UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-QSB





(X)
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF


THE
SECURITIES EXCHANGE ACT OF 1934


For
the quarterly period ended December 31, 2007





OR





(
) TRANSITION REPORT UNDER SECTION 13 OR 15(d)


OF
THE EXCHANGE ACT


For
the transition period from ______to_____





Commission
File Number 0-11730





COGNIGEN
NETWORKS, INC.


(Exact
name of small business issuer as specified in its charter)


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





10757
S. Riverfront Pkwy, Suite 125


South
Jordan, Utah 84095


(Address
of principal executive offices)





801-
705-5128


(Issuer’s
Telephone number)





9800
Mount Pyramid Court, Suite 400


Englewood,
Colorado 90112


_____________________________________________________________________


(Former
name, former address and former fiscal year, if changed since last
report)





Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or 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 checkmark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).  Yes___  No__X_.





APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY


PROCEEDINGS
DURING THE PRECEDING FIVE YEARS





Check
whether the registrant filed all documents and reports required to be filed by
Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
under a plan confirmed by a court.  Yes   No





APPLICABLE
ONLY TO CORPORATE ISSUERS





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


Class
            Outstanding
      at
              January 31, 2008Common
      Stock, $.001 par value
            62,199,059





Transitional
Small Business Disclosure Format (Check one):  Yes
_____   No  X








COGNIGEN
NETWORKS, INC.





Commission
File Number:  0-11730


Quarter
Ended December 31, 2007








FORM
10-QSB




Part
      I - FINANCIAL INFORMATIONItem
      1.  Consolidated Financial StatementsConsolidated
      Balance Sheets
              Page
      1Unaudited
      Consolidated Statements of Operations
              Page
      2Unaudited
      Consolidated Statements of Cash Flows
              Page
      3Supplemental
      Disclosures of Cash Flow Information and Non-Cash
Transactions
              Page
      4Notes
      to Unaudited Consolidated Financial Statements
              Page
      5Item
      2.  Management's Discussion and Analysis or Plan of
      Operation
              Page
      17Item
      3.  Controls and Procedures
              Page
      20Part
      II – OTHER INFORMATIONItem
      2.    Unregistered Sales of Equity Securities and Use
      of Proceeds
              Page
      21Item
      4.    Submission of Matters to a Vote of Security
      Holders
              Page
      22Item
      6.    Exhibits
              Page
      23Signatures
              Page
      24





COGNIGEN
NETWORKS, INC.











Consolidated
Balance Sheets





December
      31,
            
            June
      30,2007
            
            2007UnauditedAssetsCurrent
      assetsMarketing commissions receivable,
      net
            
            
            700,916
            
            
            
            813,540Other current
    assets
            
            
            22,866
            
            
            
            24,552Total current
    assets
            
            
            723,782
            
            
            
            838,092Non-current
      assetsIntellectual
      property
            
            
            777,778
            
            
            
            -Deposits
      and other assets
            
            
            47,690
            
            
            
            146,549Net long term assets of
      discontinued operations
            
            
            -
            
            
            
            30,849Total non-current
      assets
            
            
            825,468
            
            
            
            177,398Total
      assets
            
            $
            1,549,250
            
            
            $
            1,015,490Liabilities
      and Stockholders' DeficitCurrent
      liabilitiesAccounts payable
            
            $
            518,509
            
            
            $
            568,135Accrued liabilities and deferred
      revenue
            
            
            160,896
            
            
            
            99,453Accrued
      compensation
            
            
            59,600
            
            
            
            63,516Commissions
payable
            
            
            504,835
            
            
            
            600,309Financing
    arrangements
            
            
            874,630
            
            
            
            892,866Net current liabilities of
      discontinued operations
            
            
            68,883
            
            
            
            90,955Total current
      liabilities
            
            
            2,187,353
            
            
            
            2,315,234Other
      long-term liabilities
            
            
            -
            
            
            
            1,635Total
      liabilities
            
            
            2,187,353
            
            
            
            2,316,869Commitments
      and contingenciesStockholders'
      DeficitPreferred stock no par value,
      20,000,000 shares authorized, no shares  issued and outstanding
      as of December 31, 2007 and 500,000 shares issued and outstanding as of
      June 30, 2007
            
            
            -
            
            
            
            450,000Common stock $.001 par value,
      300,000,000 shares authorized; 62,199,059 shares issued and outstanding as
      of  December 31, 2007 and 10,535,490 shares issued and
      outstanding as of June 30, 2007
            
            
            62,201
            
            
            
            10,537Additional paid-in
      capital
            
            
            15,140,940
            
            
            
            12,181,545Accumulated
deficit
            
            
            (15,841,244
            )
            
            
            (13,943,461
            )Total stockholders’
      deficit
            
            
            (638,103
            )
            
            
            (1,301,379
            )Total
      liabilities and stockholders’ deficit
            
            $
            1,549,250
            
            
            $
            1,015,490





See
Notes to Consolidated Financial Statements


1
 COGNIGEN
NETWORKS, INC.











Unaudited
Consolidated Statements of Operations








Three
      Months Ended
            
            
            Six
      Months EndedDecember
      31,
            
            
            December
      31,2007
            
            
            2006
            
            
            2007
            
            
            2006Unaudited
            
            
            Unaudited
            
            
            Unaudited
            
            
            UnauditedRevenue
      - Marketing commissions
            
            $
            1,073,692
            
            
            $
            1,587,902
            
            
            $
            2,302,410
            
            
            $
            3,119,124Operating
      expenses:Marketing
    commissions
            
            
            695,490
            
            
            
            1,216,928
            
            
            
            1,508,745
            
            
            
            2,428,721Selling, general and
      administrative
            
            
            1,760,148
            
            
            
            344,060
            
            
            
            2,220,245
            
            
            
            745,998Depreciation and
      amortization
            
            
            22,222
            
            
            
            1,415
            
            
            ___ 22,222
            
            
            
            2,831Total operating
      expenses
            
            
            2,477,860
            
            
            
            1,562,403
            
            
            
            3,751,212
            
            
            
            3,177,550Earnings
      (loss) from operations
            
            
            (1,404,168
            )
            
            
            25,499
            
            
            
            (1,448,802
            )
            
            
            (58,426
            )Interest
      expense
            
            
            (159,020
            )
            
            
            (31,795
            )
            
            
            (371,654
            )
            
            
            (57,974
            )Loss
      from continuing operations before income taxes
            
            
            (1,563,188
            )
            
            
            (6,296
            )
            
            
            (1,820,456
            )
            
            
            (116,400
            )Income
      taxes
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Loss
      from continuing operations
            
            
            (1,563,188
            )
            
            
            (6,296
            )
            
            
            (1,820,456
            )
            
            
            (116,400
            )Earnings
      (loss) from discontinued operations
            
            
            -
            
            
            
            97,698
            
            
            
            (77,327
            )
            
            
            94,435Net
      earnings (loss)
            
            
            (1,563,188
            )
            
            
            91,402
            
            
            
            (1,897,783
            )
            
            
            (21,965
            )Preferred
      dividends
            
            
            (1,667
            )
            
            
            (10,000
            )
            
            
            (11,667
            )
            
            
            (20,000
            )Earnings
      (loss) attributable tocommon
      shareholders
            
            $
            (1,564,855
            )
            
            $
            81,402
            
            
            $
            (1,909,450
            )
            
            $
            (41,965
            )Earnings
      (loss) per common share-basic and diluted:Continuing
      operations
            
            $
            (.05
            )
            
            $
            (.00
            )
            
            $
            (.09
            )
            
            $
            (.01
            )Discontinued
      operations
            
            
            ( .00
            )
            
            
            .01
            
            
            
            (.00
            )
            
            
            .01$
            (.05
            )
            
            $
            .01
            
            
            $
            (.09
            )
            
            $
            (.00
            )Weighted
      average number of common shares outstanding:
              Basic
      and Diluted
            
            
            31,541,123
            
            
            
            10,169,792
            
            
            
            20,930,270
            
            
            
            9,692,722








See
Notes to Consolidated Financial Statements





2
 COGNIGEN
NETWORKS, INC.


Unaudited
Consolidated Statements of Cash Flows


Six
      Months EndedDecember
      31,2007
            
            
            2006Cash
      flows from operating activities
            
            Unaudited
            
            
            UnauditedNet loss
            
            $
            (1,897,783
            )
            
            $
            (21,965
            )Adjustments to reconcile net loss
      to net cash used in operating activities:Amortization and provision on
      investment in Cantara Agency
            
            
            87,310
            
            
            
            -Depreciation
      and amortization
            
            
            22,222
            
            
            
            3,081Bad
      debt expense
            
            
            203,000
            
            
            
            30,760Beneficial ownership
      feature
            
            
            255,191
            
            
            
            -Issuance
      of stock as compensation
            
            
            1,190,667
            
            
            
            9,422Changes in assets and
      liabilities:Accounts
      receivable
            
            
            -
            
            
            
            (25,284
            )Commissions
      receivable
            
            
            (90,376
            )
            
            
            83,478Other current
    assets
            
            
            1,686
            
            
            
            17,707Accounts payable
            
            
            30,033
            
            
            
            (98,317
            )Accrued
    liabilities
            
            
            61,443
            
            
            
            9,992Accrued
      compensation
            
            
            (3,916
            )
            
            
            -Commissions
    payable
            
            
            (95,474
            )
            
            
            (154,306
            )Other liabilities
            
            
            (1,635
            )
            
            
            42,6351,660,151
            
            
            
            (80,832
            )Net cash used in continuing
      operations
            
            
            (237,632
            )
            
            
            (102,797
            )Net
      cash used in discontinued operations
            
            
            (22,072
            )
            
            
            (187,552
            )Net
      cash used in operations
            
            
            (259,704
            )
            
            
            (290,349
            )Cash
      flows from investing activitiesCapital
    expenditures
            
            
            -
            
            
            
            (8,462
            )Sale
      of CBSi
            
            
            (14,458
            )
            
            
            -Increase (decrease) other
      assets
            
            
            11,549
            
            
            
            (9,496
            )Net cash used in continuing
      investing activities
            
            
            (2,909
            )
            
            
            (17,958
            )Net
      cash provided by discontinued investing activities
            
            
            30,849
            
            
            
            (27,971
            )Net
      cash provided by (used in) investing activities
            
            
            27,940
            
            
            
            (45,929
            )Cash
      flows from financing activitiesProceeds
      from notes payable
            
            
            430,000
            
            
            
            250,000Proceeds
      from receivables purchase agreement
            
            
            -
            
            
            
            94,925Payments
      towards financing arrangements
            
            
            (198,236
            )
            
            
            (8,647
            )Net cash provided by financing
      activities
            
            
            231,764
            
            
            
            336,278Net
      decrease in cash and cash equivalents
            
            
            -
            
            
            
            -Cash
      and cash equivalents-beginning of period
            
            
            -
            
            
            
            -Cash
      and cash equivalents-end of period
            
            $
            -
            
            
            $
            -


3
 COGNIGEN
NETWORKS, INC.








See
Notes to Consolidated Financial Statements








Supplemental
Disclosures of Cash Flow Information and Non-Cash Transactions





Cognigen
Networks, Inc. (“Cognigen” or the “Company”) made cash payments for interest
expense during the six months ended December 31, 2007 and 2006 in the amount of
$88,404 and $57,258, respectively.





In
September 2007, the Company re-acquired 1,246,028 of its common shares as
partial consideration for the sale of 100% of the equity interests of Cognigen
Business Systems, Inc.  Immediately following the re-acquisition of
these common shares, the Company cancelled such shares, which the Company deemed
to have a net value of $42,984.  See Note 3 of the Notes to
Consolidated Financial Statements.





During
the six months ended December 31, 2007, the Company issued the following
restricted common shares for the reasons and values identified
below.  See Note 6 of the Notes to Consolidated Financial
Statements.


Shares
              
              
              ValueSettlement
      of outstanding liabilities
              
              
              2,165,224
              
              
              $
              71,883Conversion
      of notes payable and related accrued interest
              
              
              10,311,040
              
              
              
              257,776Conversion
      of preferred stock
              
              
              500,000
              
              
              
              450,000Board
      of Directors fees or bonus – Former directors
              
              
              600,000
              
              
              
              24,000Board
      of Directors fees or bonus– Current directors
              
              
              3,900,000
              
              
              
              195,000Issuance
      to management as sign-on bonuses
              
              
              10,000,000
              
              
              
              500,000Issuance
      to management in lieu of salaries
              
              
              7,433,333
              
              
              
              371,667Issuance
      to consultants
              
              
              2,000,000
              
              
              
              100,000Commission
      River asset acquisition
              
              
              16,000,000
              
              
              
              800,000




On
December 31, 2007, the Company entered into a lease termination agreement with
an unrelated third-party.  Pursuant to the terms of the termination
agreement, the Company agreed to pay to the landlord $45,000 (payable in the
form of $20,000 in cash and a short-term promissory note in the original
principal amount of $25,000, payable at $5,000 per month beginning February 1,
2008 as consideration for the termination of the lease.  See Note 7 of
the Notes to Consolidated Financial Statements.



































4
 COGNIGEN
NETWORKS, INC.





Notes
to Consolidated Financial Statements





Note 1 – Description of
Business







Cognigen
Networks, Inc. (“Cognigen or the Company”) was incorporated in May 1983 in the
State of Colorado.  The Company markets and sells services and
products through commission-based marketing agents who use the Internet as a
platform to provide customers and subscribers with a variety of
telecommunications and technology-based products and
services.  Historically, the Company has generated revenues in two
ways.  First, the Company has generated marketing commission revenues
from vendors who are represented on web sites operated by independent agents of
the Company and for whom the Company sells products and services via contractual
agreements.  Generally, the Company enters into contractual agreements
with these vendors, who pay the Company commissions based on the volume of
products and services sold by the Company’s independent sales
agents.  The Company then pays 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 the Company’s marketing
commission revenues is attributable to the sale of domestic and international
long distance services; however, the Company also generates marketing
commission revenues from the sale of prepaid calling cards/pins and paging,
wireless communications, computers and Internet-based telecommunications
products.






Second,
the Company has also generated revenues from sales of proprietary products and
services.  Generally, the Company has acquired or developed these
proprietary products and services with the intention of marketing such products
and services through the Company’s 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 the Company’s independent agents, and the Company has
generally paid commissions to its agents based on the dollar volume of products
sold.







Note 2 – Summary of
Significant Accounting Policies







The
accompanying consolidated financial statements of the Company include the
accounts of Cognigen Networks, Inc. and its subsidiaries, LowestCostMall.com
(“LCM”) and Cognigen Business Systems, Inc. (“CBSi”), both of which are treated
as discontinued operations (see Note 3). All intercompany accounts
and transactions have been eliminated in consolidation.




In the
opinion of management, all adjustments, consisting only of normal recurring
adjustments, have   been made to (a) the unaudited consolidated
statements of operations for the three and six months ended December 31, 2007
and 2006, respectively, (b) the unaudited consolidated balance sheet as of
December 31, 2007 and (c) the unaudited consolidated statements of cash flows
for the six months ended December 31, 2007 and 2006, respectively, in order to
make the unaudited consolidated financial statements not
misleading.





The
accompanying unaudited consolidated financial statements have been prepared in
accordance with U.S. generally accepted accounting principles for interim
financial information.  Accordingly, they do not include all the
information and footnotes required by U.S. generally accepted accounting
principles for financial statements.  For further information, refer
to the audited consolidated financial statements






5
 COGNIGEN
NETWORKS, INC.




and notes
thereto for the year ended June 30, 2007, included in the Company’s Annual
Report on Form 10-KSB filed with the U.S. Securities and Exchange Commission, as
amended by Amendments No. 1 and No. 2 on Forms 10-KSB/A filed with the U.S.
Securities and Exchange Commission.





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





The
results for the six months ended December 31, 2007 may not necessarily be
indicative of the results for the fiscal year ending June 30, 2008.







Note 3 – Discontinued
Operations






LowestCostMall






In July
2006, the Company discontinued the operations previously conducted by
LCM.






Cognigen Business Systems,
Inc.






On
September 14, 2007, the Company sold its 100% ownership interest in CBSi to Carl
Silva and Anza Borrego Partners, Inc. (“ABP”), for 1,246,028 shares of Cognigen
common stock valued at $56,196 and the retention of $30,844 of CBSi-related
accounts payable.  The consideration was calculated to have a total
value of $42,984 after considering the net assets of CBSi given up, the
retention of accounts payable and the value of the shares of the Company’s
common stock returned to the Company and cancelled.  The decision to
sell the ownership interest in CBSi was based on the determination by the
Company’s Board of Directors that CBSi would be unable to generate enough cash
flows to cover its anticipated operating expenses.  In conjunction
with this sale, the Company terminated an employment agreement entered into
between the Company and Carl Silva, a principal of ABP,and all
benefits related to that employment agreement were terminated or
relinquished.   All other agreements with ABP were also
terminated in relation to delivering to ABP shares of common stock based on
pretax income for CBSi that was included in the original agreement with Carl
Silva and ABP.  The 1,246,028 common shares of the Company received in
the transaction were cancelled.




Sale of Proprietary
Telecommunications Accounts




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




6
 COGNIGEN
NETWORKS, INC.




The
following is financial information as of December 31, 2007 relative to
discontinued operations described above.











Six
      Months Ended
                December
      31, 2007
            
            
            Six
      Months Ended
                December
      31, 2006Current
      assets
            
            $
            -
            
            
            $
            16,285Current
      liabilities
            
            $
            (68,883
            )
            
            $
            (88,883
            )Net
      liabilities
            
            $
            (68,883
            )
            
            $
            (72,598
            )









Six
      Months Ended
                December
      31, 2007
            
            
            Six
      Months Ended
                December
      31, 2006Total
      revenue
            
            $
            15,233
            
            
            $
            1,002,282Operating
      expenses
            
            $
            (92,560
            )
            
            $
            (1,144,744
            )Income
      (loss) from operations
            
            $
            (77,327
            )
            
            $
            (142,462
            )Gain
      on sale of assets
            
            $
            -
            
            
            $
            236,897Income
      taxes
            
            
            -
            
            
            
            -Net
      income (loss)
            
            $
            (77,327
            )
            
            $
            94,435











Note4–Management’s
Plan






Cash
flows generated from operations, from the Company’s receivables financing
arrangement and from BayHill Capital were sufficient to meet the Company’s
working capital requirements for the six months ended December 31, 2007, but
will likely not be sufficient to meet the Company’s working capital requirements
for the foreseeable future or provide for expansion
opportunities.  During the six months ended December 31, 2007, the
Company incurred $1,897,783 in losses from operations and used $259,704 in cash
for operations.  Cash flows provided by financing activities for the
six months ended December 31, 2007 were $231,764.




The
Company and Silicon Valley Bank have entered into a Receivables Purchase
Agreement dated December 26, 2003, as amended, which provides for up to
$1,000,000 in marketing commissions receivable to be used as collateral for
advances to be made by Silicon Valley Bank, of which 80% of






7
 COGNIGEN
NETWORKS, INC.




the
marketing commissions receivable balances are available in cash advances to the
Company.  Interest charges are 1.5% per month on the marketing
commissions receivable balances used as collateral (the “Receivables Purchase
Agreement”).  The Receivables Purchase Agreement expires March 24,
2008.  Silicon Valley Bank has indicated its intent to not renew the
Receivables Purchase Agreement.  The Company is seeking to obtain
replacement financing at this time.





On
October 10, 2006, the Company entered into an agreement with VenCore Solutions,
LLC (“VenCore”) to borrow $250,000 in a term loan to be repaid by making monthly
payments of


$9,000,
which includes interest at 16.7% per annum. The loan is fully amortizable over
36 months, and was used for working capital purposes. VenCore was granted a lien
subordinate to Silicon Valley Bank on all assets of the Company.During the six months
ended December 31, 2007, the Company made a proposal to VenCore that is pending
final approval by VenCore’s loan committee.  The proposal was that the
Company would pay $18,000 upon submission of the proposal, pay $5,000 per month
in principal beginning November 10, 2007 until June 10, 2008, and pay a
principal reduction of $100,000 in cash as a condition of the proposed
restructuring.  Interest on outstanding principal amount would accrue
and be paid in common shares of the Company, and upon the Company’s payment of
the $100,000 in principal reduction, VenCore would convert $50,000 of the
remaining principal amount of the term loan into common shares of the
Company.  The conversion of principal and accrued interest payments
would be valued at a price of $.025 per share.  The Company has made
the payment of $18,000 and all monthly payments of $5,000 since the date of the
Company’s proposal; however the Company has not paid the $100,000 in principal
reduction as contemplated by the proposal.  As a result, VenCore’s
loan committee has not approved or accepted the Company’s proposal.





On June
15, 2007 and June 28, 2007, BayHill Capital, LC (“BayHill Capital”) extended to
the Company short-term loans in the amount of $100,000 and $150,000,
respectively.   Both of these loans and accrued interest were
converted on October 17, 2007 into 10,331,040 common shares of the
Company.





On
September 26, 2007, BayHill Capital extended to the Company a short-term loan in
the amount of $30,000 which bears interest at 10% per annum.  The note
was due on October 13, 2007 and is considered due and
payable.  Beginning October 14, 2007, this note became convertible at
the lower of $.05 per share or 80% of the average closing bid price of the
Company’s common share price for the previous five trading days.  This
note is secured by a subordinated security agreement on all the assets of the
Company.





On
November 5, 2007, BayHill Capital extended to the Company a short-term loan in
the amount of $150,000 which bears interest at 10% per annum.  This
note is convertible into the Company’s common shares at $.03 per share and is
also secured by a subordinated security agreement on all the assets of the
Company.  This note was due on December 4, 2007 and is considered due
and payable.





On
December 5, 2007 and December 27, 2007 BayHill Capital extended to the Company
short-term loans in the amounts of $125,000 and $100,000 respectively, which
bear interest at 12% per annum and are due March 31, 2008.




There can
be no assurance that the Company will be able to secure additional debt or
equity financing, that the Company will be able to reduce or eliminate more
costs and expenses or that cash flows from operations or financing activities
will produce adequate cash flow to enable the Company to meet all future
obligations or to be able to expand.  The Company’s current
liabilities of $2,187,353 exceed current assets by $1,463,571. All of the
Company’s existing financing arrangements are short term.






8
 COGNIGEN
NETWORKS, INC.


The
Company has indicated its possible interest in filing an application and other
materials with the SEC in order to obtain a charter as a Business Development
Company (hereinafter, "BDC") as defined in the Investment Company Act of 1940,
as amended.  If the Company elects to become a BDC, and is granted a
charter by the SEC, the Company may elect to continue its historic business
operations through a wholly-owned subsidiary.  The Company’s
management would continue to operate and manage the wholly-owned subsidiary and
continue its efforts to develop and expand the Company’s historical
business.





If the
Company elects to make application for a charter as a BDC, if the Company’s
application for a BDC charter is approved, and if the Company is able to obtain
additional capital financing, the Company’s management believes the Company
would have the ability to provide capital and management advisory services
to both smaller public and private companies seeking access to public capital
markets, financial and operational management expertise, and various forms of
traditional equity and debt capital. Prior to finalizing a decision to become a
BDC, the Company intends to move forward with its plans and activities in an
effort to secure additional equity financing and enhance and expand its
affiliate marketing business.





Note
5 – Financing Arrangements





The
following table identifies the balances outstanding of the Company’s financing
arrangements as of December 31, 2007:





Receivables
      Purchase Agreement with SVBank
            
            $
            257,030Secured
      Term Loan with VenCore
            
            
            187,600Convertible
      Secured Promissory Notes with BayHill Capital
            
            
            180,000Unsecured
      Promissory Notes with BayHill Capital
            
            
            225,000Note
      Payable to Cardelco
            
            
            25,000$
            874,630





Receivables Purchase
Agreement





On
December 26, 2003, the Company and Silicon Valley Bank entered into the
Receivables Purchase Agreement which, as subsequently amended, provides 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 are available in cash advances to the
Company.  Interest charges are 1.5% per month on the marketing
commissions receivable balances used as collateral.  Silicon Valley
Bank was given a first-position security interest in substantially all of the
Company’s assets, including any of the Company’s copyrights, trademarks, patents
and mask works, as a condition to the Receivables Purchase
Agreement.  The Receivables Purchase Agreement contains certain
positive and negative covenants as defined, including but not limited to, the
requirement of Silicon Valley Bank’s approval to the disposition of assets,
change in ownership and additional indebtedness.  The Company paid
facility, audit and due diligence fees to Silicon Valley Bank upon renewal of
this Receivables Purchase Agreement in March of 2007 of approximately
$7,000.  This amount is being amortized into interest expense over one
year.  The Receivables Purchase Agreement expires March 24,
2008.  Silicon Valley Bank has indicated its intent to not renew the
Receivables Purchase Agreement.  The Company is seeking to obtain
replacement financing at this time.






9
 COGNIGEN
NETWORKS, INC.


Secured Term Loan with
VenCore Solutions, Inc.





On
October 10, 2006, the Company entered into an agreement with VenCore to borrow
$250,000 in a term loan to be repaid principal and interest of $9,000 monthly
including interest at 16.7%.   The loan was fully amortizable
over 36 months.   The term loan contains certain covenants as
defined, which include but are not limited to, VenCore’s approval of the
disposition of assets, additional liens on assets and the change of
debtors.  As part of the agreement, the Company issued to VenCore
75,000 warrants to purchase 75,000 shares of restricted common stock of the
Company valued at $5,093.   The warrants were granted at $.12 per
share and are exercisable for up to seven years from date of
grant.  The Company granted VenCore a second-position lien on
substantially all of the assets of the Company, which is subordinate to the
claim of Silicon Valley Bank pursuant to the Receivables Purchase
Agreement.  Commitment and documentation fees of $5,500 were paid to
VenCore.  These fees are being amortized over three years as an
adjustment to interest expense.  Subsequent to September 30, 2007, the
Company made a proposal to VenCore that is pending final approval by VenCore’s
loan committee.  The proposal was that the Company would pay $18,000
upon submission of the proposal, pay $5,000 per month in principal beginning
November 10, 2007 until June 10, 2008, and pay a principal reduction of $100,000
in cash prior to the proposed restructuring.  Interest on outstanding
principal amount would accrue and be paid in common shares of the Company’s
common stock, and upon the Company’s payment of the $100,000 in principal
reduction, VenCore would convert $50,000 of the remaining principal into common
shares of the Company.  The conversion of principal and accrued
interest payments would be valued at a price of $.025 per share.  The
Company has made the payment of $18,000 and all monthly payments of $5,000 since
the date of the Company’s proposal; however the Company has not paid the
$100,000 in principal reduction as contemplated by the proposal.  As a
result, VenCore’s loan committee has not approved or accepted the Company’s
proposal.





Convertible Secured
Promissory Notes with BayHill Capital





On June
15, 2007 and June 28, 2007, BayHill Capital extended to the Company short-term
loans in the amount of $100,000 and $150,000,
respectively.   These Notes bore interest at the rate of 10% per
annum, 15% upon default.  Both of these notes, together with principal
and accrued interest of $7,776, were converted on October 17, 2007 into
10,331,040 common shares of the Company.  The conversion feature
within the promissory notes that was exercised in October resulted in the
Company recording a beneficial conversion feature in stockholders equity of
approximately $155,191 and an increase to interest expense in the statement of
operations.





On
September 26, 2007, BayHill Capital extended to the Company a short-term loan in
the amount of $30,000 which bears interest at 10% per annum.  The note
was due on October 13, 2007 and is considered due and
payable.  Subsequent to October 13, 2007 and at BayHill’s option, this
note became convertible at the lower of $.05 per share or 80% of the average
closing bid price of the Company’s common share price for the previous five
trading days.  This note is secured by a subordinated security
agreement on all the assets of the Company.  As the conversion option
has no explicit limit on the number of shares that may be deliverable upon
conversion, the conversion option qualifies as a derivative, and the Company
recorded the initial fair value of the derivative of $10,833 on October 14, 2007
as a derivative liability and as interest expense.  The fair value of
the derivative liability is $14,550 as of December 31, 2007, and the Company
recorded the loss on fair value of the derivative of $3,717 during the three and
six months ended December 31, 2007.






10
 COGNIGEN
NETWORKS, INC.





On
November 5, 2007, BayHill Capital extended to the Company a short-term loan in
the amount of $150,000 which bears interest at 10% per annum.  This
note is convertible into the Company’s common shares at $.03 per share and is
also secured by a subordinated security agreement on all the assets of the
Company.  This note was due on December 4, 2007.  The
conversion feature within this promissory note resulted in the Company recording
a beneficial conversion feature in stockholders equity of $100,000 and an
increase to interest expense in the statement of operations.





Unsecured Promissory Notes
with BayHill Capital





On
December 5, 2007 and December 27, 2007 BayHill Capital extended to the Company
short-term loans in the amounts of $125,000 and $100,000 respectively, which
bear interest at 12% per annum and are due March 31, 2008.  Payment of
accrued interest can be made in cash or shares of the Company’s common stock, at
the discretion of the Company.  If the Company pays the accrued
interest in shares of Company common stock, the number of shares of common stock
will be calculated based on a price of $0.03 per share of the Company’s common
stock.





Note Payable to
Cardelco





On
December 31, 2007, Cardelco, LLC (“Cardelco”) entered into a short-term
promissory note with the Company in the amount of $25,000. Payment on the note
consists of $5,000 per month starting February 1, 2008 until fully
paid.  This promissory note does not bear interest unless default
occurs at which time interest would accrue at 10% per
annum.   This note was part of a lease termination agreement
between the Company and Cardelco relating 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 the remaining $25,000 was paid in the form of a short-term promissory note
payable at $5,000 per month beginning February 1, 2008.







Note 6 - Stockholders'
Equity






Preferred
Stock






As of
December 31, 2007, the Company had authorized 20,000,000 shares of preferred
stock.  The Company has designated 500,000 shares as 8% Convertible
Series A.






On
October 17, 2002 the Company issued 500,000 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 is
convertible, at the option of the holder, into one share of the Company’s common
stock for a period of five years.  After five years the Series A
Preferred Stock was automatically converted to common stock.  The
Series A Preferred Stock did not have voting rights and had a liquidation
preference of $1.00 per share.  Dividends on the Series A Preferred
Stock were cumulative at the rate of 8% per annum of the liquidation value,
$1.00 per share, were payable in cash, when and if declared by the Board of
Directors, and were preferential to any other junior securities, as
defined.  The Board did not declare any such
dividends.  Because of the cumulative nature of these dividends, if
all dividends had been declared the balance owing would have been
$200,000 as of October 14, 2007, the day of automatic
conversion.  All outstanding shares of Series A Preferred Stock
automatically converted to 500,000 common shares on October 14, 2007 according
to the terms of the Series A Preferred Stock.  As such, Stanford
International Bank Limited was issued 500,000 shares of common stock and the
500,000 shares of Series A Preferred Stock were cancelled.  There are
currently no shares of Series A Preferred Stock outstanding.






11
 COGNIGEN
NETWORKS, INC.


Common
Stock




BayHill
Capital





On
October 17, 2007, BayHill Capital converted principal in the amount of
$250,000­­­­­­­­­­­­­­­
and accrued interest in the amount of $7,776 owing under convertible promissory
notes into 10,331,040 common shares of the Company.  See Note
5.





Commission River,
Inc.





On
November 30, 2007, the Company entered into an Asset Purchase and Reorganization
Agreement (the “Sale Agreement”) by and among the Company and Commission River,
Inc. (“Commission River”).  Pursuant to the terms of the Purchase
Agreement, the Company acquired substantially all of Commission River’s assets
in exchange for 16,000,000 shares of common stock of the Company. The assets of
Commission River acquired primarily included intellectual property, employment
agreements and non-complete agreements.  The cost of the acquisition
was valued at $800,000 of which $400,000 was allocated to intellectual property
and $400,000 was allocated to the three year employment and non-compete
agreements.  These intangible costs are being amortized over their
three year estimated useful lives.   Upon the issuance of these
16,000,000 common shares effective November 30, 2007, Commission River became
the largest record holder of the Company’s common stock.





Cognigen Business Systems,
Inc.




During
the fiscal years ended June 30, 2007 and June 30, 2006 and the fiscal quarter
ended September 30, 2007, the Company generated revenue from the CBSi
operations in the amount of $58,463, $0 and $15,233,
respectively.  During the same period (July 1, 2005 through September
30, 2007) the Company incurred in excess of $600,000 in expenses associated with
the CBSi operations.  After reviewing the activities and operations of
CBSi, the Board of Directors of the Company 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.  The Company's
Board of Directors determined that it was in the best interests of the Company
and its shareholders to focus the Company's efforts on continuing to develop its
historical agent marketing business and, on September 14, 2007, agreed to sell
its 100% ownership in CBSi to Carl Silva and ABP, effective August 31, 2007, for
1,246,028 shares of Cognigen common stock valued at $56,196 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 in relation to delivering to ABP shares of common stock
based on pretax income for CBSi that was included in the original agreement with
Carl Silva and ABP.  The 1,246,028 common shares of the Company
received in the transaction were cancelled.






Other issuances of common
stock




During
the six months ended December 31, 2007, the Company issued the following
restricted common shares for those reasons and values identified:





12
 COGNIGEN
NETWORKS, INC.


Shares
              
              
              ValueSettlement
      of outstanding liabilities
              
              
              2,165,224
              
              
              $
              71,883Conversion
      of notes payable and related accrued interest
              
              
              10,311,040
              
              
              
              257,776Conversion
      of preferred stock
              
              
              500,000
              
              
              
              450,000Board
      of Directors fees or bonus – Former directors
              
              
              600,000
              
              
              
              24,000Board
      of Directors fees or bonus– Current directors
              
              
              3,900,000
              
              
              
              195,000Issuance
      to management as sign-on bonuses
              
              
              10,000,000
              
              
              
              500,000Issuance
      to management in lieu of salaries
              
              
              7,433,333
              
              
              
              371,667Issuance
      to consultants
              
              
              2,000,000
              
              
              
              100,000


The
values recorded for settlement of outstanding liabilities, conversion of notes
payables and related accrued interest and conversion of preferred stock were all
recorded at contractually stated amounts.  The values of all other
transactions were recorded at the closing market price of the Company’s common
stock on the date the Company’s Board of Directors approved the
issuance.






Stock
Options






The
Company has established the 2001 Incentive and Nonstatutory Stock Option Plan
(the Plan), which authorizes the issuance of up to 625,000 shares of the
Company's common stock.  The Plan will remain in effect until 2011
unless terminated earlier by an action of the Board.  All employees,
board members and consultants of the Company are eligible to receive options
under the Plan at the discretion of the Board.  Options issued under
the Plan vest according to the individual option agreement for each
grantee.






There
were no stock options granted during the six months ended December 31,
2007.  As of December 31, 2007 there were 859,000 stock options
outstanding under the Plan and outside the Plan.  During the six
months ended December 31, 2007, there were 43,000 stock options that either
expired or were cancelled unexercised.






Warrants






As of
December 31, 2007, there were warrants outstanding to purchase 275,000 common
shares of the Company.  During the six months ended December 31, 2007,
warrants to purchase 350,000 common shares of the Company expired
unexercised.






Note 7- Commitments and
Contingencies




Operating
Leases




There
were no future minimum lease payments owing by the Company under any leases as
of December 31, 2006. On December 31, 2007, Cardelco, LLC (Cardelco) entered
into a short-term promissory note with the Company in the amount of 25,000. This
note was part of a lease termination agreement between the Company and Cardelco
relating 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 execution of the termination agreement and the remaining $25,000
was paid in the form of a short-term promissory note payable at $5,000 per month
beginning February 1, 2007.  This promissory note does not bear
interest unless default occurs at which time interest would accrue at 10% per
annum.




Note 8–  Related Party
Activity






13
 COGNIGEN
NETWORKS, INC.




Stock Redemption Agreement
between the Company, the Anderson Family Trust, Cantara Communications
Corporation, and Kevin E. Anderson Consulting, Inc.






On
December 7, 2001, the Company re-purchased 2,712,500 shares of the Company’s
common stock from the Anderson Family Trust (“AFT”).  The Anderson
Family Trust delivered shares from those owned by Cognigen Corporation, a
company 98.9 % owned by AFT, to satisfy its obligation pursuant to the
transaction.  Kevin E. Anderson, the founder of the Company, and
members of his family are the beneficiaries of AFT.  Kevin E. Anderson
may be deemed to beneficially own the shares of the Company’s common stock owned
by AFT.






As
consideration for the return of the 2,712,500 shares to the Company, among other
consideration, the Company transferred to Cantara, an affiliate of Mr. Anderson,
the rights to become the up-line agentfor the Company’s
current accounts and thereby be entitled to commissions, fees and bonuses on the
Company’s current customer accounts, with a commission not to exceed
12%.  As part of the transaction, Cantara agreed to cap the amount of
commissions payable by the Company through December 31, 2002. The amount of
commissions, fees and bonuses that Cantara is entitled receive under the agent
agreement is contingent upon the generation of sales by it and its down line
agents and payment for the products and services sold by our customers and
vendors. The sales are generated either directly by Cantara and/or its down-line
sub-agents.  For the six-month periods ended December 31, 2007 and
2006, the Company paid Cantara $122,115 and $215,997 in commissions,
respectively. In addition, as a part of that transaction, the Company’s
agreement with Kevin E. Anderson Consulting, Inc., pursuant to which the Company
paid Kevin E. Anderson Consulting, Inc. consulting fees of $14,583 per month,
was cancelled and Mr. Anderson was retained through March 31, 2003 at the rate
of $1,000 per month to provide to the Company up to 20 hours telecommuting
consulting services per month.






Prior to
September 30, 2005, commission payments earned by Cantara pursuant to the
foregoing arrangement were reflected in the Company’s financial statements as a
reduction in the amount of deferred commissions payable by the
Company.  For periods subsequent to September 30, 2005, the payments
earned by Cantara pursuant to the foregoing arrangement were reflected as
commission expense on the Company’s financial statements.






In March
2003, the Company entered into a separate consulting agreement with Kevin E.
Anderson Consulting, Inc., an entity affiliated with Mr. Anderson, to provide
expanded consulting and technical/administrative services.  For the
six months ended December 31, 2007 and 2006, the Company paid Kevin E. Anderson
Consulting, Inc. $11,250 and $27,000, respectively, pursuant to the consulting
agreement.






For the
six months ended December 31, 2007 and 2006, Cognigen also paid members of Kevin
E. Anderson’s family $16,205 and $25,133 in agent commissions,
respectively.




On
December 9, 2005, the Company entered into a stock purchase agreement, as
amended, with AFT and Cantara (the Cantara Purchase Agreement). Under the
Cantara Purchase Agreement, the Company paid AFT a total of $150,000 as of
December 31, 2007. Under the Cantara Purchase Agreement, the Stock Redemption
Agreement was to terminate if the Company pays AFT a total of $1,500,000 by
March 15, 2011 pursuant to a schedule set forth in the Cantara Purchase
Agreement, as amended. AFT continued to receive 100% of the amount due to the
Cantara Agency until December 29, 2006, at which time the Company began
receiving 10% of commission due.  Thereafter, the percentage that the
AFT received was to reduce as the Company made additional
payments.  The Company had the right






14
 COGNIGEN
NETWORKS, INC.




to prepay
any unpaid amounts due at any time and stop all payments to the AFT under the
Stock Redemption Agreement.  Given cash flow considerations, in
January 2007 the Company decided to terminate payments under the Cantara
Purchase Agreement.  The Company owns 10% of the commission payment to
the AFT, however, it no longer has a right to purchase the remaining 90% at this
time.  The $150,000 paid by the Company to AFT is reflected on the
Company’s balance sheet and is being amortized to commission expense over three
remaining years in accordance with the 10% ownership of the commission payments
to Cantara.  During the six months ended December 31, 2007, after
completing an evaluation on the expected cash flows relative to the net book
value of the entry in the Company’s financial statements, the Company amortized
an additional  $87,310 as a charge to commission expense, leaving a
net balance of $47,690 as other assets, .







Consulting Arrangements with
Combined Telecommunications Consultancy, Ltd. and Commission Payments to
Telkiosk, Inc.






The
Company previously had an agreement with Combined Telecommunications
Consultancy, Ltd. (“CTC”), of which slightly less than 35% is owned by Peter
Tilyou, pursuant to which CTC received a percentage of a transaction if CTC
introduced a transaction to the Company and was paid a consulting fee of $150
per hour for providing consulting services to the Company.  Although
this agreement was not formally renewed, it is the Company’s intentions to pay
CTC under the same structure for any services rendered to the
Company.  During the six months ended December 31, 2007 and 2006,
the Company paid CTC $0 and $14,000, respectively, in consulting
fees.






Payments to
Directors






A
director of the Company has been performing consulting services for the Company
and receiving $7,500 per month for these services since June 15, 2007 for a
total of $45,000 for the six months ended December 31, 2007.






Payments to
Telarus,
Inc.




During
the six months ended December 31, 2007, the Company accrued $49,519 for payments
to Telarus, Inc. (“Telarus”) for services performed by the employees of Telarus
on behalf of the Company and various expenses paid by Telarus on behalf of the
Company.   This amount is included in accounts payable on the
Company’s balance sheet at December 31, 2007.  Telarus is owned by the
principals of Commission River who are now executive officers of a
wholly-owned subsidiary of the Company.  The Company plans to continue
using the services of Telarus employees on a limited basis for the next twelve
months.  Services provided by Telarus include various accounting and
software development projects which are limited in scope.  Services are
billed to the Company on an hourly basis and are approved by an independent
executive of the Company.  The Company anticipates services provided by
Telarus will be less then $15,000 per month and will decrease in amount during
the third quarter of the Company’s 2008 fiscal year.




Note 9
–  SubsequentActivity




In a
preliminary proxy statement filed with the Securities and Exchange Commission,
the Company has indicated its intention to call a special meeting of the
shareholders of the Company on a date which is yet to be
determined.  The proposed items for shareholder vote include the
following:





1.  amending
the Articles of Incorporation of the Company to effect a reverse split of the






15
 COGNIGEN
NETWORKS, INC.




outstanding
shares of common stock of the Company pursuant to which each 50 shares of common
stock outstanding prior to the reverse split would be exchanged for one share of
common stock outstanding after the reverse split;.





2.  amending
the Articles of Incorporation of the Company to reduce the number of authorized
shares of common stock of the Company from 300,000,000 shares to 100,000,000
shares, and the number of authorized shares of preferred stock from 20,000,000
shares to 400,000 shares;











4.  re-incorporating
the Company under the laws of the State of Delaware; and





5.  adopting
the Cognigen Networks, Inc. 2008 Stock Incentive Plan; and





16





Item
2 .MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION





1.  Overview




Cognigen
Networks, Inc. (“Cognigen” or the “Company”) is an Internet and relationship
enabled marketer.  The Company markets and sells services and products
through commission-based marketing agents who use the Internet as a platform to
provide customers and subscribers with a variety of telecommunications and
technology-based products and services.  Historically, the Company has
generated revenues in two ways.  First, the Company has generated
marketing commission revenues from vendors who are represented on web sites
operated by independent agents of the Company and for whom the Company sells
products and services via contractual agreements.  Generally, the
Company enters into contractual agreements with these vendors, who pay the
Company commissions based on the volume of products and services sold by the
Company’s independent sales agents.  The Company then pays 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 the Company’s marketing commission revenues is attributable to the
sale of domestic and international long distance services; however, the Company
also generates marketing commission revenues from the sale of prepaid
calling cards/pins and paging, wireless communications, computers and
Internet-based telecommunications products.




Second,
the Company has also generated revenues from sales of proprietary products and
services.  Generally, the Company has acquired or developed these
proprietary products and services with the intention of marketing such products
and services through the Company’s 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 the Company’s independent agents, and the Company has
generally paid commissions to its agents based on the dollar volume of products
sold.





Three
Months Ended December 31, 2007 Compared to Three Months Ended December 31,
2006.




Total
revenue for the three months ended December 31, 2007 was $1,073,692, compared to
$1,587,902 for the corresponding period of 2006. This represents a decrease of
$514,210 from the comparable period of 2006, or 32%.  This decrease
reflects a significant reduction in the Company’s sales of long distance
products and cell phones.




Marketing
commissions expense decreased from $1,216,928 for the three months ended
December 31, 2006 to $695,490 for the corresponding period of 2007, a decrease
of $521,438, or 43%, from the comparable period of 2006.  This
decrease correlates to a decrease in marketing commissions revenue explained
above, as well as a decrease in payments to the Company from its largest
cell phone carrier, who filed for protection under Chapter 11 of the U.S.
Bankruptcy Code.




Selling,
general and administrative expenses increased $1,416,088, or 411%, for the three
months ended December 31, 2007 compared to the corresponding period of
2006.  This increase was largely attributable to the issuances of
shares of common stock to officers, directors and consultants of the Company, in
exchange for services and subject to restricted stock agreements. The value of
such shares of common stock, in the aggregate, was recorded to general and
administrative expenses of $1,190,000 in December 2007.  In addition,
during the quarter the provision for doubtful accounts was increased as a result
of the Company’s largest cell phone carrier filing for protection under Chapter
11 of the U.S. Bankruptcy Code.  Marketing commissions from this cell
phone carrier for the three months ended December 31, 2007 were approximately
$75,000.  The Company has provided an






17




allowance
for doubtful accounts of $203,000 in connection with the bankruptcy filing,
$75,000 of which was recorded in the three months ended December 31,
2007.  Also during the three months ended December 31, 2007, the
Company experienced an increase in legal, accounting and other expense
associated with conducting the Company’s annual meeting of shareholders, various
financing arrangements, and corporate reorganization efforts.




The
increase of depreciation and amortization of $20,807 over the corresponding
period of 2006 was primarily attributable to amortization of the portion of the
purchase price of the assets of Commission River representing intangible
intellectual property and employment and non-compete
agreements.   This amortization was for one month based on the
acquisition date of November 30, 2007.




Interest
expense for the three months ended December 31, 2007 of $159,020 was higher
than the $31,795 for corresponding period of 2006, due primarily to higher than
average outstanding receivables financing balances, the increase in short term
funding, and a beneficial conversion feature of $100,000 related to the
promissory note from BayHill Capital issued in November 2007.




Six
Months Ended December 31, 2007 Compared to Six Months Ended December 31,
2006




Total
revenue for the six months ended December 31, 2007 was $2,302,410 compared to
$3,119,124 for the corresponding period of 2006. This represents a decrease of
$816,714 from that of the corresponding period of 2006, or 26%.  This
decrease reflects a significant reduction in the Company’s sales of long
distance products and cell phones.






Marketing
commissions expense decreased from $2,428,721 for the six months ended December
31, 2006 to $1,508,745 for the three months ended December 31, 2007, a decrease
of $919,976, or 38%.  This decrease correlates to a decrease in
marketing commissions revenue explained above, as well as a decrease in
payments to the Company from its largest cell phone carrier, who filed for
protection under Chapter 11 of the U.S. Bankruptcy Code.






Selling,
general and administrative expenses increased $1,474,246, or 200%, from the
six months ended December 31, 2007 compared to the corresponding period of
2006. This increase was largely attributable to the issuances of shares of
common stock to officers, directors and consultants of the Company, in exchange
for services and subject to restricted stock agreements. The value of such
shares of common stock, in the aggregate, was recorded to general and
administrative expenses of $1,190,000 in December 2007.  In addition,
during this period a provision for doubtful accounts was recorded as a result of
the Company’s largest cell phone carrier filing for protection under Chapter 11
of the U.S. Bankruptcy Code.  Marketing commissions from this cell
phone carrier for the six months ended December 31, 2007 were approximately
$290,000. Of this amount, the Company has provided an allowance for doubtful
accounts of $203,000, all of which was recorded during the six months ended
December 31, 2007.  Also during this period the Company experienced an
increase in legal, accounting and other expense relating to the Company’s annual
shareholders meeting, various financing arrangements and corporate
reorganization efforts.






The
Company incurred depreciation and amortization expense of $22,222 during the six
months ended December 31, 2007, an increase of $19,391 from the corresponding
period 2006.  The increase was primarily attributable to amortization
of the portion of the purchase price of the assets of Commission River
representing intangible intellectual property and employment and non-compete
agreements.






Interest
expense for the six months ended December 31, 2007 of $371,654 was higher
than the $57,974 for the corresponding period of 2006, due primarily to higher
than average outstanding receivables financing balances, increased short term
borrowings during 2007, and beneficial conversion features of $255,191 recorded
this period.   The beneficial conversion features related to the
promissory notes from Bay Hill Capital which in September 2007 became
convertible into common shares and the promissory note issued by the Company to
BayHill Capital in November 2007.






18




Liquidity
and Capital Resources




Cash
flows generated from operations, from the Company’s receivables financing
arrangement and from BayHill Capital were sufficient to meet working capital
requirements for the six months ended December 31, 2007, but will not likely be
sufficient to meet the Company’s working capital requirements for the
foreseeable future or provide for expansion opportunities.  During the
six months ended December 31, 2007, the Company incurred $1,897,783 in losses
from operations and used $259,704 in cash for operations.  Cash flows
provided by financing activities for the six months ended December 31, 2007 were
$231,764.




The
Receivables Purchase Agreement expires March 24, 2008.  Silicon Valley
Bank has indicated their intent to not renew the Receivables Purchase
Agreement.  The Company is seeking to obtain replacement financing at
this time.





During
the six months ended December 31, 2007, the Company made a proposal to VenCore
that is under review by VenCore’s loan committee.  The proposal was
that the Company would pay $18,000 upon approval of the proposal, pay $5,000 per
month in principal beginning November 10, 2007 until June 10, 2008, pay $100,000
of principal, pay interest on outstanding principal amount in common shares of
the Company stock and that VenCore, upon the Company’s payment of $100,000,
would convert $50,000 of the principal amount of the VenCore debt into common
shares of the Company.  The conversion and interest payments would be
valued at a $.025 price per share.  The Company has made the payment
of $18,000 and all monthly payments of $5,000 since this time.  The
Company has not, however, paid the $100,000 payment which is a condition of the
proposal.  Accordingly, VenCore’s loan committee has not approved or
accepted the Company’s proposal.





On June
15, 2007 and June 28, 2007, BayHill Capital extended to the Company short-term
loans in the amount of $100,000 and $150,000,
respectively.   Both of these notes and accrued interest were
converted on October 17, 2007 into 10,331,040 common shares of the
Company.





On
September 26, 2007, BayHill Capital extended to the Company a short-term loan in
the amount of $30,000 which bears interest at 10% per annum.  This
note is convertible at the lower of $.05 per share or 80% of the average closing
bid price of the Company’s common share price for the previous five trading days
and is secured by a subordinated security agreement on all the assets of the
Company.  The note was due on October 13, 2007 and is considered due
and payable.





On
November 5, 2007, BayHill Capital extended to the Company a short-term loan in
the amount of $150,000 which bears interest at 10% per annum.  This
note is convertible into the Company’s common shares at $.03 per share and is
also secured by a subordinated security agreement on all the assets of the
Company.  This note was due on December 4, 2007 and is considered due
and payable.




There can
be no assurance that the Company will be able to secure additional debt or
equity financing, that the Company will be able to reduce or eliminate more
costs and expenses or that cash flows from operations or financing activities
will produce adequate cash flow to enable the Company to meet all future
obligations or to be able to expand.  The Company’s current
liabilities of $2,187,353 exceed current assets by $1,463,571. All of the
Company’s existing financing arrangements are short term.




The
Company has indicated its possible interest in filing an application and other
materials with the SEC in order to obtain a charter as a Business Development
Company (hereinafter, "BDC") as defined in the Investment Company Act of 1940,
as amended.  If the Company elects to become a BDC, and is granted a
charter by the SEC, the Company may elect to continue its historic business
operations






19




through a
wholly-owned subsidiary.  The Company’s management would continue to
operate and manage the wholly-owned subsidiary and continue its efforts to
develop and expand the Company’s historical business.





If the
Company elects to make application for a charter as a BDC, if the Company’s
application for a BDC charter is approved, and if the Company is able to obtain
additional capital financing, the Company’s management believes the Company
would have the ability to provide capital and management advisory services
to both smaller public and private companies seeking access to public capital
markets, financial and operational management expertise, and various forms of
traditional equity and debt capital. Prior to finalizing a decision to become a
BDC, the Company intends to move forward with its plans and activities in an
effort to secure additional equity financing and enhance and expand its
affiliate marketing business.





Forward
Looking Statements





Certain
of the information discussed herein, and in particular in this section entitled
“Management’s Discussion and Analysis or Plan of Operation,” contains forward
looking statements that involve risks and uncertainties that might adversely
affect the Company’s operating results in the future in a material
way.  Such risks and uncertainties include, without limitation, the
Company’s possible inability to obtain additional financing, the Company’s
possible lack of producing agent growth, the Company’s possible lack of revenue
growth, the Company’s possible inability to add new products and services that
generate increased sales, the Company’s possible lack of cash flows, the
Company’s inability to integrate or capitalize on the operations and assets
acquired from Commission River,  The Company’s failure to obtain a
charter as a BDC, the Company’s possible loss of key personnel, the possibility
of telecommunication rate changes and technological changes and the possibility
of increased competition.  Many of these risks are beyond the
Company’s control.  The Company is not entitled to rely on the safe
harbor provisions of Section 27A of the Securities Act of 1933, as amended, or
Section 21E of the Securities Exchange Act of 1934 as amended, when making
forward-looking statements.





Item
3.Controls and Procedures





(a)
            Evaluation
      of disclosure controls and
procedures.




Under the
supervision and with the participation of our management, including our Chief
Executive Officer and our Chief Financial Officer, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report.  Based
upon that evaluation, the Chief Executive Officer and our Chief Financial
Officer concluded that, as of the end of the period covered by this report, our
disclosure controls are effective.




In the
past, the Company’s management was unable to conclude that the Company
maintained effective controls over its process in a manner that was sufficient
to ensure the complete, accurate and timely preparation and review of its
consolidated financial statements in accordance with U.S. generally accepted
accounting principles.  The principal concern identified by the
Company’s management with respect to effective disclosure controls and
procedures was a lack of personnel and resources.  Specifically, the
Company did not have effective controls over the process for identifying, accumulating
and reviewing all required supporting information to ensure the completeness,
accuracy and timely preparation and review of its consolidated financial
statements and disclosures, including discontinued operations, a statement of
cash flows and certain footnotes. However, since the duties of the Company’s
Chief Executive Officer and its Chief Financial Officer are now segregated and
the
   20
  Company’s
operations and financial reporting are now being reviewed and overseen by a
separate management team, the Company’s management has concluded that the
Company’s disclosure controls and procedures were in place as of December 31,
2007 and will be fully effective during the Company’s fiscal quarter ending
March 31, 2008.  The Company’s Chief Financial Officer oversees the
Company’s accounting and general internal control process and reports to our
Chief Executive Officer, who ultimately reviews all financial reports that are
issued.  As of December 31, 2007 the Company had engaged additional
personnel for the purpose of implementing the additional controls over financial
reporting which the Company’s management considered necessary to provide the
confirmation set forth in this Item 3(a).  Notwithstanding
management’s determination, the Company’s management believes the additional
personnel will enhance the Company’s disclosure control procedures during the
Company’s fiscal quarter ending March 31, 2008.


(b)
              Changes
      in internal control over financial
reporting.
 
 Since the
acquisition of Commission River, Inc on November 30, 2007, The Company has
expanded its staff to include a separate management team who reviews and
approves the business and financial reporting conducted by the
Company.  Also during the three months ended December 31, 2007, the
Company added a Chief Executive Officer and other senior officers with specific
responsibilities for the Company’s financial reporting.  These
personnel changes, as well as the Company’s implementation of additional
financial and management processes and procedures, have increased the Company’s
controls over financial and enhanced reporting controls.
 
 Part
II – Other Information
 
 Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds
 
 During
the three months ended December 31, 2007, the Company issued the following
restricted common shares to the following parties and for reasons identified as
follows:
 
 Settlement of
      Outstanding Liabilities
              SharesGary
      Cook
              946,612Tom
      Smith, former director and CEO
              219,405SWE
      Investors
              219,405Sean
      Stewart
              48,757Chris
      Seelbach, former director
              333,333James
      Shapiro, former director
              223,333George
      Rebensdorf, former director and current advisor
              116,667Subtotal
              2,107,512Commission
      River AcquisitionCommission
      River, Inc.
              16,000,000Conversion of Notes
      Payable and Preferred StockBayHill
      Capital
              10,311,040Stanford
      Financial
              500,000
 
 21


Board of
      Directors Fees or Bonus –Former
      DirectorsGary
      Cook
              250,000Chris
      Seelbach
              150,000David
      Jackson
              100,000George
      Rebensdorf
              100,000Subtotal
              600,000Board of
      Directorsand EmployeeFees –
      NewdirectorsJames
      U. Jensen
              1,500,000John
      M. Kn
              1,200,000John
      D. Thomas
              1,200,000Subtotal
              3,900,000EmployeeBonuses
      andConsultantFeesRobert
      K. Bench
              5,000,000Todd
      Esplin
              2,500,000Adam
      Edwards
              1,250,000Patrick
      Oborn
              1,250,000Subtotal
              10,000,000Allen
      & Associates
              500,000Kent
      Williams
              500,000George
      Rebensdorf
              500,000Jonathan
      Kalman
              500,000Subtotal
              2,000,000Shares
      issued in lieu of Salaryand
      BonusRobert
      K. Bench
              2,533,333Todd
      Esplin
              800,000Adam
      Edwards
              1,600,000Patrick
      Oborn
              1,600,000Robyn
      Farnsworth
              900,000Subtotal
              7,433,333




The
Company did not engage the services of an underwriter in connection with the
issuance of any of the foregoing shares of common stock or
warrants.





In
agreeing to issue the foregoing shares of common stock and warrants, the Company
relied on the exemption from registration contained in Section 4(2) of the
Securities Act of 1933, as amended.  Commission River, BayHill
Capital, Stanford Financial, SWE Investors, Allen and Associates and the
individuals identified abovehad full information
concerning the Company and took the shares or warrants for purposes of other
than distribution unless the shares or underlying shares are registered under
the Securities Act of 1933.  The stock or warrant certificate
evidencing each grant described above contained a legend restricting their
transfer of the shares or warrants (or any share exercisable upon exercise of
the warrant) transfer unless registered under the Securities Act of 1933, as
amended, or unless there is an exemption available for their
transfer.





Item
4.  Submission of Matters to a Vote of Security Holders.






22





At the
Company’s annual meeting of shareholders held on December 10, 2007, the
following items were approved as indicated by the vote stated following each
item:





The
following persons were elected as directors of the Company, to serve until the
next Annual Meeting of Shareholders of the Company and until their successors
are elected and quality:





Votes
      For
            Votes
      Withheld
            Broker
      Non-VotesRoy
      D. Banks
            15,555,893
            21,455
            19,686Robert
      K. Bench
            15,562,995
            14,361
            12,586James
      U. Jensen
            15,555,893
            21,455
            19,686John
      M. Knab
            15,555,784
            21,567
            19,686John
      D. Thomas
            15,555,893
            21,455
            19,686





Item
6. Exhibits





EXHIBIT
      NO.
            DESCRIPTION AND METHOD
      OF FILING








10.30
            Secured
      Subordinated Promissory Note in the original principal amount of $150,000,
      dated November 5, 2007, made by the Company in favor of BayHill Capital,
      LC.





10.31
            Unsecured
      Promissory Note in the original principal amount of $125,000, dated
      December 5, 2007, made by the Company in favor of BayHill Capital,
      LC





10.32
            Unsecured
      Promissory Note in the original principal amount of $100,000, dated
      December 27, 2007, made by the Company in favor of BayHill Capital,
      LC





31.1
            Certification
      of Chief Executive Officer required by Rule
  13a-14(a).





31.2
            Certification
      of Chief Financial Officer required by Rule
  13a-14(a).





32.1
            Certification
      of Chief Executive Officer required by Section 906 of the Sarbanes-Oxley
      Act of 2002.





32.2
            Certification
      Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act
      of 2002.


23





SIGNATURES





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








COGNIGEN
NETWORKS, INC.














By:  /s/ Robert K.
Bench                                                                                                Date: February 18, 2008


Robert K. Bench


Chief Executive Officer (Principal
Executive Officer)





24














EXHIBIT
INDEX





EXHIBIT
      NO.
            DESCRIPTION AND METHOD
      OF FILING





10.30
            Secured
      Subordinated Promissory Note in the original principal amount of $150,000,
      dated November 5, 2007, made by the Company in favor of BayHill Capital,
      LC.





10.31
            Unsecured
      Promissory Note in the original principal amount of $125,000, dated
      December 5, 2007, made by the Company in favor of BayHill Capital,
      LC





10.32
            Unsecured
      Promissory Note in the original principal amount of $100,000, dated
      December 27, 2007, made by the Company in favor of BayHill Capital,
      LC





31.1
            Certification
      of Chief Executive Officer required by Rule
  13a-14(a).





31.2
            Certification
      of Chief Financial Officer required by Rule
  13a-14(a).





32.1
            Certification
      of Chief Executive Officer required by Section 906 of the Sarbanes-Oxley
      Act of 2002.





32.2
            Certification
      Chief Financial Officer required by Section 906 of the Sarbanes-Oxley Act
      of 2002.


25





EXHIBIT 31.1


CERTIFICATION


I, Robert
K. Bench, certify that:




1.
            I
      have reviewed this quarterly report on Form 10-QSB of Cognigen Networks,
      Inc.;




2.
            Based
      on my knowledge, this report does not contain any untrue statement of a
      material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;




3.
            Based
      on my knowledge, the financial statements, and other financial information
      included in this report, fairly present in all material respects the
      financial condition, results of operations and cash flows of the small
      business issuer as of, and for, the periods presented in this
      report;




4.
            The
      small business issuer’s other certifying officers and I are responsible
      for establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small
      business issuer and have:




(a)
            Designed
      such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure
      that material information relating to the small business issuer, including
      its consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this report is being
      prepared;




(b)
            Omitted




(c)
            Evaluated
      the effectiveness of the small business issuer’s disclosure controls and
      procedures and presented in this report our conclusions about the
      effectiveness of the disclosure controls and procedures, as of the end of
      the period covered by this report based on such evaluation;
      and




(d)
            Disclosed
      in this report any change in the small business issuer’s internal control
      over financial reporting that occurred during the small business issuer’s
      most recent fiscal quarter (the small business issuer’s fourth fiscal
      quarter in the case of an annual report) that has materially affected, or
      is reasonably likely to materially affect, the small business issuer’s
      internal control over financial reporting;
and




5.
            The
      small business issuer’s other certifying officer(s) and I have disclosed,
      based on our most recent evaluation of internal control over financial
      reporting, to the small business issuer’s auditors and the audit committee
      of the small business issuer’s board of directors (or persons performing
      the equivalent functions):




(a)
            All
      significant deficiencies and material weaknesses in the design or
      operation of internal control over financial reporting which are
      reasonably likely to adversely affect the small business issuer’s ability
      to record, process, summarize and report financial information;
      and




(b)
            Any
      fraud, whether or not material, that involves management or other
      employees who have a significant role in the small business issuer’s
      internal control over financial
reporting.




Dated:
February 18,
2008                                                                                     /s/ Robert K.
Bench


Robert K.
Bench


Chief
Executive Officer


26








EXHIBIT 31.2


CERTIFICATION


I, Gary
L. Cook, certify that:




1.
            I
      have reviewed this quarterly report on Form 10-QSB of Cognigen Networks,
      Inc.;




2.
            Based
      on my knowledge, this report does not contain any untrue statement of a
      material fact or omit to state a material fact necessary to make the
      statements made, in light of the circumstances under which such statements
      were made, not misleading with respect to the period covered by this
      report;




3.
            Based
      on my knowledge, the financial statements, and other financial information
      included in this report, fairly present in all material respects the
      financial condition, results of operations and cash flows of the small
      business issuer as of, and for, the periods presented in this
      report;




4.
            The
      small business issuer’s other certifying officers and I are responsible
      for establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small
      business issuer and have:




(a)
            Designed
      such disclosure controls and procedures, or caused such disclosure
      controls and procedures to be designed under our supervision, to ensure
      that material information relating to the small business issuer, including
      its consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this report is being
      prepared;




(b)
            Omitted




(c)
            Evaluated
      the effectiveness of the small business issuer’s disclosure controls and
      procedures and presented in this report our conclusions about the
      effectiveness of the disclosure controls and procedures, as of the end of
      the period covered by this report based on such evaluation;
      and




(d)
            Disclosed
      in this report any change in the small business issuer’s internal control
      over financial reporting that occurred during the small business issuer’s
      most recent fiscal quarter (the small business issuer’s fourth fiscal
      quarter in the case of an annual report) that has materially affected, or
      is reasonably likely to materially affect, the small business issuer’s
      internal control over financial reporting;
and




5.
            The
      small business issuer’s other certifying officer(s) and I have disclosed,
      based on our most recent evaluation of internal control over financial
      reporting, to the small business issuer’s auditors and the audit committee
      of the small business issuer’s board of directors (or persons performing
      the equivalent functions):




(a)
            All
      significant deficiencies and material weaknesses in the design or
      operation of internal control over financial reporting which are
      reasonably likely to adversely affect the small business issuer’s ability
      to record, process, summarize and report financial information;
      and




(b)
            Any
      fraud, whether or not material, that involves management or other
      employees who have a significant role in the small business issuer’s
      internal control over financial
reporting.




Dated:
February 18,
2008                                                                                     /s/ Gary L.
Cook


Gary L.
Cook


Chief
Financial Officer


27







EXHIBIT
      32.1













CERTIFICATION
PURSUANT TO






18
U.S.C. §1350,






AS
ADOPTED PURSUANT TO






SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002




















In
connection with the Quarterly Report of Cognigen Networks, Inc. (the "Company")
on Form 10-QSB for the quarterly period ended December 31, 2007 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Robert K. Bench, Acting Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:






1.           The
Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and






2.           The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.













Dated:
February 18,
2008                                                                                     /s/ Robert K.
Bench


Robert K.
Bench


Chief
Executive Officer


28














EXHIBIT
      32.2













CERTIFICATION
PURSUANT TO






18
U.S.C. §1350,






AS
ADOPTED PURSUANT TO






SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002




















In
connection with the Quarterly Report of Cognigen Networks, Inc. (the "Company")
on Form 10-QSB for the quarterly period ended December 31, 2007 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Gary L. Cook, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:






1.           The
Report fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and






2.           The
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.













Dated:
February 18,
2008                                                                                     /s/ Gary L.
Cook


Gary L.
Cook


Chief
Financial Officer











29