---

# UNITED
STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

# FORM
10-QSB

# (X)  
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OFTHE SECURITIES
EXCHANGE ACT OF 1934For
the quarterly period ended September 30, 2005

# 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. Employer    | 
|incorporation or organization)  |  | Identification No.) | 

6405 218th
Street SW, Suite 305Mountlake Terrace, WA 98043(Address of principal executive
offices)(425) 329-2300(Issuers Telephone number)N/A(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
[   ]

# 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 atOctober 30, 2005
|----------------------------- | ------------------------------
|Common Stock, $.001 par value |                               

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

---

# COGNIGEN
NETWORKS, INC.
Commission
File Number: 0-11730
Quarter
Ended September 30, 2005
FORM
10-QSB

|                                                                  | 
|----------------------------------------------------------------- | 
|Part I - FINANCIAL INFORMATION                                    | 
|Item 1. Consolidated Financial Statements                         | 
|Consolidated Balance Sheets                                       | 
|Unaudited Consolidated Statements of Operations                   | 
|Unaudited Consolidated Statements of Cash Flows                   | 
|Notes to Unaudited Consolidated Financial Statements              | 
|Item 2. Managements Discussion and Analysis or Plan of Operation | 
|Item 3. Controls and Procedures                                   | 
|Part II - OTHER INFORMATION                                       | 
|Item 1. Legal Proceedings                                         | 
|Item 6. Exhibits                                                  | 
|Signatures                                                        | 

1

---

COGNIGEN
NETWORKS, INC.
Part I  Financial Information

Item 1.
Financial Statements

# Consolidated
Balance Sheets

|                                                                           | September 30,2005 | June 30,2005   
|-------------------------------------------------------------------------- | ----------------- | ---------------
|
|Assets                                                                     |                   |                
|Current assets                                                             |                  
|Cash                                                                       |                   | $        91,876
|Accounts receivable, net                                                   |                   | 453,015        
|Marketing commissions receivable                                           |                   | 1,122,743      
|Current portion of deferred tax asset                                      |                   | 21,628         
|Other current assets                                                       |                   | 65,845         
|                                                                           |                   |                
|Total current assets                                                       |                   | 1,755,107      
|                                                                           |                   |                
|Non-current assets                                                         |                  
|Property, plant and equipment, net                                         |                   | 12,231         
|Long term portion of deferred tax asset                                    |                   | 780,001        
|Deposits and other assets                                                  |                   | 76,618         
|                                                                           |                   |                
|Total non-current assets                                                   |                   | 868,850        
|                                                                           |                   |                
|Total assets                                                               |                   | $   2,623,957  
|                                                                           |                   |                
|                                                                           |                   |                
|Liabilities and Stockholders Equity                                       |                  
|Current liabilities                                                        |                  
|Accounts payable                                                           |                   | $      545,727 
|Accrued liabilities                                                        |                   | 146,019        
|Marketing commissions payable                                              |                   | 1,004,570      
|Current portion of deferred commissions                                    |                   | 92,769         
|Receivables financing arrangement                                          |                   | 281,250        
|Other current liabilities                                                  |                   | 44,564         
|                                                                           |                   |                
|Total current liabilities                                                  |                   | 2,114,899      
|Other long-term liabilities                                                |                   | --             
|                                                                           |                   |                
|Total liabilities                                                          |                   | 2,114,899      
|                                                                           |                   |                
|Stockholders equity                                                       |                  
|Preferred stock no par value, 20,000,000 shares authorized, 500,000 shares |                  
|issued and outstanding, $1.00 per share liquidation preference             |                   | 450,000        
|Common stock $.001 par value, 300,000,000 shares authorized; 8,753,972     |                  
|issued and outstanding as of  September 30, 2005 and June 30, 2005         |                   | 8,754          
|Additional paid-in capital                                                 |                   | 11,958,937     
|Accumulated deficit                                                        |                   | (11,908,633    
|                                                                           |                   |                
|Total stockholders equity                                                 |                   | 509,058        
|                                                                           |                   |                
|Total liabilities and stockholders' equity                                 |                   | $   2,623,957  
|                                                                           |                   |                
|                                                                           |                   |                

2

---

COGNIGEN
NETWORKS, INC.Unaudited
Consolidated Statements of Operations

|                                    | Three Months EndedSeptember 30, |                
|----------------------------------- | ------------------------------- | ---------------
|
|
|Revenue                             |                                 |                
|Marketing commissions               |                                 | $ 1,741,972    
|Telecommunications                  |                                 | 1,073,617      
|Other                               |                                 | 6,283          
|                                    |                                 |                
|Total revenue                       |                                 | 2,821,872      
|                                    |                                 |                
|Operating expenses                  |                                
|Commissions:                        |                                
|Marketing                           |                                 | 1,093,684      
|Telecommunications                  |                                 | 155,840        
|Telecommunications                  |                                 | 689,904        
|Other                               |                                 | 5,671          
|Selling, general and administrative |                                 | 794,091        
|Depreciation and amortization       |                                 | 3,678          
|                                    |                                 |                
|Total operating expenses            |                                 | 2,742,868      
|                                    |                                 |                
|Income from operations              |                                 | 79,004         
|Interest expense                    |                                 | (8,865         
|                                    |                                 |                
|Income before income taxes          |                                 | 70,139         
|Income taxes                        |                                 | (24,022        
|                                    |                                 |                
|Net income                          |                                 | 46,117         
|Preferred dividends                 |                                 | (10,000        
|                                    |                                 |                
|Net income attributable to          |                                
|common shareholders                 |                                 | $      36,117  
|                                    |                                 |                
|                                    |                                 |                
|Income per common share-            |                                
|basic and diluted                   |                                 | $           .00
|                                    |                                 |                
|                                    |                                 |                
|Weighted average number of          |                                
|common shares outstanding:          |                                
|Basic                               |                                 | 8,753,972      
|                                    |                                 |                
|                                    |                                 |                
|Diluted                             |                                 | 9,523,029      
|                                    |                                 |                
|                                    |                                 |                

3

---

COGNIGEN
NETWORKS, INC.Unaudited
Consolidated Statements of Cash Flows

|                                                            | Three Months EndedSeptember 30, |           
|----------------------------------------------------------- | ------------------------------- | ----------
|
|
|Cash flows from operating activities                        |                                 |           
|Net income                                                  |                                 | $   46,117
|                                                            |                                 |           
|Adjustments to reconcile net income to net cash provided by |                                
|operating activities:                                       |                                
|Depreciation and amortization                               |                                 | 3,678     
|Bad debt expense                                            |                                 | 28,154    
|Deferred tax expense                                        |                                 | 24,022    
|Issuance of stock options                                   |                                 | 4,606     
|Changes in assets and liabilities:                          |                                
|Accounts receivable                                         |                                 | (23,470   
|Commissions receivable, net                                 |                                 | 75,787    
|Other current assets                                        |                                 | 7,715     
|Accounts payable                                            |                                 | (20,909   
|Commissions payable                                         |                                 | (29,679   
|Accrued liabilities                                         |                                 | (99,793   
|Other current liabilities                                   |                                 | 24,126    
|Other                                                       |                                 | --        
|                                                            |                                 |           
|                                                            |                                 | (5,763    
|                                                            |                                 |           
|Net cash provided by operations                             |                                 | 40,354    
|                                                            |                                 |           
|Cash flows from investing activities                        |                                
|Capital expenditures                                        |                                 | --        
|Increase other assets                                       |                                 | (44,653   
|                                                            |                                 |           
|Net cash used in investing activities                       |                                 | (44,653   
|                                                            |                                 |           
|Cash flows from financing activities                        |                                
|Payments on deferred commissions                            |                                 | (133,299  
|Decrease in receivables financing arrangement               |                                 | --        
|Increase in receivables financing arrangement               |                                 | 86,250    
|                                                            |                                 |           
|Net cash used in financing activities                       |                                 | (47,049   
|                                                            |                                 |           
|Net decrease in cash and cash equivalents                   |                                 | (51,348   
|Cash and cash equivalents-beginning of period               |                                 | 143,224   
|                                                            |                                 |           
|Cash and cash equivalents-end of period                     |                                 | $   91,876
|                                                            |                                 |           
|                                                            |                                 |           

Supplemental
Disclosures of Cash Flow Information and Non-Cash Transactions

Cash
payments for interest expense during the three months ended September 30, 2005
and 2004 were $8,865 and $13,268, respectively.

4

---

# COGNIGEN
NETWORKS, INC.
Notes to Unaudited Consolidated Financial Statements
September 30, 2005

Note
1  Description of Business

Cognigen
Networks, Inc. (the Company) was incorporated in May 1983 in the State of
Colorado to engage in the cellular radio and broadcasting business and to engage
in any other lawful activity permitted under Colorado law. In June 1988, the
Company changed its name to Silverthorne Production Company (Silverthorne) and
commenced operations in the oil and gas industry. These operations were
discontinued in 1989. Between 1989 and 1999, Silverthorne attempted to locate
acquisition prospects and negotiate an acquisition. Silverthornes pursuit
of an acquisition did not materialize until August 20, 1999, with the
acquisition of the assets of Inter-American Telecommunications Holding
Corporation (ITHC), which was accounted for as a reverse acquisition. The
surviving entity changed its name to Cognigen Networks, Inc. on July 12, 2000.

The
Company is an Internet and relationship enabled marketer. The Companys
core products are long distance telephone and personal communications services.
Revenue is generated in two ways. First, marketing commissions revenue is
generated from a number of vendors who are represented on the Companys
agent web sites and for whom the Company sells their products and services via
contractual agreements. Second, telecommunications revenue is generated through
sales of the Companys proprietary products and services through the
Companys agent web sites.

To
date, over 820,000 customers have purchased telecommunication and personal
technology services and products from our websites. Each of the individuals, who
are currently registered as our agents, has a website that is replicated from
the main www.ld.net site. This Internet presence containing millions of
pages has gained for our principal website the number one ranking among long
distance telecommunication marketing websites based on the number of unique
visits and pages viewed by Ranking.com. Recently, we and our agents accounted
for 11 of the top 27 long distance telecommunication websites listed by
Ranking.com.

The
Company formed a subsidiary, LowestCostMall, Inc. (LCM), in May 2005 to begin
offering customers, through its sales agent force, an online retail store. These
operations have been consolidated as part of the consolidated operations
beginning in July 2005. LCM provides innovative online shopping of thousands of
discounted products such as office products, toys, flowers, jewelry, electronic
and household items. Revenue is generated by LCM through the sales of discounted
products and sales of memberships. The membership enables the member to receive
even lower prices on the already discounted products.

Note
2  Summary of Significant Accounting Policies

The
accompanying consolidated financial statements include the accounts of Cognigen
Networks, Inc. and its subsidiaries, Intandem Communications Corp. (Intandem)
since February 1, 2004 and LCM. 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 months ended September 30, 2005 and 2004, respectively,
(b) the unaudited consolidated balance sheet as of September 30, 2005 and (c)
the unaudited consolidated statements of cash flows for the three months ended
September 30, 2005 and 2004, respectively, in order to make the financial
statements not misleading.

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

5

---

# COGNIGEN
NETWORKS, INC.
Notes to Unaudited Consolidated Financial Statements
September 30, 2005

Note
2  Summary of Significant Accounting Policies (continued)

for
the year ended June 30, 2005, included in the Companys Annual Report on
Form 10-KSB filed with the 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 three months ended June 30, 2005 may not necessarily be
indicative of the results for the fiscal year ending June 30, 2006.

On
November 21, 2001, the Company entered into a Stock Redemption Agreement with
the Anderson Family Trust (AFT), a substantial stockholder of the Company, and
Cantara Communications Corporation (Cantara) whereby AFT sold 2,712,501 shares
of the Companys common stock to the Company in exchange for the transfer
by the Company to Cantara of the original Cognigen Agency and all of its
downline agents. As a result of this transaction, Cantara received the
contingent right to receive all of its direct sales commissions and generational
downline commission overrides. During the first twelve months of the ownership
by Cantara of the former Cognigen Agency, now renamed Cantara, Cantara agreed to
a capping of the commissions payable to it, thereafter commencing January 2003,
Cantara has received the full direct and generational override commissions it is
entitled to earn pursuant to the existing and current Company commission
structure applicable for all agents. Payment of commissions to Cantara is
totally contingent upon the generation of sales by it and its downline agents
and payment for the products and services sold by the Companys customers
and vendors. The sales are generated either directly by employees of Cantara
and/or its downline sub-agents. Cantara has contracted with Kevin E. Anderson
Consulting, Inc. (KEAC), a corporation owned by Kevin E, Anderson, founder of
Cognigen Communications Corporation and a beneficiary of the AFT, to manage
Cantara for a set monthly fee. AFT owns approximately 13% of the Companys
common stock. Currently, the monthly commission payment to the Cantara is
approximately 11% of the total commissions paid monthly to all of the
Companys agents.

6

---

# COGNIGEN
NETWORKS, INC.
Notes to Unaudited Consolidated Financial Statements
September 30, 2005

Note
2  Summary of Significant Accounting Policies (continued)

The
following presents statement of operations data and proforma data. The proforma
data reflect certain statement of operations accounts for the three months ended
September 30, 2005 and 2004 that reflect the increase in commissions expense had
the payments to the stockholder, described in the preceding paragraph, during
these periods been accounted for as commissions expense rather than a reduction
to deferred commissions payable.

|                                    | Pro FormaThree MonthsEndedSeptember 30,2005 | ActualThree MonthsEndedSeptember 30,2005 | Pro FormaThree MonthsEndedSeptember 30,2004 | ActualThree MonthsEndedSeptember 30,2004
|----------------------------------- | ------------------------------------------- | ---------------------------------------- | ------------------------------------------- | ----------------------------------------
|Total revenue                       |                                             | $ 2,821,872                              |                                             | $2,821,872                              
|                                    |                                             |                                          |                                             |                                         
|Operating expenses:                 |                                            
|Marketing commissions               |                                             | 1,382,823                                |                                             | 1,249,524                               
|Telecommunications                  |                                             | 689,904                                  |                                             | 689,904                                 
|Other                               |                                             | 5,671                                    |                                             | 5,671                                   
|Selling, general and administrative |                                             | 794,091                                  |                                             | 794,091                                 
|Depreciation and amortization       |                                             | 3,678                                    |                                             | 3,678                                   
|                                    |                                             |                                          |                                             |                                         
|Total operating expenses            |                                             | 2,876,167                                |                                             | 2,742,868                               
|                                    |                                             |                                          |                                             |                                         
|Income (loss) from operations       |                                             | $   (54,295                              | )                                           | $     79,004                            
|                                    |                                             |                                          |                                             |                                         
|                                    |                                             |                                          |                                             |                                         
|Net income (loss) attributable to   |                                            
|common shareholders                 |                                             | $   (97,182                              | )                                           | $     36,117                            
|                                    |                                             |                                          |                                             |                                         
|                                    |                                             |                                          |                                             |                                         

7

---

# COGNIGEN
NETWORKS, INC.
Notes to Unaudited Consolidated Financial Statements
September 30, 2005

Note
3 Receivables Financing Arrangement

The
balance of receivables financing arrangement as of September 30, 2005 is
$281,250. This represents the amount of marketing commissions receivables that
have been pledged under an Accounts Receivable Purchase Agreement (Receivables
Purchase Agreement) with Silicon Valley Bank. The Receivables Purchase Agreement
provides for up to $1,250,000 in marketing commissions receivable to be used as
collateral for advances under the Receivables Purchase Agreement of which 75% of
the marketing commissions receivable balances are available in cash advances to
the Company. Interest charges are 1.3% per month on the marketing commissions
receivable balances used as collateral. The bank was given a Security Agreement
in the assets of the Company including any of the Companys copyrights,
trademarks, patents and mask works, as a condition to the Receivables Purchase
Agreement. Facility, audit and due diligence fees were paid to the bank of
$15,976. In addition, finders fees were paid to a party who may be deemed
to be a related party of $19,337. Both of these amounts have been fully
amortized into interest expense in prior years. The Receivables Purchase
Agreement is renewable from year to year unless terminated in writing by either
party.

Note
4 Stockholders Deficit

As of
September 30, 2005, the Company has 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 (Preferred Stock) to Stanford Venture Capital Holdings, Inc. for
$500,000. Each share of the 8% Convertible 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 Preferred Stock is
automatically converted to common stock. The Preferred Stock does not have
voting rights and has a liquidation preference of $1.00 per share. In
conjunction with the issuance of the Preferred Stock, the Company paid $30,000
in cash and issued 64,516 shares of the Companys common stock valued at
$20,000 to unaffiliated third-parties as a finders fee.

Dividends
on the Preferred Stock are cumulative at the rate of 8% per annum of the
liquidation value, $1.00 per share, are payable in cash, when and if declared by
the Board of Directors, and are preferential to any other junior securities, as
defined. The Board has not declared any such dividends. Because of the
cumulative nature of these dividends, if all dividends were to be declared the
balance owing would be $138,225 as of September 30, 2005.

Note
5  Stock Options and Warrants

The
Company has established the 2001 Incentive and Non-statutory 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.

8

---

# COGNIGEN
NETWORKS, INC.
Notes to Unaudited Consolidated Financial Statements
September 30, 2005

Note
5  Stock Options and Warrants (continued)

During
the three months ended September 30, 2005, the Company granted 30,000 options to
non-employee Directors to purchase shares of common stock of the Company. The
options granted vest immediately and are exercisable at $.71 and expire five
years from the date of grant.

As of
September 30, 2005, the number of stock options outstanding under the Plan was
505,000.

As of
September 30, 2005, the number of stock options outstanding not under any plan
was 25,000.

As of
September 30, 2005, there were 1,050,000 warrants outstanding that were
exercisable into shares of common stock of the Company. 500,000 of these
warrants expired unexercised in November 2005.

Note
6  Commitments and Contingencies

LowestCostMall

On
April 19, 2005, the Company entered into a Services Agreement with Vcommerce
Corporation pursuant to which Vcommerce has agreed to provide the Company with
the back office for an online retail store, which the Company began offering to
customers in July 2005 through its sales agent force and subsidiary,
LowestCostMall, Inc., dba, LowestCostMall.com. Pursuant to the Services
Agreement, Cognigen paid Vcommerce $20,000 upon the signing and will pay $5,000
per month over the first 12 months of the Services Agreement. In addition, the
Company is to pay Vcommerce a fee of $4,000 per month for monthly hosting
services and other fees as agreed upon by the Company. The Services Agreement
has been transferred to LowestCostMall, Inc. with a guarantee of such provisions
in the agreement by Cognigen Networks, Inc.

The
Services Agreement is in effect for 36 months with automatic renewals unless
terminated by either party. The Company has the right to terminate the Services
Agreement after the first 12 months of the term by paying Vcommerce $24,000 and
giving Vcommerce six months notice of termination during which period Vcommerce
would provide no services to the Company.

Other
Contingencies

On April 7,
2005, David L. Jackson, one of the Companys directors and a member of the  Companys
Compensation Committee, filed a complaint with the California  Department of Fair
Employment and Housing (No. E200405M1559-oo-ap) alleging that  he was improperly
terminated as an employee by the Companys Board of Directors. Because  of the costs involved in
litigating this complaint, the Company settled with Mr.  Jackson by paying Mr. Jackson
$32,000 in one lump sum. Mr. Jackson did not  specify in his complaint the amount of his
alleged losses.

The
Company has granted a security interest to Global Crossing Bandwidth, Inc.
(Global Crossing) in the assets of the Company to the extent the assets relate
to services provided by Global Crossing and to the extent any amounts remain
outstanding to Global Crossing. This security interest is second to an existing
security interest by Silicon Valley Bank described in Note 3.

9

---

# COGNIGEN
NETWORKS, INC.
Notes to Unaudited Consolidated Financial Statements
September 30, 2005

Note
7  Related Party Information

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 closed a transaction in which it purchased, or  redeemed, 2,712,500
shares of the Companys common stock from the Anderson  Family Trust. 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
and members of his family are the  beneficiaries of AFT. Kevin E. Anderson may be deemed
to beneficially own the  shares of our common stock owned by AFT. As consideration for
the return of the  2,712,500 shares to us, among other consideration, the Company
transferred to  Cantara, an affiliate of Kevin E. Anderson, the rights to become the
up-line for  our current accounts and thereby be entitled to commissions, fees and
bonuses on  our current customer accounts, with a commission not to exceed 12%, which
commissions were agreed to be capped by Cantara through December 31, 2002. The  amount of
commissions, fees and bonuses that Cantara is entitled to is totally  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 three months ended September 30, 2005
and 2004, the Company paid Cantara  $133,299 and $122,547 in commissions, respectively.
In addition, as a part of  the 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 Kevin E.
Anderson was  retained through March 31, 2003 at the rate of $1,000 per month to provide
up to  20 hours telecommuting consulting services to the Company per month. In March
2003 the Company entered into a separate consulting agreement with Kevin E.  Anderson
Consulting, Inc to provide expanded consulting and  technical/administrative services.
For the three months ended September 30, 2005  and 2004, the Company paid Kevin E.
Anderson Consulting, Inc. $13,500 and  $12,000, respectively, pursuant to the consulting
agreement. For the three  months ended September 30, 2005 and 2004, Cognigen also paid
members of Kevin E.  Andersons family approximately $13,500 and $10,500 in agent
commissions,  respectively.

On
June 20, 2005, the Company entered into an Agreement Granting a First Right of
Refusal to Purchase Enterprise Assets with AFT. Pursuant to the agreement, in
consideration of the payment by the Company of $15,000, AFT granted the Company
a first right of refusal to purchase certain assets of Cantara that were
transferred by the Company to it as described above. Therefore, if a third party
offers to purchase such assets by December 30, 2005, the Company has the
first right of refusal to match that offer within 10 working days after the
Companys receipt of the offer. The $15,000 will be credited against the
purchase price if the Company exercised its first right of refusal or will be
refunded to the Company if the assets are sold to a third party for which the
Company is not provided with the first right of refusal. If the Company does not
exercise its first right of refusal and the Company were provided with its right
to so exercise it, the $15,000 is deemed to be fully earned by AFT.

10

---

# COGNIGEN
NETWORKS, INC.
Notes to Unaudited Consolidated Financial Statements
September 30, 2005

Note
7  Related Party Information (continued)

Agreement
with a Former Director

In  February
2005, the Company entered into an agreement with SEGAL & Co.  Incorporated, which is
controlled by Robert B. Segal, a director at the time the  Company entered into the
agreement who resigned as a director in May 2005. Under  the agreement, SEGAL & Co.
Incorporated is to act as a non-exclusive  financial advisor to the Company. If it is
successful in raising funds on terms  acceptable to the Company, the Company will pay
SEGAL & Co. Incorporated a  financing fee of 4% of the first $5,000,000, 2% of the
subsequent $10,000,000  and 1% thereafter. If SEGAL & Co. Incorporated is able to
find a merger or  acquisition acceptable to the Company, it will receive 2.5% of the
value of the  transaction. The agreement is for 12 months unless extended on a month to
month  basis thereafter. The agreement also provides for reimbursement of approved
expenses up to $2,000 per month.

11

---

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

Overview

We
are an Internet and relationship enabled marketer. Our core
products are long distance telephone and personal communications services. We
have generated revenue in two ways. First, marketing commissions revenue has
been generated from a number of vendors who are represented on our agent web
sites and for whom we sell their telecommunications and other products and
services via contractual agreements. Second, we have generated
telecommunications revenue through sales of our proprietary products and
services through our agent web sites. Our founder, Kevin E. Anderson, pioneered
our Internet based long distance telecommunication marketing opportunity in the
1990s. We have invested millions of dollars in developing business systems
for our independent agent network around the world. To date, over 820,000
customers have purchased telecommunication and personal technology services and
products from our websites. Each of the individuals, who are currently
registered as our agents, has a website that is replicated from the main
www.ld.net site. This Internet presence containing millions of pages has
gained for our principal website the number one ranking among long distance
telecommunication marketing websites based on the number of unique visits and
pages viewed by Ranking.com. Recently, we and our agents accounted for 11 of the top 27 long
distance telecommunication websites listed by Ranking.com.

We
formed a subsidiary, LowestCostMall, Inc. (LCM), in May 2005 to begin offering
customers, through our sales agent force, an online retail store. These
operations have been consolidated as part of our consolidated operations
beginning in July 2005. LCM provides innovative online shopping of thousands of
discounted products such as office products, toys, flowers, jewelry, electronic
and household items. Revenue is generated by LCM through the sales of discounted
products and sales of memberships. The membership enables the member to receive
even lower prices on the already discounted products.

In
prior years, we made a major strategic transition in our business profile and
delivery of telecommunications products and services. In addition to being
historically successful at representing and selling the telecommunications
services and products of outside vendors, we began selling multiple branded
products and services whereby the customer and account are owned by us. We refer
to these products and services as our proprietary products and services. The
most significant impact of this strategic transition is that by billing our
owned customer accounts, we generate approximately five to seven times as much
revenue compared to commission revenue we receive from vendors.

Through
the acquisition of multiple state licenses, billing capability, and new
distribution channels, we can grow revenue, maintain closer contact to our
customers, and control bottom line retention and contribution to a greater
degree.

See
additional discussion of liquidity and capital resources below.

12

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Three Months
Ended September 30, 2005 Compared to Three Months Ended September 30, 2004

Total
revenue for the three months ended September 30, 2005 was $2,821,872 compared to
$2,744,844 for 2004. Marketing commissions revenue was $1,741,972 for 2005
compared to $1,246,221 for the prior year. Telecommunications revenue was
$1,073,617 for 2005 as compared to $1,498,623 for the prior year.

Marketing
commissions revenue for 2005 increased $495,751 from that of 2004, or 40%. This
increase reflects increases in sales of cellular products.

Telecommunications
revenue decreased $425,006 for 2005 compared to 2004, or 28%. This decrease
results from lower sales of our proprietary products and services, as well as,
lower selling prices of those products and services due to declining long
distance rates.

Marketing
commissions expense increased from $630,414 for 2004 to $1,093,684 for 2005, an
increase of $463,270, or 73%. This increase correlates to an increase in
marketing commissions revenue explained above. The higher percentage increase in
marketing commissions expense compared to the increase in marketing commissions
revenue results from a difference in product mix between the periods and the
payment of higher commission expense to certain master sales agents who have
been added to our sales agent force to increase volume and sell certain products
and services such as cellular products.

Telecommunications
commissions expense decreased from $223,642 for 2004 to $155,840 for 2005, a
decrease of $67,802, or 30%. This decrease is consistent with the decrease
described above in telecommunications revenue.

Had
the payments to a shareholder described in Note 2 to the Consolidated Financial
Statements been recorded as marketing commissions expense instead of a reduction
of deferred commissions payable on the balance sheet, marketing commissions
expense would have been higher by $133,299, therefore reducing net income by
this same amount. We anticipate recording these payments as marketing
commissions expense in the next quarter as the deferred commission payable
balance will have been reduced to zero.

Telecommunications
expense, or carrier costs, decreased from $860,635 for 2004 to $689,904 for
2005, or a decrease of $170,731, or 20%. This decrease correlates to the
decrease in telecommunications revenue described above. The margins on our
telecommunications revenue decreased compared to the prior period reflective of
higher carrier costs and a highly competitive market for long distance customers
being driven by declining long distance rates.

Income
from operations decreased by $178,626. This decrease was attributable
to higher sales volumes of some lower margin products included under
Marketing Commission Revenue. In addition we had lower revenue from
Telecommunications services where we also experienced higher carrier costs. This
combined with declining long distance rates has resulted in lower margins on our
proprietary products.

Selling,
general and administrative expenses increased $26,591 for 2005 compared to 2004.
This increase is due to expenses related to initiatives with LCM.

Interest
expense for 2005 of $8,865 is lower with that for 2004 of $13,268 due to lower
average outstanding debt balances.

Liquidity
and Capital Resources

We
have historically funded our operations primarily from sales of securities and
operations. As of September 30, 2005 we had cash and cash equivalents of $91,876
and negative working capital of $359,792. Cash provided by operations during the
three months ended September 30, 2005 was $40,354. Cash used in financing
activities of $47,049 included the payment of deferred commissions of $133,299
and an increase in the receivables financing arrangement of $86,250.

13

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We
have a balance outstanding under a receivables financing arrangement with
Silicon Valley Bank as of September 30, 2005 of $281,250. This represents the
amount of marketing commissions receivables that have been pledged under an
Accounts Receivable Purchase Agreement (Receivables Purchase Agreement) with the
bank. The Receivables Purchase Agreement provides for up to $1,250,000 in
marketing commissions receivable to be used as collateral for advances under the
Receivables Purchase Agreement of which 75% of the marketing commissions
receivable balances are available in cash advances to us. Interest charges are
1.3% per month on the marketing commissions receivable balances used as
collateral. After one year, the Receivables Purchase Agreement is from year to
year unless terminated in writing by either party. We are in compliance with the
terms and conditions of the Receivables Purchase Agreement.

Cash
flows generated from operations and from our receivables financing arrangement
were sufficient to meet our working capital requirements for the three months
ended September 30, 2005, but may not be sufficient to meet our working capital
requirements for the foreseeable future or provide for expansion opportunities.
We are looking at various financing and equity opportunities to provide
additional working capital or for expansion opportunities and continue to
identify costs and expenses that can be reduced or eliminated. There can be no
assurance we will be able to secure additional debt or equity financing, that we
will be able to reduce or eliminate more costs and expenses or that cash flows
from operations will produce adequate cash flow to enable us to meet all of our
future obligations or to be able to expand. However, we believe that we will be
successful in producing sufficient cash flows from all collective sources to
continue for at least the next twelve months.

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 our operating results in the future in a material way.
Such risks and uncertainties include, without limitation, our possible inability
to become certified as a reseller in all jurisdictions in which we apply, the
possibility that our proprietary customer base will not grow as we expect, our
possible inability to obtain additional financing, the possible lack of
producing agent growth, our possible lack of revenue growth, our possible
inability to add new products and services that generate increased sales, our
possible lack of cash flows, our possible loss of key personnel, the possibility
of telecommunication rate changes and technological changes and the possibility
of increased competition. Many of these risks are beyond our control. We are 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
Acting 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 defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934) at the end of the period covered by this report. Based
upon that evaluation, our Acting Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures are effective.

In
preparing our audit for the year ended June 30, 2004, our auditors identified
potential deficiencies within our internal control framework which have the
potential to result in a material control weakness. These potential control
deficiencies relate to the manner in which we process transactions to record
telecommunications revenue and related accounts receivable as our current
processes and procedures require substantive manual intervention, estimation and
reliance on several sources of information that are not integrated with our
accounting system.

14

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In
addition, our Chief Financial Officer oversees our accounting and general
internal control process. As we have a very limited staff, we can not afford the
luxury of having other financial accounting minded management members at his
level that would help either crosscheck or advise in the accounting or financial
reporting process. Although, our Chief Financial Officer is constantly involved
in consultation with peers in the field of accounting and reporting, this
situation could potentially result in a material control weakness.

Our
certifying officer does not believe that the potential control deficiencies
constitute material weaknesses because of the number of compensating internal
controls already in place. However, we are a small company and due to the fact
that we have a limited number of employees, we are not able to have proper
segregation of duties. We are aware that the Committee of Sponsoring
Organizations (COSO) of the Treadway Commission is going to issue its report on
internal controls structures for small companies. It is possible that after
reviewing this report and after our independent auditors perform a Section 404
test, we will conclude that due to the fact that we do not have proper
segregation of duties, some of the issues that we believe are compensating
internal controls are not sufficient to mitigate the lack of segregation of
duties. Thus, we might be deemed to have material weaknesses in our internal
control structure.

(b)
   Changes in internal controls.

There
were no changes made in our internal controls over financial reporting during
the period covered by this report or, to our knowledge, in other factors that
could affect these controls subsequent to the date of their evaluation.

# Part
II  Other Information

Item 1.
Legal Proceedings

On
April 7, 2005, David L. Jackson, one of our directors and a member of our
Compensation Committee, filed a complaint with the California Department of Fair
Employment and Housing (No. E200405M1559-00-ap) alleging that he was terminated
by our Board of Directors because of medical cancer condition and
disparate treatment because of age, insurance costs, salary, accrued vacation,
sick pay, severance pay, deferred compensation claims during the time that
he was recovering from cancer surgery. It is our position that Mr.
Jackson was terminated due to the failure by him to perform the tasks assigned
to him and that were a part of his employment status. Although we intended to
defend the claim, because of the costs involved, we settled with Mr. Jackson for
$32,000. Mr. Jackson did not specify in his complaint the amount of his alleged
losses.

15

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Item
6. Exhibits

EXHIBIT
NO.            DESCRIPTION AND METHOD OF FILING

|2.1 |  | Stock
for Stock  Exchange  Agreement  dated May 12,  2004,  by and among Jimmy L.  Boswell,
David G. Lucas,  Reginald W. Einkauf and John D. Miller  (incorporated  by reference to
Exhibit 2.1 to our Current  Report on  Form 8-K filed on June 3, 2004).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.1 |  | Articles
of Incorporation filed on May 6, 1983 (incorporated by reference to  Exhibit 3.1 to our
Annual Report on Form 10-KSB for the year ended June 30,  2000).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.2 |  | Articles
of Amendment to our Articles of Incorporation filed on June 23, 1988  (incorporated by
reference to Exhibit 3.2 to our Annual Report on Form 10-KSB  for the year ended June 30,
2000).
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.3 |  | Articles
of Amendment to our Articles of Incorporation filed on July 12, 2000  (incorporated by
reference to Exhibit 3.3 to our Annual Report on Form 10-KSB  for the year ended June 30,
2000).
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.4 |  | Articles
of Amendment to our Articles of Incorporation filed on March 16, 2001  (incorporated by
reference to our Quarterly Report on Form 10-QSB for the  quarter ended March 31, 2001).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.5 |  | Articles
of Amendment to our Articles of Incorporation filed on October 16, 2002  (incorporated
herein by reference to Exhibit 3.1 to our Current Report on Form  8-K filed on November
4, 2002).
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.6 |  | Bylaws
as amended through May 12, 2005 (incorporated by reference to Exhibit 3  to our Current
Report on Form 8-K filed on May 13, 2005).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------

|14.1 |  | Code
of Business Conduct and Ethics (incorporated by reference to Exhibit 14.1  to our Annual
Report on Form 10-KSB for the year ended June 30, 2004).
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

|21 |  | Subsidiaries
(incorporated by reference to Exhibit 21 to our Annual Report on  Form 10-KSB for the
year ended June 30, 2005).
|-- |  | -----------------------------------------------------------------------------------------------------------------------------

|31.1 |  | Certification
of Acting Chief Executive Officer and Chief Financial Officer required by Rule 13a-14(a)
|---- |  | ------------------------------------------------------------------------------------------------------

|32.1 |  | Certification
of Acting Chief Executive  Officer and Chief Financial  Officer  required by Section  906
of the Sarbanes-Oxley Act of 2002
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------

16

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# SIGNATURES

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

COGNIGEN
NETWORKS, INC.

|                                                           | 
|---------------------------------------------------------- | 
|By:  /s/ Gary L. Cook                                      | 
|Gary L. Cook                                               | 
|Acting Chief Executive Officer and Chief Financial Officer | 

17

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# EXHIBIT
INDEX

EXHIBIT
NO.            DESCRIPTION AND METHOD OF FILING

|2.1 |  | Stock
for Stock  Exchange  Agreement  dated May 12,  2004,  by and among Jimmy L.  Boswell,
David G. Lucas,  Reginald W. Einkauf and John D. Miller  (incorporated  by reference to
Exhibit 2.1 to our Current  Report on  Form 8-K filed on June 3, 2004).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.1 |  | Articles
of Incorporation filed on May 6, 1983 (incorporated by reference to  Exhibit 3.1 to our
Annual Report on Form 10-KSB for the year ended June 30,  2000).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.2 |  | Articles
of Amendment to our Articles of Incorporation filed on June 23, 1988  (incorporated by
reference to Exhibit 3.2 to our Annual Report on Form 10-KSB  for the year ended June 30,
2000).
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.3 |  | Articles
of Amendment to our Articles of Incorporation filed on July 12, 2000  (incorporated by
reference to Exhibit 3.3 to our Annual Report on Form 10-KSB  for the year ended June 30,
2000).
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.4 |  | Articles
of Amendment to our Articles of Incorporation filed on March 16, 2001  (incorporated by
reference to our Quarterly Report on Form 10-QSB for the  quarter ended March 31, 2001).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.5 |  | Articles
of Amendment to our Articles of Incorporation filed on October 16, 2002  (incorporated
herein by reference to Exhibit 3.1 to our Current Report on Form  8-K filed on November
4, 2002).
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3.6 |  | Bylaws
as amended through May 12, 2005 (incorporated by reference to Exhibit 3  to our Current
Report on Form 8-K filed on May 13, 2005).
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------

|14.1 |  | Code
of Business Conduct and Ethics (incorporated by reference to Exhibit 14.1  to our Annual
Report on Form 10-KSB for the year ended June 30, 2004).
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------

|21 |  | Subsidiaries
(incorporated by reference to Exhibit 21 to our Annual Report on  Form 10-KSB for the
year ended June 30, 2005).
|-- |  | -----------------------------------------------------------------------------------------------------------------------------

|31.1 |  | Certification
of Acting Chief Executive Officer and Chief Financial Officer required by Rule 13a-14(a)
|---- |  | ------------------------------------------------------------------------------------------------------

|32.1 |  | Certification
of Acting Chief Executive  Officer and Chief Financial  Officer  required by Section  906
of the Sarbanes-Oxley Act of 2002
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------

---