NewBridge Global Ventures, Inc. - Annual Report: 2009 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended June 30, 2009 |
Commission file number 0-11730
BayHill Capital Corporation
(Exact name of registrant as specified in its charter)
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Delaware |
84-1089377 |
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(State or other jurisdiction of |
(I.R.S. Employer |
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incorporation or organization) |
Identification No.) |
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10757 S. River Front Pkwy, Suite 125 |
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South Jordan, Utah |
84095 |
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(Address of principal executive offices) |
(Zip Code) |
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Registrant’s telephone number: (801) 816-2529 |
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
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Title of each class |
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Common Stock, $0.0001 Par Value Per Share |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrants is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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 ¨
Indicate by check mark if whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. ¨
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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer o |
Accelerated filer o |
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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 ¨ No x
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed fiscal year. The aggregate
market value of our common equity, based on the closing bid price for the shares of common stock reported on the NASDAQ OTC Bulletin Board on June 30, 2009 was $1,083,239.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. As of September 2, 2009, there were 2,635,560 shares of common stock outstanding.
Documents Incorporated By Reference: None
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PART I |
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Business. |
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Risk Factors |
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Unresolved Staff Comments |
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Properties |
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Legal Proceedings. |
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Submission of Matters to a Vote of Security Holders. |
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PART II |
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Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
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Selected Financial Data |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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Qualitative and Quantitative Disclosures about Market Risk |
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Financial Statements and Supplementary Data. |
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Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure. |
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Controls and Procedures. |
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Other Information. |
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PART III |
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Directors, Executive Officers and Corporate Governance. |
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Executive Compensation. |
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Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters. |
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Certain Relationships and Related Transactions, and Director Independence. |
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Principal Accounting Fees and Services. |
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PART IV |
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Exhibits, Financial Statement Schedules. |
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PART I
Forward-Looking Statements
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Recently BayHill Capital Corporation, formerly Cognigen Networks, Inc. (“we,” “us”, “Company”, or “BHCC”) announced its intention to enter into the oil and gas business on transactions that must still be negotiated, documented and closed. As of June 30, 2009, we had only signed non-binding letters
of intent to acquire various oil and gas properties in Utah. None of our historic or current business is in the oil and gas industry. References to our future plans involve forward-looking statements.
This Annual Report on Form 10-K contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements represent our management’s judgment regarding future events. In many cases, you can identify forward-looking statements by terminology such
as “may,” “will,” “should,” “plan,” “expect,” “anticipate,” “estimate,” “predict,” “intend,” “potential” or “continue” or the negative of these terms or other words of similar import, although some forward-looking statements are expressed differently. All statements other than statements of historical fact included in this report regarding our financial position, business strategy
and plans or objectives for future operations are forward-looking statements. Without limiting the broader description of forward-looking statements above, we specifically note that statements regarding future developments or results of operations are all forward-looking in nature. We cannot guarantee the accuracy of the forward-looking statements, and you should be aware that actual results and events will differ, and may differ materially and adversely from those contained in the forward-looking statements.
You should also consider carefully the statements set forth in this report under “Risk Factors” which address these and additional factors that could cause results or events to differ materially from those set forth in the forward-looking statements. Forward-looking statements involve risks and uncertainties that affect our business,
financial condition and results of operations, including without limitation (i) in our Commission River business, our possible inability to become certified as a reseller in all jurisdictions in which we apply, our possible inability to obtain additional financing, the possible lack of producing agent growth, our possible lack of revenue growth and our possible inability to add new products and services that would generate increased sales, (ii) in our proposed oil and gas business, our possible inability to complete
the transactions we recently announced, our possible inability to extract value for oil and gas leases we may acquire, our failure to generate adequate cash-flow and/or profits from the oil and gas business, and (iii) in any and all of our current or prospective businesses our possible lack of cash flows, our possible loss of key personnel, the possibility of marketplace rate changes and technological changes, the possibility of increased competition and the possibility that any new subsidiary or subsidiaries
will not be successful. Many of these risks are beyond our control.
All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the applicable cautionary statements. In addition, new risks emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of
such risk factors on our business. Given these risks and uncertainties, you should not place undue reliance on these forward-looking statements. We undertake no obligation to update or revise these forward-looking statements.
BHCC 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 independent 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 us commissions
based on the volume of products and services sold by our 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 our independent agent network. 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.
On March 31, 2008, we held a special meeting of shareholders at which our shareholders approved a series of proposals previously approved by our Board of Directors. These proposals consisted of (i) a proposal to amend our Articles of Incorporation 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 our Articles of Incorporation to reduce the number of authorized shares of our common stock from 300,000,000 shares, $.001 par value per share, to 100,000,000 shares, $.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,
$.0001 par value per share, (iii) a proposal to amend our Articles of Incorporation to change our name to BayHill Capital Corporation and make other changes necessary to facilitate the foregoing actions and the reincorporation of BHCC, (iv) a proposal to reincorporate BHCC under the laws of the State of Delaware, and (v) a proposal to adopt the Cognigen Networks, Inc. 2008 Stock Incentive Plan.
Based upon the approval of our shareholders at the March 31, 2008 special meeting, effective April 23, 2008 our management completed the actions necessary to effect the name change, reverse stock split, Delaware reincorporation 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." 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
Through our network of independent agents, we have previously sold our own proprietary products and services and, as agent, we sell third party or outside vendor products and services, to customers and subscribers worldwide. Long distance and commercial telecommunications services make up the major portion of our sales with wireless communications,
residential broadband services, VoIP services, and other products in our sales mix. As an agent, we have contractual agreements with a variety of product and service vendors that provide us with a commission percentage of any sales made through one of our supported web sites. As agent, we sell the products and services of industry product and service providers such as, AccuLinq, Simplexity, Telarus, Packet8, Lingo, Pioneer Telephone, TCI, and PowerNet Global,. Our operations are, in large part, dependent on our
continued affiliation with the third-party providers of the products and services that our independent agents sell.
Commission River
In November 2007, we acquired the assets of Commission River, Inc., an online marketing and distribution platform company. Using the marketing platform and programs we acquired from Commission River, Inc., we transitioned our marketing strategy to utilize the Commission River platform to promote
and sell products and services online for third party product vendors who want to build brand awareness, generate sales leads, and expand their customer reach. We believe the Commission River platform makes it easier for product vendors to access and manage multiple marketing channels and product distribution points online by using our marketing platform. The founders of Commission River, Inc., are now the executives of our wholly-owned subsidiary, Commission River Corporation (“Commission River”
or “CR”), and continue to manage and direct Commission River’s business, which now also includes our historic business, such that all of our current business operations are conducted through Commission River.
Strategy to add Additional Business – Oil and Gas Line of Business
Recently, we decided to move forward with a strategy that includes oil and gas development and exploration and the acquisition of reserves in Eastern Utah. The Board and Management have examined many opportunities to build a valuable, growing, and long term asset base. We have chosen this
strategy for Bayhill because we see a compelling mix of internal and external factors that are particularly suitable for a small public company like Bayhill. We have signed Letters of Intent (“LOIs”) to acquire over 12,600 gross acres of oil and gas leases and to consolidate the operations of several entities in order to pool their proven and possible reserves to create significant revenues and increase operating efficiencies. Following these acquisitions, we will have approximately 27 million shares
of common stock issued and outstanding. Our five new shareholders will own approximately 23.3 million shares or 86% of the outstanding stock of the Company.
Discontinued Operations
Cognigen Business Systems, Inc.
On September 14, 2007, we sold Cognigen Business Systems, Inc. (“CBSi”). See also Note 2 to our Consolidated Financial Statements, “Discontinued Operations,” set forth in Item 8 of this report, for additional information regarding CBSi
Revenue Concentration
Commission River’s commission revenue from our two largest vendors generated approximately 61% and 60%, respectively, of our total revenue for the years ended June 30, 2009 and 2008. Of the above percentages, 47% and 45% of our revenue respectively, were generated from Telarus which is owned by two executive officers of Commission River.
Our vendor arrangements are generally cancelable by our vendors on short-term notice. Our loss of a significant amount of business with either of our two largest vendors, or the collective loss of a substantial amount of business with our other vendors, would likely have a material adverse effect on our business, financial condition, and
results of operations. In addition, our future revenue growth is largely dependent upon our ability to attract and retain additional vendors and to generate additional revenues from existing vendors.
Competition
In our Commission River business we compete with all of the companies for whom we sell products as an agent, with a number of companies that are network marketing telecommunication companies, and with outside vendors who sell telecommunications, personal communications and other products directly and over the Internet.
Competitors and alternatives in the market for Internet merchandising and distribution come from several different established fronts. As the adoption of third party selling models continues to increase, we anticipate new competitors will enter the market.
Many of our current and potential competitors have longer operating histories and significantly greater selling and marketing, technical, financial, customer support, professional services and other resources than we do. As a result, these competitors are able to devote greater resources to the development, promotion, sale and support of
their products. Moreover, our competitors may foresee the course of market developments more accurately than we do and could develop new technologies that would compete with us or even render our services obsolete. We may not have sufficient resources to continue to make the investments or achieve the technological advances necessary to compete successfully with existing or new competitors. In addition, due to the rapidly evolving markets in which we compete, additional competitors with significant market presence
and financial resources, including large telecommunications companies, may enter the markets in which we compete, thereby further intensifying competition.
The markets in which we compete are characterized by increasing consolidation. We cannot predict how industry consolidation will affect our competitors and we may not be able to compete successfully in an increasingly consolidating industry. Additionally, because we may be dependent on strategic relationships with third parties in our industry,
any consolidation involving these parties could reduce the demand for our products and otherwise harm our business prospects. Our competitors that have large market capitalizations or cash reserves are also better positioned than we are to acquire other companies, including our competitors, thereby obtaining new technologies or products that may displace our product lines. Any of these acquisitions could give our competitors a strategic advantage that would materially and adversely affect our business, financial
condition and results of operations.
In addition, many of our competitors have much greater name recognition and have a more extensive customer base, broader customer relationships, significant financing programs, and broader product offerings than we do. These companies could adopt aggressive pricing policies and leverage their customer bases and broader product offerings to
gain market share.
Competitive pressures could result in price reductions, reduced margin and loss of market share, which could materially and adversely affect our business, financial condition and results of operations.
Technology and Intellectual Property
On November 30, 2007, we acquired the assets of Commission River, Inc. in an asset purchase transaction. The assets acquired consisted of intellectual property valued at $400,000 and employment and non-compete agreements valued at $400,000. We amortize these intangible assets over their estimated useful lives of three years on a straight-line
basis. See also Note 1 to our Consolidated Financial Statements, “Description of Business and Summary of Significant Accounting Policies” set forth in Item 8 of this report for additional information.
Regulation
We had been authorized pursuant to authority of the Federal Communications Commission (“FCC”) to operate as an interstate and international resale carrier under Section 214 of the FCC rules. This part of our business has been sold and we no longer operate under these rules. Prior to the sale, we were regulated by various state
public utility commissions as a reseller of interstate and intrastate long distance telecommunications services. In conjunction with the sale of our FCC-regulated operations, we have
surrendered our state Certificates of Convenience and Necessity, in all states, as we are no longer serving as a reseller of regulated telecommunications services
Employees
As of June 30, 2009, we had five full-time employees. In addition, as of June 30, 2009, we engaged five part-time employees. We also engage temporary consultants from time to time. Three of the temporary consultants engaged through June 30, 2009 were employees of Telarus, one of our principal vendors, and their expenses were charged to Commission
River at their fully-burdened rates. Total consulting expenses charged to Commission River, by Telarus, for the years ended June 30, 2009 and 2008, were $8,538 and $79,303. We do not anticipate that we will continue to use consulting support from Telarus.
Item 1A. Risk Factors Related to our Current Business.
The following information sets forth risk factors that could cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. If any of the following risks actually occur, our business, results of operation, prospects or
financial condition could be harmed. These are not the only risks we face. Additional risks not presently known to us, or that we currently deem immaterial, may also affect our business operations.
Cash Flows from Operations May Not be Sufficient to Continue our Operations without Obtaining Additional Working Capital.
We have historically funded our operations primarily from sales of securities from debt financings and from operating cash flows. Cash generated from operations alone has not historically and may not, in the future, be sufficient to fund our operations in the coming fiscal year. If we fail to generate sufficient revenues and cash flow to
fund our operations, our ability to pursue our business plan will be severely limited and we will not be able to continue our anticipated operations unless we are able to obtain additional capital through equity or debt financings. Such additional capital may not be available. Even if it is available, the potential funding sources may require terms and conditions which we cannot satisfy or which may require substantial modifications to our business plan. In addition, if we are able to raise additional funds through
the sale of equity or convertible securities, such financing likely will result in significant dilution of the ownership percentage of existing shareholders.
The Company’s Ability to Continue as a Going Concern.
Our audited consolidated financial statements included in Item 8 of this report were prepared on the assumption that we will be able to continue our operations as a going concern. In its report on our financial statements dated September 2, 2009, it was noted that we have experienced circumstances
which raise substantial doubt about our ability to continue as a going concern. If we are unable to generate additional revenue from operations or attract additional equity or debt financing, we will likely not be able to continue our operations as a going concern.
Our Revenue and Growth will be Largely Dependent upon Sales Generated by Independent Agents.
We use a network of independent agents and affiliate groups, each utilizing their own customized website to sell third party or outside vendor products and services to customers and subscribers worldwide. As a result, our revenue is dependent on sales generated by our independent agents. Failure of these independent agents to achieve sustained
sales or to grow their sales, or our inability to attract and retain independent producing agents with an appropriate commission structure, will materially and adversely affect our financial condition and results of operations.
We Have a History of Losses and May Continue to Experience Losses.
We have historically experienced net losses. In the fiscal years ended June 30, 2009 and 2008, we had net losses of $476,338 and $2,381,891, respectively. Our accumulated deficit at June 30, 2009 and 2008 was $16,801,690 and $16,325,352. We will likely continue to incur net losses unless we
are able to attract additional independent marketing agents or affiliate groups or dramatically increase the revenues we generate from our existing agent network. We can give no assurance that we will be able to achieve profitable operations or that, if we achieve profitability, we will be able to maintain profitable operations.
We Market Products and Services of Third Party Vendors; However those Vendors are Under No Long-Term Obligation to Continue to Allow us to Market and Sell Their Products or Services.
A material portion of our revenue results from the sale and marketing of the products of third party vendors who own and control the rights to market and sell their products and services. Our ability to offer these products and services is dependent on our agreements with such vendors being renewed and not terminated. The non-renewal or termination
of a substantial number of these agreements would have a material adverse effect on our financial condition and results of operations.
In general, our vendors can cancel their contracts on short notice. It can take a significant amount of time to develop and obtain new vendors. Thus, the loss of any of our key vendors could have a significant effect on our revenues and cash flow. In addition, our future revenue growth is dependent upon our ability to attract and retain additional
vendors and to generate additional revenues through our existing vendors.
We Rely on Innovative Technology to Enable and Support the Marketing of Products and Services by our Independent Agents.
We use proprietary self-replicating web page technology to run our web-based operations. If another technology becomes the preferred industry standard, we may be at a competitive disadvantage which, in turn, may require us to make changes at substantially increased costs or could substantially disrupt our operations. If our technology becomes
obsolete at some time in the future and we are unable to develop or change to an alternate technology in a cost-effective manner, it could materially adversely affect our financial conditions and results of operations.
The Traditional Markets in which we Compete are Marked by High Customer Turnover and Intense Competition.
The industries in which our independent agents traditionally resell have experienced high rates of customer turnover. The high rate of customer turnover is attributable to several factors including the non-use of customer contracts, pricing competition and customer care concerns. Our strategy to address customer turnover may not be successful
or the rate of customer turnover may be unacceptable. Price competition and other competitive factors could also cause increased customer turnover. A high rate of customer turnover could have a material adverse affect on our competitive position and results of operations or cause significant fluctuation in our results of operations from period to period.
Our Products and Services are Characterized by Consumer Tastes and Trends, Product Mix, and Technological Changes.
We are a multifaceted sales and marketing organization that utilizes the Internet as a platform to provide our customers and subscribers with a variety of telecommunications and technology-based products and services in markets that are characterized by high rates of customer turnover, shortening product life cycles, and rapid changes in
technology and customer preferences. If we are unable to accurately forecast customer preferences and demands or market and technological trends and transitions, or if we are unable to add new products and services that generate increased sales to our offered product and services mix, our financial condition and results of operations could be materially and adversely affected.
An Active Trading Market for our Securities has Not Developed and the Price of our Securities may be Volatile.
An active sustained trading market for our securities has not developed. As a result of our common stock not being quoted on a national exchange, an investor may find it more difficult to dispose of or to obtain accurate quotations as to the market value of our common stock. In addition, we are subject to rules promulgated by the Securities
and Exchange Commission which impose various sales practice requirements on broker/dealers who sell our common stock to persons other than established customers and accredited investors. For these types of transactions, the broker/dealer has to make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transactions prior to sale. Consequently, the rule may have an adverse effect on the ability of broker/dealers to sell our common stock, which may
affect the ability of purchasers to sell our common stock in the open market. The price at which our securities trade is likely to be highly volatile and may fluctuate substantially due to a number of factors including, but not limited to, those discussed in the other risk factors described herein and the following:
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volatility in stock market prices and volumes, which is particularly common among smaller companies; |
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lack of research coverage for companies with small public floats; |
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failure to achieve sustainable financial performance; |
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actual or anticipated fluctuations in our operating results; |
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announcements of technological innovations by us or others; |
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entry of new or more powerful competitors into our markets or consolidation of existing competitors to create larger, more formidable competitors; |
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terrorist attacks either in the US or abroad; |
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general stock market conditions; and |
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the general state of the US and world economies. |
We do not Intend to Pay Dividends and You May Not Experience a Return on Investment Without Selling Your Securities.
We have never declared or paid, nor do we intend in the foreseeable future to declare or pay, any cash dividends on our common stock. Since we intend to retain all future earnings to finance the operation and growth of our business, you will likely need to sell your securities in order to realize a return on your investment, if any.
Our Executives are Part-Time Employees and Have Other Interests.
The executive officers of Commission River are also owners and executives of Telarus, which is engaged in a business similar to our business. The part-time nature of our executives may not be sufficient to accomplish the strategies and initiatives necessary for our successful execution of our business plan. The similar nature of the business
of Telarus and its ownership by two of our executives could create conflicts of interest which may not be in the best interest of BHCC.
Risk Factors for our Potential New Business
The following information sets forth potential risk factors that we would face if, in fact, we succeed in our intentions of entering into the oil and gas business. These additional risk factors, together with the above risk factors could cause our actual results to differ materially from those contained in forward-looking
statements we have made in this report and those we may make from time to time. If any of the following risks actually occur, our business, results of operation, prospects or financial condition could be harmed. These are not the only risks we face. Additional risks not presently known to us, or that we currently deem immaterial, may also affect our business operations.
Oil and natural gas prices are volatile, and declines in prices may adversely affect our profitability, financial condition, cash flows, access to capital, and ability to grow.
Our revenues, operating results, profitability, future rate of growth, and the carrying value of oil and natural gas properties will depend heavily on the prices we receive for oil and natural gas sales. Oil and natural gas prices will also affect our cash flows available for capital expenditures and other items, our borrowing capacity, and
the amount and value of our oil and natural gas reserves.
Historically, the markets for oil and natural gas have been volatile and they are likely to continue to be volatile. Wide fluctuations in oil and natural gas prices may result from relatively minor changes in the supply of and demand for oil and natural gas, market uncertainty, and other factors that are beyond our control, including:
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Global and domestic supplies of oil and natural gas, and the productive capacity of the industry as a whole |
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The level of consumer demand for oil and natural gas |
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Overall global and domestic economic conditions |
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Weather conditions |
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The availability and capacity of transportation or refining facilities in regional or localized areas that may affect the realized price for oil or natural gas |
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The price and level of foreign imports of crude oil, refined petroleum products, and liquefied natural gas |
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The price and availability of alternative fuels |
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Technological advances affecting energy consumption |
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The ability of the members of the Organization of Petroleum Exporting Countries to agree to and maintain oil price and production controls |
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Political instability or armed conflict in oil or natural gas producing regions |
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Governmental regulations and taxes. |
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These factors and the volatility of oil and natural gas markets make it extremely difficult to predict future oil and natural gas price movements with any certainty. Declines in oil or natural gas prices would reduce our revenues and could also reduce the amount of oil and natural gas that we can produce economically, which could have a materially
adverse effect on us.
The current economic and financial crisis may have impacts on our business that we cannot predict.
The continued economic downturn and credit related turmoil in the global and domestic financial systems may have an impact on our oil and gas business, and we may face challenges if economic and credit conditions do not improve. The recent general economic slowdown has affected the demand for oil and natural gas and may negatively impact
our planned operating cash flows and may ultimately affect our access to the capital markets.
If we are not able to replace reserves, we will not be able to sustain production.
Our future operations depend on our ability to find, develop, or acquire oil and natural gas reserves that are economically recoverable. The properties we propose to acquire and operate may produce oil and natural gas at a declining rate over time. In order to maintain current production rates, we must further develop the properties we have
proposed to acquire and/or we must acquire new oil and natural gas reserves to replace those being depleted by production. In addition, competition for the acquisition of producing oil and natural gas properties is intense and many of our competitors have financial and other resources needed to evaluate and integrate acquisitions that are substantially greater than those available to us. Therefore, we may not be able to acquire oil and natural gas properties that contain economically recoverable reserves, or
we may not be able to acquire such properties at prices acceptable to us. Without successful drilling or acquisition activities, our reserves, production, and revenues will decline over time.
Substantial capital is required to operate in the oil and gas business.
If and when we enter the oil and gas business, we may be required to make substantial capital expenditures to find, acquire, develop, and produce oil and natural gas reserves. Future cash flows and the availability of financing are subject to a number of factors, such as the level of production from existing wells, prices received for oil
and natural gas sales, our success in locating and acquiring new reserves, and the orderly functioning of credit and capital markets. If we encounter operating difficulties that result in our cash flows from operations being less than expected, we would be required to reduce our capital expenditures unless we can raise additional funds through debt or equity financing or the divestment of assets. Debt or equity financing may not always be available to us in sufficient amounts or on acceptable terms, and the proceeds
offered to us for potential divestitures may not always be of acceptable value to us.
When our revenues decrease due to lower oil or natural gas prices, decreased production, or other reasons, and if we cannot obtain capital through acceptable debt or equity financing arrangements, or the sale of non-core assets, our ability to execute development plans, replace our reserves, or maintain production levels could be greatly
limited.
The debt and equity financing markets are currently very constrained due to the global and domestic economic and financial crisis. Continued adverse conditions in the credit markets may increase the cost of borrowings and decrease our ability to access new sources of capital.
Competition in the oil and gas business is intense, and many of our competitors have greater financial, technical, and human resources than we do.
We face intense competition from major oil companies, independent oil and natural gas exploration and production companies, financial buyers, and institutional and individual investors who seek oil and natural gas property investments throughout the world, as well as the equipment, expertise, labor, and materials required to operate oil and
natural gas properties. Many of our competitors have financial, technical, and other resources vastly exceeding those available to us, and many oil and natural gas properties are sold in a competitive bidding process in which our competitors may be able and willing to pay more for development prospects and productive properties, or in which our competitors have technological information or expertise that is not available to us to evaluate and successfully bid for the properties. In addition, shortages of equipment,
labor, or materials as a result of intense competition may result in increased costs or the inability to obtain those resources as needed. We may not be successful in acquiring and developing profitable properties in the face of this competition.
We must also compete for human resources. Over the last few years, the need for talented people across all disciplines in the oil and gas industry has grown, while the number of people available has been constrained.
Our property acquisitions may not be worth what we paid due to uncertainties in evaluating recoverable reserves and other expected benefits, as well as potential liabilities.
Successful property acquisitions require an assessment of a number of factors beyond our control. These factors include exploration potential, future oil and natural gas prices, operating costs, and potential environmental and other liabilities. These assessments are not precise and their accuracy is inherently uncertain.
In addition, significant acquisitions can change the nature of our operations and business if the acquired properties have substantially different operating and geological characteristics or are in different geographic locations than our first proposed properties in Eastern Utah.
Integrating acquired properties and businesses involves a number of other special risks, including the risk that management may be distracted from normal business concerns by the need to integrate operations and systems as well as retain and assimilate additional employees. Therefore, we may not be able to realize all of the anticipated benefits
of our first proposed acquisitions or any subsequent acquisitions.
Exploration and development drilling may not result in commercially productive reserves.
Oil and natural gas drilling and production activities are subject to numerous risks, including the risk that no commercially productive oil or natural gas will be found. The cost of drilling and completing wells is often uncertain, and oil
and natural gas drilling and production activities may be shortened, delayed, or canceled as a result of a variety of factors, many of which are beyond our control. These factors include:
· Unexpected drilling conditions
· Title problems
· Pressure or geologic irregularities in formations
· Equipment failures or accidents
· Adverse weather conditions
· Compliance with environmental and other governmental requirements
|
|
· |
Shortages or delays in the availability of or increases in the cost of drilling rigs and crews, fracture stimulation crews and equipment, chemicals, and supplies. |
The prevailing prices of oil and natural gas affect the cost of and the demand for drilling rigs, production equipment, and related services. However, changes in costs may not occur simultaneously with corresponding changes in prices. The availability of drilling rigs can vary significantly from region to region at any particular time. Although
land drilling rigs can be moved from one region to another in response to changes in levels of demand, an undersupply of rigs in any region may result in drilling delays and higher drilling costs for the rigs that are available in that region. In addition, the current economic and financial downturn may adversely affect the financial condition of some drilling contractors, which may constrain the availability of drilling services in some areas.
Another significant risk inherent in our drilling plans is the need to obtain drilling permits from state, local, and other governmental authorities. Delays in obtaining regulatory approvals and drilling permits, including delays which jeopardize our ability to realize the potential benefits from leased properties within the applicable lease
periods, the failure to obtain a drilling permit for a well, or the receipt of a permit with unreasonable conditions or costs could have a materially adverse effect on our ability to explore on or develop our first proposed properties in Eastern Utah or any subsequent acquisitions.
The wells we may drill may not be productive and we may not recover all or any portion of our investment in such wells. The seismic data and other technologies we use do not allow us to know conclusively prior to drilling a well if oil or natural gas is present, or whether it can be produced economically. The cost of drilling, completing,
and operating a well is often uncertain, and cost factors can adversely affect the economics of a project. Drilling activities can result in dry holes or wells that are productive but do not produce sufficient net revenues after operating and other costs to cover initial drilling and completion costs.
Future oil and natural gas price declines or unsuccessful exploration efforts may result in write-downs of the carrying values of the initial properties we propose to acquire in Eastern Utah.
We expect to follow the successful efforts method of accounting for our oil and natural gas properties. Under this approach, we expect that all property acquisition costs and costs of exploratory and development wells would be capitalized when incurred, pending the determination of whether proved reserves have been discovered. If proved reserves
are not discovered with an exploratory well, the costs of drilling the well would be expensed.
We expect that the capitalized costs of our oil and natural gas properties cannot exceed the estimated undiscounted future net cash flows of the applicable field. If net capitalized costs exceed undiscounted future net revenues, we must write down the costs of each such field to our estimate of its fair value. We expect that unproved properties
will be evaluated at the lower of cost or fair value. Significant declines in oil or natural gas prices in the future or unsuccessful exploration efforts could cause further impairment write-downs of capitalized costs.
We expect that our oil and gas business will be subject to operating and environmental risks and hazards that could result in substantial losses.
Oil and natural gas operations are subject to many risks, including well blowouts, craterings, explosions, uncontrollable flows of oil, natural gas, or well fluids, fires, adverse weather, freezing conditions, formations with abnormal pressures, pipeline ruptures or spills, pollution, releases of toxic gas, and other environmental risks
and hazards. If any of these types of events occurs, we could sustain substantial losses.
Under certain limited circumstances we may be liable for environmental damage caused by previous owners or operators of properties that we own, lease, or operate. As a result, we may incur substantial liabilities to third parties or governmental entities which could reduce or eliminate funds available for exploration, development, or acquisitions,
or cause us to incur losses.
We expect to maintain some limited level of insurance against some, but not all, of these potential risks and losses, but insurance is costly and we may have inadequate insurance. We do not believe that insurance coverage for the full potential liability that could be caused by sudden environmental damages or insurance coverage for environmental
damage that occurs over time is available at a reasonable cost. In addition, pollution and environmental risks generally are not fully insurable. Further, we may elect not to obtain other insurance coverage under circumstances where we believe that the cost of available insurance is excessive relative to the risks presented. Accordingly, we may be subject to liability or may lose substantial portions of certain properties in the event of environmental or other damages. If a significant accident or other event
were to occur and if it were not fully covered by insurance, we could suffer a material loss.
Our proposed oil and gas operations would be subject to complex laws and regulations, including environmental regulations that result in substantial costs and other risks.
Federal, state, and local authorities extensively regulate the oil and natural gas industry. Legislation and regulations affecting the industry are under constant review for amendment or expansion, raising the possibility of changes that may
affect, among other things, the pricing or marketing of oil and natural gas production. Noncompliance with statutes and regulations may lead to substantial penalties and the overall regulatory burden on the industry increases the cost of doing business and, in turn, decreases profitability.
Governmental authorities regulate various aspects of oil and natural gas drilling and production, including the drilling of wells (through permit and bonding requirements), the spacing of wells, the unitization or pooling of interests in oil and natural gas properties, environmental matters, safety standards, the sharing of markets, production
limitations, plugging and abandonment standards, and restoration. Under limited circumstances, federal authorities may require any of our ongoing or planned operations on federal leases to be delayed, suspended, or terminated. Any such delay, suspension, or termination could have a materially adverse effect on our operations.
Our initial proposed operations in Eastern Utah may be subject to complex and constantly changing environmental laws and regulations adopted by federal, state, and local governmental. New laws or regulations, or changes to current requirements, could result in material costs or claims with respect to properties we own or have owned. We expect
to continue to be subject to uncertainty associated with new regulatory interpretations and inconsistent interpretations between state and federal agencies. Under existing or future environmental laws and regulations, we could face significant liability to governmental authorities and third parties, including joint and several as well as strict liability, for discharges of oil, natural gas, or other pollutants into the air, soil, or water, and we could be required to spend substantial amounts on investigations,
litigation, and remediation. Existing environmental laws or regulations, as currently interpreted or enforced, or as they may be interpreted, enforced, or altered in the future, may have a materially adverse effect on us.
Possible regulations related to global warming and climate change could have an adverse effect on our operations and the demand for oil and natural gas.
Recent scientific studies have suggested that emissions of certain gases, commonly referred to as “greenhouse gases,” may be contributing to the warming of the Earth’s atmosphere. Methane, a primary component of natural gas, and carbon dioxide, a byproduct of the burning of refined oil products and natural gas, are examples
of greenhouse gases. The U.S. Congress is considering climate-related legislation to reduce emissions of greenhouse gases. In addition, we are advised that several states in the West have developed initiatives to regulate emissions of greenhouse gases, primarily through the planned development of greenhouse gas emissions inventories and/or regional greenhouse gas cap and trade programs. The U.S. Environmental Protection Agency is separately considering whether it will regulate greenhouse gases as “air pollutants”
under the existing federal Clean Air Act. Passage of climate change legislation or other regulatory initiatives by Congress or various states or the adoption of regulations by the EPA or analogous state agencies that regulate or restrict emissions of greenhouse gases, including methane or carbon dioxide, in areas in which we expect initially to conduct our oil and gas business could have an adverse effect our operations and the demand for oil and natural gas.
We expect that our proposed oil and gas business will depend on transportation facilities owned by others.
We expect that the marketability of our initial proposed oil and natural gas production depends in part on the availability, proximity, and capacity of pipeline transportation systems owned by third parties. The lack of available transportation capacity on
these systems and facilities could result in the shutting-in of producing wells, the delay or discontinuance of development plans for properties, or lower price realizations. Federal and state regulation of oil and natural gas production and transportation, tax and energy policies, changes in supply and demand, pipeline pressures, damage to
or destruction of pipelines, and general economic conditions could adversely affect our ability to produce, gather, and transport oil and natural gas.
The price of our common stock may fluctuate significantly, which may result in losses for investors.
We expect our stock to be subject to fluctuations as a result of a variety of factors, including factors beyond our control. These factors include:
|
|
· |
Changes in oil or natural gas prices |
|
|
· |
Variations in quarterly drilling, recompletions, acquisitions, and operating results |
|
|
· |
Changes in financial estimates by securities analysts |
|
|
· |
Changes in market valuations of comparable companies |
|
|
· |
Additions or departures of key personnel |
|
|
· |
Future sales of our common stock |
|
|
· |
Changes in the national and global economic outlook. |
We may fail to meet expectations of our stockholders and/or of securities analysts at some time in the future, and our stock price could decline as a result.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We currently lease approximately 160 square feet of furnished space at 10757 S. Riverfront Parkway, Suite 125, South Jordan, Utah, on a month to month basis at approximately $1,100 per month.
Item 3. Legal Proceedings.
From time to time we may become subject to certain legal proceedings which we consider routine to our business activities. As of June 30, 2009, we were not engaged in any legal proceedings which our management believed were likely to have a material adverse effect on our financial position,
liquidity or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
|
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
Since April 23, 2008, our common stock has been quoted on the NASD OTC Bulletin Board (the “OTCBB”) under the symbol “BYHL.” Prior to that date, our common stock was quoted on the NASD OTC Bulletin Board under the symbol “CGNW.” The following table sets forth, for the periods indicated, the high and low
closing bid price quotations for the common stock as reported on the OTCBB.
|
High Bid |
Low Bid |
|||||||
|
Quarter ended June 30, 2009 |
$ | 1.60 | $ | .35 | ||||
|
Quarter ended March 31, 2009 |
$ | 1.01 | $ | .20 | ||||
|
Quarter ended December 31, 2008 |
$ | 1.00 | $ | .55 | ||||
|
Quarter ended September 30, 2008 |
$ | 1.50 | $ | 1.01 | ||||
|
Quarter ended June 30, 2008 |
$ | 2.50 | $ | 1.25 | ||||
|
Quarter ended March 31, 2008 |
$ | 2.75 | $ | 1.75 | ||||
|
Quarter ended December 31, 2007 |
$ | 3.00 | $ | 1.50 | ||||
|
Quarter ended September 30, 2007 |
$ | 4.50 | $ | 1.50 | ||||
Historically, our common stock has not traded in high volumes. An active or liquid trading market in our common stock may not develop or, if it does develop, it may not continue.
The market price for our common stock could be subject to significant fluctuations in response to variations in quarterly operating results, announcements of technological innovations or new products and services by us or our competitors, or our failure to achieve operating results consistent with securities analysts’ projections of
our performance.
The securities markets for developing companies like BHCC have been characterized by extreme price and volume fluctuations and volatility. Such fluctuations and volatility have affected the market price of many emerging growth and development stage companies. Such fluctuations and volatility have often been unrelated or disproportionate to
the operating performance of such companies. Factors such as announcements of the introduction of new or enhanced services or related products by us or our competition, announcements of joint development efforts or corporate partnerships in the telecommunications market, market conditions in the technology, telecommunications and other emerging growth sectors or rumors relating to us or our competitors may have a significant impact on the market price of our common stock.
As of June 30, 2009, there were approximately 290 holders of record of our common stock. The number of holders of record does not include holders whose securities are held in street name.
We have never paid and do not, in the foreseeable future, anticipate paying any cash dividends on our common stock. We intend to retain any earnings for use in our business operations and in the expansion of our business.
The following table sets forth information regarding our equity compensation plans as of June 30, 2009:
|
Plan category |
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights |
Weighted-average exercise
price of outstanding
options, warrants
and rights |
Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a) | ||||
|
(a) |
(b) |
(c) | |||||
|
Equity compensation plans |
|||||||
|
approved by security holders |
0 |
$0 |
300,000 |
||||
|
Equity compensation plans |
|||||||
|
not approved by security |
|||||||
|
holders |
0 |
$0 |
- |
||||
|
Equity compensation plans not approved by security holders |
0 |
$0 |
- |
||||
|
Total |
0 |
$0 |
300,000 |
||||
Item 6. Selected Financial Data.
A smaller reporting company, as defined in Item 10 of Regulation S-K, is not required to provide the information required by this item.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
Overview – Current Business
Over the past ten years, our subsidiary, Commission River has established itself as a leading affiliate marketing company focused almost exclusively on telecommunications products and services. We have developed an alternate marketing channel for communications vendors giving them an online
presence to generate leads and sales for these vendors. We have developed a specialized affiliate marketing platform comprised of technologies, programs, and services such as: marketing tools, training and sales tracking that gives us and our online marketing partners (e.g., affiliate marketers) the ability to drive leads using blogs, paid search, and organic search engine optimization techniques. We also create software designed to enable affiliates to coordinate and share ideas with each other in a close-knit
on-line community whose emphasis is on mutual success.
We are now positioning Commission River’s operations to expand into additional vertical markets. We believe this repositioning will enable us to transition from Commission River’s specialization in telecommunication products and services to become a specialty affiliate marketing company for a broader range of products and services.
Our vision is to provide affiliate distribution channels to companies seeking to develop their online marketing presence and sales. We believe our focus on specific verticals will allow us to create specialized tools and marketing methods for affiliates that may result in increased online exposure and sales for our vendors.
Overview – Proposed Oil and Gas Business
On June 9, 2009, we announced that we entered into non-binding letters of intent under which we propose to acquire up to 12,600 gross acres of oil and gas leases in Eastern Utah. A copy of the press release was filed under Form 8-K on July 9, 2009 and is incorporated herein by reference as Exhibit 10.35. Following is an additional general
statement of the Company’s plan of operations for such possible new business. Refer to the foregoing for more details.
We will need to raise additional capital. We plan to issue additional shares of common stock for such purpose in one or more private placement financing or public financing rounds. This may result in the possible issuance of several million additional shares of BHCC common stock. We can give no assurance that this money can be raised at the
prices we propose or at any price. Without this additional funding we may not be able to close the proposed lease acquisitions and/or to operate the leases even if acquired.
Under our oil and gas strategy we will need to drill additional oil and gas wells, some of which will be deemed exploratory. We may drill wells on leases with proven reserves and/or on leases with possible but unproven reserves. We can give no assurances that such drilling programs will be successful, that we will discover and/or produce
any additional oil or gas reserves, or that we can operate the leases profitably and with positive cash flow.
Our CEO has experience in the oil and gas business. We expect to engage additional employees and/or consultants, which will be a material increase to our present staff and increase operating overhead substantially The additional revenues generated by the oil and gas operations may not be sufficient to cover these increases in costs.
This proposed oil and gas business presents many risks and uncertainties to the Company and to its shareholders. Some of these risks and uncertainties are unknown. A general statement of our oil and gas risk factors is presented above.
Year Ended June 30, 2009 Compared to Year Ended June 30, 2008
Total revenue for 2009 was $2,963,188 compared to $4,122,517 for 2008. This represents a decrease of $1,159,329 from that of 2008, or 28%. This decrease reflects decreases in sales of long distance products and cell phones as well as the loss of residual commission payments from several companies that have ceased to pay commissions.
Marketing commissions expense decreased from $2,671,217 for 2008 to $1,900,523 for 2009, a decrease of $770,694, or 29%. This decrease correlates to a decrease in marketing commissions revenue explained above. The higher percentage decrease in marketing commissions expense compared to marketing commissions revenue was attributable to a change
in product mix between the periods and a change in the commission override structure to certain Independent master sales agents.
Selling, general and administrative expenses decreased $2,006,785 or 63% for 2009 compared to 2008. This decrease was largely attributable to the decrease in expenses relating to restructure activities that occurred during the year ended June 30, 2008. In addition we experienced fewer bad debts related to non-payment from customers during
the year ended June 30, 2009.
Interest expense for 2009 of $67,660 was lower than the $461,721 for 2008 due primarily to beneficial conversion features of approximately $266,000 relating to convertible promissory notes and short term loans recorded during 2008. The notes and short term loans were subsequently paid or converted to shares of our common stock and are
reflected in our consolidated statement of changes in stockholders’ deficit for the period ending June 30, 2009.
The decrease of $44,590 in the loss from discontinued operations from 2008 to 2009 reflects that the operations of the discontinued businesses were concluded in the early part of our fiscal year ended June 30, 2008.
Seasonality and Economic Conditions
We do not believe that our current revenue is affected by seasons of the year.
Inflation and recession
The recession during the past two years may have added to the decrease in revenues from the year ended June 30, 2008 when compared to the revenues for the year ended June 30, 2009.
Liquidity and Capital Resources
Cash flows generated from operations, advances pursuant to our financing arrangements and cash from the issuance of notes payable to Robert K. Bench and James U. Jensen, an executive officer and board chairman, respectively, were sufficient to meet our working capital requirements for the year ended June 30, 2009, but will not likely be sufficient
to meet our working capital requirements for the foreseeable future or provide for expansion opportunities. We incurred $476,338 in losses from continuing operations, and we generated $3,601 in cash flows from operations for the year ended June 30, 2009. Net cash generated from financing arrangements for the year ended June 30, 2009 was $65,886. As of June 30, 2009, our current liabilities of $902,811 exceeded our current assets of $464,034 by $438,777. These conditions raise substantial doubt about
our ability to continue as a going concern.
During the fiscal year ended June 30, 2009, we settled outstanding accounts payable and accrued liabilities to vendors and service providers for savings to the Company of $18,320, in addition we wrote off $27,557 of accounts payable that we either disputed or had no documentation of delivery of good or services relating to the amounts outstanding. These
amounts are included in Other Income in our Statement of Operations for the year ended June 30, 2009.
During the fiscal year ended June 30, 2009, 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 U. Jensen, chairman of our board of directors. These advances, together with accrued interest, were converted into 404,351 shares of our common stock pursuant to the terms of the applicable documents. See also, Note 6 to our Consolidated Financial Statements, “Stockholders Equity” for additional information regarding the issuance of such shares of our common stock.
During the fiscal year ended June 30, 2008, BayHill Capital, LC, an entity which is affiliated with two of our executive officers, and Vector Capital LLC, an entity which is affiliated with our Chief Executive Officer, extended to us a series of loans in the form of short-term and convertible notes in the amount of $695,000. All of these
notes, together with $250,000 of notes outstanding as of June 30, 2007 and accrued interest, were converted into 744,330 shares of our common stock in multiple transactions during the fiscal year ended June 30, 2008, pursuant to the terms of the applicable documents. See also, Note 6 to our Consolidated Financial Statements, “Stockholders’ Equity” for additional information regarding the issuance of such shares of our common stock.
In order for us to continue as a going concern, we hope 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 increase revenues or cash flows from our operations, or
that, if we are successful in any of those actions, those actions will produce adequate cash flow to enable us to meet all our future obligations or to be able to expand. All of our existing financing arrangements are short-term. If we are unable to obtain additional debt or equity financing, we may be required to significantly reduce or cease operations.
Financing Arrangements
As of June 30, 2009, our third-party financing arrangements consisted of the following:
|
Note Payable to Cardelco |
$4,000 |
Secured Term Loan with VenCore Solutions, Inc.
At June 30, 2009 we had no further obligations to VenCore Solutions, Inc. (“VenCore”). See also Note 4 to our Consolidated Financial Statements, “Financing Arrangements” set forth in Item 8 of this report for additional information regarding the VenCore transactions.
The following paragraph describes the history of our financial relations with VenCore.
On October 10, 2006, we entered into an agreement with 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 restricted common stock valued at $5,093. The warrants have an exercise price of $6.00 per share and are exercisable for up to seven years from 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 was convertible,
at the option of VenCore, into no more than 66,800 shares of our common stock. In addition, VenCore was granted a two-year warrant to purchase 20,875 shares of 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%, 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. During the year ended June 30, 2009 the conversion feature within this convertible promissory note and warrants resulted in the Company recording a beneficial conversion feature of $13,058 and an increase to debt discount, which was recorded as interest expense. In April 2009, when the balance of the original note was $65,000 and the balance on the convertible note was $91,015, we entered into a settlement agreement
with VenCore whereby we paid to VenCore $65,000 and issued to them 98,307 unregistered shares of our common stock in full settlement of all obligations and for their cancellation of all warrants. As the common stock was trading at $0.51 per share on the settlement date, the Company recognized a $40,878 gain on conversion of debt which is included in Other Income in the Consolidated Statement of Operations. At June 30, 2009 we have no further obligations to VenCore.
Note Payable to Cardelco
As of June 30, 2009, we were in default and $4,000 remained unpaid on our short-term promissory note with Cardelco, LLC (“Cardelco”). See also Note 4 to our Consolidated Financial Statements, “Financing Arrangements” set forth in Item 8 of this report for additional information
regarding the Cardelco transactions. The following paragraph describes the history of our financial relations with Cardelco.
On December 31, 2007, we entered into a short-term promissory note with Cardelco 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. The note did not bear interest unless default occurred, at which time
interest would accrue at 10% per annum. This note was part of a lease termination agreement we executed with 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 was paid in form of a short-term promissory note.
Receivables Purchase Agreement
On May 12, 2008, we repaid the full amount owing to Silicon Valley Bank pursuant to the Receivables Purchase Agreement, and the Receivables Purchase Agreement was terminated. See also Note 4 to our Consolidated Financial Statements, “Financing Arrangements” set forth in Item 8 of this report, for additional information on the
Receivables Purchase Agreement.
Commissions Payable-Interest Bearing
As part of verbal agreements with certain of our independent marketing agents, we periodically place commissions payable on a deferred payment schedule. As of June 30, 2009 and 2008 we had placed $276,065 and $200,000, respectively, of commissions payable on a deferred payment schedule with interest accumulating at a rate of 10% per annum.
These independent marketing agents have agreed to allow us to retain accrued commissions that normally would have been paid to them and use those amounts for our working capital purposes. We have verbally agreed to repay these commissions plus interest when requested by the participating independent agents. Accrued interest expense, relating to these commissions payable, as of June 30, 2009 and 2008 was $14,383 and
$2,180 respectively.
Critical Accounting Policies – Current Business
We have identified the policies below as critical to our business operations and the understanding of our results of operations. In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in
conformity with United States generally accepted accounting principles. Actual results will differ, and could differ materially from those estimates under different assumptions and conditions. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the accurate portrayal of our financial condition and results of operations and require our most difficult, subjective, and complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain.
Our critical accounting policies are as follows:
|
|
· |
marketing commissions receivable; |
|
|
· |
valuation of long-lived assets; |
|
|
· |
commissions payable; and |
|
|
· |
revenue recognition. |
|
|
· |
share-based compensation expense |
Marketing Commissions Receivable
Marketing commissions receivable represent amounts due from outside vendors of telecommunication products . Typically outside vendors pay commissions due to us 45 to 60 days after the usage month-end. As indicated below, we recognize these commissions receivable at the time they are earned. Marketing commissions receivable balance at June
30, 2009 and 2008 was $395,087 and $437,752 respectively, net of allowance for bad debt of $29,661 and $164,604 for the years ending June 30, 2009 and 2008 respectively.
Valuation of Long-Lived Assets
Our intangible assets consist of intellectual property and employment and non-compete agreements relating to the acquisition of the assets of Commission River, Inc. The fair value of identifiable intangible assets is based upon the lower of discounted future cash flow projections or the amount paid in an arm’s length transaction.
These intangible assets have been and are being amortized over 3 years on a straight-line basis. Amortization expense totaled $274,952 and $155,554 for the years ended June 30, 2009 and 2008, respectively. The remaining useful life of the intangible assets was 17 months as of June 30, 2009.
We periodically review the estimated useful lives of our intangible assets and review these assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The determination of impairment is based on estimates of future undiscounted cash flows over the remaining economic
life of the related asset. If an intangible asset is considered to be impaired, the amount of the impairment will be equal to the excess of the carrying value over the fair value of the asset. Given the adverse financial market conditions, the current and projected economic conditions, and the decrease in revenues and cash flows experience by our business, we evaluated the recoverability of the Intangible Assets at June 30, 2009. As of June 30, 2009, the carrying value of the
Employee and non-compete agreements was greater than the fair value which was determined by comparing the undiscounted future cash flows generated by the Employee and non-compete agreements over the remaining life of the related contracts. As a result of this evaluation, we impaired $188,891, which was the entire remaining balance of the Intangible Assets relating to the Employment and non-compete agreements. The impairment takes into account management’s projection that undiscounted cash flows
generated by the business over the remaining life of the employment and non-compete agreements were not sufficient to cover any carrying value for these Intangible Assets.
Commissions Payable
Commissions payable represent amounts due to independent agents for commissions related to the usage or sales for which we are due marketing commissions revenue from our outside vendors. It is our policy to pay commissions to our independent agents only after receiving commissions due from our outside vendors, although we book the obligation
to pay such commissions at the time of the sale. This policy results in approximately two months of commissions payable being included in the balance at any point in time.
Revenue Recognition
Marketing commissions revenue is recognized at the time the customer has been accepted by the vendor and/or received the product from the vendor or is under contract with the vendor and receiving the services. In those cases where services continue over
future periods, revenue is recognized when delivery of the service to the customer has occurred, the fee is fixed or determinable, collection by the vendor from the customer has been made or is probable and the vendor payment of commissions to us is probable.
Management has determined that the Company is acting as a principal under the guidance of Emerging Issues Task Force (“EITF”) Issue 99-19, Reporting revenue gross as a participant versus net as an agent, and as such, recorded the marketing commission revenue and expense
on a gross basis. This is principally due to the Company maintaining the credit risk with the independent agents.
Share-Based Compensation Expense
Effective January 1, 2007, the Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123R “Share-Based Payment (revised 2004)” (“SFAS No. 123R”), which requires the measurement and recognition of compensation expense for all share-based payment awards
(including stock options) made to employees and directors based on estimated fair value. Compensation expense for equity-classified awards is measured at the grant date based on the fair value of the award and is recognized as an expense in earnings over the requisite service period. The Company adopted SFAS No. 123R using the modified prospective transition method. Under this transition method, compensation cost recognized during the year ended December 31, 2008 and 2007 included the cost for options
which were granted prior to January 1, 2007, as determined under the provisions of SFAS No. 123. See Note 6 below.
The Company records compensation expense related to non-employees under the provisions of SFAS 123R and EITF Issue No. 96-18, Accounting for Equity Instruments that are Issued to other than Employees for Acquiring, or in Conjunction with Selling Goods or Services ("EITF 96-18"), and recognizes compensation expenses over the vesting period
of such awards.
Critical Accounting Policies – Proposed Oil and Gas Business
We are now considering, but have not yet established any critical accounting policies for the proposed oil and gas business.
Recently Adopted Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value
and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. SFAS No. 157 did not have an impact on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other
items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. SFAS No. 159 did not have an impact on our consolidated financial statements.
New Accounting Pronouncements
In December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” which establishes principles for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired and liabilities assumed in a business combination, recognizes
and measures the goodwill acquired in a business combination, and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of a business combination. Our adoption of SFAS No. 141R related to our proposed entry into the oil and gas business may have a material impact on our 2010 consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”. SFAS No. 160 requires noncontrolling ownership interests (previously referred to as minority interests) to be treated as a separate component of equity,
not as a liability or other item outside of permanent equity. In addition, it requires that the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the statement of operations. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. We do not expect our adoption of SFAS No. 160 to have a material impact on our 2010 consolidated financial statements.
In March 2008, the FASB issued SFAS No.161, “Disclosures about Derivative Instruments and Hedging Activities—An Amendment of FASB Statement No. 133.” This standard applies to derivative instruments, nonderivative instruments that are designated and qualify as
hedging instruments and related hedged items accounted for under SFAS No. 133. It does not change the accounting for derivatives and hedging activities, but requires enhanced disclosures concerning the effect on the financial statements from their use. This standard is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Currently, we do not have any instruments that would be impacted by this standard.
In April 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. 142-3, “Determining the Useful Life of Intangible Assets” (FSP 142-3). FSP 142-3 amends the factors to be considered in determining the useful life of intangible assets. Its intent is to improve the consistency
between the useful life of an intangible asset and the period of expected cash flows used to measure such asset’s fair value. FSP 142-3 is effective for fiscal years beginning after December 15, 2008. The Company is currently assessing the potential impact, if any, of FSP 142-3 on its financial statements.
In June 2008, the FASB ratified the consensus reached by the EITF on Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own stock” (“EITF No. 07-5”). EITF No. 07-5 provides guidance for determining whether an equity-linked financial instrument
(or embedded feature) is indexed to an entity’s own stock. EITF No. 07-5 applies to any freestanding financial instrument or embedded feature that has all of the characteristics of a derivative or freestanding instrument that is potentially settled in an entity’s own stock. To meet the definition of “indexed to own stock,” an instrument’s contingent exercise provisions must not be based on (a) an observable market, other than the market for the issuer’s stock (if
applicable), or (b) an observable index, other than an index calculated or measured solely by reference to the issuer’s own operations, and the variables that could affect the settlement amount must be inputs to the fair value of a “fixed-for-fixed” forward or option on equity shares. EITF No. 07-5 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We are in the process of evaluating the impact of adoption of EITF 07-5
on our financial position and results of operations.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS 165”). This standard requires the disclosure of the date through which an entity has evaluated subsequent events and whether that represents the date the financial statements were issued or were
available to be issued. This standard is not expected to result in significant changes in the subsequent events that an entity reports, either through recognition or disclosure, in its financial statements. The provisions for SFAS 165 were effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. The Company adopted this standard on June 30, 2009, and the impact of the adoption was not significant. Subsequent events through September 2, 2009 were evaluated.
In June 2009, the FASB issued SFAS No. 168, The “FASB Accounting Standards CodificationTM” and the Hierarchy of Generally Accepted Accounting
Principles — a replacement of FASB Statement No. 162 (“SFAS No. 168”). SFAS No. 168 establishes the FASB Accounting Standards CodificationTM (Codification) as the source of authoritative U.S. generally accepted accounting principles (U.S. GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases
of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. SFAS No. 168 and the Codification are effective for financial statements issued for interim and annual periods ending after September 15, 2009 (year ending June 30, 2010 for the Company).
Off-Balance Sheet Arrangements
We do not have any transactions, obligations, or relationships that would be considered off-balance sheet arrangements.
Item 7A. Qualitative and Quantitative Disclosures About Market Risk
Not Applicable.
Item 8. Financial Statements and Supplementary Data.
Our consolidated financial statements, together with accompanying footnotes, and the report of our independent registered public accounting firm, are set forth below.
BAYHILL CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
as of June 30, 2009 and 2008
and
Report of Independent Registered Public Accounting Firm
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Consolidated Financial Statements |
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F-3 |
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F-5 |
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F-7 |
To the Board of Directors and Stockholders
BayHill Capital Corporation
South Jordan, Utah
We have audited the accompanying consolidated balance sheets of BayHill Capital Corporation (the “Company”) and subsidiaries as of June 30, 2009 and 2008, and the related consolidated statements of operations, changes in stockholders' equity (deficit) and cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of BayHill Capital Corporation and subsidiaries as of June 30, 2009 and 2008, and the results of their operations and their cash flows for the years then ended, in conformity with United States generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has experienced circumstances which raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding
those matters also are described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Ehrhardt Keefe Steiner & Hottman PC
September 2, 2009
Denver, Colorado
BayHill Capital Corporation
CONSOLIDATED BALANCE SHEETS
ASSETS
|
As of |
||||||||
|
June 30, 2009 |
June 30, 2008 |
|||||||
|
CURRENT ASSETS |
||||||||
|
Cash |
$ | 68,947 | $ | - | ||||
|
Marketing commissions receivable, net |
395,087 | 437,752 | ||||||
|
Other current assets |
- | 7,200 | ||||||
|
Total current assets |
464,034 | 444,952 | ||||||
|
NON-CURRENT ASSETS |
||||||||
|
Intangible assets, net |
188,891 | 644,446 | ||||||
|
Deposits and other assets |
400 | 8,807 | ||||||
|
Total long-term assets |
189,291 | 653,253 | ||||||
|
TOTAL ASSETS |
$ | 653,325 | $ | 1,098,205 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
CURRENT LIABILITIES |
||||||||
|
Accounts payable |
$ | 78,045 | $ | 517,693 | ||||
|
Accrued liabilities |
104,351 | 80,949 | ||||||
|
Commissions payable |
677,532 | 531,595 | ||||||
|
Financing arrangements |
4,000 | 171,614 | ||||||
|
Net current liabilities of discontinued operations |
38,883 | 38,883 | ||||||
|
Total current liabilities |
$ | 902,811 | $ | 1,340,734 | ||||
|
Commitments and contingencies |
||||||||
|
STOCKHOLDERS' DEFICIT |
||||||||
|
Preferred stock, $.0001 par value, 400,000 shares authorized, no shares issued and outstanding at June 30, 2009 and 2008 respectively |
$ | — | $ | — | ||||
|
Common stock $.0001 par value, 100,000,000 shares authorized; 2,635,560 and 1,885,470 shares issued and outstanding at June 30, 2009 and 2008 respectively |
263 | 188 | ||||||
|
Additional paid-in capital |
16,551,941 | 16,082,635 | ||||||
|
Accumulated deficit |
(16,801,690 | ) | (16,325,352 | ) | ||||
|
Total stockholders' deficit |
(249,486 | ) | (242,529 | ) | ||||
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT |
$ | 653,325 | $ | 1,098,205 | ||||
BayHill Capital Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
|
For the Years Ended |
||||||||
|
June 30, 2009 |
June 30, 2008 |
|||||||
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REVENUE |
||||||||
|
Marketing commissions |
$ | 2,963,188 | $ | 4,122,517 | ||||
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OPERATING EXPENSES |
||||||||
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Marketing commissions |
1,900,523 | 2,671,217 | ||||||
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Selling, general and administrative |
1,164,541 | 3,171,326 | ||||||
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Amortization |
274,952 | 155,554 | ||||||
|
Impairment charge |
188,891 | — | ||||||
|
Total operating expenses |
3,528,907 | 5,998,097 | ||||||
|
Loss from Operations |
(565,719 | ) | (1,875,580 | ) | ||||
|
Other Income and Expense |
||||||||
|
Other Income |
157,041 | — | ||||||
|
Interest Expense |
(67,660 | ) | (461,721 | ) | ||||
|
Total Other Income and Expense |
89,381 | (461,721 | ) | |||||
|
Loss from continuing operations before income taxes |
(476,338 | ) | (2,337,301 | ) | ||||
|
Income taxes |
— | — | ||||||
|
Loss from continuing operations |
(476,338 | ) | (2,337,301 | ) | ||||
|
Loss from discontinued operations |
— | (44,590 | ) | |||||
|
NET LOSS |
(476,338 | ) | (2,381,891 | ) | ||||
|
Preferred dividends |
— | (11,667 | ) | |||||
|
Net loss attributable to common shareholders |
$ | (476,338 | ) | $ | (2,393,558 | ) | ||
|
Basic and diluted weighted average number of common shares outstanding: |
2,085,624 | 968,001 | ||||||
|
Basic and diluted loss per common share: |
||||||||
|
Continuing operations |
(.23 | ) | (2.43 | ) | ||||
|
Discontinued operations |
— | (.05 | ) | |||||
|
TOTAL |
$ | (.23 | ) | $ | (2.48 | ) | ||
BayHill Capital Corporation
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
For the Years Ended June 30, 2009 and 2008
|
Additional |
Total |
|||||||||||||||||||||||||||
|
Preferred Stock |
Common Stock |
Paid-in |
Accumulated |
Stockholders' |
||||||||||||||||||||||||
|
Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Equity (Deficit) |
||||||||||||||||||||||
|
Balance –
June 30, 2007 |
500,000 | 50 | 210,710 | 21 | 12,642,011 | (13,943,461 | ) | (1,301,379 | ) | |||||||||||||||||||
|
Beneficial conversion feature |
— | — | — | — | 266,529 | — | 266,529 | |||||||||||||||||||||
|
Sale of CBSi |
(24,921 | ) | (2 | ) | (14,456 | ) | — | (14,458 | ) | |||||||||||||||||||
|
Preferred Stock Conversion |
(500,000 | ) | (50 | ) | 10,000 | 1 | 49 | — | — | |||||||||||||||||||
|
Conversion of accounts payable and debt |
— | — | 153,084 | 15 | 213,765 | — | 213,780 | |||||||||||||||||||||
|
Conversion of BayHill Capital LC notes |
— | — | 703,930 | 70 | 921,153 | — | 921,223 | |||||||||||||||||||||
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Commission River acquisition |
— | — | 320,000 | 32 | 799,968 | — | 800,000 | |||||||||||||||||||||
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Issuance of stock for compensation |
— | — | 512,667 | 51 | 1,253,616 | — | 1,253,667 | |||||||||||||||||||||
|
Net loss |
— | — | — | — | — | (2,381,891 | ) | (2,381,891 | ) | |||||||||||||||||||
|
Balance –
June 30, 2008 |
- | $ | — | 1,885,470 | $ | 188 | $ | 16,082,635 | $ | (16,325,352 | ) | $ | (242,529 | ) | ||||||||||||||
|
Beneficial conversion feature |
— | — | — | — | 13,058 | — | 13,058 | |||||||||||||||||||||
|
Conversion of accounts payable and debt |
— | — | 538,588 | 54 | 258,311 | — | 258,365 | |||||||||||||||||||||
|
Issuance of stock for compensation |
— | — | 211,502 | 21 | 197,937 | — | 197,958 | |||||||||||||||||||||
|
Net loss |
— | — | — | — | — | (476,338 | ) | (476,338 | ) | |||||||||||||||||||
|
Balance –
June 30, 2009 |
— | $ | — | 2,635,560 | $ | 263 | $ | 16,551,941 | $ | (16,801,690 | ) | $ | (249,486 | ) | ||||||||||||||
BayHill Capital Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
For the Years Ended |
||||||||
|
June 30, 2009 |
June 30, 2008 |
|||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
|
Net loss |
$ | (476,338 | ) | $ | (2,381,891 | ) | ||
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities |
||||||||
|
Amortization |
274,952 | 155,554 | ||||||
|
Marketing commissions receivable written off |
— | 203,000 | ||||||
|
Provision for doubtful commission receivables |
— | 242,000 | ||||||
|
Impairment of investment in CBSi |
— | 137,742 | ||||||
|
Impairment of intangible assets |
188,891 | — | ||||||
|
Issuance of stock as compensation |
197,958 | 1,253,667 | ||||||
|
Amortization of note discount included in interest expense |
13,058 | 266,529 | ||||||
|
Gain on conversion of debt |
(40,878 | ) | - | |||||
|
Sale of Cognigen Business Systems, Inc. |
- | (14,458 | ) | |||||
|
Changes in assets and liabilities: |
||||||||
|
Marketing commissions receivable |
42,665 | (69,212 | ) | |||||
|
Other current assets |
7,319 | 17,352 | ||||||
|
Deposits and other assets |
— | 30,849 | ||||||
|
Accounts payable |
(373,905 | ) | 103,605 | |||||
|
Accrued liabilities |
23,402 | (23,397 | ) | |||||
|
Commissions payable |
145,937 | (68,714 | ) | |||||
|
Other liabilities |
— | (1,633 | ) | |||||
|
Net cash provided by (used in) continuing operations |
3,061 | (149,007 | ) | |||||
|
Net cash used in discontinued operations |
— | (52,072 | ) | |||||
|
Net cash provided by (used in) operating activities |
3,061 | (201,079 | ) | |||||
|
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
|
Proceeds from financial arrangements |
150,000 | 695,000 | ||||||
|
Payments on financing arrangements |
(84,114 | ) | (496,252 | ) | ||||
|
Other |
— | 2,331 | ||||||
|
Net cash provided by financing activities |
65,886 | 201,079 | ||||||
|
Net increase in cash |
68,947 | — | ||||||
|
Cash – beginning of the year |
— | — | ||||||
|
Cash – end of the year |
$ | 68,947 | $ | — | ||||
(Continued on following page)
BayHill Capital Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued from previous page)
Supplemental disclosure of cash flow information:
Cash paid for interest was $33,860 and $132,009 for the years ended June 30, 2009 and 2008, respectively.
During the year ended June 30, 2009, we issued the following restricted common shares for those reasons and values identified below (See Note 6 to these consolidated financial statements):
|
Shares |
Value |
|||||||
|
Settlement of accounts payable and notes |
538,588 | $ | 258,365 | |||||
During the year ended June 30, 2008, we issued the following restricted common shares for those reasons and values identified below (See Note 6 to these consolidated financial statements):
|
Shares |
Value |
|||||||
|
Conversion of BayHill Capital LC notes and accrued interest |
703,930 | $ | 921,223 | |||||
|
Commission River acquisition |
320,000 | $ | 800,000 | |||||
|
Settlement of accounts payable and notes |
153,084 | $ | 213,780 | |||||
|
Preferred stock conversion |
10,000 | $ | 450,000 | |||||
During the year ended June 30, 2008 we received 24,921 common shares as partial consideration for the sale of 100% of the equity interests of Cognigen Business Systems, Inc. Immediately following the repurchase of these common shares, we cancelled such shares which we deemed to have a net value of $42,984. (See Note 2 to these consolidated
financial statements.)
On December 31, 2007, we entered into a lease termination agreement with an unrelated third party, pursuant to which we agreed to pay to the landlord $45,000 (See Note 4 to these consolidated financial statements).
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BayHill Capital Corporation (“we”, “us”, “Company” or “BHCC”), formerly Cognigen Networks, Inc., was incorporated in May 1983 in the State of Colorado. We market and sell services and products through independent 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 us commissions
based on the volume of products and services sold by our 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 our independent agent network. 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.
On March 31, 2008, we held a special meeting of shareholders at which our shareholders approved a series of proposals previously approved by our Board of Directors. These proposals consisted of (i) a proposal to amend our Articles of Incorporation 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 our Articles of Incorporation to reduce the number of authorized shares of our common stock from 300,000,000 shares, $.001 par value per share, to 100,000,000 shares, $.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,
$.0001 par value per share, (iii) a proposal to amend our Articles of Incorporation to change our name to BayHill Capital Corporation and make other changes necessary to facilitate the foregoing actions and the reincorporation of BHCC, (iv) a proposal to reincorporate BHCC under the laws of the State of Delaware, and (v) a proposal to adopt the Cognigen Networks, Inc. 2008 Stock Incentive Plan.
Based upon the approval of our shareholders at the March 31, 2008 special meeting, effective April 23, 2008 our management completed the actions necessary to effect the name change, reverse stock split, Delaware reincorporation 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." 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.
Through our network of independent agents, we sell third party or outside vendor products and services, to customers and subscribers worldwide. Long distance and commercial telecommunications services make up the major portion of our sales with wireless communications, residential broadband services, VoIP services, and other products in our
sales mix. As an agent, we have contractual agreements with a variety of product and service vendors that provide us with a commission percentage of any sales made through one of our supported web sites. As agent, we sell the products and services of industry product and service providers such as, AccuLinq, Simplexity, Telarus, Packet8, Lingo, Pioneer Telephone, TCI, and PowerNet Global,. Our operations are, in large part, dependent on our continued affiliation with the third-party providers of the products and
services that our independent agents sell.
During the fiscal year ended June 30, 2008, the Company issued to BayHill Capital, LC, which was managed by two of our executives, 703,930 shares of common stock for conversions of a series of notes. In addition, the Company issued to Commission River, Inc., which is owned by two executives of our wholly owned subsidiary, 320,000 shares of
common stock pursuant to an Asset Purchase Agreement. These shares represented approximately 37% and 17% respectively of the outstanding common stock at June 30, 2009 and 2008.
Principles of Consolidation
Our accompanying consolidated financial statements include the accounts of BHCC, Commission River and two former subsidiaries, LowestCostMall.com (“LCM”) and Cognigen Business Systems, Inc. (“CBSi”). For purposes of the accompanying consolidated financial statements,
LCM and CBSi have been treated as discontinued operations. All intercompany accounts and transactions have been eliminated in consolidation (see Note 2 to these consolidated financial statements).
Marketing Commissions Receivable
Marketing commissions receivable represent amounts due from outside vendors of telecommunication products. Typically outside vendors pay commissions due to us 45 to 60 days after the usage month-end.
We established an allowance for doubtful accounts as of June 30, 2009 to provide for potential uncollectible accounts receivable determined to be uncollectible. The Allowance for Doubtful Accounts as of June 30, 2009 and 2008 was $29,661 and $164,604 respectively.
Commission revenue from our two largest vendors generated approximately 61% and 60%, respectively, of our total revenue for the years ended June 30, 2009 and 2008. Of the above percentages, 47% and 45% of our revenue respectively, were generated from Telarus, Inc. which is owned by two executive officers of Commission River.
Intangible Assets
On November 30, 2007, we acquired the assets of Commission River, Inc. in an asset purchase transaction. The assets acquired consisted of intellectual property valued at $400,000 and employment and non-compete agreements valued at $400,000. The net carrying amount and future estimated amortization expense as of June 30, 2009 was as follows:
|
Amortized Intangible Assets |
Net
Carrying Amount |
Accumulated Amortization |
Net Intangibles |
|||||||||
|
Intellectual Property |
$ | 400,000 | $ | 211,109 | $ | 188,891 | ||||||
|
Employment and non-compete agreements |
$ | 211,109 | 211,109 | $ | - | |||||||
| $ | 611,109 | $ | 422,218 | $ | 188,891 | |||||||
|
Year ending June 30, |
Estimated Amortization Expense | |||
|
2010 |
133,332 | |||
|
2011 |
55,559 | |||
|
Total |
$ |
188,891 | ||
The fair value of identifiable intangible assets is based upon the lower of discounted future cash flow projections or the net intangible balance. These intangible assets have been, and are being, amortized over 3 years on a straight-line basis, since this was the combined time of the employment and non-complete agreements, the software will
have been replaced through attrition, and the marketing value of the Company will have received the benefit from the value of the name. Amortization expense, based on the 3 year straight-line basis totaled $266,664 and $155,554 for the years ended June 30, 2009 and 2008, respectively. The weighted-average remaining useful life of the intangible assets was 17 months as of June 30, 2009.
We periodically review the estimated useful lives of our intangible assets and review these assets for impairment whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The determination of impairment is based on estimates of future undiscounted cash flows over the remaining economic
life of the related asset. If an intangible asset is considered to be impaired, the amount of the impairment will be equal to the excess of the carrying value over the fair value of the asset. After an impairment loss is recognized, the adjusted carrying amount of the intangible asset shall be its new accounting basis. Given the adverse financial market conditions, the current and projected economic conditions, and the decrease in revenues
and cash flows experience by our business, we evaluated the recoverability of the Intangible Assets at June 30, 2009. As of June 30, 2009, the carrying value of the Employee and non-compete agreements was greater than the fair value which was determined by comparing the undiscounted future cash flows generated by the Employee and non-compete agreements over the remaining life of the related contracts. As a result of this evaluation, we impaired $188,891, which was the entire
remaining balance of the Intangible Assets relating to the Employment and non-compete agreements and therefore reduced the carrying amount of the asset to $211,109.
The impairment takes into account management’s projection that undiscounted cash flows generated by the business over the remaining life of the employment and non-compete agreements were not sufficient to cover any carrying value for these Intangible Assets.
Commissions Payable
Commissions payable represent amounts due to independent agents for commissions related to the usage or sales for which we are due marketing commissions revenue from its outside vendors. It is our current policy to pay commissions to our independent agents only after receiving commissions due from its outside vendors. This policy results
in approximately two months commission payable at any point in time.
Share-based Compensation
Effective January 1, 2007, the Company adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123R “Share-Based Payment (revised 2004)” (“SFAS No. 123R”), which requires the measurement and recognition of compensation expense for all share-based payment awards
(including stock options) made to employees and directors based on estimated fair value. Compensation expense for equity-classified awards is measured at the grant date based on the fair value of the award and is recognized as an expense in earnings over the requisite service period. The Company adopted SFAS No. 123R using the modified prospective transition method. Under this transition method, compensation cost recognized during the year ended December 31, 2008 and 2007 included the cost for options
which were granted prior to January 1, 2007, as determined under the provisions of SFAS No. 123. See Note 6 below.
The Company records compensation expense related to non-employees under the provisions of SFAS 123R and EITF Issue No. 96-18, Accounting for Equity Instruments that are Issued to other than Employees for Acquiring, or in Conjunction with Selling Goods or Services ("EITF 96-18"), and recognizes compensation expenses over the vesting period
of such awards.
Derivative Financial Instruments
We analyze convertible debentures under the guidance provided by Emerging Issues Task Force Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, (“EITF
00-19”) and Emerging Issues Task Force Issue No. 05-02, Meaning of “Conventional Convertible Debt Instrument” in Issue No. 00-19, (“EITF 05-02”) and review the appropriate classification under the provisions of Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities, (“SFAS 133”), and EITF
00-19.
We review the terms of convertible debt and equity instruments we issue to determine whether there are embedded derivative instruments, including the embedded conversion option, that are required to be bifurcated and accounted for separately as derivative instrument liabilities. Also, in connection with the sale of convertible debt and equity
instruments, we may issue freestanding options or warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity. For option-based derivative financial instruments, we use the Black-Scholes option pricing model to value the derivative instruments.
Certain instruments, including convertible debt and equity instruments and the freestanding warrants issued in connection with those convertible instruments, may be subject to registration rights agreements, which impose penalties for failure to register the underlying common stock by a defined date. These potential penalties are accounted
for in accordance with Statement of Financial Accounting Standards No. 5, Accounting for Contingencies, (“SFAS 5”).
When the embedded conversion option in a convertible debt instrument is not required to be bifurcated and accounted for separately as a derivative instrument, we review the terms of the instrument to determine whether it is necessary to record a beneficial conversion feature, in accordance with Emerging Issues Task Force Issue No. 98-05, Accounting
for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, (“EITF 98-05”), and Emerging Issues Task Force Issue No. 00-27, Application of Issue No. 98-5 to Certain Convertible Instruments, (“EITF 00-27”). When the effective conversion rate of the instrument at the time it is issued is less than the fair value of the common stock into which it is convertible, we recognize
a beneficial conversion feature, which is credited to equity and reduces the initial carrying value of the instrument.
When convertible debt is initially recorded at less than its face value as a result of allocating some or all of the proceeds received in accordance with Accounting Principles Board (“APB”) Opinion No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase
Warrants, (“APB 14”), to derivative instrument liabilities, to a beneficial conversion feature or to other
instruments, the discount from the face amount, together with the stated interest on the convertible debt, is amortized over the life of the instrument through periodic charges to income, using the effective interest method.
Income Taxes
We recognize deferred tax liabilities and assets based on the differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements that will result in taxable or deductible amounts in future years. Deferred tax assets and liabilities are measured using enacted tax rates expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. All allowances against deferred income tax assets are recorded in whole or in part, when it is more likely than not those deferred income tax assets will not be realized.
Marketing Commissions Revenue
Marketing commissions revenue is recognized at the time the customer has been accepted by the vendor and/or received the product from the vendor or is under contract with the vendor and receiving the services. In those cases where services continue over future periods, revenue is
recognized when delivery of service to the customer has occurred, the fee is fixed or determinable, collection by the vendor from the customer has been made or is probable and the vendor payment of commissions to us is probable.
Management has determined that the Company is acting as a principal under the guidance of Emerging Issues Task Force (“EITF”) Issue 99-19, Reporting revenue gross as a participant versus net as an agent, and as such, recorded the marketing commission revenue and expense
on a gross basis. This is principally due to the Company maintaining the credit risk with the independent agents.
Advertising Costs
We expense advertising costs as incurred. Total advertising costs for the years ended June 30, 2009 and 2008 were $894 and $16,067, respectively.
Loss Per Share
Basic loss per common share is computed by dividing the net loss attributable to common shareholders for the period by the weighted-average number of common shares outstanding during the period. Diluted net income per common share, where applicable, is computed giving effect to all dilutive common stock equivalents, primarily common stock
options and warrants. All potential common shares that have an anti-dilutive effect on diluted per share amounts are excluded in determining the diluted loss per common share. Stock options and warrants exercisable into 18,500 common shares as of June 30, 2008, were excluded from the calculation of diluted loss per common share because their effect would have been anti-dilutive. During the year ended June 30, 2009, all outstanding options and warrants were cancelled.
Use of Estimates
The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results will differ, and could differ materially from those estimates.
Recently Adopted Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value
and expands disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. SFAS No. 157 did not have an impact on our consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – Including an Amendment of FASB Statement No. 115.” SFAS No. 159 permits entities to choose to measure many financial instruments and certain other
items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. SFAS No. 159 did not have an impact on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” which establishes principles for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired and liabilities assumed in a business combination, recognizes
and measures the goodwill acquired in a business combination, and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of a business combination. Our adoption of SFAS No. 141R related to our proposed entry into the oil and gas business may have a material impact on our 2010 consolidated financial statements.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements”. SFAS No. 160 requires noncontrolling ownership interests (previously referred to as minority interests) to be treated as a separate component of equity,
not as a liability or other item outside of permanent equity. In addition, it requires that the amount of consolidated net income attributable to the parent and to the noncontrolling interest be clearly identified and presented on the face of the statement of operations. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. We do not expect our adoption of SFAS No. 160 to have a material impact on our 2010 consolidated financial statements.
In March 2008, the FASB issued SFAS No.161, “Disclosures about Derivative Instruments and Hedging Activities—An Amendment of FASB Statement No. 133.” This standard applies to derivative instruments, nonderivative instruments that are designated and qualify as
hedging instruments and related hedged items accounted for under SFAS No. 133. It does not change the accounting for derivatives and hedging activities, but requires enhanced disclosures concerning the effect on the financial statements from their use. This standard is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Currently, we do not have any instruments that would be impacted by this standard.
In April 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. 142-3, “Determining the Useful Life of Intangible Assets” (FSP 142-3). FSP 142-3 amends the factors to be considered in determining the useful life of intangible assets. Its intent is to improve the consistency
between the useful life of an intangible asset and the period of expected cash flows used to measure such asset’s fair value. FSP 142-3 is effective for fiscal years beginning after December 15, 2008. The Company is currently assessing the potential impact, if any, of FSP 142-3 on its financial statements.
In June 2008, the FASB ratified the consensus reached by the EITF on Issue No. 07-5, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own stock” (“EITF No. 07-5”). EITF No. 07-5 provides guidance for determining whether an equity-linked financial instrument
(or embedded feature) is indexed to an entity’s own stock. EITF No. 07-5 applies to any freestanding financial instrument or embedded feature that has all of the characteristics of a derivative or freestanding instrument that is potentially settled in an entity’s own stock. To meet the definition of “indexed to own stock,” an instrument’s contingent exercise provisions must not be based on (a) an observable market, other than the market for the issuer’s stock (if
applicable), or (b) an observable index, other than an index calculated or measured solely by reference to the issuer’s own operations, and the variables that could affect the settlement amount must be inputs to the fair value of a “fixed-for-fixed” forward or option on equity shares. EITF No. 07-5 is effective for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. We are in the process of evaluating the impact of adoption of EITF 07-5
on our financial position and results of operations.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS 165”). This standard requires the disclosure of the date through which an entity has evaluated subsequent events and whether that represents the date the financial statements were issued or were
available to be issued. This standard is not expected to result in significant changes in the subsequent events that an entity reports, either through recognition or disclosure, in its financial statements. The provisions for SFAS 165 were effective for interim or annual financial periods ending after June 15, 2009, and shall be applied prospectively. The Company adopted this standard on June 30, 2009, and the impact of the adoption was not significant. Subsequent events through September 2, 2009 were evaluated.
In June 2009, the FASB issued SFAS No. 168, The “FASB Accounting Standards CodificationTM” and the Hierarchy of Generally Accepted Accounting
Principles — a replacement of FASB Statement No. 162 (“SFAS No. 168”). SFAS No. 168 establishes the FASB Accounting Standards CodificationTM (Codification) as the source of authoritative U.S. generally accepted accounting principles (U.S. GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases
of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative U.S. GAAP for
SEC registrants. SFAS No. 168 and the Codification are effective for financial statements issued for interim and annual periods ending after September 15, 2009 (year ending January 2, 2010 for the Company).
NOTE 2 – DISCONTINUED OPERATIONS
Cognigen Business Systems, Inc.
During the fiscal years ended June 30, 2007 and June 30, 2006 and the fiscal quarter ended September 30, 2007, we generated revenue from CBSi’s operations in the amount of $58,463, $0 and $15,233, respectively. During the same period (July 1, 2005 through September 30, 2007), we incurred
in excess of $600,000 in expenses associated with the CBSi operations. After reviewing the activities and operations of CBSi, our Board of Directors concluded that the large losses generated by CBSi, and the projected amount of cash required to develop and market the intended CBSi products, did not warrant further investment in CBSi or continued marketing and sale of the CBSi products. Our Board of Directors determined that it was in the best interests of BHCC and our shareholders to focus our efforts on continuing
to develop its historical agent marketing business and, on August 31, 2007 we sold our its 100% ownership in CBSi to Carl Silva and ABP, for 24,921 shares of our common stock valued at $14,458 and the retention of $30,844 of CBSi-related accounts payable. In conjunction with this sale, the employment agreement and all benefits related thereto with Carl Silva were terminated and or relinquished. All other agreements with ABP were also terminated. The 24,921 shares of our common stock we received in the transaction
were cancelled.
The following is financial information as of June 30, 2009 and 2008 relative to discontinued operations described above.
|
Current liabilities |
||||
|
Accrued liabilities |
$ | 38,883 | ||
|
Net current liabilities of
discontinued operations |
$ | 38,883 | ||
|
Year Ended
June 30, 2008 |
||||
|
Total revenue |
$ | 22,535 | ||
|
Operating expenses |
67,125 | |||
|
Loss from operations |
$ | (44,590 | ) | |
|
Other non-operating |
- | |||
|
Income taxes |
- | |||
|
Loss from discontinued operations |
$ | (44,590 | ) | |
NOTE 3 – GOING CONCERN
Cash flows generated from operations, advances pursuant to our financing arrangements and cash from advances by an officer and a director were sufficient to meet our working capital requirements for the year ended June 30, 2009, but will not likely be sufficient to meet our working capital requirements for the foreseeable future or provide
for expansion opportunities. We had a working capital deficit of $438,777 as of June 30, 2009, incurred $476,338 in losses from continuing operations, and generated $3,061 in cash flows from operations for the year ended June 30, 2009. These conditions raise substantial doubt about our ability to continue as a going concern.
During the fiscal year ended June 30, 2009, two persons, an officer and a director of the Company, advanced $150,000 to the Company. All of these notes and accrued interest, were converted into 404,351 shares of our common stock during the fiscal year ended June 30, 2009 (see Note 6 to these
consolidated financial statements).
In order to continue as a going concern, we plan to obtain additional debt or equity financing, increase revenues, and continue to decrease selling and administrative costs to 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, 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 4 – FINANCING ARRANGEMENTS
Our financing arrangements as of June 30, 2009 consisted of:
|
Note Payable to Cardelco |
$ | 4,000 |
Secured 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 restricted common stock valued at $5,093. The warrants have an exercise price of $6.00 per share and are exercisable for up
to seven years from 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 was convertible, at the option of VenCore, into no more than 66,800 shares of our common stock. In addition, VenCore was granted a two-year warrant to purchase 20,875 shares of 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%, 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. During the year ended June 30, 2009 the conversion feature within this convertible promissory note and warrants resulted in the Company recording a beneficial conversion feature of $13,058 and an increase to debt discount, which was recorded as interest expense. In April 2009, when the balance of the original note was $65,000 and the balance on the convertible note was
$91,015, we entered into a settlement agreement with VenCore whereby we paid to VenCore $65,000 and issued to them 98,307 unregistered shares of our common stock in full settlement of all obligations and for their cancellation of all warrants. As the common stock was trading at $0.51 per share on the settlement date, the Company recognized a $40,878 gain on conversion of debt which is included in Other Income in the Consolidated Statement of Operations. At June 30, 2009 we have no further
obligations to VenCore.
Note Payable to Cardelco
On December 31, 2007, we entered into a short-term promissory note with Cardelco, LLC (“Cardelco”) 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. The note did not bear interest unless
default occurred, at which time interest would accrue at 10% per annum. This note was part of a lease termination agreement we executed with 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 was paid in form of a short-term promissory note. As of June 30, 2009, we were in default and $4,000 remained unpaid on the note.
Receivables Purchase Agreement
On December 26, 2003, we entered into a Receivables Purchase Agreement with Silicon Valley Bank which, as subsequently amended, provided for up to $1,000,000 in marketing commissions receivable to be used as collateral for advances under the Receivables Purchase Agreement, of which 80% of the
marketing commissions receivable balances were available in cash advances to us. Interest charges were 1.5% per month on the marketing commissions receivable balances used as collateral. Silicon Valley Bank was given a first-position security interest in our assets, including all of our copyrights, trademarks, patents and mask works, as a condition to the Receivables Purchase Agreement. The Receivables Purchase Agreement contains certain positive and negative covenants with respect to our business operations,
including but not limited to, the requirement of Silicon Valley Bank’s approval to the disposition of assets, change in ownership and additional indebtedness. We paid facility, audit and due diligence fees to Silicon Valley Bank upon renewal of the Receivables Purchase Agreement in March of 2007 of approximately $7,000 and extension fees in March 2008 of $2,500. These amounts were amortized into interest expense over one year. Silicon Valley Bank did not renew the Receivables Purchase Agreement and demanded
that we repay the outstanding balance by May 8, 2008. On May 12, 2008, we repaid the full amount owing to Silicon Valley Bank pursuant to the Receivables Purchase Agreement, and the Receivables Purchase Agreement was terminated.
Commissions Payable
As part of verbal agreements with certain of our independent marketing agents, we periodically place commissions payable on a deferred payment schedule. As of June 30, 2009 and 2008 we had placed $276,065 and $200,000, respectively of commissions payable on a deferred payment schedule with interest
accumulating at a rate of 10% per annum. These independent marketing agents have agreed to allow us to use accrued commissions that normally would have been paid to them for our working capital purposes. We have verbally agreed to repay these commissions plus interest when requested by the participating independent agents. Accrued interest expense, relating to these commissions payable, as of June 30, 2009 and 2008 was $14,383 and $2,180 respectively.
Related Party Borrowings
See Note 8 for a detail of borrowings with related parties that were both issued and converted during the years ended June 30, 2009 and 2008.
NOTE 5 - INCOME TAXES
We recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been included in its financial statements or tax returns. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using the enacted tax rates
in effect for the year in which the differences are expected to reverse. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefits that are not expected to be realized based on available evidence.
Temporary differences between the financial statement and tax basis of our assets result primarily from differing depreciation and amortization, provision for doubtful accounts, net operating loss carry forwards and the recognition of certain expenses for financial statement purposes and not for tax purposes. We had approximately $4,300,000
of net operating loss carry forwards as of June 30, 2009, which expire in varying amounts through 2028, if unused. A change in our ownership of more than 50% occurred during the year ended June 30, 2008. As such, according to the Internal Revenue Code, our net operating loss carry forwards may be limited as to their utilization in future periods.
Temporary differences and carry forwards giving rise to a significant portion of deferred tax assets (liabilities) at June 30, 2009 and 2008 were as follows:
|
Assets: |
2009 |
2008 |
||||||
|
Current |
||||||||
|
Allowance for doubtful accounts |
$ | 11,123 | $ | 55,965 | ||||
|
Vacation accruals |
9,303 | 5,106 | ||||||
|
Long-term |
||||||||
|
Accrued compensation |
18,751 | 13,124 | ||||||
|
Intangibles |
197,541 | 52,888 | ||||||
|
Cancelled checks |
45,514 | 42,830 | ||||||
|
Beneficial ownership conversion feature |
104,845 | 90,620 | ||||||
|
Other |
21,593 | - | ||||||
|
Net operating loss carry forwards |
1,584,484 | 1,339,467 | ||||||
|
Less valuation allowance |
(2,019,925 | ) | (1,600,000 | ) | ||||
| $ | - | $ | - | |||||
As discussed in Note 1 to these consolidated financial statements, during the year ended June 30, 2009, the Company entered into a series of stock transactions that culminated in a 50% change in control in the ownership of our common stock. Our ability to utilize the full benefit or our net operating losses for tax purposes may be limited
under Section 382 due to the changes in control.
The following is a reconciliation of the statutory federal income tax rate applied to pre-tax accounting net loss compared to the income taxes in the consolidated statements of operations:
|
For the Years Ended |
||||||||
|
June 30, |
||||||||
|
2009 |
2008 |
|||||||
|
Income tax expense (benefit) at the statutory rate |
$ | (161,955 | ) | $ | (809,843 | ) | ||
|
State income taxes, net of benefit |
(23,454 | ) | - | |||||
|
Cantara agency buyout |
(56,250 | ) | - | |||||
|
Change in valuation allowance |
406,705 | 808,843 | ||||||
|
Change in effective tax rate |
(166,067 | ) | - | |||||
|
Other |
1,021 | 1,000 | ||||||
|
Deferred income tax expense (benefit) |
$ | - | $ | - | ||||
Effective July 1, 2007, we adopted the provision of the Financial Accounting Standards Board (FASB) Interpretation No. 48, Accounting of Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109. Under FIN 48, we must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position
will be sustained on examination by the taxing authorities, based on the technical merits of the position. We measure the tax benefits recognized in the consolidated financial statements from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The application of income tax law is inherently complex. Laws and regulation in this area are voluminous and are often ambiguous. As such, we are required to make many subjective assumptions and
judgments regarding our income tax exposures. Interpretations of and guidance surrounding income tax law and regulation change over time and may result in changes to our subjective assumptions and judgments which can materially affect amounts recognized in our consolidated financial statements. The result of the assessment of our tax positions in accordance with FIN 48 did not have a material impact on our consolidated financial statements for the year ended June 30, 2009. Our federal tax returns for all years
after June 30, 2005 and state tax returns after June 30, 2004 are subject to future examination by tax authorities for all our tax jurisdictions. It is our policy to record costs associated with interest and penalties related to tax in the selling, general and administrative line of the consolidated statements of operations.
NOTE 6 - STOCKHOLDERS' EQUITY
Special Meeting of the Shareholders
On March 31, 2008, we held a special meeting of shareholders at which our shareholders approved a series of proposals previously approved by our Board of Directors. These proposals consisted of (i) a proposal to amend our Articles of Incorporation 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 our Articles of Incorporation to reduce the number of authorized shares of our common stock from 300,000,000 shares, $.001 par value per share, to 100,000,000 shares, $.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,
$.0001 par value per share, (iii) a proposal to amend our Articles of Incorporation to change our name to BayHill Capital Corporation and make other changes necessary to facilitate the foregoing actions and the reincorporation of BHCC, (iv) a proposal to reincorporate BHCC under the laws of the State of Delaware, and (v) a proposal to adopt the Cognigen Networks, Inc. 2008 Stock Incentive Plan.
Based upon the approval of our shareholders at the March 31, 2008 special meeting, effective April 23, 2008 our management completed the actions necessary to effect the name change, reverse stock split, Delaware reincorporation 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." 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.
Preferred Stock
On October 17, 2002 we issued 10,000 shares of 8% Convertible Series A Preferred Stock (the “Series A Preferred Stock”) to Stanford International Bank Limited for $500,000. Each share of the Series A Preferred Stock was convertible, at the option of the holder, into one share of our common stock for a period of five
years. After five years, all of the issued and outstanding shares of the Series A Preferred Stock were automatically converted to shares of our common stock. The Series A Preferred Stock did not have voting rights and had a liquidation preference of $50.00 per share. All of the issued and outstanding shares of Series A Preferred Stock were automatically converted into 10,000 shares of our common stock on October 14, 2007 according to the terms of the Series A Preferred Stock and
the 10,000 shares of Series A Preferred Stock were cancelled.
As of June 30, 2009 and 2008 we had authorized 400,000 shares of Preferred Stock. There were no shares of Preferred Stock outstanding as of June 30, 2009 or 2008.
Common Stock
Cash Advance from Affiliates
During the fiscal year ended June 30, 2009, 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. During the year ended June 30, 2009, these advances together with accrued interest were converted into notes and the notes were converted into the Company’s common stock. See “Settlement of Accounts Payable and Notes” below.
BayHill Capital, LC (Related Party)
As set forth in the table below, on June 15, 2007 and June 28, 2007, BayHill Capital, LC, an entity which is affiliated with two of our executive officers (one of whom is also a director), extended to the Company short-term convertible notes in the amount of $100,000 and $150,000, respectively. Both of these notes, together with
accrued interest, were converted in October, 2007 into shares of the Company’s common stock. On September 26, 2007 and November 5, 2007 BayHill Capital, LC extended to the Company convertible notes in the amount of $30,000 and $150,000 respectively. Both or these notes, together with accrued interest, were converted on March 31, 2008 into shares of the Company’s common stock. The conversion feature within these four notes resulted in the Company recording a beneficial conversion feature in stockholders
equity of $266,529 and a charge to interest expense for that amount, in the Company’s statement of operations. In addition to the above convertible notes, from December 5, 2007 through May 27, 2008, BayHill Capital, LC, extended to the Company a series of short-term, non-convertible notes totaling $465,000. All of these notes, together with and accrued interest, were converted into shares of our common stock in multiple transactions during the fiscal year ended June 30, 2008. The following
table sets forth the information relating to each of these notes and the number of shares of our common stock issued upon their conversion:
|
Date of Note |
Amount |
Interest Rate |
Date Converted |
Shares Issued |
|
June 15, 2007 |
$100,000 |
10% |
October 17, 2007 |
80,000 |
|
June 28, 2007 |
$150,000 |
10% |
October 17, 2007 |
120,000 |
|
September 26, 2007 |
$30,000 |
10% |
March 31, 2008 |
18,750 |
|
November 5, 2007 |
$150,000 |
10% |
March 31, 2008 |
93,750 |
|
December 5, 2007 |
$125,000 |
12% |
March 31, 2008 |
100,000 |
|
December 27, 2007 |
$100,000 |
12% |
March 31, 2008 |
80,000 |
|
January 24, 2008 |
$30,000 |
12% |
March 31, 2008 |
24,000 |
|
February 15, 2008 |
$40,000 |
12% |
March 31, 2008 |
32,000 |
|
March 6, 2008 |
$50,000 |
12% |
March 31, 2008 |
40,000 |
|
April 2, 2008 |
$40,000 |
12% |
May 27, 2008 |
32,000 |
|
April 29, 2008 |
$50,000 |
12% |
May 27, 2008 |
40,000 |
|
May 27, 2008 |
$30,000 |
12% |
May 27, 2008 |
24,000 |
|
Accrued Interest |
$26,223 |
19,430 | ||
|
Totals |
$921,223 |
703,930 |
Commission River, Inc.
On November 30, 2007, we entered into an Asset Purchase and Reorganization Agreement (the “Purchase Agreement”) with Commission River, Inc. Pursuant to the terms of the Purchase Agreement, we acquired substantially all of Commission River’s assets in exchange for the issuance of 320,000 shares of our common stock. The assets
we acquired from Commission River, Inc. consisted primarily of intellectual property, employment agreements and non-compete agreements executed by the two principals of our wholly-owned subsidiary, Commission River. The cost of the acquisition was valued at $800,000. These intangible costs are being amortized over their three-year estimated useful lives (See Note 1 to these consolidated financial statements).
The unaudited pro forma combined condensed statement of operations for the year ended June 30, 2008 has been included below to illustrate the pro forma effects of the acquisition of Commission River, Inc. and give effect to the acquisition as if it had occurred on July 1, 2007. All pro forma information has been prepared for information purposes
only and does not purport to be indicative of the results of operations had the acquisition actually occurred on the dates indicated or results of operations had the acquisition actually occurred on the date indicated or results of operations to be expected in the future.
|
June 30, 2008 |
||||
|
(Unaudited) |
||||
|
Marketing commissions revenue |
$ | 4,144,082 | ||
|
Loss from continuing operations |
$ | (2,620,699 | ) | |
|
Loss from discontinued operations |
$ | (44,590 | ) | |
|
Net loss attributable to common shareholders |
$ | (2,676,956 | ) | |
|
Basic and diluted loss per common share: |
||||
|
Continuing operations |
$ | (2.71 | ) | |
|
Discontinued operations |
$ | (.05 | ) | |
|
Total |
$ | (2.76 | ) | |
Compensation to Officers and Directors
During the year ended June 30, 2009 we issued the following unregistered shares of common stock as compensation for the reasons identified:
|
Shares |
Value |
|||||||
|
Compensation for Board of Directors fees |
101,528 | $ | 110,033 | |||||
|
Compensation to management |
109,974 | 87,925 | ||||||
| 211,502 | $ | 197,958 | ||||||
During the year ended June 30, 2008 we issued the following restricted shares of common stock as compensation for the reasons identified:
|
Shares |
Value |
|||||||
|
Compensation for Board of Directors fees |
114,000 | $ | 267,000 | |||||
|
Compensation to management |
348,667 | 871,667 | ||||||
|
Compensation to consultants |
50,000 | 115,000 | ||||||
| 512,667 | $ | 1,253,667 | ||||||
The values recorded for 2009 and 2008 for compensation were recorded at the closing market price of our common stock on the dates our Board of Directors approved the respective issuances.
Settlement of Accounts Payable, Accrued Expenses and Notes
During the fiscal year ended June 30, 2009, we settled outstanding accounts payable and accrued liabilities to vendors and service providers for savings to the Company of $18,320, in addition we wrote off $27,557 of accounts payable that we either disputed or had no documentation of delivery
of goods or services relating to the amounts outstanding. These amounts are included in Other Income in our Statement of Operations for the year ended June 30, 2009.
During the year ended June 30, 2009 we issued the following unregistered common shares for the reasons and deemed values identified below:
|
Shares |
Value |
|||||||
|
Settlement of accounts payable to Acadia |
2,760 | $ | 3,450 | |||||
|
Settlement of accounts payable to Commission River, Inc. |
33,170 | 43,039 | ||||||
|
Conversion of James U Jensen note |
65,623 | 26,249 | ||||||
|
Settlement of VenCore Solutions note |
98,307 | 50,137 | ||||||
|
Conversion of Little Hollow Farms, Inc. note |
271,853 | 108,741 | ||||||
|
Conversion of Vector Capital, LLC note |
66,875 | 26,750 | ||||||
| 538,588 | $ | 258,365 | ||||||
During the year ended June 30, 2008 we issued the following restricted common shares for the reasons and deemed values identified below:
|
Shares |
Value |
|||||||
|
Settlement of accounts payable to BayHill Capital LC |
6,667 | $ | 10,000 | |||||
|
Settlement of accounts payable to Telarus |
60,000 | 75,000 | ||||||
|
Settlement of accounts payable to former directors and officers |
32,399 | 48,598 | ||||||
|
Settlement of other accounts payable |
13,618 | 29,682 | ||||||
|
Conversion of Vector Capital, LLC note |
40,400 | 50,500 | ||||||
| 153,084 | $ | 213,780 | ||||||
The values recorded for 2009 and 2008 to the settlement of outstanding liabilities, conversion of notes payables and related accrued interest were all recorded at contractually stated or negotiated amounts. The values of all other transactions were recorded at the closing market price of our common stock on the dates our Board of Directors
approved the respective issuances.
On April 7, 2008, Vector Capital LLC extended to us a short-term loan of $50,000 with interest at 12% per annum. This note plus accrued interest of $500 was converted on June 27, 2008 into 40,400 shares of our common stock. Vector Capital is affiliated with our Chief Executive Officer.
Cognigen Business Systems, Inc.
On August 31, 2007, we repurchased 24,921 shares of our common stock in connection with the sale of CBSi. These shares were valued at $14,458 and were cancelled upon repurchase (See Note 2 to these consolidated financial statements).
Stock Options
At a special meeting of our shareholders held on March 31, 2008, our shareholders approved a proposal to adopt our 2008 Stock Incentive Plan (the “Stock Incentive Plan”). The Stock Incentive Plan became effective on April 23, 2008. Directors, employees, consultants and advisors of BHCC and its subsidiaries are eligible to receive
awards under the Stock Incentive Plan. The Stock Incentive Plan will be administered by the Compensation Committee of our Board of Directors. The Stock Incentive Plan will continue until April 23, 2018. A maximum of 300,000 shares of our common stock (after giving effect to the reverse split of our common stock which became effective on April 23, 2008) are available for issuance under the Stock Incentive Plan. The following types of awards are available
under the Stock Incentive Plan: (i) stock options; (ii) stock appreciation rights; (iii) restricted stock; (iv) restricted stock units; and (v) performance awards. Our Board of Directors may, from time to time, alter, amend, suspend or terminate the Stock Incentive Plan. As of June 30, 2009, we had made no awards under the Stock Incentive Plan.
We also have established the 2001 Incentive and Nonstatutory Stock Option Plan (the “Plan”), which authorizes the issuance of up to 12,500 shares of our common stock (after giving effect to the reverse split of our common stock which became effective on April 23, 2008). The Plan
will remain in effect until 2011 unless terminated earlier by an action of our Board of Directors. Employees, directors and consultants of BHCC are eligible to receive options under the Plan at the discretion of our Board of Directors. Options issued under the Plan vest according to the individual option agreement for each grantee.
We did not grant any stock options during the years ended June 30, 2009 or 2008. As of June 30, 2009 there were no stock options outstanding. During the year ended June 30, 2009, the remaining 13,000 outstanding stock options either expired or were cancelled.
The following table presents the activity for options outstanding during the year ended June 30, 2008:
|
Stock Options |
Weighted Average Exercise Price |
|||||||
|
Outstanding - June 30, 2007 |
18,040 | 14.00 | ||||||
|
Granted |
– | – | ||||||
|
Forfeited/canceled |
(5,040 | ) | 17.51 | |||||
|
Exercised |
– | – | ||||||
|
Outstanding - June 30, 2008 |
13,000 | $ | 11.12 | |||||
Warrants
We granted, and within 30 days cancelled, warrants to purchase 42,500 shares of our common stock during the year ended June 30, 2008.
The following table presents the activity for warrants outstanding during the year ended June 30, 2009 and 2008:
|
Number of Warrants |
Weighted Average Exercise Price |
|||||||
|
Outstanding - June 30, 2007 |
12,500 | $ | 26.50 | |||||
|
Issued |
42,500 | 2.00 | ||||||
|
Forfeited/canceled |
(49,500 | ) | ||||||
|
Exercised |
– | 7.02 | ||||||
|
Outstanding - June 30, 2008 |
5,500 | $ | 12.60 | |||||
|
Issued |
20,875 | 2.00 | ||||||
|
Forfeited/canceled |
(26,375 | ) | ||||||
|
Outstanding - June 30, 2009 |
- | $ | - | |||||
We have included the expense of the foregoing warrants, for the year ended June 30, 2008, in general and administrative expenses based on a calculation using the Black-Scholes Model. No amount of expense was recorded for the year ended June 30, 2009 since the amount was de minimus.
|
2009 |
2008 | |
|
Approximate risk-free rate |
2.09% |
2.11% |
|
Average expected life |
.5 |
1.0 |
|
Dividend yield |
0% |
0% |
|
Volatility |
110% |
107% |
|
Estimated fair value of warrants granted |
$447 |
$1,827 |
The outstanding warrants, as of June 30, 2008, are exercisable and had a weighted average remaining contractual life of 1.9 years. There were no outstanding warrants at June 30, 2009.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Operating Leases
We were not obligated to pay any future minimum lease payments under any leases as of June 30, 2009. On December 31, 2007, we entered into a lease termination agreement with Cardelco, which is described in more detail in Note 4 to these consolidated financial statements.
We currently sublease approximately 160 square feet of space on a month to month basis at approximately $1,100 per month.
NOTE 8 – RELATED PARTY ACTIVITY
Cash Advance from Affiliates
During the fiscal year ended June 30, 2009, 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. During the year ended June 30, 2009, these advances together with accrued interest were converted into notes and the notes were converted into the Company’s common stock. See “Settlement of Accounts Payable and Notes” above.
BayHill Capital, LC
Throughout the fiscal year ended June 30, 2008, BayHill Capital, LC extended to us a series of loans in the form of short-term and convertible notes in the aggregate amount of $645,000. All of these notes, together with $250,000 of notes outstanding as of June 30, 2007 and accrued interest,
were converted into 703,930 shares of our common stock in multiple transactions during the fiscal year ended June 30, 2008. Additional detail regarding these transactions is presented in Note 6 to these consolidated financial statements.
Robert K. Bench, who became our President and Chief Executive Officer in October 2007 and a director in December 2007, and M. Todd Esplin, who became our Executive Vice President in December 2007, are managing members of BayHill Group, LC, which was the manager of BayHill Capital, LC. In July
2008, BayHill Capital, LC was dissolved and the shares of our common stock acquired by BayHill Capital, LC in the transactions described above were distributed to the 22 members of BayHill Capital, LC, including Messrs. Bench and Esplin.
Vector Capital, LLC
On April 7, 2008, Vector Capital LLC extended to us a short-term loan of $50,000 with interest at 12% per annum. This note, together with accrued interest of $500, was converted on June 27, 2008 into 40,400 shares of our common stock. Robert K. Bench, our President, Chief Executive Officer and
a director, is the managing member of Vector Capital LLC. Additional detail regarding these transactions is presented in Note 6 to these consolidated financial statements.
Consulting Fees
One of our former directors performed consulting services for us from June 15, 2007 through February 15, 2008 and was paid a total of $52,500 during this period of time.
ClearWater Governance Group, LLC
During the years ended June 30, 2009 and 2008 we accrued fees, for legal services, from ClearWater Governance Group, LLC, (ClearWater) of $36,000 and $2,500 and made cash payments of $6,000 and $500 respectively. We paid out of pocket expenses of $1,000 and issued 32,000 shares of our common
stock in settlement of the remaining amount due of $32,000 during the year ended June 30, 2009. Mr. James U. Jensen, our board chairman, is the CEO of ClearWater.
Telarus, Inc.
Commission revenue from our two largest vendors generated approximately 61% and 60%, respectively, of our total revenue for the years ended June 30, 2009 and 2008. The larger of these two vendors is Telarus, Inc. (“Telarus”) which is owned by two executive officers of Commission River. Of the above percentages, 47% or $1,430,518
and 45% or $1,463,560 of our revenue respectively, were generated from Telarus. Commissions receivable from Telarus at June 30, 2009 and June 30, 2008 were 236,000 and $240,000 respectively.
During the years ended June 30, 2009 and 2008, we recorded expenses of $9,058 and $79,303 respectively for payments to Telarus for services performed by the employees of Telarus and expenses paid on our behalf. On March 31, 2008, upon the approval of our Board of Directors, Telarus converted
$75,000 of the accrued amount into 60,000 shares of our common stock. We plan to continue using the services of Telarus employees on a limited basis in the future. Services provided by Telarus include the performance of various software development projects which are limited in scope. We are billed for Telarus’ services on an hourly basis. Those billings are reviewed and approved by one of our executive officers who is not affiliated with Telarus. We anticipate that the expense of services provided by Telarus
will be less than $10,000 per month in the future.
NOTE 9 – SIGNIFICANT FOURTH QUARTER ADJUSTMENTS
During the fourth quarter ended June 30, 2009, we settled $22,600 in accrued liabilities for $4,280 in cash payments, resulting in a difference of $18,320 which is included as Other Income. We recorded an additional $27,557 as Other Income that related to our write-off of accounts
payable that we either disputed or had no documentation of delivery of goods or services. In addition, we issued the following unregistered common shares for the reasons and deemed values identified below:
|
Shares |
Value |
|||||||
|
Conversion of James U Jensen note |
65,623 | $ | 26,249 | |||||
|
Settlement of VenCore Solutions note |
98,307 | 50,137 | ||||||
|
Conversion of Little Hollow Farms, Inc. note |
271,853 | 108,741 | ||||||
|
Conversion of Vector Capital, LLC note |
66,875 | 26,750 | ||||||
| 538,588 | $ | 258,365 | ||||||
The values recorded for the settlement of outstanding liabilities, conversion of notes payables and related accrued interest were all recorded at contractually stated or negotiated amounts. The values of all other transactions were recorded at the closing market price of our common stock on the dates our Board of Directors approved the respective
issuances. As a result of the issuance of shares in settlement of the VenCore Solutions note we recorded $40,878 as Other Income.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A(T). Controls and Procedures.
Management’s Report on Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, to allow for timely decisions regarding required disclosure.
As of June 30, 2009, the end of our fiscal year covered by this report, we carried out an evaluation, under the supervision of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, we concluded that our disclosure controls
and procedures were effective as of the end of the period covered by this annual report. This report and our controls were reviewed by our audit committee with no further suggestions for changes.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act, as amended). In fulfilling this responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures.
The objectives of internal control include providing management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management’s authorization and recorded properly to permit the preparation of consolidated financial statements in conformity with United States generally accepted accounting principles. Our management assessed the effectiveness of our internal control over financial
reporting as of June 30, 2009. Our management has concluded that, as of June 30, 2009, our internal control over financial reporting is effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with United States generally accepted accounting principles.
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission
that permit us to provide only management’s report in this annual report.
Inherent Limitations on Effectiveness of Controls
Internal control over financial reporting has inherent limitations which include but is not limited to the use of independent professionals for advice and guidance, interpretation of existing and/or changing rules and principles, segregation of management duties, scale of organization, and personnel factors. Internal control over financial
reporting is a process which involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis, however these inherent limitations are known features of the financial reporting process and it is possible to
design into the process safeguards to reduce, though not eliminate, this risk. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Item 9B. Other Information.
None.
|
Directors, Executive Officers and Corporate Governance. |
Directors
Robert K. Bench, age 60, has served as our President and Chief Executive Officer since October 2007 and as a director of BHCC since December 2007. Mr. Bench is an experienced professional with over 31 years in various senior management and executive positions in start-up enterprises
and public companies following four years as a certified public accountant with KPMG Peat Marwick. He has assisted a number of companies in their early start-up years and completed several initial public offerings. Mr. Bench was a founder and is a managing member of BayHill Group LC, a consulting group focused on assisting microcap companies (“BayHill Group”), a position he held since April 1999. He also served as the Chief Financial Officer of Innuity, Inc. (INNU), a software as a service company
that delivers applications for small business, from January 2005 until April 2007 and The SCO Group (SCOX), a developer and marketer of software applications and operating systems from November 2000 until August 2004. He has also served in senior management positions for West-Wind Corporation, Webmiles, Inc., Sento Corporation (SNTO), CerProbe, Inc. (CRPB), Fresh Technologies, Inc., Clyde Digital Systems, Inc., and NP Energy Corporation (NPEE). In addition, Mr. Bench has served as a director of private and public
companies and has assisted both private and public companies raise over $150 million for start-up and growth capital through private, public, and venture offerings. He has been responsible for a number of business combinations and successfully reorganized several financially distressed companies. He has spent two years on international assignments and led the restructure of worldwide operations following the merger of two international companies. Mr. Bench has been a co-founder and is a private investor in a
number of private and small public companies. His background includes the software, hardware, oil, and semiconductor industries. Mr. Bench is a certified public accountant and holds a bachelor degree in accounting from Utah State University.
James U. Jensen, age 65, has served as the Chairman of our Board of Directors since December 2007. Mr. Jensen currently is the CEO of ClearWater Governance Group, LLC and has a private law practice. He also serves as the Independent Board Chairman for the Wasatch Funds, a family of
14 mutual funds managed by Wasatch Advisors, Inc., and has served as a director of Wasatch Funds since they were organized in 1990. Mr. Jensen is an outside director at the University of Utah Research Foundation and is a director of the Utah Chapter of the National Association of Corporate Directors. From 1986 to 2001, Mr. Jensen served as a director and from 1991 to 2004 as Vice President, General Counsel, and Secretary of NPS Pharmaceuticals, Inc., a public biotechnology company. Mr. Jensen served as an outside
director to InterWest Home Medical, Inc., a public home medical supplies company, and served first as outside counsel and then as Chief Financial Officer to Cericor, Inc., a private technology company. Mr. Jensen has served as counsel or director to many high-tech private companies and was General Counsel of Dictaphone Corporation and previously served as in-house counsel for Ethyl Corporation and The Echlin Manufacturing Company (both publicly-traded companies). He graduated from the University of Utah, served
a Fulbright Grant in Mexico and received his J.D. and M.B.A. degrees from Columbia University. He was a law clerk to Judge David T. Lewis, the Chief Judge of the 10th Circuit U.S. Count of Appeals.
John M. Knab, age 57, has served as a director of BHCC since December 2007. Mr. Knab has been the Chief Executive Officer, President, and Chairman of Phonex Broadband Corporation, which develops, manufactures and distributes wireless voice,
audio, and data technologies, since November 1989. From 1986 to 1989, Mr. Knab was a National Director for Verizon (Data Communication Products) where he directed a division comprised of over 2,700 computer and telecommunication products. While with Verizon, he was appointed to AT&T’s National Advisory Committee, NEC’s National Advisory Committee and Digital Equipment’s Partners Group. Mr. Knab also served in roles as a Sr. HQ Planning Staff, Regional IT Management, Marketing Manager &
Marketing Representative for IBM Corporation. Mr. Knab was a founding member of Brigham Young University’s Marriott School of Management Entrepreneur Founder’s Group. He served as a member of Brigham Young University’s Marriott School of Management National Advisory Council. Mr. Knab is a member of the Board of Directors for the MountainWest Capital Network, where he also served as a former Chairman of the Board of Directors, founder and former Chairman of the Utah 100 (recognition event for
Utah’s fastest growing companies). Mr. Knab was a Trustee and member of the Executive Committee for Utah Information Technologies Association. Mr. Knab received an M.B.A. from Emory University and a B.A. from Brigham Young University’s College of Communications/Advertising.
John D. Thomas, age 36, has served as a director of BHCC since December 2007. Mr. Thomas has been engaged in the private practice of law with Kenneth I. Denos P.C. since June, 2003. Mr. Thomas specializes in reverse takeovers, mergers and acquisitions, and general corporate law for
a variety of small public and private companies in the United States, United Kingdom, and Germany. Since May 2006, he has also been the director of the microcap division for small public company listings for MCC Global NV (FSE: IFQ2), an international financial services and investment conglomerate based in London and traded on the Geregeltermarkt of the Frankfurt Stock Exchange. Mr. Thomas is the Chief Executive Officer and Chairman of Sports Nuts, Inc., a sports management company traded on the OTCBB. Mr. Thomas
received a J.D. degree from Texas Tech University School of Law and a B.A. degree in
History from the University of Utah. Mr. Thomas has been licensed to practice law in Texas since 1999 and licensed to practice law in Utah since 2002.
Executive Officers
The following table sets forth certain information concerning our executive officers:
|
Name |
|
Age |
|
Position |
|
Robert K. Bench |
|
60 |
|
President, Chief Executive Officer, Chief Financial Officer and Director |
|
Adam V. Edwards |
36 |
President, Commission River | ||
|
Patrick K. Oborn |
36 |
Vice President, Marketing, Commission River |
Robert K. Bench. See “Directors” above.
Adam V. Edwards. Mr. Edwards has served as the President of Commission River since December 2007. He was a co-founder of Commission River, Inc. and has served as its President since July 2005. He was a co-founder of Telarus and served as its President from May 2002 through July of 2005.
Previously, from 2001 until 2002, he was the Vice President of Finance for Quest Manufacturing, Inc., a specialty manufacturing company, where he led the acquisition of a new operating unit in 2001 and helped structure the unit for financing in 2002. From 1999 through 2001, Mr. Edwards served as the Vice President of Finance for Silicon Film Technologies, Inc., a digital imaging company, where he prepared the company for its successful financing in 2000 in which the company raised $6 million. Mr. Edwards was
also an auditor at KPMG LLP, where his experience ranged from auditing small private companies to working on SEC filings for large international public companies. Mr. Edwards was also involved in KPMG LLP’s Korean Practice and Structured Finance Division. Mr. Edwards holds a B.S. degree in Accounting from Brigham Young University and is a CPA.
Patrick K. Oborn. Mr. Oborn has served as the Vice President, Marketing, of Commission River since December 2007. He was a co-founder of Commission River, Inc. and has served as its Vice President of Marketing since July 2005. He was a co-founder of Telarus and has, since May 2002,
served as its Vice President. In his position with Commission River he is responsible for web design, Internet marketing strategy, search engine optimization, affiliate web marketing tools, and training. Previously, Mr. Oborn was a web designer at Cognigen Networks, Inc. our predecessor, from 1999 to 2002, where he helped develop and deploy over 50 online affiliate marketing web sites that were used by over 225,000 sales affiliates worldwide. During his service as a web designer, Mr. Oborn developed BottomLine™
long distance bill comparison technology, featured in the Wall Street Journal and USA Today. Mr. Oborn graduated with Honors from Brigham Young University in 1997 with a Masters degree in Electrical and Computer Engineering and a minor in Spanish Literature.
Corporate Governance
Our Board of Directors has standing Audit and Compensation Committees. To date, our Board of Directors has not established a Nominating or Governance Committee, in part because our Board of Directors believes that, at this stage of our development, all of our directors should be actively involved in the matters which would be addressed by
such a committee. We may, in the future, establish a Nominating or Governance Committee. We believe each of the directors serving on our Audit and Compensation Committees is an independent director pursuant to NASD Rule 4200(a)(15) and that each of the directors serving on the Compensation Committee is an “independent director” for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended. In evaluating the independence of James U. Jensen, the Chairman of our Board of Directors,
and a member of our Compensation Committee, our Board of Directors reviewed and considered the relationship between Clearwater Governance LLC, a limited liability company of which Mr. Jensen is a principal (“ClearWater”), a firm that provides administrative and corporate governance support to small publicly-traded companies, including BHCC. Based upon its review, our Board of Directors (with Mr. Jensen abstaining) concluded that the compensation we paid to ClearWater was fair and reasonable and priced
competitively and that the services ClearWater provides to us are in the best interests of BHCC and our shareholders. Our Board of Directors concluded that
the compensation we paid to ClearWater is substantially below the amount specified in regulations that would make Mr. Jensen a “non-independent” director and unanimously determined (with Mr. Jensen abstaining) that Mr. Jensen is an independent director.
During the fiscal year ended June 30, 2009, our Board of Directors held 7 meetings. No director attended fewer than 75% of the total number of meetings of the Board of Directors and of any committee on which he served. It is our policy that our directors should attend annual meetings of
our shareholders. All of our current directors attended our annual meeting of shareholders held on October 15, 2008.
Audit Committee. John D. Thomas and James U. Jensen serve as members of the Audit Committee, with Mr. Thomas serving as Chair. Our Board of Directors has determined that Mr. Thomas satisfies the criteria
for an audit committee financial expert under Rule 401(e) of Regulation S-B promulgated by the SEC. Each member of our Audit Committee is able to read and understand fundamental financial statements, including our consolidated balance sheets, statements of operations and statements of cash flows. The functions of the Audit Committee are primarily to: (a) facilitate the integrity of our financial statements and internal controls, (b) oversee our compliance with legal and regulatory requirements related to accounting
and/or financial controls, (c) evaluate our independent registered public accounting firm’s qualifications and independence, (d) oversee the performance of our internal audit function and the independent registered public accounting firm, and (e) review our systems of disclosure controls and procedures, internal controls over financial reporting, and compliance with ethical standards related to accounting and/or financial controls we have adopted. Our Board of Directors has adopted a written charter
for our Audit Committee, a copy of which is available on the Company’s website, www.bayhillcapital.com. Except as otherwise required by applicable laws, regulations or listing standards or our Audit Committee Charter, major decisions regarding our activities and operations are considered by our Board of Directors as a whole. Our Audit Committee met 4 times during the fiscal year ended June 30, 2009.
Compensation Committee. John M. Knab and James U. Jensen serve as members of the Compensation Committee of our Board of Directors, with Mr. Knab serving as Chair. The functions of our Compensation Committee are primarily to: (a) to oversee the discharge the responsibilities of the Board
relating to compensation, and (b) to ensure that our compensation plans, programs and values transferred through cash pay, stock and stock-based awards, whether immediate, deferred, or contingent are fair and appropriate to attract, retain and motivate management and are reasonable in view of company economics and of the relevant practices of other, similar companies. Our Board of Directors has adopted a written charter for our Compensation Committee, a copy of which is available on the Company’s website,
www.bayhillcapital.com. The Compensation Committee met 0 times during the fiscal year ending June 30, 2009.
Director Nominations. Our Board of Directors will consider recommendations for director nominees by shareholders if the names of those nominees and relevant biographical information are submitted in writing to our Corporate Secretary
in the manner described for shareholder nominations below under the heading “Proposals of Shareholders.” All director nominations, whether submitted by a shareholder or the Board of Directors, will be evaluated in the same manner.
Code of Ethics
On May 12, 2008, our Board of Directors adopted a new Code of Business Conduct and Ethics (the “Code of Ethics”) to replace our previous Code of Business Conduct and Ethics. The Code of Ethics is designed to deter wrongdoing by our employees and to promote honest and ethical conduct, full, fair and accurate disclosure, compliance
with laws, prompt internal reporting and accountability to adherence to the Code of Ethics. The Code of Ethics is applicable to all of our employees, as well as employees of our subsidiaries, including our principal executive officer and principal financial officer. A copy of the Code of Ethics was previously filed with the SEC and is posted on the Company’s website, www.bayhillcapital.com.
Compliance with Section 16 of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires our officers and directors to file reports concerning their ownership of our common stock with the SEC and to furnish us with copies of such reports. Based solely upon our review of the reports required by Section 16 and amendments thereto furnished to us, we believe that all reports required
to be filed pursuant to Section 16(a) of the Exchange Act during the annual reporting period of July 1, 2008 through June 30, 2009, were filed with the SCE on a timely basis. All reports during the annual reporting period of July 1, 2007 through June 30, 2008, were filed with the SEC on a timely basis except as follows:
Item 11. Executive Compensation.
25
The following table provides certain information pertaining to the compensation paid by us and our subsidiaries during our last two fiscal years for services rendered by any person who served as our Chief Executive Officer during any part of the fiscal year ended June 30, 2008 and the persons who were our most highly compensated executive
officers at the end of the fiscal year ended June 30, 2008 and who received annual salary and bonus in excess of $100,000:
|
Nonqualified |
|||||||||||||||||||||||||
|
Non –Equity |
Deferred |
||||||||||||||||||||||||
|
Name and |
Stock |
Stock |
Incentive Plan |
Compensation |
|||||||||||||||||||||
|
Principal |
Bonus |
Awards |
Options |
Compensation |
Earnings |
All other |
Total | ||||||||||||||||||
|
Position |
Year |
Salary ($) |
($) |
($) |
($) |
($) |
($) |
Compensation |
($) | ||||||||||||||||
|
(a) |
(b) |
(c) |
(d) |
(e) |
(f) |
(g) |
(h) |
(i) |
(j) | ||||||||||||||||
|
Robert K. Bench (1) |
2009 |
$24,000 |
-0- |
$45,300 |
(3) |
-0- |
(3) |
$69,300 | |||||||||||||||||
|
2008 |
$18,000 |
-0- |
$376,667 |
-0- |
(3) |
$394,667 | |||||||||||||||||||
|
Gary L. Cook (2) |
2008 |
$113,898 |
-0- |
$38,398 |
(3) |
-0- |
(4) |
$152,296 | |||||||||||||||||
|
(1) |
Mr. Bench has served as our President and Chief Executive Officer since October 2007 and as Chief Financial Officer since December 1, 2008. |
|
(2) |
Mr. Cook served as our Chief Financial Officer and Treasurer from March 2003 until February 2008. Mr. Cook was our Acting President and Acting Chief Executive Officer between September 2005 and October 2007, when he was replaced by Robert K. Bench as our President and Chief Executive Officer. Mr. Cook worked as a contractor from February 1, 2008 until November 30, 2008. |
|
|
|
|
(3) |
No stock options were granted to Mr. Bench during the years ended June 30, 2009 or 2008. However, during the year ended June 30, 2009, Mr. Bench received 60,000 shares of common stock and during the year ended June 30, 2008, Mr. Bench received 150,667 shares of common stock which contained various restrictions and a buy back option in our favor. At the time these shares
were issued the market price for our common stock was $0.51 per share and $2.50 per share respectively. We recorded the compensation to Mr. Bench at the then fair market value of restricted shares. |
|
|
|
(4) |
$28,398 of Mr. Cook’s compensation was converted to common stock subsequent to June 30, 2007 at $1.50 per share into 18,932 common shares. Mr. Cook was also awarded 5,000 shares of common stock as a transition bonus valued at $10,000. There were no options granted to Mr. Cook during the years ended June 30, 2009 or 2008. |
No options to purchase shares of our common stock were exercised by Mr. Bench or Mr. Cook during our fiscal years ended June 30, 2009 or June 30, 2008, and there were no equity awards outstanding at the year ended June 30, 2009.
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
The following table sets forth, as of June 30, 2009 , the number of shares of our common stock beneficially owned by each of our current directors, the number of shares of our common stock beneficially owned by each of our Named Executive Officers, the number of shares of our common stock beneficially owned by all of our executive officers
and directors as a group, and the number of shares of our common stock owned by each person who owned of record, or was known to own beneficially, more than five percent of the outstanding shares of our common stock. Beneficial ownership is determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934. In computing the number of shares beneficially owned by a person or a group and the percentage ownership of that person or group, shares of our common stock subject to options or warrants currently
exercisable or exercisable within 60 days after the date of this report are deemed outstanding, but are not deemed outstanding for the purpose of computing the percentage ownership of any other person. As of June 30, 2009, we had 2,635,560 shares of common stock outstanding:
|
Name and Address of Beneficial |
Amount and Nature of |
|||||
|
Title of class |
Owner |
Beneficial Ownership (a) |
Percent of Class (b) | |||
|
Common Stock |
Robert K. Bench |
|||||
|
10757 South Riverfront Drive #125 |
||||||
|
South Jordan, Utah 84095 |
758,486 |
(c) |
28.8% | |||
|
Common Stock |
James U, Jensen |
|||||
|
10757 South Riverfront Drive #125 |
||||||
|
South Jordan, Utah 84095 |
239,912 |
(d) |
9.1% | |||
|
Common Stock |
John D. Thomas |
|||||
|
10757 South Riverfront Drive #125 |
||||||
|
South Jordan, Utah 84095 |
56,594 |
(e) |
2.1% | |||
|
Common Stock |
John M. Knab |
|||||
|
10757 South Riverfront Drive #125 |
||||||
|
South Jordan, Utah 84095 |
53,834 |
2.0% | ||||
|
Common Stock |
Adam V. Edwards |
|||||
|
12401 South 450 East D-1 |
||||||
|
Draper, Utah 84020 |
470,170 |
(f) |
17.8% | |||
|
Common Stock |
Patrick K. Oborn |
|||||
|
12401 South 450 East D-1 |
||||||
|
Draper, Utah 84020 |
470,170 |
(g) |
17.8% | |||
|
Common Stock |
All current executive officers and |
|||||
|
directors as a group (6 persons) |
1,635,996 |
|
62.1% |
|
(a) |
Except as indicated below, each person has sole and voting and/or investment power over the shares listed. |
|
(b) |
Represents the percentage of the 2,635,560 shares of common stock, par value $0.0001 per share, outstanding at June 30, 2009. |
|
(c) |
Includes 269,993 shares owned by Vector Capital, LLC, and 271,853 shares owned by Little Hollow Farms, Inc., all of which may be deemed to be beneficially owned by Robert K. Bench who is the managing member of Vector Capital LLC and President of Little Hollow Farms, Inc. |
|
(d) |
Includes 100 shares owned by Mr. Jensen’s wife and 63,730 shares owned by Amsterdam First LC, a limited liability company of which Mr. Jensen is the managing member. |
(e) Includes 2,760 shares owned by Acadia Group, Inc., with which Mr. Thomas is affiliated.
|
(f) |
Includes 343,691 shares owned by Commission River, Inc. and 69,479 shares owned by Telarus, both of which are entities affiliated with Mr. Edwards. |
|
(g) |
Includes 343,679 shares owned by Commission River, Inc. and 69,479 shares owned by Telarus, both of which are entities affiliated with Mr. Oborn. |
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Certain Relationships and Related Transactions
One of our former directors performed consulting services for us from June 15, 2007 through February 15, 2008 and was paid a total of $52,500 during this period of time.
Payments to Telarus, Inc.
During the year ended June 30, 2008, we accrued $79,303 for payments to Telarus for services performed by the employees of Telarus and expenses paid on our behalf. On March 31, 2008, upon the approval of our Board of Directors, Telarus converted $75,000 of the accrued amount into 60,000 shares
of our common stock. We plan to continue using the services of Telarus employees on a limited basis in the future. Services provided by Telarus include the performance of various software development projects which are limited in scope. Telarus bills us for such services on an hourly basis and such services are approved by one of our executive officers who is not affiliated with Telarus. We anticipate that the expense of services provided by Telarus will be less than $10,000 per month in the future.
ClearWater Governance Group LLC
During the years ended June 30, 2009 and 2008 we accrued fees, for legal services, from ClearWater Governance Group, LLC, (“ClearWater”) of $36,000 and $2,500 and made cash payments of $6,000 and $500 respectively. We paid out of pocket expenses of $1,000 and issued 32,000 shares of our common stock in settlement of the
remaining amount due of $32,000 during the year ended June 30, 2009. Mr. James U. Jensen, our board chairman, is the CEO of ClearWater.
BayHill Capital, LC
Beginning on June 15, 2007 and throughout the fiscal year ended June 30, 2008, BayHill Capital, LC extended to us a series of loans in the form of short-term and convertible notes. All of these notes, together with accrued interest, were converted into shares of our common stock during the
fiscal year. The following table sets forth the information relating to each of these notes and the number of shares of our common stock issued upon their conversion:
|
Date of Note |
Amount |
Interest Rate |
Date Converted |
Shares Issued |
|
June 15, 2007 |
$100,000 |
10% |
October 17, 2007 |
80,000 |
|
June 28, 2007 |
$150,000 |
10% |
October 17, 2007 |
120,000 |
|
September 26, 2007 |
$30,000 |
10% |
March 31, 2008 |
18,750 |
|
November 5, 2007 |
$150,000 |
10% |
March 31, 2008 |
93,750 |
|
December 5, 2007 |
$125,000 |
12% |
March 31, 2008 |
100,000 |
|
December 27, 2007 |
$100,000 |
12% |
March 31, 2008 |
80,000 |
|
January 24, 2008 |
$30,000 |
12% |
March 31, 2008 |
24,000 |
|
February 15, 2008 |
$40,000 |
12% |
March 31, 2008 |
32,000 |
|
March 6, 2008 |
$50,000 |
12% |
March 31, 2008 |
40000 |
|
April 2, 2008 |
$40,000 |
12% |
May 27, 2008 |
32,000 |
|
April 29, 2008 |
$50,000 |
12% |
May 27, 2008 |
40,000 |
|
May 27, 2008 |
$30,000 |
12% |
May 27, 2008 |
24,000 |
|
Accrued Interest |
$26,223 |
19,430 | ||
|
Totals |
$921,223 |
703,930 |
Robert K. Bench, who became our President and Chief Executive Officer in October 2007 and a director in December 2007, and M. Todd Esplin, who became our Executive Vice President in December 2007, are managing members of BayHill Group, LC, which was the manager of BayHill Capital, LC. In July
2008, BayHill Capital, LC was dissolved and the shares of our common stock acquired by BayHill Capital, LC in the transactions described above were distributed to the 22 members of BayHill Capital, LC, including Messrs. Bench and Esplin. The shares of our common stock distributed to Messrs. Bench and Esplin by BayHill Capital, LC are reflected in the beneficial ownership table set forth in Item 11 of this report.
Vector Capital, LLC
On April 7, 2008, Vector Capital LLC extended to us a short-term loan of $50,000 with interest at 12% per annum. This note, together with accrued interest of $500, was converted on June 27, 2008 into 40,400 shares of our common stock. Robert K. Bench, our President, Chief Executive Officer and
a director is the managing member of Vector Capital LLC.
Item 14. Principal Accounting Fees and Services.
For the fiscal years ended June 30, 2009 and 2008, we were billed fees in the following amounts for services by Ehrhardt Keefe Steiner & Hottman PC (“EKS&H”), our independent registered public accounting firm.
|
Fiscal Year
Ended
June 30, 2009 |
Fiscal Year
Ended
June 30, 2008 |
|||||||
|
Audit fees (including fees for review of quarterly 10QSBs) |
$ | 66,940 | $ | 71,000 | ||||
|
Audit-Related fees |
$ | 5,500 | $ | 3,000 | ||||
|
Tax fees |
$ | 10,171 | $ | 8,500 | ||||
|
All Other fees |
$ | 3,000 | $ | 6,700 | ||||
Audit fees consist of EKS&H’s fees for services related to their audits of our annual financial statements, including management’s assessment, their review of financial statements included in our quarterly reports on Form 10-QSB, EKS&H’s review of SEC-filed registration statements and issuance of consents, and comfort
letters. Audit-related fees consist primarily of fees rendered for services in connection with employee benefit plan audits and consultation regarding financial accounting and reporting standards. Tax fees consist of fees rendered for services on tax compliance matters, including tax return preparation, claims for refund and assistance with tax audits of previously filed tax returns, tax consulting and advisory services consisting primarily of tax advice rendered by EKS&H in connection with the formulation
of our tax strategy and assistance in minimizing custom, duty and import taxes. Audit fees related to the annual financial statements were $40,000 and $30,000, respectively, for the years ended June 30, 2009 and June 30, 2008. Additionally, for the years ended June 30, 2009 and 2008 respectively, audit fees included $26,940 and $28,500 related to reviews of Forms 10-QSB and $0 and $12,500, respectively, related to the audit of Commission River’s financial statements. Tax compliance and preparation fees
were $10,171 and $8,500 respectively, for the years ended June 30, 2009 and 2008. Assistance provided related to research, SEC comment letters and other miscellaneous items were $0 and $6,700, respectively, for the years ended June 30, 2009 and 2008.
All audit, audit-related, tax, and any other services performed for us by our independent registered public accounting firm are subject to pre-approval by the Audit Committee of our Board of Directors and were pre-approved by the Audit Committee prior to such services being rendered. Our Audit Committee determined that the services provided
by, and fees paid to, EKS&H were compatible with maintaining the independent registered public accounting firm’s independence.
Shareholder ratification of the selection of EKS&H as our independent registered public accounting firm is not required by our Bylaws or otherwise. However, the Audit Committee intends to submit the selection of EKS&H to our shareholders for ratification at our upcoming annual meeting of shareholders as a matter of good corporate
governance. If our shareholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time if the Audit Committee determines that such a change would be in the best interests of BHCC and our shareholders.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
EXHIBIT NO DESCRIPTION AND METHOD OF FILING
|
2.1 |
Stock for Stock Exchange Agreement dated May 12, 2004 by among Jimmy L. Boswell, David G. Lucas, Reginald W., Einkauf and John D. Miller (incorporated by reference to Exhibit 2.1 to Form 8-K filed on June 3, 2004). |
|
3.1 |
Articles of Incorporation filed on May 6, 1983 (incorporated by reference to Exhibit 3.1 to Form 10-KSB for the year ended June 30, 2000). |
|
3.2 |
Articles of Amendment to our Articles of Incorporation filed on June 23, 1988 (incorporated by reference to Exhibit 3.2 to Form 10-KSB for the year ended June 30, 2000). |
|
3.3 |
Articles of Amendment to our Articles of Incorporation filed on July 12, 2000 (incorporated by reference to Exhibit 3.3 to Form 10-KSB for the year ended June 30, 2000). |
|
3.4 |
Articles of Amendment to our Articles of Incorporation filed on March 16, 2001 (incorporated by reference to Form 10-QSB for the quarter ended March 31, 2001). |
|
3.5 |
Articles of Amendment to our Articles of Incorporation filed on October 16, 2002 (incorporated by reference to Exhibit 3.1 to Form 8-K filed on November 4, 2002). |
|
3.6 |
Amended and Restated Articles of Incorporation of Cognigen Networks, Inc., dated April 23, 2008 (incorporated by reference to Exhibit 99.2 to Form 8-K filed on April 30, 2008). |
|
3.7 |
Certificate of Incorporation of BayHill Capital Corporation, dated April 24, 2008 (incorporated by reference to Exhibit 99.5 to Form 8-K filed on April 30, 2008). |
|
3.8 |
Bylaws as amended through May 17, 2005 (incorporated by reference to Exhibit 3.2 to Form 8-K filed on May 19, 2005). |
|
3.9 |
Bylaws of BayHill Capital Corporation, as adopted on May 12, 2008 (incorporated by reference to Exhibit 3.1 to Form 10-KSB filed on May 14, 2008). |
|
10.1 |
Purchase Agreement among Cognigen Networks, Inc., Stanford Financial Group Company, Inc. and Stanford Venture Capital Holdings, Inc. (incorporated by reference to Exhibit 10 to Form 8-K filed on November 4, 2002). |
|
10.2 |
Form of Option to Purchase Common Stock (incorporated by reference to Exhibit 10.7 to Form 10-KSB for the year ended June 30, 2000). |
|
10.3 |
2001 Incentive and Nonstatutory Stock Option Plan (incorporated by reference to Exhibit 10 to Form 10-QSB for the quarter ended March 31, 2001). |
|
10.4 |
Stock Redemption Agreement dated November 30, 2001 between Cognigen Networks, Inc., the Anderson Family Trust, Cantara Communications Corporation, Kevin E. Anderson Consulting, Inc. (without Exhibits A and B) (incorporated by reference to Exhibit 10.1 to Form 8-K filed on December 20, 2001). |
|
10.5 |
Transitional Supplemental Consulting Engagement letter dated July 11, 2002, between Cognigen Networks, Inc. and Kevin E. Anderson Consulting, Inc. (incorporated by reference to Exhibit 10.10 to Form 10-KSB for the year ended June 30, 2002). |
|
10.6 |
Consultancy Engagement Agreement dated September 9, 2002, by and between Cognigen Networks, Inc. and Combined Telecommunications Consultancy, Ltd and letter dated September 9, 2003 extending the Consulting Engagement Agreement (incorporated by reference to Exhibit 10.11 to Form 10-KSB/A for the year ended June 30, 2003.) |
|
10.7 |
Modified Supplemental Consulting Engagement letter dated March 4, 2003 between Cognigen Networks, Inc. and Kevin Anderson (incorporated by reference to Form 10- KSB/A for the year ended June 30, 2003). |
|
10.8 |
Extension of Modified Supplemental Consulting Engagement Agreement dated February 9, 2004 between Cognigen Networks, Inc. and Kevin Anderson Consulting, Inc. (incorporated by reference to Exhibit 2.1 to Form 10-QSB for the Quarter ended December 31, 2003). |
|
10.9 |
Amendment dated September 9, 2004, to Consulting Engagement Agreement between Cognigen Networks, Inc. and Combined Telecommunications Consultancy, Ltd. (incorporated by reference to Exhibit 10.15 to our Form 10-KSB for the fiscal year ended June 30, 2004). |
|
10.10 |
Accounts Receivable Purchase Agreement dated December 26, 2003, between Cognigen Networks, Inc. and Silicon Valley Bank (incorporated by reference to Exhibit 10.16 to Form 10- KSB for the fiscal year ended June 30, 2004). |
|
10.11 |
Accounts Receivable Purchase Modification Agreement dated November 24, 2004 between Cognigen Networks, Inc. and Silicon Valley Bank (incorporated by reference to Exhibit 10.1 to Form 8-K filed on December 10, 2004). |
|
10.12 |
Letter Agreement with Segal & Co. Incorporated dated February 28, 2005 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on March 1, 2005). |
|
10.13 |
An Agreement Granting a First Right of Refusal to Purchase Enterprise Assets (incorporated by reference to Form 8-K filed on June 23, 2005). |
|
10.14 |
Agreement dated November 22, 2005, between the BayHill Group LC and Cognigen Networks, Inc. (incorporated by reference to Exhibit 10.1 to Form 8-K filed on November 25, 2005). |
|
10.15 |
Agreement dated December 9, 2005, among Cognigen Networks, Inc., the Andersen Family Trust No. 1 and Cantara Communications corporation (incorporated by reference to reference to Exhibit 10.1 to Form 8-K filed on December 15, 2005). |
|
10.16 |
Email dated April 21, 2006, terminating the BayHill Group, LC Agreement dated November 22, 2005 (incorporated by reference to Exhibit 10.2 to Form 8-K filed on May 15, 2006). |
|
10.17 |
Amendment #1, dated March 14, 2006, to Agreement Dated December 9, 2005, among Cognigen Networks, Inc., the Andersen Family Trust No. 1 and Cantara Communications Corporation (incorporated by reference to Exhibit 10.1 to Form 8-K filed on May 15, 2006). |
|
10.18 |
Amendment #2, dated May 12, 2006, to Agreement Dated December 9, 2005, among Cognigen Networks, Inc., the Andersen Family Trust No. 1 and Cantara Communications Corporation (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on May 15, 2006). |
|
10.19 |
Common Stock Purchase Agreement, dated July 7, 2006, among Cognigen Networks, Inc., Anza Borrego Partners, Inc., and Cognigen Business Systems, Inc. (incorporated by reference to Exhibit 10.1 to Form 8-K filed on July 17, 2006). |
|
10.20 |
Termination Agreement, dated September 8, 2006, between Cognigen Networks, Inc. and Custom Switching Technologies, Inc (incorporated by reference to Exhibit 10.1 to Form 8-K filed on September 11, 2006). |
|
10.21 |
Settlement Agreement and Mutual Release, dated September 8, 2006, between Cognigen Networks, Inc. and Custom Switching Technologies, Inc (incorporated by reference to Exhibit 10.2 to Form 8-K filed on September 11, 2006). |
|
10.22 |
Loan and Security Agreement Number 1601, between Cognigen Networks, Inc. and VenCore Solutions, LLC, including Warrant Purchase Agreements dated October 10, 2006 (incorporated by reference to Exhibit 10.22 to Form 10-KSB for the year ended June 30, 2006 filed on October 13, 2006) |
|
10.23 |
Asset Purchase Agreement dated October 13, 2006, between Cognigen Networks, Inc. and Acceris Management and Acquisition LLC, including Management Services Agreement (incorporated by reference to Exhibit 10.23 to Form 10-KSB for the year ended June 30, 2006 filed on October 13, 2006) |
|
10.24 |
Amendment #3, dated October 13, 2006, to Agreement dated December 9, 2005 between Cognigen Networks, Inc., the Anderson Family Trust No. 1 and Cantara Communications Corporation, (incorporated by reference to Exhibit 10.24 to Form 10-KSB for the year ended June 30, 2006 filed on October 13, 2006). |
|
10.25 |
Secured Subordinated Promissory Note for $100,000 dated June 15, 2007, between Cognigen Networks, Inc. and BayHill Capital, LC, including Security Agreement (incorporated by reference to Exhibit 10.25 to Form 10-KSB for the year ended June 30, 2007, filed on October 15, 2007). |
|
10.26 |
Secured Subordinated Promissory Note for $150,000 dated June 28, 2007, between Cognigen Networks, Inc. and BayHill Capital, LC, including First Amendment to Security Agreement (incorporated by reference to Exhibit 10.26 to Form 10-KSB for the year ended June 30, 2007, filed on October 15, 2007). |
|
10.27 |
Secured Subordinated Promissory Note for $30,000 dated June 15, 2007, between Cognigen Networks, Inc. and BayHill Capital, LC, including Second Amendment to Security Agreement (incorporated by reference to Exhibit 10.27 to Form 10-KSB for the year ended June 30, 2007, filed on October 15, 2007). |
|
10.28 |
Agreement dated September 14, 2007 for the purchase of 100% ownership on Cognigen Business Systems, Inc. by Carl Silva and Anza Borrego Partners, Inc. (incorporated by reference to Exhibit 10.28 to Form 10-KSB for the year ended June 30, 2007, filed on October 15, 2007). |
|
10.29 |
Amended and Restated Loan and Security Agreement between Cognigen Networks, Inc. and Silicon Valley Bank, dated April 23, 2007 (incorporated by reference to Exhibit 10.4 of Form 8-K filed October 23, 2007). |
|
10.30 |
Secured Subordinated Promissory Note for $150,000, dated November 5, 2007, between Cognigen Networks, Inc. and BayHill Capital, LC, including Third Amendment to Security Agreement (incorporated by reference to Exhibit 10.1 of Form 8-K filed November 8, 2007). |
|
10.31 |
Asset Purchase and Reorganization Agreement, dated November 30, 2007, between Cognigen Networks, Inc. and Commission River (incorporated by reference to Exhibit 10.29 of Form 8-K filed February 14, 2008). |
|
10.32 |
Employment Agreement dated November 30, 2007 between Cognigen Networks, Inc. and Adam Edwards (incorporated by reference to Exhibit 10.30 of Form 8-K filed February 14, 2008). |
|
10.33 |
Employment Agreement dated November 30, 2007 between Cognigen Networks, Inc. and Patrick Oborn (incorporated by reference to Exhibit 10.31 of Form 8-K filed February 14, 2008). |
|
10.34 |
Cognigen Networks, Inc. 2008 Stock Incentive Plan (incorporated by reference to Exhibit 99.1 of Form 8-K filed April 30, 2008). |
|
10.35 |
Press Release announcing the nonbinding letter of intents, dated June 9, 2009 (incorporated by reference to Exhibit 99.1 of Form 8-K filed June 9, 2009). |
|
14.1 |
Code of Business Conduct and Ethics, adopted May 12, 2008 (incorporated by reference to Exhibit 14.1 to Form 10-KSB for the year ended June 30, 2008, filed on September 12, 2008). |
|
Subsidiaries* | |
|
Consent of Ehrhardt Keefe Steiner & Hottman PC, our independent registered public accounting firm* | |
*Filed herewith
AUDIT COMMITTEE REPORT (1)
The Audit Committee of our Board of Directors has reviewed and discussed with management our audited consolidated financial statements as of and for the year ended June 30, 2009.
The Audit Committee discussed with EKS&H, our independent registered public accounting firm, the matters required to be discussed by Statement on Auditing Standards No. 61. The Audit Committee has received, reviewed, and discussed with EKS&H the written disclosures and the letter from
them required by Independence Standards Board Statement No. 1 and discussed with EKS&H their independence.
Based upon these reviews and discussions, the Audit Committee has recommended to our Board of Directors, and our Board of Directors has approved, that our audited financial statements be included in this report.
The Audit Committee
John Thomas, Chairman
James U Jensen
_____________________
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(1) |
This Report of the Audit Committee does not constitute soliciting material and shall not be deemed to be “filed” with the Securities and Exchange Commission or deemed to be incorporated by reference in previous or future documents filed by BHCC with the Securities and Exchange Commission under the Securities Act of 1933 or under the Securities Exchange Act of 1934, except to the extent BHCC specifically
incorporates this Report by reference in any such document. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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BAYHILL CAPITAL CORPORATION | ||||
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Date: September 2, 2009 |
By: |
/s/ Robert K. Bench Robert K. Bench
Chief Executive Officer (Principal Executive Officer) | ||
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Date: September 2, 2009 |
By: |
/s/ ROBERT K. BENCH Robert K. Bench Chief Financial Officer (Principal Financial Officer) | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report on has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
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Name
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Title
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Date
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/S/ Robert K. Bench Robert K. Bench |
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Director |
September 2, 2009 | |
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/S/ James U. Jensen James U. Jensen |
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Director |
September 2, 2009 | |
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/S/ John M. Knab John M. Knab |
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Director |
September 2, 2009 | |
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/S/ John D. Thomas John D. Thomas |
Director
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September 2, 2009 | ||
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION AND METHOD OF FILING
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2.1 |
Stock for Stock Exchange Agreement dated May 12, 2004 by among Jimmy L. Boswell, David G. Lucas, Reginald W., Einkauf and John D. Miller (incorporated by reference to Exhibit 2.1 to Form 8-K filed on June 3, 2004). |
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3.1 |
Articles of Incorporation filed on May 6, 1983 (incorporated by reference to Exhibit 3.1 to Form 10-KSB for the year ended June 30, 2000). |
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3.2 |
Articles of Amendment to our Articles of Incorporation filed on June 23, 1988 (incorporated by reference to Exhibit 3.2 to Form 10-KSB for the year ended June 30, 2000). |
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3.3 |
Articles of Amendment to our Articles of Incorporation filed on July 12, 2000 (incorporated by reference to Exhibit 3.3 to Form 10-KSB for the year ended June 30, 2000). |
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3.4 |
Articles of Amendment to our Articles of Incorporation filed on March 16, 2001 (incorporated by reference to Form 10-QSB for the quarter ended March 31, 2001). |
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3.5 |
Articles of Amendment to our Articles of Incorporation filed on October 16, 2002 (incorporated by reference to Exhibit 3.1 to Form 8-K filed on November 4, 2002). |
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3.6 |
Amended and Restated Articles of Incorporation of Cognigen Networks, Inc., dated April 23, 2008 (incorporated by reference to Exhibit 99.2 to Form 8-K filed on April 30, 2008). |
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3.7 |
Certificate of Incorporation of BayHill Capital Corporation, dated April 24, 2008 (incorporated by reference to Exhibit 99.5 to Form 8-K filed on April 30, 2008). |
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3.8 |
Bylaws as amended through May 17, 2005 (incorporated by reference to Exhibit 3.2 to Form 8-K filed on May 19, 2005). |
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3.9 |
Bylaws of BayHill Capital Corporation, as adopted on May 12, 2008 (incorporated by reference to Exhibit 3.1 to Form 10-KSB filed on May 14, 2008). |
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10.1 |
Purchase Agreement among Cognigen Networks, Inc., Stanford Financial Group Company, Inc. and Stanford Venture Capital Holdings, Inc. (incorporated by reference to Exhibit 10 to Form 8-K filed on November 4, 2002). |
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10.2 |
Form of Option to Purchase Common Stock (incorporated by reference to Exhibit 10.7 to Form 10-KSB for the year ended June 30, 2000). |
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10.3 |
2001 Incentive and Nonstatutory Stock Option Plan (incorporated by reference to Exhibit 10 to Form 10-QSB for the quarter ended March 31, 2001). |
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10.4 |
Stock Redemption Agreement dated November 30, 2001 between Cognigen Networks, Inc., the Anderson Family Trust, Cantara Communications Corporation, Kevin E. Anderson Consulting, Inc. (without Exhibits A and B) (incorporated by reference to Exhibit 10.1 to Form 8-K filed on December 20, 2001). |
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10.5 |
Transitional Supplemental Consulting Engagement letter dated July 11, 2002, between Cognigen Networks, Inc. and Kevin E. Anderson Consulting, Inc. (incorporated by reference to Exhibit 10.10 to Form 10-KSB for the year ended June 30, 2002). |
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10.6 |
Consultancy Engagement Agreement dated September 9, 2002, by and between Cognigen Networks, Inc. and Combined Telecommunications Consultancy, Ltd and letter dated September 9, 2003 extending the Consulting Engagement Agreement (incorporated by reference to Exhibit 10.11 to Form 10-KSB/A for the year ended June 30, 2003.) |
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10.7 |
Modified Supplemental Consulting Engagement letter dated March 4, 2003 between Cognigen Networks, Inc. and Kevin Anderson (incorporated by reference to Form 10- KSB/A for the year ended June 30, 2003). |
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10.8 |
Extension of Modified Supplemental Consulting Engagement Agreement dated February 9, 2004 between Cognigen Networks, Inc. and Kevin Anderson Consulting, Inc. (incorporated by reference to Exhibit 2.1 to Form 10-QSB for the Quarter ended December 31, 2003). |
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10.9 |
Amendment dated September 9, 2004, to Consulting Engagement Agreement between Cognigen Networks, Inc. and Combined Telecommunications Consultancy, Ltd. (incorporated by reference to Exhibit 10.15 to our Form 10-KSB for the fiscal year ended June 30, 2004). |
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10.10 |
Accounts Receivable Purchase Agreement dated December 26, 2003, between Cognigen Networks, Inc. and Silicon Valley Bank (incorporated by reference to Exhibit 10.16 to Form 10- KSB for the fiscal year ended June 30, 2004). |
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10.11 |
Accounts Receivable Purchase Modification Agreement dated November 24, 2004 between Cognigen Networks, Inc. and Silicon Valley Bank (incorporated by reference to Exhibit 10.1 to Form 8-K filed on December 10, 2004). |
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10.12 |
Letter Agreement with Segal & Co. Incorporated dated February 28, 2005 (incorporated by reference to Exhibit 10.1 to Form 8-K filed on March 1, 2005). |
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10.13 |
An Agreement Granting a First Right of Refusal to Purchase Enterprise Assets (incorporated by reference to Form 8-K filed on June 23, 2005). |
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10.14 |
Agreement dated November 22, 2005, between the BayHill Group LC and Cognigen Networks, Inc. (incorporated by reference to Exhibit 10.1 to Form 8-K filed on November 25, 2005). |
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10.15 |
Agreement dated December 9, 2005, among Cognigen Networks, Inc., the Andersen Family Trust No. 1 and Cantara Communications corporation (incorporated by reference to reference to Exhibit 10.1 to Form 8-K filed on December 15, 2005). |
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10.16 |
Email dated April 21, 2006, terminating the BayHill Group, LC Agreement dated November 22, 2005 (incorporated by reference to Exhibit 10.2 to Form 8-K filed on May 15, 2006). |
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10.17 |
Amendment #1, dated March 14, 2006, to Agreement Dated December 9, 2005, among Cognigen Networks, Inc., the Andersen Family Trust No. 1 and Cantara Communications Corporation (incorporated by reference to Exhibit 10.1 to Form 8-K filed on May 15, 2006). |
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10.18 |
Amendment #2, dated May 12, 2006, to Agreement Dated December 9, 2005, among Cognigen Networks, Inc., the Andersen Family Trust No. 1 and Cantara Communications Corporation (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K filed on May 15, 2006). |
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10.19 |
Common Stock Purchase Agreement, dated July 7, 2006, among Cognigen Networks, Inc., Anza Borrego Partners, Inc., and Cognigen Business Systems, Inc. (incorporated by reference to Exhibit 10.1 to Form 8-K filed on July 17, 2006). |
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10.20 |
Termination Agreement, dated September 8, 2006, between Cognigen Networks, Inc. and Custom Switching Technologies, Inc (incorporated by reference to Exhibit 10.1 to Form 8-K filed on September 11, 2006). |
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10.21 |
Settlement Agreement and Mutual Release, dated September 8, 2006, between Cognigen Networks, Inc. and Custom Switching Technologies, Inc (incorporated by reference to Exhibit 10.2 to Form 8-K filed on September 11, 2006). |
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10.22 |
Loan and Security Agreement Number 1601, between Cognigen Networks, Inc. and VenCore Solutions, LLC, including Warrant Purchase Agreements dated October 10, 2006 (incorporated by reference to Exhibit 10.22 to Form 10-KSB for the year ended June 30, 2006 filed on October 13, 2006) |
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10.23 |
Asset Purchase Agreement dated October 13, 2006, between Cognigen Networks, Inc. and Acceris Management and Acquisition LLC, including Management Services Agreement (incorporated by reference to Exhibit 10.23 to Form 10-KSB for the year ended June 30, 2006 filed on October 13, 2006) |
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10.24 |
Amendment #3, dated October 13, 2006, to Agreement dated December 9, 2005 between Cognigen Networks, Inc., the Anderson Family Trust No. 1 and Cantara Communications Corporation, (incorporated by reference to Exhibit 10.24 to Form 10-KSB for the year ended June 30, 2006 filed on October 13, 2006). |
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10.25 |
Secured Subordinated Promissory Note for $100,000 dated June 15, 2007, between Cognigen Networks, Inc. and BayHill Capital, LC, including Security Agreement (incorporated by reference to Exhibit 10.25 to Form 10-KSB for the year ended June 30, 2007, filed on October 15, 2007). |
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10.26 |
Secured Subordinated Promissory Note for $150,000 dated June 28, 2007, between Cognigen Networks, Inc. and BayHill Capital, LC, including First Amendment to Security Agreement (incorporated by reference to Exhibit 10.26 to Form 10-KSB for the year ended June 30, 2007, filed on October 15, 2007). |
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10.27 |
Secured Subordinated Promissory Note for $30,000 dated June 15, 2007, between Cognigen Networks, Inc. and BayHill Capital, LC, including Second Amendment to Security Agreement (incorporated by reference to Exhibit 10.27 to Form 10-KSB for the year ended June 30, 2007, filed on October 15, 2007). |
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10.28 |
Agreement dated September 14, 2007 for the purchase of 100% ownership on Cognigen Business Systems, Inc. by Carl Silva and Anza Borrego Partners, Inc. (incorporated by reference to Exhibit 10.28 to Form 10-KSB for the year ended June 30, 2007, filed on October 15, 2007). |
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10.29 |
Amended and Restated Loan and Security Agreement between Cognigen Networks, Inc. and Silicon Valley Bank, dated April 23, 2007 (incorporated by reference to Exhibit 10.4 of Form 8-K filed October 23, 2007). |
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10.30 |
Secured Subordinated Promissory Note for $150,000, dated November 5, 2007, between Cognigen Networks, Inc. and BayHill Capital, LC, including Third Amendment to Security Agreement (incorporated by reference to Exhibit 10.1 of Form 8-K filed November 8, 2007). |
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10.31 |
Asset Purchase and Reorganization Agreement, dated November 30, 2007, between Cognigen Networks, Inc. and Commission River (incorporated by reference to Exhibit 10.29 of Form 8-K filed February 14, 2008). |
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10.32 |
Employment Agreement dated November 30, 2007 between Cognigen Networks, Inc. and Adam Edwards (incorporated by reference to Exhibit 10.30 of Form 8-K filed February 14, 2008). |
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10.33 |
Employment Agreement dated November 30, 2007 between Cognigen Networks, Inc. and Patrick Oborn (incorporated by reference to Exhibit 10.31 of Form 8-K filed February 14, 2008). |
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10.34 |
Cognigen Networks, Inc. 2008 Stock Incentive Plan (incorporated by reference to Exhibit 99.1 of Form 8-K filed April 30, 2008). |
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10.35 |
Press Release announcing the nonbinding letter of intents, dated June 9, 2009 (incorporated by reference to Exhibit 99.1 of Form 8-K filed June 9, 2009). |
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14.1 |
Code of Business Conduct and Ethics, adopted May 12, 2008 (incorporated by reference to Exhibit 14.1 to Form 10-K for the year ended June 30, 2008, filed on September 12, 2008). |
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Subsidiaries* | |
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Consent of Ehrhardt Keefe Steiner & Hottman PC, our independent registered public accounting firm* | |
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Certification of Chief Executive Officer*
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Certification of Chief Financial Officer* |
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Certification of Chief Executive Officer*
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Certification of Chief Financial Officer* | |
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*Filed herewith | |