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 December 31,
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)





Delaware                                                         84-1089377


(State or Other Jurisdiction
of        
             (I.R.S.
Employer


Incorporation 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):




o   o




Non-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
                January
      30,2009Common
      Stock, $0.0001 par value
            1,959,428












Part
      1. – FINANCIAL INFORMATIONItem
      1.  Consolidated Financial StatementsConsolidated
      Balance Sheets
              Page
      2Unaudited
      Consolidated Statements of Operations
              Page
      3Unaudited
      Consolidated Statements of Cash Flows
              Page
      4Supplimental
      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
      13Item
      4T.  Controls and Procdures
              Page
      13Part
      II – OTHER INFORMATIONItem
      2.  Unregistered Sales of Equity Securities and Use of
      Proceeds
              Page
      14Item
      6.  Exhibits
              Page
      14Signature
              Page
      15








BAYHILL
CAPITAL CORPORATION





PART
I – FINANCIAL INFORMATION





Item
1.  Consolidated Financial Statements





Consolidated
Balance Sheets





December
      31,
            June
      30,2008
            2008(Unaudited)AssetsCurrent
      assetsCash and cash
      equivalents
            
            $
            113,025
            
            
            $
            -Marketing commissions receivable,
      net
            
            
            406,005
            
            
            
            437,752Other current
    assets
            
            
            -
            
            
            
            7,200Total current
    assets
            
            
            519,030
            
            
            
            444,952Non-current
      assetsIntangible assets,
      net
            
            
            511,114
            
            
            
            644,446Deposits and other
      assets
            
            
            -
            
            
            
            8,807Total non-current
      assets
            
            
            511,114
            
            
            
            653,253Total
      assets
            
            $
            1,030,144
            
            
            $
            1,098,205Liabilities
      and Stockholders' DeficitCurrent
      liabilitiesAccounts payable
            
            $
            306,936
            
            
            $
            517,693Accrued
liabilities
            
            
            113,800
            
            
            
            80,949Commissions
payable
            
            
            639,802
            
            
            
            531,595Financing
    arrangements
            
            
            304,419
            
            
            
            171,614Net current liabilities of
      discontinued operations
            
            
            38,883
            
            
            
            38,883Total current
      liabilities
            
            
            1,403,840
            
            
            
            1,340,734Total liabilities
            
            
            1,403,840
            
            
            
            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  December 31, 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
            
            
            (16,562,601
            )
            
            
            (16,325,352
            )Total stockholders’
      deficit
            
            
            (373,696
            )
            
            
            (242,529
            )Total
      liabilities and stockholders’ deficit
            
            $
            1,030,144
            
            
            $
            1,098,205





See
Notes to Consolidated Financial Statements











2


BAYHILL
CAPITAL CORPORATION





Unaudited
Consolidated Statements of Operations





Three
      Months Ended
            
            
            Six
      Months EndedDecember
      31,
            
            
            December
      31,2008
            
            
            2007
            
            
            2008
            
            
            2007Unaudited
            
            
            Unaudited
            
            
            Unaudited
            
            
            UnauditedRevenue
      - Marketing commissions
            
            $
            791,244
            
            
            $
            1,073,692
            
            
            $
            1,497,548
            
            
            $
            2,302,410Operating
      expenses:Marketing
    commissions
            
            
            515,777
            
            
            
            695,490
            
            
            
            969,240
            
            
            
            1,508,745Selling,
      general and administrative
            
            
            286,739
            
            
            
            1,760,148
            
            
            
            599,209
            
            
            
            2,220,245Depreciation and
      amortization
            
            
            66,666
            
            
            
            22,222
            
            
            
            133,332
            
            
            
            22,222Total operating
      expenses
            
            
            869,182
            
            
            
            2,477,860
            
            
            
            1,701,781
            
            
            
            3,751,212Loss
      from operations
            
            
            (77,938
            )
            
            
            (1,404,168
            )
            
            
            (204,233
            )
            
            
            (1,448,802
            )Interest
      expense
            
            
            (19,122
            )
            
            
            (159,020
            )
            
            
            (33,016
            )
            
            
            (371,654
            )Loss
      from continuing operations before   income
      taxes
            
            
            (97,060
            )
            
            
            (1,563,188
            )
            
            
            (237,249
            )
            
            
            (1,820,456
            )Income
      taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Loss
      from continuing operations
            
            
            (97,060
            )
            
            
            (1,563,188
            )
            
            
            (237,249
            )
            
            
            (1,820,456
            )Loss
      from discontinued operations
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (77,327
            )Net
      Loss
            
            
            (97,060
            )
            
            
            (1,563,188
            )
            
            
            (237,249
            )
            
            
            (1,897,783
            )Preferred
      dividends
            
            
            -
            
            
            
            (1,667
            )
            
            
            -
            
            
            
            (11,667
            )Loss
      attributable tocommon
      shareholders
            
            $
            (97,060
            )
            
            $
            (1,564,855
            )
            
            $
            (237,249
            )
            
            $
            (1,909,450
            )Loss
      per common share-basic and diluted:Continuing
      operations
            
            $
            (.05
            )
            
            $
            (2.48
            )
            
            $
            (.12
            )
            
            $
            (4.35
            )Discontinued
      operations
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (.21
            )$
            (.05
            )
            
            $
            (2.48
            )
            
            $
            (.12
            )
            
            $
            (4.56
            )Weighted
      average number of common shares outstanding:
              Basic
      and Diluted
            
            
            1,959,759
            
            
            
            630,822
            
            
            
            1,956,544
            
            
            
            418,605








See
Notes to Consolidated Financial Statements





3


BAYHILL
CAPITAL CORPORATION





Unaudited
Consolidated Statements of Cash Flows





Six
      Months EndedDecember
      31,2008
            
            
            2007Cash
      flows from operating activities
            
            Unaudited
            
            
            UnauditedNet loss
            
            $
            (237,249
            )
            
            $
            (1,897,783
            )Adjustments to reconcile net loss
      to net cash provided by (used in) operating activities:Depreciation and
      amortization
            
            
            149,339
            
            
            
            109,532Bad
      debt expense
            
            
            -
            
            
            
            203,000Amortization of note
      discount included in interest expense
            
            
            5,387
            
            
            
            255,191Issuance
      of stock as compensation
            
            
            -
            
            
            
            1,180,667Changes in assets and
      liabilities:Marketing commissions
      receivable
            
            
            31,747
            
            
            
            (90,376
            )Other assets
            
            
            -
            
            
            
            1,686Accounts payable
            
            
            (117,735
            )
            
            
            30,033Accrued
    liabilities
            
            
            32,852
            
            
            
            57,527Commissions
    payable
            
            
            108,207
            
            
            
            (95,474
            )Other liabilities
            
            
            -
            
            
            
            (1,635
            )209,797
            
            
            
            1,660,151Net cash used
      in  continuing operations
            
            
            (27,452
            )
            
            
            (237,632
            )Net
      cash used in discontinued operations
            
            
            -
            
            
            
            (22,072Net
      cash used in operating activities
            
            
            (27,452
            )
            
            
            (259,074
            )Cash
      flows from investing activitiesSale
      of Cognigen Business Systems, Inc.
            
            
            -
            
            
            
            (14,458
            )Increase (decrease) in other
      assets
            
            
            -
            
            
            
            11,549Net cash used in continuing
      investing activities
            
            
            -
            
            
            
            (2,909
            )Net cash provided by discontinued
      investing activities
            
            
            -
            
            
            
            30,849Net cash provided by investing
      activities
            
            
            -
            
            
            
            27,940Cash
      flows from financing activitiesProceeds
      from financing arrangements
            
            
            151,252
            
            
            
            430,000Payments
      towards financing arrangements
            
            
            (10,775
            )
            
            
            (198,236
            )Net cash provided by financing
      activities
            
            
            140,477
            
            
            
            231,764Net
      increase in cash and cash equivalents
            
            
            113,025
            
            
            
            -Cash
      and cash equivalents-beginning of period
            
            
            -
            
            
            
            -Cash
      and cash equivalents-end of period
            
            $
            113,025
            
            
            $
            -





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 six months ended December 31, 2008 and
2007 were $5,889 and $88,404, respectively.





During
the six months ended December 31, 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
            
            46,489Directors
      fee payable
            38,028
            
            46,533





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 six month period ended December 31, 2008, we recorded a beneficial
conversion feature of $13,058 on a convertible promissory note.  As of
December 31, 2008, $5,387 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 six months ended December 31, 2007, the Company issued the following
restricted common shares for the reasons and values identified
below.  See Note 6 of the Notes to Consolidated Financial
Statements.





Shares
            ValueSettlement
      of outstanding liabilities
            43,304
            $    71,883Conversion
      of notes payable and related accrued interest
            206,221
            257,776Conversion
      of preferred stock
            10,000
            450,000Board
      of Directors fees or bonus – Former directors
            12,000
            24,000Board
      of Directors fees or bonus– Current directors
            78,000
            195,000Issuance
      to management as sign-on bonuses
            200,000
            500,000Issuance
      to management in lieu of salaries
            148,667
            371,667Issuance
      to consultants
            40,000
            100,000Commission River
      asset acquisition
            320,000
            800,000




























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 and six months ended December 31, 2008 and 2007, respectively, (b)
the unaudited and audited consolidated balance sheets as of December 31, 2008
and  June 30, 2008, respectively, and (c) the unaudited consolidated
statements of cash flows for the six months ended December 31, 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 six months ended December 31, 2008 may not necessarily be
indicative of our actual results for the fiscal year ending June 30, 2009 All
share and per-share amounts reflected in this report have been restated to
reflect the 1 for 50 reverse stock split unless otherwise
indicated.





Note 3 – Discontinued
Operations





6




LowestCostMall





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 December 31, 2008 relative to the
discontinued operations described above.





Six
      Months Ended
                December
      2008
            Six
      Months Ended
                December
      2007





Accrued
      Liabilities
            
            $
            (38,883
            )
            
            $
            (68,883
            )Net
      current liabilities
            
            $
            (38,883
            )
            
            $
            (68,883
            )





Total
      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 six months ended December 31, 2008, but
will not likely be sufficient to meet our working capital requirements for the
foreseeable future or provide for expansion opportunities.  We
incurred $237,249 in losses from continuing operations and used $27,452 in cash
for the six months ended December 31, 2008.  Net cash flows generated
from our financing activities for the six months ended December 31, 2008 were
$140,477, primarily due to $125,000 of proceeds from cash advances provided by
an affiliate of our Chief Executive Officer, and $25,000 of proceeds from cash
advances provided by an affiliate of our  Board Chairman, which we
believe may 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 December 31,
2008:





Secured
      Term Loan with VenCore
            
            
            74,590Convertible
      Term Loan with VenCore net of discount
            
            
            75,829Cash
      Advances from affiliates
            
            
            150,000Note
      Payable to Cardelco
            
            
            4,000$
            304,419









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 six-month period ended December 31, 2008 was
$5,387.  The remaining balance of the beneficial conversion feature at
December 31, 2008 was $7,671.





The
following assumptions were used in computing the face value of the warrants
granted during the six months ended December 31, 2008:





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





Cash Advance from
Affiliates





During the six months ended December
31, 2008, we obtained advances of $150,000 in cash funds for use as working
capital as follows: (a)  $100,000 from Little Hollow Farms, Inc., a
company that is affiliated with our Chief Executive Officer, (b) $25,000 from
Vector Capital,  a company that is affiliated with our Chief Executive
Officer, and (c) $25,000 from James Jensen, chairman of our board of directors.
We are accruing interest on these advances 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 lenders regarding the repayment or
conversion of the advances.  The outstanding balance of the advances,
including accrued interest of $5,753 at December 31, 2008 was
$155,753.





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 December 31, 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 December 31, 2008.





Note 6 - Stockholders'
Equity





Special Meeting of the
Stockholders









8




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 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
December 31, 2008 we had authorized 400,000 shares of Preferred
Stock.  There are currently no shares of Preferred Stock
outstanding.





Common
Stock





During
the six months ended December 31, 2008, we issued the following restricted
common shares for the reasons and values identified below:





Shares
            
            ValueSettlement
      of accounts payable
            35,930
            
            46,489Directors
      Fees Payable
            38,028
            
            46,533





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 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.





Stock
Options





We did
not grant any stock options during the six months ended December 31,
2008.   As of December 31, 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 six months ended December 31,
2008.  These warrants were issued in connection with the $83,500
convertible note to VenCore as stated in Note 5.  As of December 31,
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
December 31, 2008.





Note 8 –  Related
Party Activity





Payments to Telarus,
Inc.







9




During
the six months ended December 31, 2008, we accrued $15,270 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
December 31, 2008. Telarus is owned by 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 $2,500 per month in
the future.





Cash Advance from
Affiliates





During the six months ended December
31, 2008, we obtained advances of $150,000 in cash funds for use as working
capital as follows: (a) $100,000 from Little Hollow Farms, Inc., a company that
is affiliated with our Chief Executive Officer, (b) $25,000 from Vector Capital
LLC, a company that is affiliated with our Chief Executive Officer, and (c)
$25,000 from James U. Jensen, our Chairman of the board of directors of
$25,000.  We are accruing interest on these advances 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 lenders
regarding the repayment or conversion of the advances.  The
outstanding balance of the advances, including accrued interest of $5,753, at
December 31, 2008 was $155,753.





Stock Issuance for Payment
of Liabilities





During
the six months ended December 31, 2008, we issued the following restricted
common shares for the reasons and values identified below:





Shares
            
            
            ValueCommission
      River, Inc.* for services
            
            
            33,170
            
            
            $
            43,039Acadia
      Group, Inc. ** for services
            
            
            2,760
            
            
            $
            3,450James
      U. Jensen for director fees
            
            
            10,026
            
            
            $
            12,532John
      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 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.





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.  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 December 31, 2008 Compared to Three Months Ended December 31,
2007





Total
revenue for the three months ended December 31, 2008 was $791,244, compared to
$1,073,692 for the comparable period of 2007. This represents a decrease of
$282,448 from that of 2007, or 26%.  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 $695,490 for the three months ended
December31, 2007 to $515,777 for the three months ended December 31, 2008, a
decrease of $179,713, or 26%.  This decrease correlates with the
decrease in marketing commissions revenue explained above.







11




Selling,
general and administrative expenses decreased $1,473,409, or 84% for the three
months ended December 31, 2008 compared to the comparable period of
2007.  This decrease was mainly attributable to the decrease in
services expenses to officers directors and consultants of $1,190,000 paid
during the change in management and corporate transition of the company in
December 2007 and  a decrease in bad debt expense,from the $75,000 charged
off during the three months ended December 31, 2007 that related to one of the
Company’s largest vendor’s bankruptcy proceedings.





Interest
expense for the quarter ended December 31, 2008 of $19,122 was $139,898, or 88%,
lower than the $159,020 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.








Six
Months Ended December 31, 2008 Compared to Six Months Ended December 31,
2007





Total
revenue for the six months ended December 31, 2008 was $1,497,548, compared to
$2,302,410 for the comparable period of 2007. This represents a decrease of
$804,862 from that of 2007, or 35%.  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 $1,508,745 for the six months ended December
31, 2007 to $969,240 for the six months ended December 31, 2008, a decrease of
$539,505, or 36%.  This decrease correlates with the decrease in
marketing commissions revenue explained above.





Selling,
general and administrative expenses decreased $1,615,558, or 73% for the six
months ended December 31, 2008 compared to the comparable period of
2007.  This decrease was mainly attributable to the decrease in
services expenses to officers directors and consultants of $1,190,000 paid
during the change in management and corporate transition of the company in
December 2007 and  a decrease in bad debt expense,from the $203,000 charged
off during the six months ended December 31, 2007 that related to one of the
Company’s largest vendor’s bankruptcy proceedings.





Interest
expense for the six months ended December 31, 2008 of $33,015 was $338,639, or
91%, lower than the $371,654 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 affiliates
were sufficient to meet our working capital requirements for the six months
ended December 31, 2008, but will not likely be sufficient to meet our working
capital requirements for the foreseeable future or provide for expansion
opportunities.  We incurred $237,249 in losses from continuing
operations and used $27,452 in cash during the six months ended December 31,
2008.  Net cash flows generated from financing activities for the six
months ended September, 2008 were $140,477, primarily due to advances from
affiliates.





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 six 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 31,
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.






12




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 six-month period ended December 31, 2008 was $5,387.
The remaining balance of the beneficial conversion feature at December 31, 2008
was $7,671.





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
4T.  Controls and Procedures





(a)  Evaluation
of disclosure controls and procedures





Our
management, performed an evaluation of our disclosure controls and procedures as
of December 31, 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 Securities and Exchange
Commission.  Our chief executive officer and other executive officers
have concluded that the controls and procedures were effective as of December
31, 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.





(c)  Changes
in Management





Our
former CFO resigned to pursue personal interests and currently our board of
directors has asked Mr. Bench, our CEO to also serve as our CFO.











13


PART
II – OTHER INFORMATION





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





During
the six months ended December 31, 2008, we issued the following restricted
common shares for the reasons and values identified below:





Shares
            
            
            ValueCommission
      River, Inc.* for services
            
            
            33,170
            
            
            $
            43,039Acadia
      Group, Inc. ** for services
            
            
            2,760
            
            
            $
            3,450James
      U. Jensen for director fees
            
            
            10,026
            
            
            $
            12,532John
      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


14


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: January 30, 2008


Robert K. Bench


Chief Executive Officer







































































15








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





16