of marketing such products
and services through independent agent networks. These products and services
have included long distance telecommunication services, online shopping websites
and broadband voice, data, video and management communication and control
support services. Most of these products have been sold by independent agents,
and we have generally paid commissions to independent agents based on the dollar
volume of products sold.  Currently we do not offer any proprietary
products or services.  We regularly look for opportunities to acquire
or develop proprietary products or services.  If we identify any
proprietary products or services which we believe we could market profitably, we
may offer proprietary products or services in the future.





Note 2 – Summary of
Significant Accounting Policies





The
accompanying consolidated financial statements include the accounts of our
wholly owned subsidiary, Commission River Corporation, and our former
subsidiaries, LowestCostMall.com (“LCM”), Cognigen Business Systems, Inc.
(“CBSi”), and
Intandem Communications Corp. (“Intandem”).  For purposes of the
accompanying financial statements, we have treated these former subsidiaries as
discontinued operations (see Note 3).  All intercompany accounts and
transactions have been eliminated in consolidation.





In our
opinion, we have made all adjustments, consisting only of normal recurring
adjustments, to (a) the unaudited consolidated statements of operations for the
three months ended September 30, 2008 and 2007, respectively, (b) the
unaudited and audited consolidated balance sheets as of September 30, 2008 and
June 30, 2009, respectively, and (c) the unaudited consolidated statements of
cash flows for the three months ended September 30, 2008 and 2007,
respectively, in order to make such financial statements not
misleading.





We have
prepared the accompanying unaudited consolidated financial statements in
accordance with generally accepted accounting principles for interim financial
information.  Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for financial
statements.  For further information, refer to the audited
consolidated financial statements and notes thereto for the year ended June 30,
2008, included in our Annual Report on Form 10-KSB filed with the Securities and
Exchange Commission.





The
preparation of our consolidated financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.





The
results for the three months ended September 30, 2008 may not necessarily be
indicative of our actual results for the fiscal year ending June 30,
2009.





Note 3 – Discontinued
Operations





LowestCostMall






6




In July
2006, we discontinued our operations conducted by LCM.





Cognigen Business Systems,
Inc.





In
September 2007, we repurchased 24,921 of our common shares as partial
consideration for the sale of 100% of the equity interests of our subsidiary
CBSi.  Immediately following the repurchase of these common shares, we
cancelled such shares, which we deemed to have a net value of
$42,984.





Sale of Proprietary
Telecommunications Accounts





On October 13, 2006, we agreed to sell
our interest in the majority of our telecommunications “one plus” accounts for
which we recorded telecommunications revenue through sales of proprietary
products and services.




The following is financial information as of September 30, 2008 relative to the
discontinued operations described above.





Accrued
      liabilities
            
            $
            (38,883
            )Net
      current liabilities
            
            $
            (38,883
            )Three
      Months Ended
                September
      2008
            
            
            Three
      Months Ended
                September
      2007Total
      revenue
            
            
            $
            -
            
            
            $
            15,233Operating
      expenses
            
            
            
            -
            
            
            
            92,560Loss
      from operations
            
            
            
            -
            
            
            
            (77,327
            )Income
      taxes
            
            
            
            -
            
            
            
            -Net
      loss
            
            
            $
            -
            
            
            $
            (77,327
            )





Note 4 – Management’s
Plan





Cash
flows generated from operations and cash advances were sufficient to meet our
working capital requirements for the three months ended September 30, 2008, but
will not likely be sufficient to meet our working capital requirements for the
foreseeable future or provide for expansion opportunities.  We
incurred $140,189 in losses from continuing operations and used $27,472 in
operations for the three months ended September 30, 2008.  Net cash
flows generated from our financing activities for the three months ended
September 30, 2008 were $102,747, primarily due to $100,000 of proceeds from
cash advances provided by an affiliate of our Chief Executive Officer, and which
we believe will be converted to equity in connection with a future round of
financing.  These conditions raise substantial doubt about our ability
to continue as a going concern.





We intend
to move forward with our plans and activities in an effort to secure additional
equity financing and enhance and expand our affiliate marketing business along
with expansion into other related areas of interest.





In order
to continue as a going concern, we plan to obtain additional debt or equity
financing, increase revenues, and increase cash flows from
operations.  There can be no assurance that we will be able to secure
additional debt or equity financing, that we will be able to reduce our
operating costs and expenses, that we will be able to increase our revenues, or
that cash flows from operations will produce adequate cash flow to enable us to
meet all our future obligations or to be able to expand.  If we are
unable to obtain additional debt or equity financing, we may be required to
significantly reduce or cease operations.





Note 5 – Financing
Arrangements





The
following consists of our financing arrangements as of September 30,
2008:





Secured
      Term Loan with VenCore
            
            
            80,879Convertible
      Term Loan with VenCore net of discount and interest
            
            
            74,040Cash
      Advance from Little Hollow Farms, Inc. including accrued
      interest
            
            
            104,505Note
      Payable to Cardelco
            
            
            4,000$
            263,424









7




Secured Term Loan and
Convertible Term Loan with VenCore Solutions, Inc.





On October 10, 2006, we entered into an
agreement with VenCore Solutions, Inc. (“VenCore”) to borrow $250,000 under a
term loan to be repaid by making monthly payments of $9,000, which included
interest at 16.7% per annum.  The loan was fully amortizable over 36
months.  The loan documents contained certain covenants, which
included the requirement of VenCore’s approval of the disposition of any of our
material assets, a prohibition against our incurrence of additional liens on our
assets or the change of creditors.  As part of our agreement with
VenCore, we issued to VenCore warrants to purchase 1,500 shares of our common
stock valued at an aggregate of $5,093.  The warrants have an exercise
price of $6.00 per share and are exercisable for up to seven years from the date
of grant.  We granted VenCore a lien on substantially all of our
assets.  We also paid to VenCore commitment and documentation fees of
$5,500.  These fees were amortized over three years as an adjustment
to interest expense.  As of June 30, 2008, the remaining principal and
accrued interest balance was $166,614.  In July 2008 we entered in to
a “Payment Restructure Agreement” with VenCore whereby VenCore converted $83,500
of the term loan into an unsecured 12% convertible note due September 30, 2009,
which is convertible, at the option of VenCore, into no more than 66,800 shares
of our common stock.  The interest on this convertible note is payable
at our option in shares of our common stock priced at $1.25 per
share.  In addition, VenCore was granted a two-year warrant to
purchase 20,875 shares of our common stock at an exercise price of $2.00 per
share. The remaining original note balance of $83,321, along with interest at
16.7% per annum, is to be paid in monthly payments of an amount equal to the
greater of $5,000 per month or 10% of any debt or equity funding we receive in
any given month. We paid VenCore $1,000 for documentation fees in relation to
the Payment Restructure Agreement, which was expensed. Based on a calculation
using the Black Scholes Model, the conversion feature within this convertible
promissory note and warrants resulted in us recording a beneficial conversion
feature of $13,058 and an increase to debt discount, which will be accreted to
interest expense over the term of the note.  Accretion to interest
expense for the three-month period ended September 30, 2008 was
$2,123.  The remaining balance of the beneficial conversion feature at
September 30, 2008 was $10,935.





The
following assumptions were used in computing the face value of the warrants
granted during the three months ended September 30, 2008:





Approximate
      risk-free rate
            2.11%Expected
      dividend yield
            0.00%Expected
      Volatility
            107.00%Expected
      life in years
            1.0





Cash Advance from Little
Hollow Farms, Inc.





During the three months ended September
30, 2008, we obtained an advance of $100,000 in cash funds for use as working
capital from Little Hollow Farms, Inc., a company that is affiliated with our
Chief Executive Officer.  We are accruing interest on this advance at
the rate of 12% per annum.  It is our intention that the full amount
of the advance will be included as a portion of our next round of
funding.  Currently, we have not reached an agreement with the lender
regarding the repayment or conversion of the advance.  The outstanding
balance of the advance, including accrued interest, at September 30, 2008 was
$104,505.





Note Payable to
Cardelco





On December 31, 2007, Cardelco, LLC
(“Cardelco”) entered into a short-term promissory note with us in the amount of
$25,000. The note obligated us to make payments in the amount of $5,000 per
month starting February 1, 2008 until fully paid.  This promissory
note did not bear interest unless default occurred, at which time interest would
accrue at the rate of 10% per annum.   This note was part of a
lease termination agreement between the Company and Cardelco relating to a lease
for office space in San Diego, California.  The termination agreement
consisted of paying $45,000 to Cardelco, $20,000 of which was paid upon agreeing
to the termination agreement and $25,000 in the form of a short-term promissory
note. The unpaid balance on this note at September 30, 2008 was $4,000. Although
we may be in technical default under the note, Cardelco had not given us written
notice of default as of September 30, 2008.





Note 6 - Stockholders'
Equity





Special Meeting of the
Stockholders





On March
31, 2008, we conducted a special meeting of stockholders at which the
stockholders of the Company approved a series of proposals previously approved
by our Board of Directors.  These proposals consisted of (i) a
proposal






8
 
  to amend
the Articles of Incorporation of the Company to effect a reverse split of the
outstanding shares of our common stock pursuant to which each 50 shares of our
pre-split common stock issued and outstanding as of the effective date of the
reverse split would be exchanged for one share of our post-split common stock,
(ii) a proposal to amend the Articles of Incorporation to reduce the number of
authorized shares of our common stock from 300,000,000 shares, $0.001 par value
per share, to 100,000,000 shares, $0.0001 par value per share, and the number of
authorized shares of our preferred stock from 20,000,000 shares, no par value
per share, to 400,000 shares, $0.0001 par value per share, (iii) a proposal to
amend the Articles of Incorporation to change the name of the Company to BayHill
Capital Corporation and make other changes necessary to facilitate the foregoing
actions and the re-incorporation of the Company, (iv) a proposal to
re-incorporate the Company under the laws of the State of Delaware, and (v) a
proposal to adopt the Cognigen Networks, Inc. 2008 Stock Incentive
Plan.





Effective
April 23, 2008, our management completed the actions necessary to effect the
name change, reverse stock split, Delaware re-incorporation and reduction in the
number of authorized shares of common and preferred stock.  Our common
stock began trading on April 23, 2008 on a post-split basis under the symbol
"BYHL."





Preferred
Stock





As of
September 30, 2008 we had authorized 400,000 shares of Preferred
Stock.  There are currently no shares of Preferred Stock
outstanding.





Common
Stock





During
the three months ended September 2008, we issued the following restricted common
shares for the reasons and values identified below:





Shares
            
            
            
            ValueSettlement
      of accounts payable
            
            
            35,930
            
            
            $
            46,485Directors
      fees payable
            
            
            38,028
            
            
            $
            46,534





The
values we recorded for the settlement of accounts payable and directors fees
payable were at prices ranging from $1.20 per share to $1.30 per share based on
negotiated settlements.  The closing market price of our common stock
on the date our Board of Directors approved the issuances was $1.25 per
share.  The difference between the market price of our common stock
and negotiated settlements, on the date of issuance, was approved by the Board
of Directors and does not materially impact the financial
statements.





Stock
Options





We did
not grant any stock options during the three months ended September 30,
2008.   As of September 30, 2008 there were outstanding options
to purchase 13,000 shares of our common stock.





Warrants





We
granted warrants to purchase 20,875 shares of common stock at an exercise price
of $2.00 per share during the three months ended September 30,
2008.  These warrants were issued in connection with the $83,500
convertible note to VenCore as stated in Note 5.  As of September 30,
2008 there were outstanding warrants to purchase 26,375 shares of our common
stock.





Note 7 - Commitments and
Contingencies





Operating
Leases





We
were not obligated to pay any future minimum lease payments under any leases as
of September 30, 2008.





Note 8 –  Related
Party Activity





Payments to Telarus,
Inc.





During
the three months ended September 30, 2008, we accrued $3,865 for payments to
Telarus, Inc. (“Telarus”) for services performed by the employees of Telarus on
behalf of the Company and various expenses paid by Telarus on behalf of the
Company.   We have included this amount in accounts payable at
September 30, 2008. Telarus is owned by






9
 
  two
executive officers of Commission River Corporation, our wholly-owned
subsidiary.  We plan to continue using the services of Telarus
employees on a limited basis for the next twelve months.  Services
provided by Telarus include the performance of various accounting and software
development projects which are limited in scope.  Services are billed
to us on an hourly basis and are approved by an executive of the Company who is
not affiliated with Telarus.  In addition, all charges and billings
from Telarus are reviewed on a quarterly basis by the Board of Directors as part
of their review of the quarterly financial statements.We anticipate that the
expense of services provided by Telarus will be less than $5,000 per month in
the future.





Cash Advance from Little
Hollow Farms, Inc.





During the three months ended September
30, 2008, we obtained an advance of $100,000 in cash funds for use as working
capital from Little Hollow Farms, Inc., a company that is affiliated with our
Chief Executive Officer.  We are accruing interest on this advance at
the rate of 12% per annum.  It is our intention that the full amount
of the advance will be included as a portion of our next round of
funding.  Currently, we have not reached an agreement with the lender
regarding the repayment or conversion of the advance.  The outstanding
balance of the advance, including accrued interest, at September 30, 2008 was
$104,505.





Stock Issuance for Payment
of Liabilities





During
the three months ended September 2008, we issued the following restricted common
shares for the reasons and values identified below:





Shares
            
            
            
            ValueCommission
      River, Inc.* for services
            
            
            33,170
            
            
            $
            43,035Acadia
      Group, Inc. * for services
            
            
            2,760
            
            
            $
            3,450James
      U. Jensen for director fees
            
            
            10,026
            
            
            $
            12,533John
      D. Thomas for director fees
            
            
            9,334
            
            
            $
            11,667John
      M. Knab for director fees
            
            
            9,334
            
            
            $
            11,167Roy
      C. Banks for director fees
            
            
            9,334
            
            
            $
            11,167





*Commission
River, Inc. is a company that is affiliated with Patrick Oborn and Adam Edwards
who are executives of Commission River Corporation, our wholly-owned
subsidiary.  Acadia Group, Inc. is a company that is affiliated with
John D. Thomas who is a director of the Company.





The values we recorded for the
settlement of outstanding accounts payable and director fees payable were at
prices ranging from $1.20 per share to $1.30 per share based on negotiated
settlements.  The closing market price of our common stock on the date
our Board of Directors approved the issuances was $1.25 per share.The difference
between the market price of our common stock and negotiated settlements, on the
date of issuance, was approved by the Board of Directors and does not materially
impact the financial statements.





10





Item
2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations





Cautionary Statement
Concerning Forward-Looking Statements





Certain of the information discussed
herein, and in particular in this section entitled “Management’s Discussion and
Analysis of Financial Condition and Results of Operation,” contains
forward-looking statements that involve risks and uncertainties that might
adversely affect our operating results in the future in a material
way.  Such risks and uncertainties include, without limitation, our
ability to implement, and obtain funding to carry out our business and growth
strategy, the consequences of the corporate restructuring associated with the
actions approved by our stockholders at a special meeting of stockholders held
on March 31, 2008, the integration and operation of the assets we acquired from
Commission River in November 2007 and our conduct of business based thereon, our
possible inability to become or remain certified as a reseller in all
jurisdictions in which we apply or are currently certified, the possibility that
our proprietary customer base will not grow as management currently expects, our
possible inability to obtain additional financing, the possible lack of
producing agent growth, our possible lack of revenue growth, our possible
inability to add new products and services that generate increased sales, our
possible lack of cash flows, our possible loss of key personnel, the possibility
of telecommunication rate changes and technological changes and the possibility
of increased competition.  Many of these risks are beyond our
control.





Overview





BayHill Capital Corporation (“we,” “us”
or “BHCC,” formerly Cognigen Networks, Inc.), was incorporated in May 1983 in
the State of Colorado.  On April 24, 2008 we became a Delaware
corporation.  Through our wholly-owned subsidiary, Commission River
Corporation (“Commission River”), we market and sell services and products
through commission-based marketing agents who use the Internet as a platform to
provide customers and subscribers with a variety of telecommunications and
technology-based products and services.  Historically, we have
generated revenues in two ways:





First, we have generated marketing
commission revenues from vendors who are represented on web sites operated by
independent agents and for whom we sell products and services via contractual
agreements. Generally, we enter into contractual agreements with these vendors,
who pay commissions based on the volume of products and services sold by
independent sales agents.  We then pay a portion of those commission
revenues to the independent sales agents responsible for making the sales upon
which the commissions were based. A significant portion of our commission
revenues is attributable to the sale of domestic long distance services and
commercial telecommunications services; however, we also generate commission
revenues from the sale of wireless communications, residential broadband
services, Voice over Internet (“VoIP”) services and prepaid calling
cards/PINs.





Second,
we have, at times, also generated revenues from sales of proprietary products
and services. Generally, we have acquired or developed these proprietary
products and services with the intention of marketing such products and services
through independent agent networks. These products and services have included
long distance telecommunication services, online shopping websites and broadband
voice, data, video and management communication and control support services.
Most of these products have been sold by independent agents, and we have
generally paid commissions to independent agents based on the dollar volume of
products sold.  Currently we do not offer any proprietary products or
services.  We regularly look for opportunities to acquire or develop
proprietary products or services.  If we identify any proprietary
products or services which we believe we could market profitably, we may offer
proprietary products or services in the future.





Results
of Operations





Three
Months Ended September 30, 2008 Compared to Three Months Ended September 30,
2007





Total
revenue for the three months ended September 30, 2008 was $706,304, compared to
$1,221,416 for the comparable period of 2007. This represents a decrease of
$515,112 from that of 2007, or 42%.  This decrease reflects decreases
in sales of long distance products and cell phones, including unauthorized
discontinuances of residual payments previously paid under commission contracts
still in effect, and the effect of decreased commissions paid by our
largest cell phone carrier who filed for protection under Chapter 11 of the U.S.
Bankruptcy Code.  We are pursuing collection from the few vendors that
have unilaterally discontinued payments due under existing
contracts





Marketing
commission expense decreased from $809,862 for the three months ended September
30, 2007 to $453,463 for the three months ended September 30, 2008, a decrease
of $356,399, or 44%.  This decrease correlates with the decrease in
marketing commissions revenue explained above.





Selling,
general and administrative expenses decreased $152,190, or 33% for the three
months ended September






11
 
  30, 2008
compared to the comparable period of 2007.  This decrease was
attributable to the containment of expenses through our efforts to refocus on
our core business and a decrease in bad debt expense.





Interest
expense for the quarter ended September 30, 2008 of $13,893 was $198,556, or
93%, lower than the $212,449 we incurred during the comparable period of
2007.  The decrease was due primarily to the retirement and conversion
of certain debt and lines of credit during the past year and the substantial
decrease in the amortization of beneficial conversion feature from the
comparable period in 2007.





Liquidity and Capital
Resources





Cash
flows generated from operations and cash received from advances from Little
Hollow Farm, Inc. were sufficient to meet our working capital requirements for
the three months ended September 30, 2008, but will not likely be sufficient to
meet our working capital requirements for the foreseeable future or provide for
expansion opportunities.  We incurred $140,189 in losses from
continuing operations and used $27,472 in operations during the three months
ended September 30, 2008.  Net cash flows generated from financing
activities for the three months ended September, 2008 were $102,747, primarily
due to $100,000 advance from Little Hollow Farms, Inc.





On October 10, 2006, we entered into an
agreement with VenCore Solutions, Inc. (“VenCore”) to borrow $250,000 under a
term loan to be repaid by making monthly payments of $9,000, which included
interest at 16.7% per annum.  The loan was fully amortizable over 36
months.  The loan documents contained certain covenants, which
included the requirement of VenCore’s approval of the disposition of any of our
material assets, a prohibition against our incurrence of additional liens on our
assets or the change of creditors.  As part of our agreement with
VenCore, we issued to VenCore warrants to purchase 1,500 shares of our common
stock valued at an aggregate of $5,093.  The warrants have an exercise
price of $6.00 per share and are exercisable for up to seven years from the date
of grant.  We granted VenCore a lien on substantially all of our
assets.  We also paid to VenCore commitment and documentation fees of
$5,500.  These fees were amortized over three years as an adjustment
to interest expense.  As of June 30, 2008, the remaining principal and
accrued interest balance was $166,614.  In July 2008 we entered in to
a “Payment Restructure Agreement” with VenCore whereby VenCore converted $83,500
of the term loan into an unsecured 12% convertible note due September 30,
2009.  The convertible note is convertible, at the option of VenCore,
into no more than 66,800 shares of our common stock.  The interest on
this convertible note is payable at our option in common stock priced at $1.25
per share.  In addition, VenCore was granted a two-year warrant to
purchase 20,875 shares of our common stock at an exercise price of $2.00 per
share. The remaining original note balance of $83,321, along with interest at
16.7% per annum, is to be paid in monthly payments of an amount equal to the
greater of $5,000 per month or 10% of any debt or equity funding we receive in
any given month. We paid VenCore $1,000 for documentation fees in relation to
the Payment Restructure Agreement, which was expensed. Based on a calculation
using the Black Scholes Model, the conversion feature within this convertible
promissory note and warrants resulted in us recording a beneficial conversion
feature of $13,058 and an increase to debt discount, which will be accreted to
interest expense over the term of the note.





We intend
to move forward with our plans and activities in an effort to secure additional
equity financing and enhance and expand our affiliate marketing business along
with expansion into other related areas of interest.





In order
to continue as a going concern, we plan to obtain additional debt or equity
financing, increase revenues, and increase cash flows from
operations.  There can be no assurance that we will be able to secure
additional debt or equity financing, that we will be able to reduce our
operating costs and expenses, that we will be able to increase our revenues or
that cash flows from operations will produce adequate cash flow to enable us to
meet all our future obligations or to be able to expand our
business.  If we are unable to obtain additional debt or equity
financing, we may be required to significantly reduce or cease
operations.





Item
3.  Quantitative and Qualitative Disclosure About Market Risk





Not
required for a Small Reporting Company.





Item
4.  Controls and Procedures





(a)  Evaluation
of disclosure controls and procedures





Our
management, with the participation of our chief executive officer and chief
financial officer, performed an evaluation of our disclosure controls and
procedures as of September 30, 2008.  Our disclosure controls and
procedures have been designed to provide reasonable assurance that the
information we are required to disclose in the reports we file or submit under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is
accumulated and communicated to our management to allow timely decisions
regarding required disclosure, and recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the






12




Securities
and Exchange Commission.  Our chief executive officer and chief
financial officer have concluded that the controls and procedures were effective
as of September 30, 2008 to reasonably ensure the achievement of these
objectives. While our disclosure controls and procedures provide reasonable
assurance that material information will be available on a timely basis, this
assurance is subject to limitations inherent in any control system, no matter
how well it is designed or administered, including, without limitation, resource
constraints and the need for management to apply its judgment in evaluating the
benefits of possible controls and procedures relative to their
costs.





(b)  Changes
in Internal Control Over Financial Reporting





There
were no significant changes (including corrective actions with regard to
material weaknesses) in our internal control over financial reporting that
occurred during the period covered by this report that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.








PART
II – OTHER INFORMATION





Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds





During
the three months ended September 30, 2008, we issued the following restricted
common shares for the reasons and values identified below:





Share
            
            
            
            ValueCommission
      River, Inc.* for services
            
            
            33,170
            
            
            $
            43,035Acadia
      Group, Inc. * for services
            
            
            2,760
            
            
            $
            3,450James
      U. Jensen for director fees
            
            
            10,026
            
            
            $
            12,533John
      D. Thomas for director fees
            
            
            9,334
            
            
            $
            11,667John
      M. Knab for director fees
            
            
            9,334
            
            
            $
            11,167Roy
      C. Banks for director fees
            
            
            9,334
            
            
            $
            11,167





*Commission
River, Inc. is a company that is affiliated with Patrick Oborn and Adam Edwards
who are executives of Commission River.  Acadia Group, Inc. is a
company that is affiliated with John D. Thomas who is a director of
BHCC.





The values we recorded for the
settlement of accounts payable and director fees payable were at prices ranging
from $1.20 per share to $1.30 per share based on negotiated
settlements.  The closing market price of our common stock on the date
our Board of Directors approved the issuances was $1.25 per share.The differences
between the market price of our common stock and negotiated settlements, on the
date of issuance, was approved by the Board of Directors and does not materially
impact the financial statements.





We did not engage the services of an
underwriter in connection with the issuance of any of the foregoing shares of
common stock.





In agreeing to issue these shares, we
relied on the exemption from registration contained in Section 4(2) of the
Securities Act of 1933, as amended (the “Securities Act”).  Each of
the parties who accepted the shares of our common stock had full information
concerning us and our operations and financial condition and took the shares for
purposes other than distribution unless the shares or underlying shares are
registered under the Securities Act.  The certificate evidencing the
shares of common stock contained a legend restricting their transfer unless
registered under the Securities Act, or unless there is an exemption available
for their transfer.





Item
6.  Exhibits





Exhibit
No.                                Description





31.1
            Certification
      of Chief Executive Officer.





31.2
            Certification
      of Chief Financial Officer.





32.1
            Certification
      of Chief Executive Officer.





32.2
            Certification
      Chief Financial Officer.


13


SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.








BAYHILL
CAPITAL CORPORATION








By:  /s/ Robert K.
      Bench
            
            Date:
      November 12,
    2008Robert K. BenchChief Executive
      Officer













































































14


EXHIBIT
INDEX
 
 Exhibit
No.                                Description
 
 
 31.1
              Certification
      of Chief Executive Officer.
 
 31.2
              Certification
      of Chief Financial Officer.
 
 32.1
              Certification
      of Chief Executive Officer.
 
 32.2
              Certification
      Chief Financial Officer.
  15