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| BYHL.OB > SEC Filings for BYHL.OB > Form 10-Q on 20-Apr-2009 | All Recent SEC Filings |
20-Apr-2009
Quarterly Report
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 2008 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, 2009 Compared to Three Months Ended March 31, 2009
Total revenue for the three months ended March 31, 2009 was $761,945, compared to $922,344 for the comparable period of 2008. This represents a decrease of $160,399 from that of 2008, or 18%. 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 $520,429 for the three months ended March 31, 2008 to $481,712 for the three months ended March 31, 2009, a decrease of $38,717, or 8%. This decrease correlates with the decrease in marketing commissions revenue explained above.
Selling, general and administrative expenses decreased $366,448, or 53% for the three months ended March 31, 2009 compared to the comparable period of 2008. This decrease was mainly attributable to the decrease in services expenses to officers, directors and consultants paid during the change in management and corporate transition of the Company in December 2007 and January 2008, and a decrease in bad debt expense from the $50,000 charged off during the three months ended March 31, 2009 that related to one of the Company's largest vendor's bankruptcy proceedings.
Interest expense for the quarter ended March 31, 2009 of $21,004 was $34,113, or 62%, lower than the $55,117 we incurred during the comparable period of 2008. 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 2008.
Nine Months Ended March 31, 2009 Compared to Nine Months Ended March 31, 2009
Total revenue for the nine months ended March 31, 2009 was $2,259,493, compared to $3,217,452 for the comparable period of 2008. This represents a decrease of $957,959 from that of 2008, or 30%. 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 $2,025,684 for the nine months ended December 31, 2008 to $1,450,952 for the nine months ended March 31, 2009, a decrease of $574,732, or 29%. This decrease correlates with the decrease in marketing commissions revenue explained above.
Selling, general and administrative expenses decreased $2,004,731, or 69% for the nine months ended March 31, 2009 compared to the comparable period of 2008. This decrease was mainly attributable to the decrease in services expenses to officers, directors and consultants of $1,238,667 paid during the change in management and corporate transition of the Company in December 2008, and a decrease in bad debt expense, from the $345,001 written off during the nine months ended March 31, 2008 that related to one of the Company's largest vendor's bankruptcy proceedings.
Interest expense for the nine months ended March 31, 2009 of $54,019 was $372,753, or 88%, lower than the $426,772 we incurred during the comparable period of 2008. 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 2008.
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 nine months ended March 31, 2009, but will not likely be sufficient to meet our working capital requirements for the foreseeable future or provide for expansion opportunities. We incurred $361,527 in losses from continuing operations and generated $48,814 in cash during the nine months ended March 31, 2009. Net cash
flows generated from financing activities for the nine months ended March, 2009 were $130,334, 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 nine 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. 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 nine-month period ended March 31, 2009 was $9,098. The remaining balance of the beneficial conversion feature at March 31, 2009 was $3,960.
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.
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