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 March 31, 2010





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. 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

May 14, 2010Common Stock, $0.0001 par value
3,346,609





Tables of Contents


Table of Contents Part I- FINANCIAL INFORMATIONItem 1.  Consolidated Financial StatementsConsolidated Balance Sheets

Page 3Unaudited Consolidated Statements of Operations

Page 4Unaudited Consolidated Statements of Cash Flows

Page 5Supplemental Disclosures of Cash Flow Information and Non-Cash Transactions

Page 6Notes to Unaudited Consolidated Financial Statements

Page 7Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations

Page 12Item 3.
Quantitative and Qualitative Disclosures About Market Risk

Page 14Item 4T.
Controls and Procedures

Page 14Part II– OTHER INFORMATIONItem 5.
Unregistered Sales of Equity Securities and Use of Proceeds

Page 15Item 6.
Exhibits

Page 15Signature



Page 16





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BAYHILL CAPITAL CORPORATION





PART I– FINANCIAL INFORMATION





Item 1.  Consolidated Financial Statements





Consolidated Balance Sheets





March 31,
June 30,2010
2009UnauditedAssetsCurrent assetsCash and cash equivalents

$
83,253


$
68,947Marketing commissions receivable, net


365,089



395,087Total current assets


448,342



464,034Non-current assetsIntangible assets, net


88,892



188,891Investment in BayHill Energy Corporation


11,000



-Property and equipment, net


12,052



-Deposits and other assets


-



400Total non-current assets


111,944



189,291Total assets

$
560,286


$
653,325Liabilities and Stockholders' DeficitCurrent liabilitiesAccounts payable

$
163,917


$
78,045Accrued liabilities


228,667



104,351Commissions payable


670,807



677,532Financing arrangements


4,000



4,000Net current liabilities of discontinued operations


35,731



38,883Total current liabilities


1,103,122



902,811Total liabilities


1,103,122



902,811Commitments 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; 3,346,609  issued and outstanding as of  March 31, 2010 and 2,635,560 shares issued and outstanding as of June 30, 2009


335



263Additional paid-in capital


16,748,185



16,551, 941Accumulated deficit


(17,291,356
)


(16,801,690
)Total stockholders’ deficit


(542,836
)


(249,486
)Total liabilities and stockholders’ deficit

$
560,286


$
653,325





See Notes to Consolidated Financial Statements











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BAYHILL CAPITAL CORPORATION





Unaudited Consolidated Statements of Operations





Three Months Ended


Nine Months EndedMarch 31,


March 31,2010


2009


2010


2009Unaudited


Unaudited


Unaudited


UnauditedRevenue - Marketing commissions

$
646,109


$
761,945


$
1,911,017


$
2,259,493Operating expenses:Marketing commissions


469,706



481,712



1,358,216



1,450,952Selling, general and administrative


259,351



316,841



944,600



907,762Depreciation and amortization


34,467



66,666



101,495



208,286Total operating expenses


763,524



865,219



2,404,311



2,567,000Loss from operations


(117,415
)


(103,274
)


(493,294
)


(307,507
)Other Income and Expense:Interest expense


(6,480
)


(21,004
)


(20,211
)


(54,020
)Other income


1,193



-



23,839



-Total other income (expense)


(5,287
)


(21,004
)


3,628



(54,020
)Loss from operations before income taxes


(122,702
)


(124,278
)


(489,666
)


(361,527
)Income Taxes


-



-



-



-Net Loss


(122,702
)


(124,278
)


(489,666
)


(361,527
)Loss attributable tocommon shareholders

$
(122,702
)

$
(124,278
)

$
(489,666
)

$
(361,527
)Loss per common share-basic and diluted:Continuing operations

$
(.04
)

$
(.06
)

$
(.16
)

$
(.18
)Discontinued operations


-



-



-



-$
(.04
)

$
(.06
)

$
(.16
)

$
(.18
)Weighted average number of common shares outstanding:

Basic and Diluted


3,346,609



1,959,428



3,131,626



1,957,269








See Notes to Consolidated Financial Statements








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BAYHILL CAPITAL CORPORATION





Unaudited Consolidated Statements of Cash Flows





Nine Months EndedMarch 31,2010


2009Cash flows from operating activities

Unaudited


UnauditedNet loss

$
(489,666
)

$
(361,527
)Adjustments to reconcile net loss to net cash provided by (used in) operating activities:Depreciation and amortization


101,495



208,286Amortization of note discount included in interest expense


-



9,098Changes in assets and liabilities:Marketing commissions receivable


29,998



52,426Other assets


400



7,719Accounts payable


85,872



(33,513
)Accrued liabilities


235,632



63,519Current liabilities from discontinued operations


(3,152
)


-Commissions payable


(6,725
)


102,806443,520



410,341Net cash provided by (used in) operating activities


(46,146
)


48,814Cash flows from investing activitiesPurchase of fixed assets


(13,548
)


(13,024
)Investment in BayHill Energy Corporation


(11,000
)


(11,000
)Net cash used in investing activities


(24,548
)


(24,024
)Cash flows from financing activitiesProceeds from financing arrangements


-



150,000Payments towards financing arrangements


-



(19,666
)Proceeds from sale of common stock


85,000



-Net cash provided by financing activities


85,000



130,334Net increase in cash and cash equivalents


14,306



179,148Cash and cash equivalents-beginning of period


68,947



-Cash and cash equivalents-end of period

$
83,253


$
179,148





See Notes to Consolidated Financial Statements








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BAYHILL CAPITAL CORPORATION





Supplemental Disclosures of Cash Flow Informationand Non-Cash Transactions





Cash payments for interest expense during the nine months ended March 31, 2010 and 2009 were $15,862 and $27,153, respectively.





During the nine months ended March 31, 2010, we issued the following restricted shares of our common stock for the reasons and values identified below.





Shares
ValueIssued to outside board of directors for accrued director fees
57,333
$17,200Issued to management for accrued salaries
110,000
$33,000Issued to director for accrued legal and consulting fees
130,383
$39,116Issued to consultants for accrued consulting fees
73,333
$22,000





The values we recorded for the settlement of accrued payables and director fees payable were at the “last sale” market price for free-trading shares of our common stock on the date our Board of Directors approved the issuances, which was $0.40 per share.The difference between the market price and settlement value was booked to additional paid in capital, since all parties were affiliates of the Company.





During the nine months ended March 31, 2009, 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 fees 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 for free trading shares 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.





During the nine month period ended March  31, 2009, we recorded a beneficial conversion feature of $13,058 on a convertible promissory note. As of March 31, 2009, $9,098 of the beneficial conversion feature was accreted to interest expense.


































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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. See also descriptions of our oil and gas initiative and our rural broad-band initiative described below, respectively in Note 9 and Note 10.





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, 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.  Our position in BayHill Energy Corporation (“BEC”) is reflected only as an investment as our holdings on a “common equivalent” basis amounted to eighteen percent (18%) of outstanding shares of BEC (see Note 9).





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  nine months ended March 31, 2010 and 2009, respectively, (b) the unaudited and audited consolidated balance sheets as of March 31, 2010 and June 30, 2009, respectively, and (c) the unaudited consolidated statements of cash flows for the nine months ended March 31, 2010 and 2009, 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, 2009, included in our Annual Report on Form 10-K 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.


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The results for the nine months ended March 31, 2010 may not necessarily be indicative of our actual results for the fiscal year ending June 30, 2010. All share and per-share amounts reflected in this report have been restated to reflect the 1 for 50 reverse stock split effected in 2008 (see Note 6) unless otherwise indicated.





Note 3 – Discontinued Operations





Cognigen Business Systems, Inc.





In September 2008, 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 March 31, 2010 and 2009 relative to the discontinued operations described above.





2010                                               2009


Accrued liabilities                               $ (35,731)                                       $(38,883)








Note 4 – Management’s Plan





Cash flows generated from operations and cash received from the sale of common stock were sufficient to meet our working capital requirements for the nine months ended March 31, 2010, but will not likely be sufficient to meet our working capital requirements for the foreseeable future or provide for expansion opportunities. We incurred $489,666 in losses from operations and used $46,146 in cash for operations for the nine months ended March 31, 2010. Net cash flows generated from our financing activities for the nine months ended March 31, 2010 were $85,000, from the sale of common stock. These conditions raise substantial doubt about our ability to continue as a going concern.





In July 2009, we formed a subsidiary, BayHill Energy Corporation (“BEC”) to pursue the exploration and development of oil and gas. As part of this initiative, in April 2009, we entered into Letters of Intent (“LOI”) with five parties to acquire certain oil and gas properties. As of September 30, 2009 all LOIs expired without our entering into any acquisition transactions. During the nine months ended March 31, 2010 we invested $1,000 to acquire 100,000 shares of common stock and $10,000 to acquire 100,000 shares of preferred stock in BEC. As of March 31, 2010, BEC had issued an additional 885,000 shares of its common stock to six individuals who became members of the BEC management team. Following these transactions, we held a minority interest in BEC of 18%.





During the nine months ended March 31, 2010 we entered into an Administrative and Accounting Services Agreement with one of the parties to the LOIs and received $19,000 in cash for services relating to the Agreement, which is included in other income (see also Note 9 below).





On September 30, 2009 we announced the execution of a LOI to merge with Yonder Media, Inc. This LOI expired on November 30, 2009 without entering into any transaction (see Note 10 below).





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 and unrelated 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. We also plan to continue our search for appropriate acquisitions of businesses that can augment our current business or expand into additional businesses that could be


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unrelated to our current operations. And we are currently working on initiatives in the oil and gas business.  We can give no assurance that we will be successful in these initiatives or any others that we may pursue and 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 March 31, 2010:





Note Payable to Cardelco
$ 4,000





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 March 31, 2010 was $4,000. Although we are in technical default under the note, Cardelco had not given us written notice of default as of March 31, 2010.





Note 6 - Stockholders' Equity





Preferred Stock





As of March 31, 2010 we had authorized 400,000 shares of Preferred Stock. There are currently no shares of Preferred Stock outstanding.





Common Stock





During the nine months ended March 31, 2010, we issued the following restricted shares of our common stock for the reasons and values identified below.





Shares
ValueIssued for private placement of common stock
340,000
$85,000Issued to outside board of directors for accrued director fees
57,333
$17,200Issuance to management for accrued salaries
110,000
$33,000Issuance to director for accrued legal and consulting fees
130,383
$39,116Issuance to consultants for accrued consulting fees
73,333
$22,000





The values we recorded for the settlement of accrued payables and director fees payable were at the closing “last sale” market price for free-trading shares of our common stock on the date our Board of Directors approved the issuances, which was $0.40 per share.The difference between the market price and settlement value was booked to additional paid in capital, since all parties were affiliates of the Company.The values we recorded for the cash received for common stock issued in conjunction with the Private Placement was at $0.25 per share as set forth in the private placement through which the shares were sold.





Stock Options





We did not grant any stock options during the nine months ended March 31, 2010. As of March 31, 2010 there were no outstanding options to purchase shares of our common stock.





Warrants





We did not grant any warrants during the nine months ended March 31, 2010. As of March 31, 2010 there were no outstanding warrants to purchase shares of our common stock.


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Note 7 - Commitments and Contingencies





Operating Leases





We were not obligated to pay any future minimum lease payments under any leases as of March 31, 2010.





Note 8 – Related Party Activity





Payments to Telarus, Inc.





During the nine months ended March 31, 2010, we accrued $31,980 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 March 31, 2010. 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.





Stock Issuance for Payment of Liabilities to Officers and Directors





During the nine months ended March 31, 2010, we issued the following restricted common shares to officers and directors of the Company, for the reasons and values identified below:





Shares

ValueRobert Bench as participant in a private placement of common stock
40,000

$10,000Robert Bench for payment of accrued salary
100,000

$30,000Robyn Farnsworth for payment of accrued salary
10,000

$  3,000Taylor Bench for payment of accrued consulting fees
23,333

$  7,000David Keller for payment of accrued consulting fees
50,000

$15,000James U. Jensen for payment of accrued legal and consulting fees from Woodbury & Kesler, PC
100,383

$30,116James U. Jensen for payment of accrued consulting fees from

ClearWater Group
30,000

$  9,000James U. Jensen for payment of director fees
20,667

$  6,200John D. Thomas for payment of director fees
18,333

$  5,500John M. Knab for payment of director fees
18,333

$  5,500





The values we recorded for the settlement of accrued payables and director fees payable were recorded at the ”last sale” market price for free-trading shares of our common stock on the date our Board of Directors approved the issuances, which was $0.40 per share.The difference between the market price and settlement value was booked to additional paid in capital, since all parties were affiliates of the Company.The values we recorded for the cash received was at $0.25 per share as set forth in the private placement through which the shares were sold.





Note 9 – Formation of BayHill Energy Corporation





In July 2009, we formed a subsidiary, BayHill Energy Corporation (“BEC”) to pursue the exploration and development of oil and gas properties. During the nine months ended March 31, 2010, we invested $1,000 to acquire 100,000 shares of common stock and invested $10,000 plus the assignment of any interests that the Company may have had in the oil and gas initiative, to acquire 100,000 shares of preferred stock in BEC. BEC issued an additional 885,000 shares of its common stock to six individuals, including 260,000 shares to Robert Bench, who was appointed President, and 90,000 shares to Robyn Farnsworth, who was appointed Secretary. The six individuals will form the management team and pursue the intended oil and gas exploration and development strategy.





At March 31, 2010 we held a minority interest in BEC of 18%. The preferred stock is convertible into 10% of BEC outstanding common stock until BEC has acquire over $50 million of value in assets, thus preserving our


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interest in this strategic initiative without further dilution to the shareholders of the Company.  As of March 31, 2010, no assets have been acquired by BEC.





In July 2009, the Company executed an Accounting and Administrative Agreement with Genesis Petroleum US, Inc. (“Genesis”), to act as their bookkeeper and perform office administration duties. During the nine months ended March 31, 2010, the Company recognized $19,000 of other income from services provided under the Administrative Agreement. During September 2009, the Accounting and Administrative Agreement was cancelled and a Management, Administrative, and Operations Agreement was entered into between Genesis and BEC to act as Genesis agent in their oil and gas operations.





Note 10 – Letter of Intent to Merge with Yonder Media, Inc.





On September 30, 2009 we announced the execution of a letter of intent (“LOI”) to merge with Yonder Media, Inc. (“Yonder Media”), a leading provider of wireless broadband access exclusively for rural communities. Under the proposed merger agreement BayHill was to issue shares of its common stock for all of the issued and outstanding stock of Yonder Media. Under the terms of the LOI, Yonder Media was required to raise a minimum of $8 million to be injected into BayHill at the time of the merger or by November 30, 2009, whichever came earlier. This requirement was not accomplished and therefore, the LOI expired on November 30, 2009.








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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 March 31, 2010 Compared to Three Months Ended March 31, 2009





Total revenue for the three months ended March 31, 2010 $646,109, compared to $761,945 for the comparable period of 2009. This represents a decrease of $115,836 from that of 2009, or 15%. 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 $481,712 for the three months ended December 31, 2009 to $469,706 for the three months ended March 31, 2010, a decrease of $12,006, or 2%. This decrease is due to the


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decrease in marketing revenues and related commissions.  Marketing commissions, as a percent of revenue, increased from 65% for the three months ended March 31, 2009 to 73% for the three months ended March 31, 2010 because of increased competition to attract and retain agents and the narrowing commission margins being offered by our vendors.





Selling, general and administrative expenses decreased $57,490, or 18% for the three months ended March 31, 2010 compared to the comparable period of 2009. This decrease was mainly attributable to the decrease in personnel costs and benefits.





Interest expense for the quarter ended March 31, 2010 of $6,480 was $14,524, or 69%, lower than the $21,004 we incurred during the comparable period of 2009. The decrease was due primarily to the retirement and conversion of certain debt and lines of credit during the past year and the decrease in the amortization of beneficial conversion feature from the comparable period in 2009.





Nine Months Ended March 31, 2010 Compared to Nine Months Ended March 31, 2009





Total revenue for the nine months ended March 31, 2010 was $1,911,017, compared to $2,259,493, for the comparable period of 2009. This represents a decrease of $348,476 from that of 2009, or 15%. 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 $1,450,952 for the nine months ended December 31, 2009 to $1,358,216 for the nine months ended March 31, 2010, a decrease of $92,736, or 6%. This decrease is reflective of the decreased marketing revenues and associated commissions. Marketing commissions, as a percent of revenue, increased from 64% for the nine months ended March 31, 2009 to 71% for the nine months ended March 31, 2010 because of increased competition to attract and retain agents and the narrowing commission margins being offered by our vendors.





Selling, general and administrative expenses increased $36,839, or 4% for the nine months ended March 31, 2010 compared to the comparable period of 2009. This increase was mainly attributable to the increased legal expenses and consulting expenses related to the Company’s oil and gas initiative.





Interest expense for the nine months ended March 31, 2010 of $20,211 was $33,809, or 63%, lower than the $54,020 we incurred during the comparable period of 2009. The decrease was due primarily to the retirement and conversion of certain debt and lines of credit during the past year and the decrease in the amortization of beneficial conversion feature from the comparable period in 2008.





Liquidity and Capital Resources





Cash flows generated from operations and cash received from the sale of common stock were sufficient to meet our working capital requirements for the nine months ended March 31, 2010, but will not likely be sufficient to meet our working capital requirements for the foreseeable future or provide for expansion opportunities. We incurred $489,666 in losses from operations and used $46,146 in cash for operations during the nine months ended March 31, 2010. Net cash flows generated from financing activities for the nine months ended March 31, 2010 were $85,000, from the sale of common stock, and cash used in investing activities was $24,548





In July 2009, we formed a subsidiary, BayHill Energy Corporation (“BEC”) to pursue the exploration and development of oil and gas. Prior to the date of formation of BEC and  continuing as  part of our oil and gas  initiative we entered into Letters of Intent (“LOI”) with five parties to acquire certain oil and gas properties. Prior to March 31, 2010 all LOIs expired without our entering into any acquisition transactions. During the nine months ended March 31, 2010 we invested $1,000 to acquire 100,000 shares of common stock and $10,000 to acquire 100,000 shares of preferred stock in BEC. As of March 31, 2010, BEC had issued an additional 885,000 shares of its common stock to nine individuals who became members of the BEC management team. Following these transactions, we held a minority interest in BEC of 18%.





During the nine months ended March 31, 2010 we entered into an Administrative and Accounting Services Agreement with one of the parties to the LOIs and received $19,000 cash for services relating to the Agreement (see also Note 9 to the financial statements).


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On September 30, 2009 we announced the execution of a LOI to merge with Yonder Media, Inc., which expired on November 30, 2009 without the completion of the anticipated transaction (see Note 10 to the financial statements).





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 Disclosures 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 March 31, 2010. 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 March 31, 2010 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.


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PART II– OTHER INFORMATION





Item 5.  Unregistered Sales of Equity Securities and Use of Proceeds





During the nine months ended March 31, 2010, we issued the following restricted common shares of the Company, for the reasons and values identified below:





Shares
ValueIssued for private placement of common stock
340,000
$85,000Issued for payment of accrued costs and expenses
313,716
$94,116Issued for payment of accrued director fees
57,333
$17,200





The values we recorded for the settlement of accrued payables and accrued director fees payable were at the “last sale” market price for free-trading shares of our common stock on the date our Board of Directors approved the issuances, which was $0.40 per share.The difference between the market price and settlement value was booked to additional paid in capital, since all parties were affiliates of the Company.The values we recorded for the cash received was at $0.25 per share as set forth in the private placement through which the shares were sold.





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.
Description31.1
Certification of Chief Executive Officer31.2
Certification of Chief Financial Officer32.1
Certification of Chief Executive Officer32.2
Certification of Chief Financial Officer


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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: May 15, 2010


Robert K. Bench


Chief Executive Officer








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EXHIBIT INDEX





Exhibit No.
Description31.1
Certification of Chief Executive Officer31.2
Certification of Chief Financial Officer32.1
Certification of Chief Executive Officer32.2
Certification of Chief Financial Officer























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