U.S.
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM
10-KSB

|[X] |  | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- |  | ------------------------------------------------------------------------------------

For the
fiscal year ended June 30, 2005

|[   ] |  | TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|----- |  | ----------------------------------------------------------------------------------

For the
transition period from ______________ to ______________

Commission
file number 0-11730

COGNIGEN
NETWORKS, INC.(Name of small business issuer in its charter)

|                                           |  | 
|------------------------------------------ |  | 
|COLORADO                                   |  | 
|(State or other jurisdiction of            |  | 
|incorporation or organization)             |  | 
|6405 - 218th Street, S.W., Suite 305       | 
|Mountlake Terrace, Washington              |  | 
|(Address of principal executive offices)   |  | 
|Issuers telephone number:  (425) 329-2300 | 

Securities
registered under Section 12(b) of the Exchange Act:

None.

Securities
registered  under Section 12(g) of the Exchange Act:

Common Stock
(Title of Class)

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 for such shorter  period that the
registrant  was required to file such  reports),  and (2)  has been subject to such
filing requirements for the past 90 days.     Yes    [X]     
No    [   ]

Check
if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. _____

State
issuers revenue for its most recent fiscal year: $11,745,673

The
aggregate market value of the voting and non-voting common equity held by
non-affiliates at August 15, 2005, computed by reference to the last sale price
of $0.68 per share on the OTC Bulletin Board, was $3,907,293.

The
number of shares outstanding of each of the issuers classes of common
equity on August 15, 2005, was 8,753,972.

Documents
Incorporated by Reference

The
information required by Items 9 through 12 and Item 14 is incorporated by
reference to our definitive proxy statement or definitive information statement
that we plan to file in connection with our next Annual Meeting of Shareholders
involving the election of directors. We plan to file the definitive proxy or
definitive information statement with the Commission on or before October 28,
2005. If not, we will file an amendment to this Form 10-KSB to add such
information.

Transitional
Small Business Disclosure Format     Yes    [   ]     No  [X]

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TABLE OF
CONTENTS

|PART I   |  |                                                             |  | 3  | 
|-------- |  | ----------------------------------------------------------- |  | -- | 
|Item 1   |  | Description of Business                                     |  | 3  | 
|Item 2   |  | Description of Property                                     |  | 7  | 
|Item 3   |  | Legal Proceedings                                           |  | 8  | 
|Item 4   |  | Submission of Matters to a Vote of Security Holders         |  | 8  | 
|PART II  |  |                                                             |  | 8  | 
|Item 5   |  | Market for Common Equity and Related Stockholder Matters    |  | 8  | 
|Item 6   |  | Managements Discussion and Analysis or Plan of Operation   |  | 11 | 
|Item 7   |  | Financial Statements                                        |  | 17 | 
|Item 8   |  | Changes In and Disagreements with Accountants on Accounting | 
|         |  | and Financial Disclosure                                    |  | 19 | 
|Item 8A  |  | Controls and Procedures                                     |  | 19
|Item 8B  |  | Other Information                                           |  | 19 | 
|PART III |  |                                                             |  | 20 | 
|Item 13  |  | Exhibits                                                    |  | 20 | 

* The
information required by Items 9 through 12 and Item 14 is incorporated by
reference to our definitive proxy statement or definitive information statement
that we plan to file in connection with our next Annual Meeting of Shareholders
involving the election of directors. We plan to file the definitive proxy or
definitive information statement with the Securities and Exchange Commission on
or before October 28, 2005. If not, we will file an amendment to this Form
10-KSB to add such information.

2

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PART I

Forward-Looking
Statements.

The
discussion in this report contains forward-looking statements, including,
without limitation, statements relating to our wholly owned subsidiaries and us.
Although we believe that the expectations reflected in the forward looking
statements are reasonable, we can give no assurance that such expectations will
prove to be correct. The forward looking statements involve risks and
uncertainties that affect our business, financial condition and results of
operations, including 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 1.
Description of Business.

BUSINESS

We
were incorporated in May 1983 in Colorado to engage in the cellular radio and
broadcasting business. In June 1988, we changed our name to Silverthorne
Production Company and commenced operations in the oil and gas industry. These
operations were discontinued in 1989. From 1989 to 1999, we attempted to locate
acquisition prospects and negotiate an acquisition. Our pursuit of an
acquisition did not materialize until August 1999 when we acquired the assets of
Inter-American Telecommunications Holding Corporation (ITHC). The
acquisition was accounted for as a reverse acquisition. We changed our name to
Cognigen Networks, Inc. on July 12, 2000.

The
core products that we have been selling have been telecommunications and
personal technology services through multifaceted sales and marketing
organizations that utilize the Internet as a platform to provide customers and
subscribers with a variety of telecommunications and technology based products
and services. Our founder, Kevin E. Anderson, pioneered our Internet based long
distance telecommunication marketing, years before we became a public company.
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.
We and our agents account for 11 of the top 27 long distance telecommunication
websites listed by Ranking.com.

3

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Through
our network of independent agents, we have sold our own proprietary products and
services or sold as agent third party or outside vendor products and services to
customers and subscribers worldwide. Domestic and international long distance
services make up the major portion of our sales with prepaid calling cards/pins
and paging, wireless communications, computers and Internet-based
telecommunications products and other products in our sales mix. We sell our own
proprietary products and services and, as agent, have contractual agreements
with a variety of product and service vendors that provide us with a commission
percentage of any sales made through one of our supported web sites. As agent,
our web-based marketing division sells the products and services of industry
leaders such as 2Speak, Acculinq, Inphonic Cellaular, ShopForT1, Convergia, IBN
InterTelcom, The Neighborhood built by MCI, Pioneer Telephone, OPEX,
PowerNetGlobal, Speakeasy, Unitel and Trinsic. Our operations are partially
dependent on our affiliations with third party providers of the products and
services that our agents sell. These third party providers own the rights to
sell these products and services. Our ability to offer these products and
services is dependent on our agreements with providers being renewed and not
terminated. The non-renewal or termination of a substantial number of these
agreements would have a material adverse effect on our financial condition and
results of operations. Our marketing engine is fueled by distribution channels
through an Internet presence and through our corps of independent agents and
affiliate groups each with their own customized website.

In
late July 2005, we launched LowestCostMall.com, an innovative online shopping
website that offers thousands of products at discounted prices. LowestCostMall
is being offered by our agents through the same methods they use to sell our
telecommunications and personal technology services. Now our agents and their
customers can click on our agents websites and be exposed to a large
quantity of items that they can get delivered to them at a cost that rivals
costs in the discount stores. To avail themselves of even lower prices, they can
become members of LowestCostMall for a yearly fee. LowestCostMall is designed to
serve a public that is now buying many items online for home, work and
recreation. The items that can be purchased on our LowestCostMall range from
personal electronics to flowers, jewelry and much more. The LowestCostMall
currently has about 3000 products listed on it. Our target is 10,000 products in
the next 90 days. An independent organization serves as our back office and
provisions all of the orders which are direct shipped from the manufacturer to
the purchaser. Thus, we have no inventory to maintain.

In
the mid 1990s, Kevin E. Anderson, our founder, recognized the marketing
potential of the Internet and formed what we believe was one of the first
companies to create a marketing operation based exclusively on the Internet. The
initial concept was to expand marketing potential by increasing the number of
independent agents working within our corporate network while at the same time
continuing to increase the number of products and services that these agents
could provide to our worldwide customer base. To facilitate the manageable
growth of this network and to be able to provide the agents with the support and
marketing edge necessary for success, Kevin E. Anderson developed and deployed
the self replicating web page. This proprietary technology
automatically creates a high content, personalized set of e-commerce web pages
for each new agent, at the time the agent becomes a member of our network.
Additionally, an Internet accessible private site is instantly
created for the new agent. Each agent can view the agents records,
activity and account status on which the agent is working. The private site also
contains customer detail status, recommended training sources, frequently asked
questions and agent benefits. The ingenuity of Kevin E. Anderson and many of the
agents who were attracted to us, continues to drive sales through our position
on web site searches. We continue to make changes and modifications to our
Internet technology to maintain our position.

4

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We
also adopted a strategy of enabling each agent to sell telecommunications
services and to recruit new agents. Generally, the original agent receives a
sales commission override on sales generated by the agents thus recruited. Our
commission structure and plan enables our agents to earn money without the
necessity of developing a subordinate agent base. Our revenue is dependent on
sales by our independent agents. The failure of these agents to achieve
sustained sales will materially adversely affect our financial condition and
results of operations.

We
use self-replicating web page technology to run our web-based operations. If
another technology becomes the preferred industry standard, we may be at a
competitive disadvantage which, in turn, may require us to make changes at
substantially increased costs. If our technology becomes obsolete at some time
in the future and we are unable to change to an alternate technology in a cost
effective manner, it could materially adversely affect our financial conditions
and results of operations.

On
April 1, 2003, we and certain principals of Intandem Communications Corp.
(Intandem) entered into an agreement (Funding Agreement) pursuant to which we
agreed to provide up to $448,093 in a series of loans to Intandem. Effective
February 1, 2004, by mutual agreement of the principals of Intandem and us, the
Funding Agreement was terminated and a separate agreement, the Termination of
Funding Agreement and Settlement Agreement (Termination Agreement), was entered
into.

The
Termination Agreement provided that we would convert the notes receivable of
$387,399 into 100% of the outstanding stock of Intandem in exchange for payments
of $10,000 per month for eight months, assumption of up to approximately $45,000
in liabilities, cancellation of all employment contracts of the Intandem
principals and cancellation of options to purchase our common stock. As of the
date of the Termination Agreement, $414,149 had been funded under the Funding
Agreement. Due to questions of recoverability of this amount and the remaining
commitments under the Termination Agreement, a provision of $494,149 has been
taken in the statement of operations for the period ended June 30, 2004. This
provision represents the $414,149 funding through the date of the Termination
Agreement plus an estimate of remaining commitments under the Termination
Agreement which approximated $80,000 at the time. Approximately $60,000 remained
in accrued liabilities as of June 30, 2004, related to estimated future expenses
relating to the Termination Agreement. During the year ended June 30, 2005, this
accrual was paid.

In
conjunction with the Funding Agreement, a consultant, Combined
Telecommunications Consultancy, Ltd., was to be paid, under his consulting
agreement with us, a commission that was being negotiated with us. In October
2004, we agreed with the consultant that $20,000 of a combination of stock and
cash was owed by us to the consultant in connection with the Intandem
transaction. However, because we bought Intandem, the consultant agreed to waive
this commission.

On
May 12, 2004, after approval by the Board of Directors, we entered into a Stock
for Stock Exchange Agreement with Jimmy L. Boswell, David G. Lucas, Reginald W.
Einkauf and John D. Miller (collectively the Principals) pursuant to which the
Principals agreed to exchange with us a total of 800,000 shares of our common
stock owned by the Principals for all of the outstanding common stock of our
wholly-owned subsidiary, Cognigen Switching Technologies, Inc. (CST), and
warrants to purchase 200,000 shares of our common stock at $.3015 per share
effective February 1, 2004. The closing occurred on May 21, 2004. At the closing
CST entered into a Master Services Agreement (MSA) to provide us with
telecommunications rating, billing, provisioning, customer care, commissioning
and database management for a fee. The MSA is effective February 1, 2004, and
goes for one year periods unless terminated by either party at the end of each
period with a 30 day notice.

5

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As
part of the closing, CST entered into a new note with a then existing lender
representing approximately $223,000 in debt. All options to purchase our common
stock issued to CST employees were terminated except for the option to purchase
200,000 shares of our common stock owned by Jimmy L. Boswell which option
expired in August 2004 and was exercisable at $3.68 per share.

At
the time of the  transaction,  Jimmy L. Boswell was the  president  and a director of
CST.  David G. Lucas was  the former chief  financial  officer and a director of CST.
Reginald W.  Einkauf and John D. Miller were former  officers  and directors of CST. Mr.
Boswell and Mr. Lucas are former  officers and  directors of ours.  We originally
acquired CST  in April 2000 when the Principals and another person sold all of the
outstanding stock of CST to us for our common stock.

In
conjunction with the Stock for Stock Exchange Agreement, goodwill with a net
book value of $2,893,029 has been written off. With consideration of
approximately $26,000, calculated using the Black Scholes method of calculation
for the 200,000 warrants, goodwill of $2,893,029 and $168,448 in negative equity
that was assumed by the Principals, and the 800,000 shares of our common stock
that were repurchased from the Principals valued at $.31 per share or $248,000,
we recorded a non cash loss of $2,502,583 on this transaction that is included
in our statement of operations for the year ended June 30, 2004.

We
had marketing commissions revenue from two and three outside vendors that
generated a total of approximately 25% and 37%, respectively, of total revenue
for the years ended June 30, 2005 and 2004.

Competition

We
compete with all of the companies for whom we sell products as an agent, with a
number of companies that are network marketing telecommunication companies, and
with all outside vendors who sell telecommunications, personal communications
and other products directly and over the Internet.

Many
of our current and potential competitors have longer operating histories and
significantly greater selling and marketing, technical, financial, customer
support, professional services and other resources than we do. As a result,
these competitors are able to devote greater resources to the development,
promotion, sale and support of their products. Moreover, our competitors may
foresee the course of market developments more accurately than we do and could
develop new technologies that compete with us or even render our services
obsolete. We may not have sufficient resources to continue to make the
investments or achieve the technological advances necessary to compete
successfully with existing or new competitors. In addition, due to the rapidly
evolving markets in which we compete, additional competitors with significant
market presence and financial resources, including large telecommunications
companies, may enter our markets, thereby further intensifying competition.

The
markets in which we compete are characterized by increasing consolidation. We
cannot predict how industry consolidation will affect our competitors and we may
not be able to compete successfully in an increasingly consolidated industry.
Additionally, because we may be dependent on strategic relationships with third
parties in our industry, any consolidation involving these parties could reduce
the demand for our products and otherwise harm our business prospects. Our
competitors that have large market capitalizations or cash reserves are also
better positioned than we are to acquire other companies, including our
competitors, thereby obtaining new technologies or products that may displace
our product lines. Any of these acquisitions could give our competitors a
strategic advantage that would materially and adversely affect our business,
financial condition and results of operations.

6

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In
addition, many of our competitors have much greater name recognition and have a
more extensive customer base, broader customer relationships, significant
financing programs, and broader product offerings than we do. These companies
can adopt aggressive pricing policies and leverage their customer bases and
broader product offerings to gain market share.

We
expect that competitive pressures could result in price reductions, reduced
margin and loss of market share, which could materially and adversely affect our
business, financial condition and results of operations.

The
industries in which our agents resell have severally experienced a high rate of
customer turnover. The rate of customer turnover is attributable to several
factors including, the non-use of customer contracts, affordability, customer
care concerns and other competitive factors. Our strategy to address customer
turnover may not be successful or the rate of customer turnover may be
unacceptable. Price competition and other competitive factors could also cause
increased customer turnover. A high rate of customer turnover could have a
material adverse affect on our competitive position and results of operations.

Regulation

We
are not currently subject to any governmental regulations as an Internet
marketer of telecommunications and technology based products and services. We
are authorized pursuant to authority of the Federal Communications Commission
(FCC) to operate as an intrastate and international resale carrier
under Section 214 of the FCC rules. In addition, we are regulated by some state
commissions as a reseller of intrastate long distance telecommunications
services.

The
markets for the products and services that we sell are characterized by a
significant number of laws, regulations and standards, including those
promulgated by the FCC. While we believe that our services comply with all
current governmental laws, regulations and standards, we cannot assure you that
we will be able to continue to do so in the future.

Our
customers may also require, or we may otherwise deem it necessary or advisable,
that we modify our services to address anticipated changes in the regulatory
environment. Failure of our services to comply, or if we experience delays in
compliance, with the various existing, anticipated, and evolving industry
regulations and standards could adversely affect sales of our existing and
future products. Moreover, the enactment of new laws or regulations, changes in
the interpretation of existing laws or regulations or a reversal of the trend
toward deregulation in the telecommunications industry, could have a material
adverse affect on our business, financial condition and results of operations.

Employees

As
of June 30, 2005, we had 13 employees, all of whom are full-time, based in our
offices and facilities in Englewood, Colorado and Mountlake Terrace, Washington.

Item 2.
Description of Property

We
lease approximately 3,353 square feet of office space at 6405 218th
Street, S.W., Suite 305, Mountlake Terrace, Washington 98043, pursuant to a
lease that will terminate on July 31, 2007 (unless extended), and that currently
requires monthly rental payments of $5,100. We also lease two offices, for approximately $1,900 per month,
in executive office space located at 9800 Mt. Pyramid Court, Suite
400, Englewood, Colorado 80112 pursuant to a lease that will expire upon three
months notice by us.

7

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Item
3. Legal Proceedings

In
September 2004, we filed a lawsuit against American Communications LLC (American
Communications), David Stone (Stone) and Harry Gorlovesky (Gorlovesky) in the
Circuit Court of the Twentieth Judicial Circuit in and for Dade County, Florida.
In our complaint, we allege (1) that American Communications breached a
settlement agreement by not making all of the $100,000 of payments required
thereunder to payoff a promissory note and agreement for $300,000 that was
assigned to and is owed to us and we demanded judgment of $334,119 on the
promissory note and agreement plus interest from May 10, 2004: (2) that we are
owed $81,000 for a dishonored check of $20,000 written as the last payment due
under the settlement agreement and (3) that Stone and Gorlovesky guaranteed the
promissory note and agreement and must pay the amount due under the promissory
note and agreement plus our attorneys fees, cost and expenses in collecting on
the promissory note and agreement. American Communications and Stone and
Gorlovesky have filed answers denying the claims in our complaint and setting
forth certain affirmative defenses which we have denied.

In
October 2004, American Communications issued us a check for $21,000 as a
complete settlement of our claims. We returned the check to the attorney for
American Communications and subsequently sent a letter to the attorney for
American Communications stating that the check was not a complete settlement.
The attorney for American Communications never agreed to the letter that we
sent. We deposited the check in February 2005. We will dismiss the claim for the
dishonored check and might have to argue that, by depositing the check, we did
not waive our other claims.

The
attorney for American Communications and Stone filed a motion to withdraw as
their counsel in February 2005 and we field a motion for summary judgment
against American Communications, Stone and Gorlovesky in June 2005.

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-oo-ap) alleging that he was improperly
terminated as an employee by our Board of Directors. Because of the costs
involved in litigating this complaint, we settled with Mr. Jackson by agreeing
to pay Mr. Jackson $32,000 in one lump sum. Mr. Jackson did not specify in his
complaint the amount of his alleged losses.

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

No
matter was submitted to a vote of our security holders during our fourth fiscal
quarter ended June 30, 2005.

PART II

Item 5.
Market for Common Equity and Related Stockholders Matters.

Our
common stock is quoted on the NASD OTC Bulletin Board under the symbol
CGNW.OB. The following table sets forth, for the periods indicated,
the high and low closing bid price quotations for the common stock as reported
by the National Quotation Bureau, LLC. Such quotations reflect inter-dealer
prices, but do not include retail mark-ups, markdowns or commissions and may not
necessarily represent actual transactions.

8

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|                                 | High Bid | Low Bid   
|-------------------------------- | -------- | ----------
|Quarter ended June 30, 2005      |          | $     0.52
|Quarter ended March 31, 2005     |          | 0.36      
|Quarter ended December 31, 2004  |          | 0.37      
|Quarter ended September 30, 2004 |          | 0.26      
|Quarter ended June 30, 2004      |          | 0.32      
|Quarter ended March 31, 2004     |          | 0.34      
|Quarter ended December 31, 2003  |          | 0.35      
|Quarter ended September 30, 2003 |          | 0.54      

As
a result of our common stock not being quoted on a national exchange, an
investor may find it more difficult to dispose of or to obtain accurate
quotations as to the market value of our common stock. In addition, we are
subject to a rule promulgated by the Securities and Exchange Commission. The
rule provides that various sales practice requirements are imposed on
broker/dealers who sell our common stock to persons other than established
customers and accredited investors. For these types of transactions, the
broker/dealer has to make a special suitability determination for the purchaser
and have received the purchasers written consent to the transactions prior
to sale. Consequently, the rule may have an adverse effect on the ability of
broker/dealers to sell our common stock, which may affect the ability of
purchasers to sell our common stock in the open market.

Historically,
our common stock has not traded in high volumes. An active or liquid trading
market in our common stock may not develop or, if it does develop, it may not
continue.

The
market price for our common stock could be subject to significant fluctuations
in response to variations in quarterly operating results, announcements of
technological innovations or new products and services by us or our competitors,
and our failure to achieve operating results consistent with securities
analysts projections of our performance.

The
stock markets have experienced extreme price and volume fluctuations and
volatility that have particularly affected the market price of many emerging
growth and development stage companies. Such fluctuations and volatility have
often been unrelated or disproportionate to the operating performance of such
companies. Factors such as announcements of the introduction of new or enhanced
services or related products by us or our competition, announcements of joint
development efforts or corporate partnerships in the telecommunications market,
market conditions in the technology, telecommunications and other emerging
growth sectors, and rumors relating to us or our competitors may have a
significant impact on the market price of our common stock.

As
of August 15, 2005 there were approximately 1,188 holders of record of our
common stock. The number of holders of record does not include holders whose
securities are held in street name.

We
have never paid and do not anticipate paying any cash dividends on our common
stock in the foreseeable future. We intend to retain any earnings for use in our
business operations and in the expansion of our business.

The
following is a table with information regarding our equity compensation plans as
of June 30, 2005:

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|                            
|----------------------------
|
|
|                            
|Equity compensation plans   
|approved by security holders
|                            
|Equity compensation plans   
|not approved by security    
|holders                     
|                            
|Total                       
|                            

A
description of the options and warrants issued without shareholder approval is
contained in Note 5 Stockholders Equity  Stock Options and Warrants
 contained in our Notes to Consolidated Financial Statements.

We
did not issue any equity securities or warrants or options during our last
fiscal year that ended June 30, 2005.

10

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Item 6.
Managements Discussion and Analysis or Plan of Operation.

Overview

We
are an Internet and relationship enabled marketer. The core products that we
have sold have been 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 1990s. 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.
We and our agents account 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 will be consolidated as part of our consolidated operations beginning
in June 2005. LCM provides innovative online shopping of thousands of discounted
products such as flowers, jewelry, electronic and household items. Revenue is
generated by LCM through the sales of discounted products and sales of
memberships to lower prices for those same discounted prices. The membership
enables the member to access even lower prices on the same 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.

We
had cash flows from operations for fiscal 2005 of $580,177 compared to $227,938
for fiscal 2004. This improvement began to be realized towards the end of fiscal
2004. The cost and expense reductions implemented were centered on improving our
cash flows and included reducing personnel, reducing or eliminating unwarranted
expenses and the sale of our subsidiary, CST, among other things.

11

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We
had net income for fiscal 2005 of $1,830,136, including an income tax benefit of
$815,303. The income tax benefit of $815,303 represents the net tax effect of
accounting for our prior year net operating losses, previously valued at zero
because of a valuation allowance, now given value as management believes that
these net operating losses will be fully utilized. Given our recent history of
profitability, we have changed the valuation allowance resulting in an asset
being recognized for these net operating losses.

|Detailed Statement of Operations Data: | Proforma | 2005              | 2004
|-------------------------------------- | -------- | ----------------- | ----
|Revenue                                |          |                   |     
|Marketing commissions                  |          | $   6,046,084     |     
|Telecommunications                     |          | 5,699,589         |     
|Other                                  |          | --                |     
|                                       |          |                   |     
|Total revenue                          |          | 11,745,673        |     
|                                       |          |                   |     
|Operating expenses                     |         
|Commissions:                           |         
|Marketing                              |          | 3,899,084         |     
|Telecommunications                     |          | 831,150           |     
|Telecommunications                     |          | 3,171,958         |     
|Selling, general and administrative    |          | 3,285,937         |     
|Depreciation and amortization          |          | 18,025            |     
|                                       |          |                   |     
|Total operating expenses               |          | 11,206,154        |     
|                                       |          |                   |     
|Income (loss) from operations          |          | 539,519           |     
|Interest expense                       |          | (47,164           | )   
|                                       |          |                   |     
|Income (loss) before income taxes      |          | 492,355           |     
|Income taxes                           |          | (167,400          | )   
|                                       |          |                   |     
|Net income (loss)                      |          | $      324,955    |     
|                                       |          |                   |     
|                                       |          |                   |     
|Basic income (loss) per common share   |          | $             .04 |     
|                                       |          |                   |     
|                                       |          |                   |     

The
proforma statement of operations data reflects the statement of operations data
for the year ended June 30, 2005 had the marketing commissions payments to a
shareholder, under the Stock Redemption Agreement, of $522,478 been accounted
for as marketing commissions expense on the statement of operations versus as a
reduction of deferred commissions payable on the balance sheet. We anticipate
these payments will be accounted for as marketing commissions expense starting
in the second quarter of fiscal 2006. See further details in Note 5 
Stockholders Equity to the notes to the consolidated financial statements.
The proforma also reflects the income taxes we will be required to make in 2006
as we start to utilize the net operating losses.

12

---

Year Ended
June 30, 2005 Compared to Year Ended June 30, 2004

Total
revenue for fiscal 2005 was $11,745,673 compared to $10,735,099 for 2004, a 9%
increase from the prior year. Marketing commissions revenue was $6,046,084 for
2005 compared to $5,080,650 for the prior year. Telecommunications revenue was
$5,699,589 for 2004 as compared to $5,636,291 for the prior year.

Marketing
commissions revenue for 2005 increased $965,434 from that of 2004 or 19%. This
increase results from entering into agreements to market additional and new
products that were and remain very consumer desirable such as voice over
internet protocol (VoIP) telephone services, cell phones, satellite television
and bundled services for local and long distance service.

Telecommunications
revenue from our proprietary customers was consistent with the prior year with a
slight increase of $63,298 for 2005 compared to 2004, or 1%. Our proprietary
customer base has decreased from approximately 23,000 at the end of 2004
compared to approximately 22,000 proprietary customers as of the end of 2005. We
are looking at various carriers to develop better branded long distance and
international rates and to develop our own branded VOIP products which we
believe will help us increase our proprietary customer base and revenue.

Marketing
commissions expense increased from $2,512,429 for 2004 to $3,376,606 for 2005,
an increase of $864,177, or 34%. This increase correlates to the increase in
marketing commissions revenue explained above. A good portion of the increased
marketing commission revenue results from products such as cell phones and
satellite television which pay higher marketing commissions revenue to us and
for which we pay higher marketing commissions expense to the agents. This higher
marketing commissions expense on these sales has caused our marketing
commissions expense as a percentage of marketing commissions income to go from
49% for 2004 to 56% for 2005. Had the payments to a shareholder described in
Note 5 (Stockholders Redemption Agreement) 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 $522,478. See proforma statement of operations
data above.

Telecommunications
commissions expense increased from $729,312 for 2004 to $831,150 for 2005,
$101,838, or 14% higher. The higher commissions on a similar amount of
telecommunications revenue reflect more products and services being sold in 2005
through Intandem which are paid at higher commission rates than those paid on
marketing commissions revenue.

Telecommunications
operating expenses, primarily carrier costs, increased slightly $68,564 or 2%
for 2005 compared to 2004, from $3,103,394 to $3,171,958. This increase is
consistent with the increase in corresponding revenue for the same time period.

Selling,
general and administrative expenses decreased $883,186 for 2005 compared to
2004, or 21%. Monthly decreases in selling, general and administrative expenses
have occurred in excess of $25,000 per month since February 1, 2004 as a result
of our sale of CST and other expense cutting measures we initiated towards the
end of the prior year to control expenses.

The
loss provisions in the prior year relate to the sale of CST and the termination
of the Intandem Funding Agreement for $2,502,583 and $494,149, respectively.

Depreciation
and amortization decreased $37,873 from $55,898 for 2004 to $18,025 for 2005.
This decrease was a result of the sale of CST, as previously described, and to
assets becoming fully depreciated.

Interest
expense for 2005 of $47,164 is consistent with that of 2004.

13

---

The
income tax benefit of $815,303 primarily represents the net tax effect of
accounting for our prior year net operating losses, previously valued at zero
because of a valuation allowance, now given value as management believes that
these net operating losses will be fully utilized.

Seasonality
and Economic Conditions

We do not
believe that our current revenue and sales are affected by seasons of the year.

Inflation

We
do not believe that inflation had a material impact on our results of operations
for the fiscal years ended June 30, 2005 or 2004.

Liquidity
and Capital Resources

We
have historically funded our operations primarily from sales of securities and
operations. As of June 30, 2005 we had cash and cash equivalents of $143,224 and
negative working capital of $3,290. Cash provided by operations during the year
ended June 30, 2005 was $580,177 up from $227,938 for the year ended June 30,
2004. We anticipate cash provided from operations will be adversely affected in
the second quarter of fiscal 2006 when we begin accounting for the marketing
commissions paid to a shareholder, described in Note 5 to the Consolidated
Financial Statement, are recorded as marketing commission expense versus as a
reduction to deferred commissions on the balance sheet. Overall cash flows will
not be affected by this accounting.

Cash
used in financing activities of $635,578 primarily included lower balances from
the receivables financing agreement of $113,100 and the payment of deferred
commissions of $522,478.

We
have a balance outstanding under a receivables financing arrangement with
Silicon Valley Bank as of June 30, 2005 of $195,000. This represents the amount
of marketing commissions receivables that have been pledged under an Accounts
Receivable Purchase Agreement (Receivables Purchase Agreement) with a 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 year ended June
30, 2005, but may not be sufficient to meet our working capital requirements for
the foreseeable future or provide for expansion opportunities. Currently, we are
slowly reducing our average balances outstanding under our receivables financing
arrangement. We have reduced costs and expenses by reducing personnel, reducing
or eliminating unwarranted expenses and have sold CST, our former subsidiary,
which all combined have increased our cash flows. 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.

14

---

Critical
Accounting Policies

We
have identified the policies below as critical to our business operations and
the understanding of our results of operations. In the ordinary course of
business, we have made a number of estimates and assumptions relating to the
reporting of results of operations and financial condition in the preparation of
our financial statements in conformity with accounting principles generally
accepted in the United States. Actual results could differ significantly from
those estimates under different assumptions and conditions. We believe that the
following discussion addresses our most critical accounting policies, which are
those that are most important to the portrayal of our financial condition and
results of operations and require our most difficult, subjective, and complex
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain.

Our
critical accounting policies are as follows:

|o |  | marketing commissions receivable;
|- |  | ---------------------------------

|o |  | valuation
of long-lived assets;
|- |  | -------------------------------

|o |  | commissions payable;
|- |  | --------------------

|o |  | revenue
recognition; and
|- |  | ------------------------

|o |  | income taxes
|- |  | ------------

Marketing
Commissions Receivable

Marketing
commissions receivable represent amounts due from outside vendors of
telecommunication services used by subscribers. Typically outside vendors pay
commissions due to us forty five to sixty days after the usage month-end.

There
is no allowance for doubtful accounts as of June 30, 2005 established by us to
provide for potential uncollectible accounts as management has written off all
receivables determined to be uncollectible as of that date.

Valuation of
Long-Lived Assets

We
assess valuation of long-lived assets in accordance with Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of. We periodically
evaluate the carrying value of long-lived assets to be held and used, including
goodwill and other intangible assets, when events and circumstances warrant such
a review. The carrying value of a long-lived asset is considered impaired when
the anticipated undiscounted cash flow from such asset is separately
identifiable and is less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
market value of the long-lived asset. Fair market value is determined primarily
using the anticipated cash flows discounted at a rate commensurate with the risk
involved.

Commissions
Payable

Commissions
payable represent amounts due to agents for commissions related to the usage or
sales for which we are due marketing commissions revenue from our outside
vendors and commissions payable on sales of telecommunications revenue. It is
our policy to pay commissions to its agents only after receiving commissions due
from its outside vendors. This policy results in approximately two months
commission payable at any point in time. Commissions are paid on
telecommunications revenue usually within one to two months of generating the
telecommunications revenue. Commissions will be paid on sales of discounted
products through LCM usually one to two months of generating the sales revenue.

15

---

Revenue
Recognition

Marketing
Commissions

Marketing
commissions revenue from the sale of long-distance telephone, personal
communication devices and marketing products is recognized at the time of sale.

Telecommunications

Telecommunications
pin revenue is recorded when the pins are shipped. Our policy is to delay
shipment of pins for a short period of time after receipt of cash to allow for
processing. This delay results in deferred revenue, which is recorded as a
liability until the pins are shipped. Pin revenue includes amounts paid for the
cost of the telecommunications services provided by third-party carriers.

Telecommunications
long distance phone service revenue is recorded when services are rendered.

Revenue
generated through the sales of products through LCM will be recorded when the
products have been shipped. Sales of products where the shipping has not
occurred will be deferred until the product has been shipped.

Income Taxes

The
Company recognizes deferred tax liabilities and assets based on the differences
between the tax basis of assets and liabilities and their reported amounts in
the financial statements that will result in taxable or deductible amounts in
future years. Deferred tax assets and liabilities are measured using enacted tax
rates expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.

For
the year ended June 30, 2005 an income tax benefit of $815,303 was recorded.
This benefit primarily represents the net tax effect of accounting for our prior
year net operating losses, previously valued at zero because of a valuation
allowance, now given value as management believes that these net operating
losses will be fully utilized.

Recently
Issued Accounting Pronouncements

In
December 2004 the FASB issued revised SFAS No. 123 (revised 2004),
Share-Based Payment (SFAS No. 123R), which replaces SFAS
No. 123, Accounting for Stock-Based Compensation, (SFAS
123) and supersedes APB Opinion No. 25, Accounting for Stock Issued
to Employees. SFAS No. 123R requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
financial statements based on their fair values beginning with the first interim
or annual period after June 15, 2005, with early adoption encouraged. The pro
forma disclosures previously permitted under SFAS 123 no longer will be an
alternative to financial statement recognition. Under SFAS No. 123R, we must
determine the appropriate fair value model to be used for valuing share-based
payments, the amortization method for compensation cost and the transition
method to be used at date of adoption. The transition methods include
prospective and retroactive adoption options. Under the retroactive option,
prior periods may be restated either as of the beginning of the year of adoption
or for all periods presented. The prospective method requires that compensation
expense be recorded for all unvested stock options and restricted stock at the
beginning of the first quarter of adoption of SFAS No. 123R, while the
retroactive methods would record compensation expense for all unvested stock
options and restricted stock beginning with the first period restated. We are
evaluating the requirements of SFAS No. 123R and expects that the adoption of
SFAS No. 123R will not have a material impact on our consolidated results of
operations and earnings per share, but has not yet completed its evaluation.

16

---

In December
2004 the FASB issued SFAS No. 153  Exchanges  of  Nonmonetary  Assets - An
Amendment of APB Opinion No. 29. SFAS No. 153 amends APB Opinion No. 29 to
eliminate the exception for nonmonetary  exchanges of similar  productive assets  and
replaces it with a general exception for exchanges of nonmonetary assets that do not have
commercial  substance.  SFAS  No. 153 is to be applied  prospectively  for nonmonetary
exchanges  occurring in fiscal periods  beginning after June 15,  2005.  The  adoption of
SFAS No. 153 is not  expected to have a material  impact on the  Company's  financial
position or  results of operations.

Forward
Looking Statements

Certain
of the information discussed herein, and in particular in this section entitled
Managements Discussion and Analysis or Plan of Operations,
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,
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 that generate sales, our 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.

We are
an Internet and relationship enabled marketer. The core products that we have
sold have been 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 products and services via contractual
agreements. Second, we have generated telecommunications revenue through sales
of our own proprietary products and services through our agent web sites.

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 will be consolidated as part of our consolidated operations beginning
in July 2005. LCM provides innovative online shopping of thousands of discounted
products such as flowers, jewelry, electronic and household items. Revenue is
generated by LCM through the sales of discounted products and sales of
memberships to lower prices for those same discounted prices. The membership
enables the member to access even lower prices on the same discounted products.

Item 7.
Financial Statements.

Reference
is made to the financial statements, the reports thereon and the notes thereto
included as a part of this Annual Report on Form 10-KSB, which financial
statements, reports and notes are incorporated herein by reference.

17

---

COGNIGEN
NETWORKS, INC.

Consolidated
Financial StatementsandIndependent
Auditors ReportJune
30, 2005 and 2004

---

COGNIGEN
NETWORKS, INC.

Table
of Contents

|                                                                    | Page
|------------------------------------------------------------------- | ----
|Report of Independent Registered Public Accounting Firm             |     
|Consolidated Financial Statements                                   |     
|Consolidated Balance Sheet                                          |     
|Consolidated Statements of Operations                               |     
|Consolidated Statement of Changes in Stockholders Equity (Deficit) |     
|Consolidated Statements of Cash Flows                               |     
|Notes to Consolidated Financial Statements                          |     

18

---

REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of
Directors and StockholdersCognigen Networks, Inc.Mountlake Terrace, Washington

We have audited
the accompanying  consolidated  balance sheet of Cognigen  Networks,  Inc. and
subsidiaries as of June 30,  2005, and the related  consolidated  statements of
operations,  changes in  stockholders  equity (deficit) and cash flows  for the years
ended June 30,  2005 and 2004.  These  consolidated  financial  statements  are the
responsibility  of the  Companys  management.  Our  responsibility is to express an
opinion on these consolidated  financial  statements based on  our audits.

We conducted
our audits in  accordance  with the  standards of the Public  Company  Accounting
Oversight  Board  (United  States).  Those  standards  require that we plan and perform
the audit to obtain  reasonable  assurance  about whether the  consolidated  financial
statements  are free of material  misstatement.  The Company is not required to have, nor
were we  engaged to perform,  an audit of its internal  control over  financial
reporting.  Our audit  included  consideration  of  internal  control  over  financial
reporting  as a basis for  designing  audit  procedures  that are  appropriate  in the
circumstances,  but not for the purpose of expressing an opinion on the  effectiveness
of the Company's  internal control  over financial reporting.  An audit includes
examining,  on a test basis,  evidence supporting the amounts and disclosures  in the
financial  statements.  An audit also includes assessing the accounting  principles used
and significant  estimates  made by management,  as well as evaluating the overall
consolidated  financial  statement  presentation.  We believe that  our audits provide a
reasonable basis for our opinion.

In our opinion,
the consolidated  financial  statements  referred to above present fairly, in all
material respects,  the  financial  position of Cognigen  Networks,  Inc. and
subsidiaries as of March 31, 2005 and 2004, and the results of their  operations  and
their  cash  flows for the years  then  ended,  in  conformity  with U.S.  generally
accepted  accounting  principles.

Ehrhardt Keefe
Steiner & Hottman PC

August 12, 2005
Denver, Colorado

F-1

---

COGNIGEN
NETWORKS, INC.Consolidated Balance SheetJune 30, 2005

|                                                                                     | 
|------------------------------------------------------------------------------------ | 
|Assets                                                                               | 
|Current assets                                                                       | 
|Cash                                                                                 | 
|Accounts receivable                                                                  | 
|Marketing commissions receivable                                                     | 
|Current portion of deferred tax asset                                                | 
|Other current assets                                                                 | 
|                                                                                     | 
|Total current assets                                                                 | 
|                                                                                     | 
|Non-current assets                                                                   | 
|Property and equipment, net                                                          | 
|Long term portion of deferred tax asset                                              | 
|Deposits and other assets                                                            | 
|                                                                                     | 
|Total non-current assets                                                             | 
|                                                                                     | 
|Total assets                                                                         | 
|                                                                                     | 
|                                                                                     | 
|Liabilities and Stockholders Equity                                                 | 
|Current liabilities                                                                  | 
|Accounts payable                                                                     | 
|Accrued liabilities                                                                  | 
|Commissions payable                                                                  | 
|Current portion of deferred commissions                                              | 
|Receivables financing arrangement                                                    | 
|Other current liabilities                                                            | 
|                                                                                     | 
|Total current liabilities                                                            | 
|                                                                                     | 
|Other non-current liabilities                                                        | 
|                                                                                     | 
|Total liabilities                                                                    | 
|                                                                                     | 
|Commitments and contingencies                                                        | 
|Stockholders equity                                                                 | 
|8% Convertible Series A preferred stock, no par value, 20,000,000 shares authorized, | 
|500,000 shares issued and outstanding, $1.00 per share liquidation preference        | 
|($608,225 including undeclared dividends)                                            | 
|Common stock $.001 par value, 300,000,000 shares authorized; 8,753,972 shares issued | 
|and outstanding                                                                      | 
|Additional paid-in capital                                                           | 
|Accumulated deficit                                                                  | 
|                                                                                     | 
|Total stockholders equity                                                           | 
|                                                                                     | 
|Total liabilities and stockholders equity                                           | 
|                                                                                     | 
|                                                                                     | 

See notes to
consolidated financial statements.

F-2

---

COGNIGEN
NETWORKS, INC.Consolidated Statements of Operations

|                                                               | For the Years EndedJune 30, |                   
|-------------------------------------------------------------- | --------------------------- | ------------------
|
|Revenue                                                        |                             |                   
|Marketing commissions                                          |                             | $   6,046,084     
|Telecommunications                                             |                             | 5,699,589         
|Other                                                          |                             | --                
|                                                               |                             |                   
|Total revenue                                                  |                             | 11,745,673        
|                                                               |                             |                   
|Operating expenses                                             |                            
|Commissions:                                                   |                            
|Marketing                                                      |                             | 3,376,606         
|Telecommunications                                             |                             | 831,150           
|Telecommunications                                             |                             | 3,171,958         
|Selling, general and administrative                            |                             | 3,285,937         
|Loss provision for sale of CST                                 |                             | --                
|Loss provision for termination of Intandem Funding             |                             | --                
|Depreciation and amortization                                  |                             | 18,025            
|                                                               |                             |                   
|Total operating expenses                                       |                             | 10,683,676        
|                                                               |                             |                   
|Income (loss) from operations                                  |                             | 1,061,997         
|Interest expense                                               |                             | (47,164           
|                                                               |                             |                   
|Income (loss) before income taxes                              |                             | 1,014,833         
|Income taxes                                                   |                             | 815,303           
|                                                               |                             |                   
|Net income (loss)                                              |                             | 1,830,136         
|Preferred dividends                                            |                             | (40,000           
|                                                               |                             |                   
|Net income (loss) attributable to common shareholders          |                             | $   1,790,136     
|                                                               |                             |                   
|                                                               |                             |                   
|Income (loss) per common share - basic                         |                             | $              .20
|                                                               |                             |                   
|                                                               |                             |                   
|Weighted average number of common shares outstanding - basic   |                             | 8,753,972         
|                                                               |                             |                   
|                                                               |                             |                   
|Income (loss) per common share - diluted                       |                             | $              .20
|                                                               |                             |                   
|                                                               |                             |                   
|Weighted average number of common shares outstanding - diluted |                             | 9,289,869         
|                                                               |                             |                   
|                                                               |                             |                   

See notes to
consolidated financial statements.

F-3

---

COGNIGEN
NETWORKS, INC. Consolidated Statement of Changes in Stockholders Equity (Deficit)For
the Years Ended June 30, 2005 and 2004

|                                         | Preferred Stock | Common Stock | AdditionalPaid-in | Accumulated | TotalStockholders |           |  
|---------------------------------------- | --------------- | ------------ | ----------------- | ----------- | ------------------ | --------- | -
|
|Balance - June 30, 2003                  |                 | 500,000      |                   | $450,000    |                    | 9,553,972 |  
|Common stock repurchased in connection   |                
|with the CST transaction (Note 5)        |                 | --           |                   | --          |                    | (800,000  | )
|Issuance of warrants to purchase common  |                
|stock in connection with the CST         |                
|transaction (Note 5)                     |                 | --           |                   | --          |                    | --        |  
|Dividends on preferred stock             |                 | --           |                   | --          |                    | --        |  
|Net loss                                 |                 | --           |                   | --          |                    | --        |  
|                                         |                 |              |                   |             |                    |           |  
|Balance - June 30, 2004                  |                 | 500,000      |                   | 450,000     |                    | 8,753,972 |  
|Reversal of dividends on preferred stock |                
|(Note 5)                                 |                 | --           |                   | --          |                    | --        |  
|Net income                               |                 | --           |                   | --          |                    | --        |  
|                                         |                 |              |                   |             |                    |           |  
|Balance - June 30, 2005                  |                 | 500,000      |                   | $450,000    |                    | 8,753,972 |  
|                                         |                 |              |                   |             |                    |           |  
|                                         |                 |              |                   |             |                    |           |  

See notes to
consolidated financial statements.

F-4

---

COGNIGEN
NETWORKS, INC. Consolidated Statements of Cash Flows

|                                                                   | For the Years EndedJune 30, |             
|------------------------------------------------------------------ | --------------------------- | ------------
|
|Cash flows from operating activities                               |                             |             
|Net income (loss)                                                  |                             | $ 1,830,136 
|                                                                   |                             |             
|Adjustments to reconcile net income (loss) to net cash provided by |                            
|operating activities                                               |                            
|Depreciation and amortization                                      |                             | 18,025      
|Provision for doubtful accounts                                    |                             | 143,017     
|Loss provision for sale of CST, net of cash                        |                             | --          
|Loss provision for termination of Intandem Funding Agreement       |                             | --          
|Income tax expense                                                 |                             | (815,303    
|Changes in assets and liabilities                                  |                            
|Accounts receivable                                                |                             | (94,654     
|Commissions receivable                                             |                             | (425,362    
|Inventory                                                          |                             | 9,816       
|Other current assets                                               |                             | (50,971     
|Deposits and other assets                                          |                             | 26,360      
|Accounts payable                                                   |                             | (103,780    
|Accrued liabilities                                                |                             | (198,286    
|Commissions payable                                                |                             | 222,520     
|Other current liabilities                                          |                             | 18,712      
|Other liabilities                                                  |                             | (53         
|                                                                   |                             |             
|                                                                   |                             | (1,249,959  
|                                                                   |                             |             
|Net cash provided by operating activities                          |                             | 580,177     
|                                                                   |                             |             
|Cash flows from investing activities                               |                            
|Purchases of property and equipment                                |                             | (14,986     
|Advances to Intandem                                               |                             | --          
|Payments received on notes receivable                              |                             | --          
|Increase in notes receivable                                       |                             | --          
|Other                                                              |                             | --          
|                                                                   |                             |             
|Net cash used in investing activities                              |                             | (14,986     
|                                                                   |                             |             
|Cash flows from financing activities                               |                            
|Decrease in receivables financing arrangement and notes payable    |                             | (113,100    
|Increase in receivables financing arrangement                      |                             | --          
|Payments on deferred commissions                                   |                             | (527,709    
|Other                                                              |                             | 5,231       
|                                                                   |                             |             
|Net cash used in financing activities                              |                             | (635,578    
|                                                                   |                             |             
|Net decrease in cash                                               |                             | (70,387     
|Cash - beginning of year                                           |                             | 213,611     
|                                                                   |                             |             
|Cash - end of year                                                 |                             | $    143,224
|                                                                   |                             |             
|                                                                   |                             |             

(Continued on
following page.)

F-5

---

COGNIGEN NETWORKS, INC.Consolidated Statements of Cash Flows

(Continued
from previous page.)

Supplemental
disclosure of cash flow information:

Cash
paid for interest was $47,164 and $46,849 for 2005 and 2004, respectively.

Supplemental
disclosure of non-cash activity:

During
the year ended June 30, 2004:

| | The
Company issued 200,000 warrants to the principals of CST and received 800,000 shares of
common stock in the Stock for Stock Exchange Agreement.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------

See notes to
consolidated financial statements.

F-6

---

COGNIGEN
NETWORKS, INC.Notes to Financial Statements

Note 1
 Description of Business and Summary of Significant Accounting Policies

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 core products that
have been sold have been 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.

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 will be consolidated as part of the consolidated operations beginning
in July 2005. LCM provides innovative online shopping of thousands of discounted
products such as flowers, jewelry, electronic and household items. Revenue is
generated by LCM through the sales of discounted products and sales of
memberships to lower prices for those same discounted prices. The membership
enables the member to access even lower prices on the same discounted products.

Principles
of Consolidation

The
accompanying consolidated financial statements include the accounts of Cognigen
Networks, Inc. and its subsidiaries, Cognigen Switching Technologies, Inc. (CST)
through January 31, 2004, Intandem Communications Corp. (Intandem) since
February 1, 2004 and LCM beginning in July 2005. See Note 5 regarding
information regarding the sale of CST and Note 7 for information on Intandem.
All intercompany accounts and transactions have been eliminated in
consolidation.

Cash

The
Company considers all highly liquid instruments purchased with an original
maturity of three months or less to be cash. The Company continually monitors
its positions with, and the credit quality of, the financial institutions with
which it invests. As of the balance sheet date, balances of cash and cash
equivalents exceeded the federally insured limit by approximately $440,747.

Marketing
Commissions Receivable

Marketing
commissions receivable represent amounts due from outside vendors of
telecommunication products and services used by subscribers. Typically outside
vendors pay commissions due to the Company forty five to sixty days after the
usage month-end.

F-7

---

COGNIGEN
NETWORKS, INC.Notes to Financial Statements

Note 1
 Description of Business and Summary of Significant Accounting Policies (continued)

Marketing
Commissions Receivable (continued)

There
is no allowance for doubtful accounts as of June 30, 2005 established by the
Company to provide for potential uncollectible accounts as management has
written off all receivables determined to be uncollectible as of that date.

The
Company had marketing commissions revenue from two and three outside vendors
that generated a total of approximately 25% and 37%, respectively, of total
revenue for the years ended June 30, 2005 and 2004.

Inventory

Currently,
inventory consists of prepaid calling cards held for resale and is stated at the
lower of cost or market, determined using the first-in, first-out method (FIFO).
Calling cards are purchased from a variety of vendors at a discount from the
face value. Excise tax of 3% of the face value is paid at the time of purchase.
When the calling cards are sold, the excise tax is collected and offset against
the prepaid excise tax.

Property and
Equipment

Property
and equipment is stated at cost. Depreciation is provided utilizing the
straight-line method over the estimated useful lives for owned assets, ranging
from 3 to 7 years.

Valuation of
Long-Lived Assets

The
Company assesses valuation of long-lived assets in accordance with SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be disposed of. The Company periodically evaluates the carrying
value of long-lived assets to be held and used, including goodwill and other
intangible assets, when events and circumstances warrant such a review. The
carrying value of a long-lived asset is considered impaired when the anticipated
undiscounted cash flow from such asset is separately identifiable and is less
than its carrying value. In that event, a loss is recognized based on the amount
by which the carrying value exceeds the fair market value of the long-lived
asset. Fair market value is determined primarily using the anticipated cash
flows discounted at a rate commensurate with the risk involved.

Accounts
Receivable

At the
time the accounts receivable are originated, the Company considers a reserve for
doubtful accounts based on the creditworthiness of the customer. The provision
for uncollectible amounts is continually reviewed and adjusted to maintain the
allowance at a level considered adequate to cover future losses. The allowance
is managements best estimate of uncollectible amounts and is determined
based on historical performance that is tracked by the Company on an ongoing
basis. The losses ultimately incurred could differ materially in the near term
from the amounts estimated in determining the allowance. There is no allowance
as of June 30, 2005 as management has written off all accounts receivable
against the allowance for doubtful accounts as of this date and determined that
additional allowance is not considered necessary as of this date.

F-8

---

COGNIGEN
NETWORKS, INC.Notes to Financial Statements

Note 1
 Description of Business and Summary of Significant Accounting Policies (continued)

Commissions
Payable

Commissions
payable represent amounts due to agents for commissions related to the usage or
sales for which the Company is due marketing commissions revenue from its
outside vendors and commissions payable on sales of telecommunications revenue.
It is the Companys policy to pay commissions to its agents only after
receiving commissions due from its outside vendors. This policy results in
approximately two months commission payable at any point in time. Commissions
are paid on telecommunications revenue usually within one to two months of
generating the telecommunications revenue. Commissions will be paid on sales of
discounted products through LCM usually one to two months of generating the
sales revenue.

Income Taxes

The
Company recognizes deferred tax liabilities and assets based on the differences
between the tax basis of assets and liabilities and their reported amounts in
the financial statements that will result in taxable or deductible amounts in
future years. Deferred tax assets and liabilities are measured using enacted tax
rates expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.

For
the year ended June 30, 2005 an income tax benefit of $815,303 was recorded.
This benefit primarily represents the net tax effect of accounting for our prior
year net operating losses, previously valued at zero because of a valuation
allowance, now given value as management believes that these net operating
losses will be fully utilized.

Revenue
Recognition

Marketing
Commissions

Marketing
commissions revenue from the sale of long-distance telephone, personal
communication devices and marketing products is recognized at the time of sale.

Telecommunications

Telecommunications
pin revenue is recorded when the pins are shipped. The Companys policy is
to delay shipment of pins for a short period of time after receipt of cash to
allow for processing. This delay results in deferred revenue, which is recorded
as a liability until the pins are shipped. Pin revenue includes amounts paid for
the cost of the telecommunications services provided by third-party carriers.

Telecommunications
long distance phone service revenue is recorded when services are rendered.

Revenue
generated through the sales of products through LCM will be recorded when the
products have been shipped. Sales of products where the shipping has not
occurred will be deferred until the product has been shipped.

F-9

---

COGNIGEN
NETWORKS, INC.Notes to Financial Statements

Note 1
 Description of Business and Summary of Significant Accounting Policies (continued)

Stock Based
Compensation

The
Company has adopted the disclosure-only provisions of SFAS No. 123,
Accounting for Stock-Based Compensation. Accordingly, no
compensation cost has been recognized for the stock option plans. Had
compensation cost for the Companys options been determined based on the
fair value at the grant date for awards consistent with the provisions of SFAS
No. 123, the Companys net income (loss) and basic income (loss) per common
share would have been changed to the pro forma amounts indicated below:

|                                                             | For the Years EndedJune 30, |           
|------------------------------------------------------------ | --------------------------- | ----------
|
|Net income (loss) - as reported                              |                             | $2,173,396
|Deduct stock-based compensation expense determined under the |                            
|fair value based method, net of tax                          |                             | --        
|                                                             |                             |           
|Net income (loss) - pro forma                                |                             | $2,173,396
|                                                             |                             |           
|                                                             |                             |           

The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used:

|                                              | For the Years EndedJune 30, |         
|--------------------------------------------- | --------------------------- | --------
|
|Approximate risk free rate                    |                             | 4.00%   
|Average expected life                         |                             | 5 year  
|Dividend yield                                |                             | 0%      
|Volatility                                    |                             | 56%     
|Estimated fair value of total options granted |                             | $    .00

Advertising
Costs

The Company
expenses  advertising costs as incurred.  Total  advertising costs for the years ended
June 30,  2005 and 2004  were $39,722 and $106,634, respectively.

F-10

---

COGNIGEN
NETWORKS, INC.Notes to Financial Statements

Note 1 
Description of Business and Summary of Significant Accounting Policies (continued)

Income
(Loss) Per Share

The
Company applies the provisions of SFAS No. 128, Earnings Per Share.
All dilutive potential common shares that have an anti-dilutive effect on
diluted per share amounts have been excluded in determining net income (loss)
per share. The dilutive effect of stock options, warrants and preferred stock
included in the calculation of income (loss) per share on a diluted basis for
the years ended June 30, 2005 and 2004 are 535,897 and 0, respectively.
1,514,103 and 3,200,000 of options, warrants, and preferred stock have been
excluded from diluted shares for the years ended June 30, 2005 and 2004,
respectively, as their affect was anti-dilutive.

Use of
Estimates

The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

Recently
Issued Accounting Pronouncements

In
December 2004 the FASB issued revised SFAS No. 123 (revised 2004),
Share-Based Payment (SFAS No. 123R), which replaces SFAS
No. 123, Accounting for Stock-Based Compensation, (SFAS
123) and supersedes APB Opinion No. 25, Accounting for Stock Issued
to Employees. SFAS No. 123R requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
financial statements based on their fair values beginning with the first interim
or annual period after June 15, 2005, with early adoption encouraged. The pro
forma disclosures previously permitted under SFAS 123 no longer will be an
alternative to financial statement recognition. Under SFAS No. 123R, the Company
must determine the appropriate fair value model to be used for valuing
share-based payments, the amortization method for compensation cost and the
transition method to be used at date of adoption. The transition methods include
prospective and retroactive adoption options. Under the retroactive option,
prior periods may be restated either as of the beginning of the year of adoption
or for all periods presented. The prospective method requires that compensation
expense be recorded for all unvested stock options and restricted stock at the
beginning of the first quarter of adoption of SFAS No. 123R, while the
retroactive methods would record compensation expense for all unvested stock
options and restricted stock beginning with the first period restated. The
Company is evaluating the requirements of SFAS No. 123R and expects that the
adoption of SFAS No. 123R will not have a material impact on the Companys
consolidated results of operations and earnings per share, but has not yet
completed its evaluation.

F-11

---

COGNIGEN
NETWORKS, INC.Notes to Financial Statements

Note 1  Description
of Business and Summary of Significant Accounting Policies (continued)

Recently
Issued Accounting Pronouncements (continued)

In December
2004 the FASB issued SFAS No. 153  Exchanges  of  Nonmonetary  Assets - An
Amendment of APB Opinion No. 29. SFAS No. 153 amends APB Opinion No. 29 to
eliminate the exception for nonmonetary  exchanges of similar  productive assets  and
replaces it with a general exception for exchanges of nonmonetary assets that do not have
commercial  substance.  SFAS  No. 153 is to be applied  prospectively  for nonmonetary
exchanges  occurring in fiscal periods  beginning after June 15,  2005.  The  adoption of
SFAS No. 153 is not  expected to have a material  impact on the  Company's  financial
position or  results of operations.

Reclassifications

Certain
amounts in the 2004 consolidated financial statements have been reclassified to
conform to the 2005 presentation.

Note 2
 Property and Equipment

Property
and equipment consist of the following at June 30, 2005:

|                              | 
|----------------------------- | 
|Furniture and fixtures        | 
|Computer equipment            | 
|Equipment                     | 
|Leasehold improvements        | 
|Software                      | 
|                              | 
|                              | 
|Less accumulated depreciation | 
|                              | 
|                              | 
|                              | 
|                              | 

F-12

---

COGNIGEN
NETWORKS, INC.Notes to Financial Statements

Note 3
 Receivables Financing Arrangement

The
balance of receivables financing arrangement as of June 30, 2005 is $195,000.
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 through June 30, 2005. The Receivables Purchase
Agreement is renewable from year to year unless terminated in writing by either
party.

Note 4
 Income Taxes

The
Company recognizes deferred tax liabilities and assets for the expected future
tax consequences of events that have been included in the financial statements
or tax returns. Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax basis of assets and
liabilities using the enacted tax rates in effect for the year in which the
differences are expected to reverse. The measurement of deferred tax assets is
reduced, if necessary, by the amount of any tax benefits that are not expected
to be realized based on available evidence.

The
Companys temporary differences result primarily from differing
depreciation and amortization periods of certain assets, provision for doubtful
accounts, net operating loss carryforwards and the recognition of certain
expenses for financial statement purposes and not for tax purposes. The Company
has approximately $2,264,000 of net operating loss carryforwards, which expire
in varying amounts through 2024, if unused. The Company used approximately
$609,000 of net operating loss carryforwards in the current year.

Temporary
differences and carryforwards giving rise to a significant portion of deferred
tax assets (liabilities) are as follows at June 30, 2005:

|                                 | 
|-------------------------------- | 
|Current                          | 
|Allowance for doubtful accounts  | 
|Vacation accruals                | 
|Net operating loss carryforwards | 
|Long-term                        | 
|Net operating loss carryforwards | 
|Other                            | 
|Less valuation allowance         | 
|                                 | 
|                                 | 
|                                 | 
|                                 | 

F-13

---

COGNIGEN
NETWORKS, INC.Notes to Financial Statements

Note 4
 Income Taxes (continued)

The
following is a reconciliation of the statutory federal income tax rate applied
to pre-tax accounting net loss compared to the income taxes in the consolidated
statements of operations:

|                                                        | For the Years EndedJune 30, |              
|------------------------------------------------------- | --------------------------- | -------------
|
|Income tax expense (benefit) at the statutory rate      |                             | $    345,043 
|State and local income taxes, net of federal income tax |                             | --           
|Change in valuation allowance                           |                             | (1,164,300   
|Nondeductible expenses                                  |                             | 3,954        
|Other timing differences, net                           |                             | --           
|                                                        |                             |              
|Deferred income tax expense (benefit)                   |                             | $    (815,303
|                                                        |                             |              
|                                                        |                             |              

For
the year ended June 30, 2005 an income tax benefit of $815,303 was recorded.
This benefit primarily represents the net tax effect of accounting for our prior
year net operating losses, previously valued at zero because of a valuation
allowance, now given value as management believes that these net operating
losses will be fully utilized.

Note 5
 Stockholders Equity

Preferred
Stock

As of
June 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. During the current year,
the Company reversed $68,222 of accrued dividends that had been accrued on the
balance sheet because they had not been declared. Because of the cumulative
nature of these dividends, if all dividends were to be declared the balance
owing would be $108,225 as of June 30, 2005.

F-14

---

COGNIGEN
NETWORKS, INC.Notes to Financial Statements

Note 5
 Stockholders Equity (continued)

Common Stock

Stock for
Stock Exchange Agreement

On May
12, 2004, after approval by the Board of Directors, the Company entered into a
Stock for Stock Exchange Agreement with Jimmy L. Boswell, David G. Lucas,
Reginald W. Einkauf and John D. Miller (collectively the Principals) pursuant to
which the Principals agreed to exchange with the Company a total of 800,000
shares of the Companys common stock owned by the Principals for all of the
outstanding common stock of the Companys wholly-owned subsidiary, CST, and
warrants to purchase 200,000 shares of the Companys common stock effective
February 1, 2004. The closing occurred on May 21, 2004. At the closing CST
entered into a Master Services Agreement (MSA) to provide the Company with
telecommunications rating, billing, provisioning, customer care, commissioning
and database management for a fee. The MSA was effective February 1, 2004 and
goes for one year periods unless terminated by either party at the end of each
period with a 30 day notice.

As
part of the closing, CST entered into a new note with a then existing lender
representing approximately $223,000 in debt. All options to purchase common
stock of the Company issued to CST employees were terminated except for the
option to purchase 200,000 shares of the Companys common stock owned by
Jimmy L. Boswell which option expired in August 2004 and was exercisable at
$3.68 per share.

In
conjunction with the Stock for Stock Exchange Agreement, goodwill with a net
book value of $2,893,029 was written off. With consideration of approximately
$26,000, calculated using the Black Scholes method of calculation for the
200,000 warrants, goodwill of $2,893,029 and $168,448 in negative equity that
was assumed by the Principals, and the 800,000 shares of the Companys
common stock that was repurchased from the Principals valued at $.31 per share,
the Company recorded a loss of $2,502,583 on this transaction that was included
in the statement of operations for the year ended June 30, 2004.

Stock
Redemption Agreement

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.

F-15

---

COGNIGEN
NETWORKS, INC.Notes to Financial Statements

Note 5
 Stockholders Equity (continued)

Common Stock
(continued)

Stock
Redemption Agreement (continued)

The
following presents statement of operations data and proforma data. The proforma
data reflect certain statement of operations accounts for the years ended June
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 FormaYear EndedJune 30, 2005 | Actual YearEndedJune 30, 2005 | Pro FormaYear EndedJune 30, 2004 | Actual YearEndedJune 30, 2004
|----------------------------------- | -------------------------------- | ----------------------------- | -------------------------------- | -----------------------------
|Total revenue                       |                                  | $11,745,673                   |                                  | $11,745,673                  
|                                    |                                  |                               |                                  |                              
|Operating expenses:                 |                                 
|Marketing commissions               |                                  | 4,730,234                     |                                  | 4,207,756                    
|Telecommunications                  |                                  | 3,171,958                     |                                  | 3,171,958                    
|Selling, general and administrative |                                  | 3,285,937                     |                                  | 3,285,937                    
|Loss provision for sale of CST      |                                  | --                            |                                  | --                           
|Loss provision for termination of   |                                 
|Intandem Funding                    |                                  | --                            |                                  | --                           
|Depreciation and amortization       |                                  | 18,025                        |                                  | 18,025                       
|                                    |                                  |                               |                                  |                              
|Total operating expenses            |                                  | 11,206,154                    |                                  | 10,683,676                   
|                                    |                                  |                               |                                  |                              
|Income from operations              |                                  | $     539,519                 |                                  | $  1,061,997                 
|                                    |                                  |                               |                                  |                              
|                                    |                                  |                               |                                  |                              
|Income taxes                        |                                  | $     815,303                 |                                  | $     815,303                
|                                    |                                  |                               |                                  |                              
|                                    |                                  |                               |                                  |                              
|Net income attributable to          |                                 
|common shareholders                 |                                  | $  1,267,658                  |                                  | $  1,790,136                 
|                                    |                                  |                               |                                  |                              
|                                    |                                  |                               |                                  |                              
|Income per common share - basic     |                                  | $            .14              |                                  | $            .20             
|                                    |                                  |                               |                                  |                              
|                                    |                                  |                               |                                  |                              

F-16

---

COGNIGEN
NETWORKS, INC.Notes to Financial Statements

Note 5
 Stockholders Equity (continued)

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.

During
the year ended June 30, 2005, there were no options granted, including any
options under the Plan. During the year ended June 30, 2004, the Company granted
to an employee, options to purchase 10,000 shares of common stock of the
Company. These options vested 5,000 immediately and 5,000 in one year, were
exercisable at $.39 per share and expired in five years. These options
terminated during the year ended June 30, 2004.

In
January 2004, the Board of Directors granted 200,000 options to an officer of
the Company. These options vest 100,000 immediately and 25,000 each year for the
ensuing four years, are exercisable at $.23 per share and expire five years from
the date of grant..

During
the year ended June 30, 2005, a total of 1,000,000 options expired, all of which
were not issued under the Plan.

During
the year ended June 30, 2004, a total of 606,000 options were cancelled, of
which 450,000 were not issued under the Plan.

The
following table presents the activity for options outstanding:

|                            | StockOptions | WeightedAverageExercisePrice
|--------------------------- | ------------ | ----------------------------
|Outstanding - June 30, 2003 |              | 1,896,000                   
|Granted                     |              | 210,000                     
|Forfeited/canceled          |              | (606,000                    
|Exercised                   |              | --                          
|                            |              |                             
|Outstanding - June 30, 2004 |              | 1,500,000                   
|Granted                     |              | --                          
|Forfeited/canceled          |              | (1,000,000                  
|Exercised                   |              | --                          
|                            |              |                             
|Outstanding - June 30, 2005 |              | 500,000                     
|                            |              |                             
|                            |              |                             

F-17

---

COGNIGEN
NETWORKS, INC.Notes to Financial Statements

Note 5
 Stockholders Equity (continued)

Stock
Options (continued

The
following table presents the composition of options outstanding and exercisable:

|                      | Options Outstanding |         | Options Exercisable |            | 
|--------------------- | ------------------- | ------- | ------------------- | ---------- | 
|
|$ 0.23 - .35          |                     | 200,000 |                     | .23        | 
|$ 0.36 - .39          |                     | 150,000 |                     | .36        | 
|$ 0.40 - .44          |                     | 95,000  |                     | .42        | 
|$ 0.45 - .52          |                     | 55,000  |                     | .51        | 
|                      |                     |         |                     |            | 
|Total - June 30, 2005 |                     | 500,000 |                     | $      .34 | 
|                      |                     |         |                     |            | 
|                      |                     |         |                     |            | 

*Price
and Life reflect the weighted average exercise price and weighted average
remaining contractual life, respectively.

Warrants

The
following table presents the activity for warrants outstanding:

|                            | Number ofWarrants | WeightedAverageExercisePrice
|--------------------------- | ----------------- | ----------------------------
|Outstanding - June 30, 2003 |                   | 1,100,000                   
|Issued                      |                   | 200,000                     
|Forfeited/canceled          |                   | (100,000                    
|Exercised                   |                   | --                          
|                            |                   |                             
|Outstanding - June 30, 2004 |                   | 1,200,000                   
|Issued                      |                   | --                          
|Forfeited/canceled          |                   | (150,000                    
|Exercised                   |                   | --                          
|                            |                   |                             
|Outstanding - June 30, 2005 |                   | 1,050,000                   
|                            |                   |                             
|                            |                   |                             

All of
the outstanding warrants are exercisable and have a weighted average remaining
contractual life of 1.6 years.

F-18

---

COGNIGEN
NETWORKS, INC.Notes to Financial Statements

Note 6
 Commitments and Contingencies

Operating
Leases

The
Company leases office space under operating lease agreements. Rent expense for
these leases for the years ended June 30, 2005 and 2004 was approximately
$100,000 and $145,000, respectively.

Future
minimum lease payments under these leases are approximately as follows:

Year Ending
June 30,

|     | 
|---- | 
|2006 | 
|2007 | 
|2008 | 
|2009 | 
|     | 
|     | 
|     | 
|     | 

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 our directors and a member of our
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 our Board of Directors. Because of the costs
involved in litigating this complaint, we settled with Mr. Jackson by agreeing
to pay 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.

F-19

---

COGNIGEN
NETWORKS, INC.Notes to Financial Statements

Note 7
 Intandem

As of
June 30, 2004, the Company had made advances of $454,149 to Intandem. On April
1, 2003, the Company and certain principals of Intandem entered into an
agreement (Funding Agreement) pursuant to which the Company agreed to provide up
to $448,093 in a series of loans to Intandem. Effective February 1, 2004, by
mutual agreement of the principals of Intandem and the Company, the Funding
Agreement was terminated and a separate agreement, the Termination of Funding
Agreement and Settlement Agreement (Termination Agreement), was entered into.

The
Termination Agreement provided that the Company would convert the notes
receivable of $387,399 into 100% of the outstanding stock of Intandem in
exchange for payments of $10,000 per month for eight months, assumption of up to
approximately $45,000 in liabilities, cancellation of all employment contracts
of the Intandem principals and cancellation of options to purchase common stock
of the Company. As of the date of the Termination Agreement, $414,149 had been
funded under the Funding Agreement and Termination Agreement. Due to questions
of recoverability of this amount and the remaining commitments under the
Termination Agreement, a provision of $494,149 was taken in the statement of
operations. This provision represents the $414,149 funding through the date of
the Termination Agreement plus an estimate of remaining commitments under the
Termination Agreement which approximated $80,000 at the time.

In
conjunction with the transaction with InTandem, a consultant was to be paid,
under its consulting agreement with the Company, a commission that was being
negotiated with the Company. In October 2004, the Company and consultant agreed
that $20,000 of a combination of stock and cash was owed by the Company to the
consultant in connection with the Intandem transaction. However, the consultant
subsequently agreed to waive this commission.

Note 8
 Related Party Activity

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 Cognigen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 the Companys common stock owned by AFT.

F-20

---

COGNIGEN
NETWORKS, INC.Notes to Financial Statements

Note 8
 Related Party Activity (continued)

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

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 Kevin E.
Anderson, the rights to become the up-line for 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%, 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 the Companys customers and vendors. The sales are generated either directly by
Cantara and/or its down-line sub-agents. For the years ended June 30, 2005 and
2004, Cognigen paid Cantara $527,709 and $526,644 in commissions, respectively.
In addition, as a part of the transaction, Cognigens agreement with Kevin
E. Anderson Consulting, Inc., pursuant to which Cognigen 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 Cognigen 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 years ended June 30, 2005 and June
30, 2004, the Company paid Kevin E. Anderson Consulting, Inc. $48,000 and $48,000,
respectively, pursuant to the consulting agreement.

For
the years ended June 30, 2005 and June 30, 2004, the Company also paid members of
Kevin E. Andersons family $58,460 and $50,164 in agent commissions,
respectively.

On
June 20, 2005, the Company entered into an Agreement Granting a Right of First
Refusal to Purchase Enterprise Assets with AFT. Pursuant to the agreement, in
consideration of the payment by the Company of $15,000, AFT granted us 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 right of first
refusal to match that offer within 10 working days after our 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.

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

F-21

---

COGNIGEN
NETWORKS, INC.Notes to Financial Statements

Note 8
 Related Party Activity (continued)

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

The Company
also has an agreement with Combined Telecommunications Consultancy, Ltd. (CTC),
of which slightly less than 35% is owned by Peter Tilyou, pursuant to which CTC
is to receive a percentage of a transaction if CTC introduces a transaction to
us and is paid a consulting fee of $150 per hour for providing consulting
services to us. During the fiscal years ending June 30, 2005 and June 30, 2004,
the Company paid CTC $6,250 and $64,722, respectively, in consulting fees and
($-0-) and $19,337, respectively, in transaction fees. The foregoing amounts
include up to $5,000 that the Company reimbursed CTC for expenses CTC incurred in
performing services on its behalf.

In
conjunction with the transaction with InTandem, CTC was to be paid, under its
consulting agreement with the Company, a commission that was being negotiated with
us. In October 2004, the Company agreed with CTC that $20,000 of a combination of
stock and cash was owed by the Company to CTC in connection with the Intandem
transaction. However, because the Company bought Intandem, CTC agreed to waive this
commission.

Peter
Tilyou also owns Telkiosk, Inc., which was paid ($-0-) and $1,244 in agent
commissions for our fiscal years ended June 30, 2005 and June 30, 2004,
respectively.

Payments to
Law Firms with which Thomas S. Smith was Associated

During
our fiscal year ended June 30, 2004, the Company paid the law firms with which
Thomas S. Smith, the Companys President and Chief Executive Officer, was
associated $116,968 for legal services performed by those firms for the Company.

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
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 expenses up
to $2,000 per month.

F-22

---

COGNIGEN
NETWORKS, INC.

Item 8.
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 8A.
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 our disclosure controls and procedures as of the end of the  period covered by this
report. They have concluded that these disclosure  controls provide reasonable assurance
that we can collect, process and disclose,  within the time periods specified in the
Commissions rules and forms, the  information required to be disclosed in its
periodic Exchange Act reports.

There
have been no significant changes in our internal controls or in other factors  that could
significantly affect our internal controls subsequent to the date of  their most recent
evaluation.

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.

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 officers do 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 around the middle of September
2005. 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.

Item 8B.
Other Information.

None

19

---

# PART III

The
information required by Items 9 through 12 is incorporated by reference to our
definitive proxy statement or definitive information statement that we plan to
file in connection with our next Annual Meeting of Shareholders involving the
election of directors. We plan to file the definitive proxy statement or
definitive information statement with the Securities and Exchange Commission on
or before October 28, 2005. If not, we will file an amendment to this Form
10-KSB to add such information.

Item 13.
Exhibit

Exhibits and
Index of Exhibits.

# EXHIBIT NO.
                 DESCRIPTION AND METHOD OF FILING

|2.1 |  | Funding Agreement dated April 1, 2003, by and among us, InTandem Communications Corp.,
David B. Hurwitz, Richard G. De Haven and Anthony Sgroi (except for Schedule B-Financial
Model and Schedule E-Business Plan and Financial Statements) (incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed on April 15, 2003).
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.2 |  | Stock for Stock Exchange Agreement dated May 12, 2004 by among Jimmy L. Boswell, David G.
Lucas, Reginald W., Einkauf and John D. Miller (incorporated by reference to Exhibit 2.1
to 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  by reference to Exhibit 3.1 to our Current Report on Form  8-K filed on
November 4, 2002).
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

20

---

|3.6 |  | Bylaws
as  amended  through  May 17,  2005,  (incorporated  by  reference  to  Exhibit 3.2 to
our Current Report on Form 8-K filed on May 19, 2005).
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

|10.1 |  | Purchase
Agreement  among us,  Stanford  Financial  Group  Company,  Inc. and  Stanford  Venture
Capital  Holdings,  Inc.  (incorporated  by  reference  to  Exhibit 10 to our Current
Report on Form 8-K filed on November 4, 2002).
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2 |  | Letter
dated December 6, 2002,  from us to eMaxDirect,  LLC  (incorporated  by  reference  to
Exhibit 10 to our  Current  Report on Form 8-K filed on December  10, 2002).
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.3 |  | Securities
Purchase  Agreement dated February 10, 2003,  between us and David  Stone and Harry
Gorlovezsky  (incorporated  by  reference  to Exhibit 10.1 to  our Current Report on Form
8-K filed on April 24, 2003).
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.4 |  | Option
to Purchase  Promissory  Note and Agreement  from us to David Stone and  Harry
Gorlovezsky  (incorporated  by reference to Exhibit 10.2 to our Current  Report on Form
8-K filed on April 24, 2003).
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.5 |  | Form
of Option to Purchase  Common Stock  (incorporated  by  reference  to Exhibit  10.7 to
our Annual  Report on  Form 10-KSB for the year ended June 30, 2000).
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.6 |  | 2001
Incentive  and  Nonstatutory  Stock Option Plan  (incorporated  by reference to Exhibit
10 to our Quarterly  Report on Form 10-QSB for the quarter ended March 31, 2001).
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.7 |  | Stock
Redemption  Agreement  dated November 30, 2001 between us, the Anderson  Family  Trust,
Cantara  Communications  Corporation,  Kevin  E.  Anderson  Consulting,  Inc.  (without
Exhibits A and B)  (incorporated  by reference to  Exhibit 10.1 to our Current Report on
Form 8-K filed on December 20, 2001).
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.8 |  | Training
Services  Framework  Agreement  dated May 17,  2002,  between us and  e-Max  Direct LLC
(incorporated  by  reference to Exhibit 10.1 to our Current  Report on Form 8-K filed on
July 2, 2002).
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.9 |  | Transitional
Supplemental  Consulting  Engagement letter dated July 11, 2002,  between us and Kevin E.
Anderson Consulting,  Inc.  (incorporated by reference  to Exhibit  10.10 to our Annual
Report on Form 10-KSB for the year ended June  30, 2002).
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.10 |  | Letter
Agreement dated April 19, 2002,  between Cognigen  Networks,  Inc. and  Troy D.  Carl
(incorporated  by  reference  to  Exhibit  10.11 to our  Annual  Report on Form 10-KSB
for the year ended June 30, 2002).
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

21

---

|10.11 |  | Consultancy
Engagement  Agreement  dated September 9, 2002, by and between us  and Combined
Telecommunications  Consultancy,  Ltd and letter dated September  9,  2003  extending
the  Consulting  Engagement  Agreement  (incorporated  by  reference  to Exhibit  10.11
to our amended  Annual  Report Form  10-KSB/A for  the year ended June 30, 2003.)
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.12 |  | Modified
Supplemental  Consulting  Engagement  letter  dated  March  4,  2003  between  us and
Kevin  Anderson  (incorporated  by  reference  to our  amended  Annual Report on Form
10-KSB/A for the year ended June 30, 2003).
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.13 |  | Extension
of Modified  Supplemental  Consulting  Engagement  Agreement  dated  February  9,  2004
between  us  and  Kevin  Anderson  Consulting,  Inc.  (incorporated  by  reference  to
Exhibit 2.1 to our  Quarterly  Report on Form  10-QSB for the Quarter ended December 31,
2003).
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.14 |  | Termination
of Funding  Agreement and Settlement  Agreement  dated February 5,  2004  (incorporated
by reference to Exhibit 10.1 to our  Quarterly  Report on  Form 10-QSB for the Quarter
ended December 31, 2003).
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.15 |  | Amendment
dated  September  9,  2004,  to  Consulting  Engagement  Agreement  between us and
Combined  Telecommunications  Consultancy,  Ltd.  (incorporated  by  reference  to
Exhibit  10.15 to our Annual  Report on Form  10-KSB for the  fiscal year ended June 30,
2004).
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.16 |  | Accounts
Receivable  Purchase  Agreement  dated  December  26,  2003,  between  us and Silicon
Valley Bank  (incorporated  by reference  to Exhibit  10.16 to  our Annual Report on Form
10-KSB for the fiscal year ended June 30, 2004).
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.17 |  | Accounts
Receivable  Purchase  Modification  Agreement  dated  November  24, 2004  between us and
Silicon  Valley Bank  (incorporated  by  reference to  Exhibit 10.1 to our Current Report
on Form 8-K filed on December 10, 2004).
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.18 |  | Letter
Agreement  with  Segal  & Co.  Incorporated  dated  February  28,  2005  (incorporated
by  reference  to Exhibit  10.1 to our Current  Report on  Form 8-K filed on March 1,
2005).
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.19 |  | An
Agreement  Granting a First Right of Refusal to Purchase  Enterprise Assets
(incorporated  by  reference  to our Current  Report on Form 8-K filed on June  23,
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).
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------

22

---

|21 |  | Subsidiaries
|-- |  | ------------

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

23

---

SIGNATURES

In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

Dated:  August
30, 2005

| | COGNIGEN
NETWORKS, INC./s/ Thomas S. Smith
Thomas S. Smith, President and Chief Executive
Officer/s/ Gary L. CookGary L. Cook, Senior Vice President of Finance,Treasurer,
Secretary, Chief Financial Officer andPrincipal Accounting Officer
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In
accordance with the Exchange Act, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.

|SIGNATURE                   | TITLE | DATE    
|--------------------------- | ----- | --------
|/s/ Gary L. Cook            |       | Director
|Gary L. Cook                |      
|/s/ David L. Jackson        |       | Director
|David L. Jackson            |      
|/s/ Christopher R. Seelbach |       | Director
|Christopher R. Seelbach     |      
|/s/ James H. Shapiro        |       | Director
|James H. Shapiro            |      
|/s/ Thomas S. Smith         |       | Director
|Thomas S. Smith             |      

24

---

EXHIBIT
INDEX

# EXHIBIT NO.
                 DESCRIPTION AND METHOD OF FILING

|2.1 |  | Funding Agreement dated April 1, 2003, by and among us, InTandem Communications Corp.,
David B. Hurwitz, Richard G. De Haven and Anthony Sgroi (except for Schedule B-Financial
Model and Schedule E-Business Plan and Financial Statements) (incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K filed on April 15, 2003).
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2.2 |  | Stock for Stock Exchange Agreement dated May 12, 2004 by among Jimmy L. Boswell, David G.
Lucas, Reginald W., Einkauf and John D. Miller (incorporated by reference to Exhibit 2.1
to 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  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 17,  2005,  (incorporated  by  reference  to  Exhibit 3.2 to
our Current Report on Form 8-K filed on May 19, 2005).
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

|10.1 |  | Purchase
Agreement  among us,  Stanford  Financial  Group  Company,  Inc. and  Stanford  Venture
Capital  Holdings,  Inc.  (incorporated  by  reference  to  Exhibit 10 to our Current
Report on Form 8-K filed on November 4, 2002).
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.2 |  | Letter
dated December 6, 2002,  from us to eMaxDirect,  LLC  (incorporated  by  reference  to
Exhibit 10 to our  Current  Report on Form 8-K filed on December  10, 2002).
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

25

---

|10.3 |  | Securities
Purchase  Agreement dated February 10, 2003,  between us and David  Stone and Harry
Gorlovezsky  (incorporated  by  reference  to Exhibit 10.1 to  our Current Report on Form
8-K filed on April 24, 2003).
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.4 |  | Option
to Purchase  Promissory  Note and Agreement  from us to David Stone and  Harry
Gorlovezsky  (incorporated  by reference to Exhibit 10.2 to our Current  Report on Form
8-K filed on April 24, 2003).
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.5 |  | Form
of Option to Purchase  Common Stock  (incorporated  by  reference  to Exhibit  10.7 to
our Annual  Report on  Form 10-KSB for the year ended June 30, 2000).
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.6 |  | 2001
Incentive  and  Nonstatutory  Stock Option Plan  (incorporated  by reference to Exhibit
10 to our Quarterly  Report on Form 10-QSB for the quarter ended March 31, 2001).
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.7 |  | Stock
Redemption  Agreement  dated November 30, 2001 between us, the Anderson  Family  Trust,
Cantara  Communications  Corporation,  Kevin  E.  Anderson  Consulting,  Inc.  (without
Exhibits A and B)  (incorporated  by reference to  Exhibit 10.1 to our Current Report on
Form 8-K filed on December 20, 2001).
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.8 |  | Training
Services  Framework  Agreement  dated May 17,  2002,  between us and  e-Max  Direct LLC
(incorporated  by  reference to Exhibit 10.1 to our Current  Report on Form 8-K filed on
July 2, 2002).
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.9 |  | Transitional
Supplemental  Consulting  Engagement letter dated July 11, 2002,  between us and Kevin E.
Anderson Consulting,  Inc.  (incorporated by reference  to Exhibit  10.10 to our Annual
Report on Form 10-KSB for the year ended June  30, 2002).
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.10 |  | Letter
Agreement dated April 19, 2002,  between Cognigen  Networks,  Inc. and  Troy D.  Carl
(incorporated  by  reference  to  Exhibit  10.11 to our  Annual  Report on Form 10-KSB
for the year ended June 30, 2002).
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.11 |  | Consultancy
Engagement  Agreement  dated September 9, 2002, by and between us  and Combined
Telecommunications  Consultancy,  Ltd and letter dated September  9,  2003  extending
the  Consulting  Engagement  Agreement  (incorporated  by  reference  to Exhibit  10.11
to our amended  Annual  Report Form  10-KSB/A for  the year ended June 30, 2003.)
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.12 |  | Modified
Supplemental  Consulting  Engagement  letter  dated  March  4,  2003  between  us and
Kevin  Anderson  (incorporated  by  reference  to our  amended  Annual Report on Form
10-KSB/A for the year ended June 30, 2003).
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.13 |  | Extension
of Modified  Supplemental  Consulting  Engagement  Agreement  dated  February  9,  2004
between  us  and  Kevin  Anderson  Consulting,  Inc.  (incorporated  by  reference  to
Exhibit 2.1 to our  Quarterly  Report on Form  10-QSB for the Quarter ended December 31,
2003).
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

26

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|10.14 |  | Termination
of Funding  Agreement and Settlement  Agreement  dated February 5,  2004  (incorporated
by reference to Exhibit 10.1 to our  Quarterly  Report on  Form 10-QSB for the Quarter
ended December 31, 2003).
|----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.15 |  | Amendment
dated  September  9,  2004,  to  Consulting  Engagement  Agreement  between us and
Combined  Telecommunications  Consultancy,  Ltd.  (incorporated  by  reference  to
Exhibit  10.15 to our Annual  Report on Form  10-KSB for the  fiscal year ended June 30,
2004).
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.16 |  | Accounts
Receivable  Purchase  Agreement  dated  December  26,  2003,  between  us and Silicon
Valley Bank  (incorporated  by reference  to Exhibit  10.16 to  our Annual Report on Form
10-KSB for the fiscal year ended June 30, 2004).
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.17 |  | Accounts
Receivable  Purchase  Modification  Agreement  dated  November  24, 2004  between us and
Silicon  Valley Bank  (incorporated  by  reference to  Exhibit 10.1 to our Current Report
on Form 8-K filed on December 10, 2004).
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.18 |  | Letter
Agreement  with  Segal  & Co.  Incorporated  dated  February  28,  2005  (incorporated
by  reference  to Exhibit  10.1 to our Current  Report on  Form 8-K filed on March 1,
2005).
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|10.19 |  | An
Agreement  Granting a First Right of Refusal to Purchase  Enterprise Assets
(incorporated  by  reference  to our Current  Report on Form 8-K filed on June  23,
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
|-- |  | ------------

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

27

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