form10ksba-0106.htm

10KSB/A 1 form10ksba-0106.htm form10ksba-0106.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-KSB/A

[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the fiscal year ended June 30, 2001

[ ] 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 84-1089377
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)

7001 Seaview Avenue, N.W., Suite 210
Seattle, Washington 98117
(Address of principal executive offices) (Zip Code)

(206) 297-6151
(Issuer's telephone number)

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: $6,759,918

The aggregate market value of the voting and non-voting common equity held by
non-affiliates at September 26, 2001, computed by reference to the closing price on the OTC
Bulletin Board was $4,833,094.

The number of shares outstanding of each of the issuer's classes of common equity on
October 24, 2001, was 10,862,623.

Transitional Small Business Disclosure Format Yes ____ No |X|
---

============================================================================================

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With
Section 16(a) of the Exchange Act.

Directors

The name, position with us, age of each of our directors and the period during which each
of our directors has served as one of our directors are as follows:

Name and Position Age Director Since

Troy D. Carl 35 September 2000
Vice President of Sales and Marketing and
Director

Darrell H. Hughes 56 January 2000
Chairman of the Board, President and Director

David L. Jackson 63 1990
Senior Vice President of Corporate and
Public Affairs, Secretary and Director

David G. Lucas 61 September 2000
Treasurer, Chief Financial Officer and
Director

Christopher R. Seelbach 62 August 2001
Director

Executive Officers

Our executive officers are Jimmy L. Boswell, Troy D. Carl, Darrell H. Hughes, David
L. Jackson and David G. Lucas.

Our executive officers are normally appointed annually at the first meeting of our
Board of Directors held after our annual meeting of shareholders. Each executive officer
will hold office until his or her successor duly is elected and qualified, until his or her
death or resignation or until he or she shall be removed in the manner provided by our
bylaws.

There are no arrangements or understandings between any executive officer and any
other person pursuant to which any person was selected as an executive officer.

Background

Name of Director
or Officer Principal Occupation for Last Five Years

Troy D. Carl: Mr. Carl has been one of our directors since September 2000 and our
Vice President of Sales and Marketing since May 2000. Mr. Carl was
the Vice President of Sales and Marketing of our Cognigen Division
from September 1999 to May 2000. From November 1996 to September
1999, Mr. Carl was a Senior Vice President of World Connect
Communications, Inc. a network marketing company. Prior thereto,
Mr. Carl was an Assistant Pastor of Believers Center of
Albuquerque. Mr. Carl graduated with a degree in theology from Word
of Faith Bible College.

Darrell H. Hughes: Mr. Hughes has been one of our directors since January 2000, our
Chairman of the Board and our President since July 2000 and our
Chief Executive Officer since October 1999. From April 1997 through
October 1999, Mr. Hughes was Vice President of Sales and Service
with AAA Washington, an automobile association. From October 1996
through March 1997, Mr. Hughes was the Vice President of Engineering
with ITL, a long distance telecom company. From June 1996 through
October 1996, Mr. Hughes was a Manager of Program Development for
Siemens Communications, Inc., a worldwide technology and
communications systems provider. From 1995 until 1996, Mr. Hughes
was the Director of Sales in the Northwest for Ascom Timeplex, a
provider of voice, video and data communications. Mr. Hughes
graduated with a bachelor degree in liberal arts and a masters
degree in management from the University of Redlands.

David L. Jackson: Mr. Jackson has been our Senior Vice President of Corporate and
Public Affairs or our Vice President since August 1999 and our
Secretary since August 1999 and was our Treasurer from August 1999
to July 2000, our President and Chairman of the Board from 1996 to
August 1999, our Vice President from 1995 to 1996 and our President
and the Chairman of the Board from 1990 to 1992. From August 1999
to the present, Mr. Jackson has also been a director and the
Secretary of ITHC, the net assets of which we acquired in August
1999. Mr. Jackson has been a licensed real estate broker in
California since 1991. Mr. Jackson graduated with a bachelor of
arts degree from Northwest Nazarene University and with a Juris
Doctor degree from the University of Denver, College of Law. Mr.
Jackson was admitted to practice law in the United States Federal
Courts and various state courts. He practiced in Colorado until
1997 when his name was removed as a result of disbarment from the
list of attorneys authorized to practice law in the Colorado
Courts. Mr. Jackson is an arbitrator in dispute resolution of
commercial and labor law. He has been on the roster of arbitrators
of the Federal Mediation and Conciliation Service of the United
States Government since March 1994.

David G. Lucas: Mr. Lucas has been one of our directors since September 2000, our
Treasurer since July 2000 and our Chief Financial Officer since
December 1999. From July 1999 to the present, Mr. Lucas also has
been the Chief Financial Officer and a director of ITHC, the net
assets of which we acquired in August 1999. From April 1998 to the
present, Mr. Lucas has been the Vice President of Finance of CST, a
long distance national and international telephone carrier that we
acquired in April 2000. From July 1997 through March 1998, Mr.
Lucas was the Controller for U.S. Filter Corp., a water treatment
company. From 1994 to July 1997, Mr. Lucas was the Controller for
Gateway U.S.A., a long distance national and international telephone
carrier. Mr. Lucas graduated with a bachelor of science degree in
business administration from Wayne State University and is a
certified public accountant.

Christopher Seelbach: Mr. Seelbach has been one of our directors since August 2001. From
1985 to the present, Mr. Seelbach has been President of Seelbach &
Associates LLC, a management consulting firm. At various times from
1998 through May 2001, Mr. Seelbach served as a consultant, director,
Chief Operating Officer and acting Chief Financial Officer of
CallNOW.com, Inc., a telecommunications company. From 1994 to 1998,
he was an independent consultant, and served as President and Chief
Executive Officer of Belcom, Inc., a COMSTAT telecommunications
investment, and President of Skysat Communications Corporation, a
high-altitude wireless systems development company. From 1992 to
1994 Mr. Seelbach was director and Chief Operating Officer of Viatel,
Inc., a telecommunications company. He is a 1961 graduate of the
United States Naval Academy with a B.S. in engineering and received
an M.B.A. from Columbia University in 1967.

Jimmy L. Boswell: Mr. Boswell has been our Executive Vice President since July 2000,
our Chief Operating Officer since August 1999, was our President
from August 1999 to June 2000 and was one of our directors from
August 1999 to January 2000 and from September 2000 to August 2001.
From July 1999 to July 2001, Mr. Boswell also was the President and
a director of ITHC, the net assets of which we acquired in August
1999. From January 1998 to the present, Mr. Boswell has also been
the President, Chief Executive Officer and a director of CST, a long
distance national and international telephone carrier that we
acquired in April 2000. From November 1993 to September 1997, Mr.
Boswell was the Vice President of Engineering and Chief Technical
Officer of Gateway U.S.A., Inc., an international telecommunications
company. Mr. Boswell graduated with a degree in management from the
University of Redlands.

Directorships

None of our directors is a director of any other entity that has its securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934 or that is subject
to the requirements of Section 15(d) of the 1934 Act.

Consultant

Kevin E. Anderson is not one of our executive officers but makes and is expected to
make a significant contribution to our business. Mr. Anderson, who is 50, has been a
consultant to us and our Board of Directors since August 1999 and the founder and President
of Cognigen Corporation since 1999. Mr. Anderson may be deemed to control us. Mr.
Anderson graduated from the University of California at Los Angeles.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our officers and
directors and persons who beneficially own more than 10% of our outstanding common stock to
file reports of beneficial ownership with the Securities and Exchange Commission and to
furnish us with copies of the reports.

Based solely on a review of the Forms 3, 4 and 5 and amendments thereto furnished to
us during our fiscal year ended June 30, 2001, the persons who were either one of our
directors or officers or who beneficially owned more than 10% of our common stock who
failed to file on a timely basis reports required by Section 16(a) of the Securities
Exchange Act of 1934 were: Jimmy L. Boswell, Darrell H. Hughes, David L. Jackson and David
G. Lucas, each of whom failed to timely file a Form 4 for the month of September 2001, in
connection with the distribution by ITHC to its shareholders of 37,298,441 shares of our
common stock ITHC received as a result of the second closing of our purchase of its assets;
Troy D. Carl, who failed to timely file a Form 5 for the year ended June 31, 2001,
reporting three transactions in September 2000; and ITHC, which failed to timely file a
Form 4 for the month of August 2001 in connection with its distribution of the 37,298,444
shares of our common stock pro rata to its shareholders. We are also aware that Kevin E.
Anderson, the Anderson Family Trusts #1 and #2 and Peter Tilyou may have failed to file
their respective Forms 4 or Forms 5 during our fiscal year ended June 30, 2001.

Item 10. Executive Compensation.

The following table provides certain information pertaining to the compensation we
and our subsidiary paid during our last three fiscal years for services rendered by Darrell
H. Hughes, who was our Chief Executive Officer for our fiscal year ended June 30, 2001, and
to our other executive officers who were paid compensation in excess of $100,000 by us and
our subsidiary during our fiscal year ended June 30, 2001:

Summary Compensation Table
--------------------------

Long Term
Annual Compensation Compensation
------------------- Awards
------------
Fiscal
Name and Year Other Securities
Principal Ended Annual Underlying All Other
Position June 30, Salary ($) Bonus ($) Comp ($) Options (#) Comp ($)
----------------- -------- ---------- --------- -------- ----------- ---------

Darrell H. Hughes 2001 $ 125,000 -- -- -- -- -- -- -- --
President since 2000 $ 88,542 -- -- -- -- 200,000(a) -- --
July 2000 and 1999 -- -- -- -- -- -- -- -- -- --
Chief Executive
Officer since
October 13, 1999

Troy D. Carl 2001 $ 96,000 -- -- $ 61,554(c) -- -- -- --
Vice President 2000 $ 60,000 -- -- $ 20,533(c) -- -- -- --
Sales and 1999 -- -- -- -- -- -- -- -- -- --
Marketing since
May 2000

David L. Jackson 2001 $ 120,000 -- -- -- -- -- -- -- --
President and 2000 $ 29,000 -- -- $ 24,000(b) 200,000(a) -- --
Treasurer until 1999 -- -- -- -- -- -- -- -- -- --
August 20, 1999
and Vice
President and
Secretary since
August 20, 1997

David G. Lucas 2001 $ 90,000 $ 100,000 -- -- -- -- -- --
Treasurer and 2000 $ 82,500 -- -- -- -- 200,000(a) -- --
Chief Financial 1999 -- -- -- -- -- -- -- -- -- --
Office since
August 20, 1999

Jimmy L. Boswell 2001 $ 120,000 $ 100,000 -- -- -- -- -- --
President and 2000 $ 103,333 -- -- -- -- 200,000(a) -- --
Chief Operating 1999 -- -- -- -- -- -- -- -- -- --
Officer from
August 20, 1999
to July 2000 and
Executive Vice
President since
July 2000

(a) On August 25, 2000, Messrs. Hughes, Jackson, Lucas and Boswell were each
granted a five year option to purchase 200,000 shares of our common stock at an exercise
price of $3.68 per share. During September 2001, each option was voluntarily surrendered
without compensation by Messrs. Hughes, Jackson and Lucas. Mr. Boswell retained his option.

(b) The $24,000 was paid as consulting fees prior to the time Mr. Jackson became
one of our employees.

Option Grants In Last Fiscal Year

No options were granted to any executive officer during our last fiscal year ended
June 30, 2001.

Aggregate Option Excercises In Last Fiscal Year And Fiscal Year End Option Values

The following table provides information with respect to the unexercised options to
purchase our common stock held by Messrs. Hughes, Jackson, Lucas and Boswell at the end of
our last fiscal year ended June 30, 2001:

Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options at Fiscal Year End Options at Fiscal Year End
Name Exercisable/Unexercisable Exercisable/Unexercisable(1)
---- ------------------------- ----------------------------

Darrell H. Hughes 200,000 / 0 $ 0 / $ 0
David L. Jackson 200,000 / 0 $ 0 / $ 0

David G. Lucas 200,000 / 0 $ 0 / $ 0
Jimmy L. Boswell 200,000 / 0 $ 0 / $ 0

(1) The closing bid price per share on June 30, 2001 was lower than the $3.65
exercise price.

None of the above persons exercised any options to purchase shares of our common
stock during the fiscal year ended June 30, 2001. Messrs. Hughes, Jackson and Lucas
voluntarily surrendered their respective options for no consideration in September, 2001.
Mr. Boswell retained his option.

Stock Option PlanExercisable/Unexercisable(1)

We adopted an incentive and non-statutory option plan at the Shareholder Meeting on
March 15, 2001. The plan authorizes the granting of options to our officers, directors,
employees and consultants to purchase shares of our common stock. As of October 24, 2001,
an option to purchase 50,000 shares of our common stock was outstanding under the plan.

Item 11. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth as of October 24, 2001, the number of shares of our
outstanding common stock beneficially owned by each of our current directors, sets forth
the number of shares of our outstanding common stock beneficially owned by all of our
current executive officers and directors as a group, and sets forth the number of shares of
our outstanding common stock owned by each person who owned of record, or was known to own
beneficially, more than five percent of the outstanding shares of our common stock:

Amount and Nature of
Name and Address Beneficial Percent of Class
---------------- Ownership(1) ----------------
------------

Darrell H. Hughes 818,944 7.6%
Suite 210
7001 Seaview Avenue N.W.
Seattle, WA 98117

Troy D. Carl 104,113 (2) 1.0%
6751-B Academy Road, N.E.
Albuquerque, NM 87109

David L. Jackson 278,951 2.6%
6 Valencia Road
Orinda, CA 94563

David G. Lucas 251,017 2.3%
Suite 304
3220 South Higuera Street
San Luis Obispo, CA 93401

Jimmy L. Boswell 454,939 (3) 4.1%
Suite 304
3220 South Higuera Street
San Luis Obispo, CA 93401

All current executive 1,907,964 (4) 17.2%
officers and directors as a
group (5 persons)

Cognigen Corporation 3,696,006 (5) 34.1%
2608 Second Avenue, Suite 108
Seattle, WA 98121

Anderson Family Trust #1 3,696,006 (5)(6) 34.1%
2608 Second Avenue, Suite 108
Seattle, WA 98120

Anderson Family Trust #2 250,000 (5)(6) 2.3%
2608 Second Avenue, Suite 108
Seattle, WA 98120

Kevin E. Anderson 3,946,006 (5)(6) 36.3%
2608 Second Avenue, Suite 108
Seattle, WA 98120

Peter Tilyou 4,698,293 (7)(8) 43.3%
2608 Second Avenue, Suite 108
Seattle, WA 98120

(1) Except as indicated below, each person has sole and voting and/or investment
power over the shares listed.

(2) Includes 50,000 shares underlying a presently exercisable option.

(3) Includes 200,000 shares underlying a presently exercisable option.

(4) This total includes the shares specified in the above footnotes.

(5) Kevin E. Anderson and members of his family are the beneficiaries of the
Anderson Family Trust #1 which owns approximately 98.9% of the outstanding common stock of
Cognigen Corporation. Mr. Anderson may be deemed to beneficially own the 3,696,006 shares
of the common stock that Cognigen Corporation may be deemed to beneficially own.

(6) Kevin E. Anderson and members of his family are the beneficiaries of the
Anderson Family Trusts #1 and #2. Kevin E. Anderson may be deemed to beneficially own the
shares of the common stock owned by the Anderson Family Trusts #1 and #2. The Anderson
Family Trust #1 has entered into a Letter of Agreement with us pursuant to which we have
agreed to repurchase 2,712,500 shares of our common stock owned by the Anderson Family
Trust #1 in consideration for us agreeing to transfer to an affiliate of Kevin E. Anderson
the right to become the up-line for our current agents. See "Item 12. Certain Relationships
and Related Transactions."

(7) Includes the shares owned by the Anderson Family Trusts #1 and #2 and Cognigen
Corporation; 215,138 shares owned by Telkiosk, Inc.; and 537,149 shares owned by Combined
Telecommunications Consultancy, Ltd. ("CTC") all of which may be deemed to be beneficially
owned by Peter Tilyou. Mr. Tilyou is the sole trustee, but not a beneficiary, of the
Anderson Family Trusts #1 and #2. As managing officer/director of CTC and Telkiosk, Mr.
Tilyou has voting and investment power over the shares of common stock beneficially owned
by CTC and Telkiosk. Mr. Tilyou is the beneficial owner of 33% of the outstanding shares
of Telkiosk and 25% of the outstanding shares of CTC.

(8) The information pertaining to the shares of common stock beneficially owned by
CTC and Telkiosk and the information pertaining to Peter Tilyou's relationship to both and
to the Anderson Family Trust #1 is based on our shareholder records and information
provided to us by Peter Tilyou.

Item 12. Certain Relationships and Related Transactions.

On August 20, 1999, we completed the first closing of the acquisition of all of the
assets of ITHC in exchange for 29,242,953 shares of our common stock. On December 27,
1999, we agreed with ITHC that the total number of shares of our common stock that were to
be issued at the first closing was 11,742,953 shares rather than 29,242,953 shares and the
total number of shares to be issued at the second closing was 37,298,444 shares. Further,
we and ITHC made it clear that we were acquiring all of the assets and assuming all of the
liabilities of ITHC as of August 20, 1999.

As a result of ITHC's receipt of the 11,742,953 shares of our common stock and the
previous purchase of 12,602,431 shares of our common stock by ITHC from David L. Jackson,
Patricia A. Jackson, Karrie R. Jackson and Eric J. Sunsvold for a total of $190,000, ITHC
owned 24,385,384 shares, or approximately 54.0%, of our outstanding shares of common
stock. Subsequently, 150,000 shares were transferred by ITHC to two persons who are
affiliated with CCRI Corp. The two persons were instrumental in CCRI Corp. assisting us in
raising additional capital. We loaned ITHC $190,000 to purchase the 12,602,431 shares.
The loan has not yet been repaid. In May 2000, ITHC distributed the remaining 24,195,384
shares pro rata to its shareholders.

The second closing between us and ITHC was held on June 15, 2001. At this closing we
issued the additional 37,298,444 shares to ITHC. ITHC then distributed the 37,298,444
shares pro rata to its shareholders.

The assets of ITHC consisted of electronically archived customer data bases
consisting of approximately 95,000 individual residential and business long-distance
telephone service subscriber accounts; agency, reseller and other agreements and contracts
ITHC had with carriers, switched resellers, switchless resellers, consolidators or other
providers of long-distance and local telephone service; ITHC's accounts receivable,
commissions receivable, future commissions that may be payable from any of the carriers,
switched resellers, switchless resellers, consolidators or other providers of long-distance
and local telephone service; ITHC's computer software, proprietary programs and
applications, computers, monitors, peripherals, printers, copiers, telephone PABX systems,
office furniture and fixtures, office leases; customer data bases, customer lists and print
and electronic records relating to customers; ITHC's inventories and orders for prepaid
telephone cards; ITHC's new accounts; ITHC's websites, pages, links and agreements as well
as ITHC's Internet domains and email addresses; agreements with ITHC's agents and
subagents; exclusive use and control of the name "Cognigen" and its attendant copyright,
trade name and trademark and service mark registrations; ITHC's intellectual property;
ITHC's lines of credit with carriers, prepaid card providers, switched resellers,
switchless resellers and other providers of local and long-distance phone service, ITHC's
cash and all of the outstanding stock of Inter-American Telecommunications Corporation, a
non-operating subsidiary of ITHC.

ITHC, which was incorporated in July 1998, acquired the assets it transferred to us
for a total of $1,600,000 in promissory notes, which were assumed by us, and 7,500 shares
of ITHC's common stock. ITHC originally acquired the assets in 1998 and 1999 from
Inter-American Telecommunications Corporation, Telkiosk, CTC and Cognigen Corporation, all
of which were incorporated in 1998.

ITHC, through Cognigen Corporation, its e-commerce division, was a major marketer of
long-distance telecommunications services. Operating on the Internet via thousands of Web
sites, Cognigen Corporation marketed both domestic and international long-distance
telephone service as well as prepaid calling cards through a network of approximately
40,000 independent agents to approximately 157,000 subscribers worldwide.

On August 20, 1999, and on December 27, 1999, Jimmy L. Boswell and David G. Lucas
were directors, officers and owners of less than 5% of the outstanding common stock of
ITHC. Further, on August 20, 1999, David L. Jackson and his wife were our sole directors
and officers. On December 27, 1999, David L. Jackson was a director of ITHC and owned less
than 5% of the outstanding common stock of ITHC. As of December 27, 1999, Darrell H.
Hughes was an officer of ITHC and owned approximately 10.5% of the outstanding common stock
of ITHC. As of August 20, 1999, and as of December 27, 1999, Cognigen Corporation owned
approximately 64.7% and 57.9%, respectively, of the outstanding common stock of ITHC,
Inter-American Telecommunications Corp. and Telkiosk, Inc. each owned approximately 5.9%
and 5.3%, respectively, of the outstanding common stock of ITHC, and CTC owned
approximately 7.9% and 7.1%, respectively, of the outstanding common stock of ITHC. As of
August 20, 1999, and as of December 27, 1999, Kevin E. Anderson, through the Anderson
Family Trust #1 which owns approximately 98.9% of the outstanding common stock of Cognigen
Corporation, controlled us and ITHC. Peter Tilyou is the sole trustee of the Anderson
Family Trust #1 but is not a beneficiary of the trust.

We believe that the transaction between us and ITHC on December 27, 1999, at which
time we may be deemed to have been affiliated with ITHC, was at least as fair to us as we
could have obtained from an unaffiliated third party. We did not obtain a fairness opinion
in connection with the August 20, 1999 or December 27, 1999 transactions with ITHC.

On September 14, 1999, Peter Tilyou, pursuant to the authority previously granted to
him by ITHC, amended an agreement dated as of September 1, 1999 between ITHC and CCRI
Corp. The agreement specified the compensation CCRI Corp. was to receive for assisting
ITHC in raising capital. The amendment provided that CCRI Corp. would receive a bonus of
200,000 shares of our common stock. Of the 200,000 shares, 50,000 shares were to be
unrestricted. It was later determined that CCRI Corp. would assist us in raising
additional capital and that ITHC would not raise any capital. When CCRI Corp. did assist
us in raising additional capital, we felt obligated to provide CCRI Corp. with the
compensation and bonus that ITHC had agreed to pay. We were unable on November 10 and 11,
1999, to provide the 50,000 shares of our unrestricted common stock for delivery to the two
persons affiliated with CCRI Corp. As an accommodation to us, Peter Tilyou, as Managing
Director of Combined Telecommunications Consultancy, Ltd. ("CTC"), arranged for CTC to
deliver 50,000 unrestricted shares of our common stock to the two persons affiliated with
CCRI Corp. In May 2000, Peter Tilyou on behalf of CTC requested that we reimburse CTC for
the value of the 50,000 shares of our common stock. The reimbursement request was based
upon the closing prices of our common stock on November 10 and 11, 1999. A total of
$175,000 was paid to CTC.

We also believe that the transaction between us and CTC was at least as fair to us as
we could have obtained from an independent third party.

On July 22, 1999, ITHC and CST entered into a Carrier Service Agreement that was
assumed by us in connection with the acquisition by us of all of the assets of ITHC. Under
the terms of the three-year agreement, ITHC agreed to migrate to CST domestic and
international dial-around and call-back long distance subscribers pursuant to a
telemarketing campaign to be conducted with ITHC's personnel. CST agreed to provide office
space, long distance telephone service, PABX and telephone handsets, at its cost, to
support up to 12 telemarketing personnel and workstations. ITHC agreed to provide the
computer terminals and peripherals, furniture and fixtures required for the telemarketing
personnel. CST also agreed to provide customer service personnel. CST agreed to charge
ITHC a rate to each destination equal to CST's cost plus 15%. The rate charged by CST
included all switching services. CST also agreed to provide all accounting services in
connection with the agreement. All accounts sent to CST by ITHC remained the property of
ITHC. ITHC provided CST with advance payments of approximately $570,000 to help cover
CST's cost in providing long distance services for telemarketing, customer service and
carrier transport for the accounts of ITHC that migrate to CST.

On April 25, 2000, the CST shareholders transferred all of the outstanding CST shares
of common stock to us in exchange for a total of 2,041,445 shares of our common stock. The
number of shares of our common stock issued to the CST shareholders in exchange for CTS
shares was determined by negotiations between CST's shareholders and us and was based on
the market price of our common stock, which on April 25, 2000 had a closing price of $1.00
per share, the fact our common stock issued in the exchange was not to be registered and
estimates of the value of CST's assets, staff, technology, revenue-producing capabilities
and physical location. CST's assets that were acquired by us pursuant to the exchange
included a facility lease, equipment leases and CST's customer base.

Jimmy L. Boswell was our President and is our Executive Vice President and Chief
Operating Officer and is Chairman of the Board, President and Chief Executive Officer of
CST. Mr. Boswell was one of the CST shareholders. Prior to the exchange, Mr. Boswell
beneficially owned approximately 18.7% of the CST shares. Pursuant to the exchange, Mr.
Boswell received 381,750 shares of our common stock. Immediately following the exchange,
Mr. Boswell beneficially owned a total of 1,981,750 shares of our common stock, including
1,600,000 shares underlying an option. In addition, a promissory note in the amount of
approximately $87,548 that was payable to Mr. Boswell by CST was terminated as a part of
the exchange.

David G. Lucas is our Treasurer and Chief Financial Officer and is a Director, Vice
President and Chief Financial Office of CST. Mr. Lucas was one of the CST shareholders.
Prior to the exchange, Mr. Lucas beneficially owned approximately 18.7% of the CST shares.
Pursuant to exchange, Mr. Lucas received 381,750 shares of our common stock. Immediately
following the exchange, Mr. Lucas beneficially owned a total of 1,981,750 shares of our
common stock, including 1,600,000 shares underlying an option. In addition, a promissory
note in the amount of approximately $49,177 that was payable to Mr. Lucas by CST was
terminated as a part of the exchange.

Two of the other CST shareholders were our employees. Otherwise, the other CST
shareholders had no affiliation with us.

We believe that the transaction between us and the CST shareholders was at least as
fair to us as we could have obtained from an unaffiliated party. We did not obtain a
fairness opinion in connection with the transaction.

On August 25, 1999, we granted five-year options to purchase approximately 32,400,000
shares of our common stock at $0.46 per share to various persons including the Anderson
Family Trust #1 (12,000,000 shares) which is affiliated with us and of which Kevin E.
Anderson and his family are the sole beneficiaries, Jimmy L. Boswell (1,600,000 shares),
CTC (4,000,000 shares), Darrell H. Hughes (1,600,000 shares), Inter-American
Telecommunications Corp. (800,000 shares), David L. Jackson (1,600,000 shares), David G.
Lucas (1,600,000 shares) and Telkiosk, Inc. (800,000 shares). In September 2001, all the
foregoing persons, except Mr. Boswell, who retained his option, voluntarily surrendered all
of their respective option rights, for no consideration.

On October 11, 2000, we entered into an agreement with JVTEL, a joint venture between
Telkiosk and CTC, that gave us the option to sell to JVTEL a database of off-shore and
domestic telephone service subscribers that we acquired from ITHC. According to the terms
of the agreement, in the event that we had not activated a minimum of 5,000 of the accounts
by March 30, 2001, we had the option to sell the accounts to JVTEL for $1,300,000. The
$1,300,000 was to be paid to us in such number of shares of our common stock that is equal
to $1,300,000, less the forgiveness of debt and interest due to JVTEL on March 30, 2001,
divided by the closing bid price of our common stock on March 30, 2001. On March 31, 2001,
we exercised our option to sell the database to JVTEL because we had not activated a
minimum of 5,000 of the accounts. JVTEL requested and we agreed that the purchase price of
the accounts be paid by JVTEL forgiving the balance of the debt and accrued interest in the
total amount of $689,197 due from us to JVTEL and its joint venturers and by us accepting a
promissory note in the amount of $85,803 that is payable on March 30, 2002, with interest
at a rate of 8.5% per annum.

We have employment agreements with Jimmy L. Boswell, Darrell H. Hughes and David G.
Lucas pursuant to which they are paid annual salaries of $120,000, $125,000 and $90,000,
respectively. In addition, Messrs. Boswell and Lucas, who have employment agreements that
commenced on August 1, 2000, and that terminate on July 31, 2002, were each paid $100,000
as an initial bonus in connection with their employment agreements. The initial bonus is
deemed earned on a pro rata basis over the two year period of each employment agreement in
the amount of $4,167 per month. An early termination of the employment agreements by the
employees without cause or by us with cause obligates the employees to return the unearned
portions of their initial bonuses to us. In addition, between December 1999 and March 31,
2000, we paid David L. Jackson a fee of $6,000 per month for providing services to us. On
April 1, 2000, David L. Jackson became one of our employees with an annual salary of
$120,000. We also have assumed agreements with Kevin E. Anderson and Peter Tilyou pursuant
to which Kevin E. Anderson Consulting, Inc. and CTC are paid or are to be paid consulting
fees of $14,583 and $10,000 per month, respectively. We currently owe CTC $120,000 in
unpaid consulting fees, plus interest.

We also currently owe CTC $50,000 in cash advanced by CTC to us, plus interest, and
$25,000 paid by CTC to an independent third party on our behalf, plus interest. We also
currently owe CTC $30,625, plus interest, for the value of 35,000 shares of our common
stock transferred by CTC to an independent third party in September 2000 to settle a
lawsuit. In addition, we owe CTC at least $35,000 in unreimbursed travel, lodging,
telephone, expenses and per diem expenses.

From June 15, 2001, to September 25, 2001, we paid Christopher R. Seelbach or his
company, Seelbach & Associates, $13,750 in fees for providing consulting services to us.

During our last two fiscal years ended June 30, 2001, we paid Troy D. Carl a total of
$82,107 in commissions that he earned as a result of sales by our agents who were in his
down line.

During our last two fiscal years ended June 30, 2001, we paid the wife of Kevin E.
Anderson a total of approximately $26,619 in commissions for sales made by our agents who
were in her down-line.

Kevin E. Anderson and members of his family are the beneficiaries of the Anderson
Family Trust #1. Kevin E. Anderson may be deemed to beneficially own the shares of the
common stock owned by the Anderson Family Trusts #1. The Anderson Family Trust #1 has
entered into a Letter of Agreement with us pursuant to which we have agreed to repurchase
2,712,500 shares of our common stock owned by the Anderson Family Trust #1 in consideration
for us agreeing to transfer to an affiliate of Kevin E. Anderson the rights to become the
up-line for our current agents and thereby be entitled to commissions, fees and bonuses on
our current customer accounts, with a base commission of 12%. In addition, as a part of the
transaction, Kevin E. Anderson Consulting, Inc., would cancel the agreement pursuant to
which we pay Kevin E. Anderson Consulting, Inc. consulting fees of $14,583 per month, and
Kevin E. Anderson would be retained for two years at the rate of $1,000.00 per month as a
consultant to our management for up to 20 hours per month. The Letter of Agreement is
subject to the Anderson Family Trust #1 and us completing due diligence and the execution of
a definitive agreement by November 15, 2001.

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: October 26, 2001

COGNIGEN NETWORKS, INC.

/s/ Darrell H. Hughes
Darrell H. Hughes, Chairman of the Board, President,
and Chief Executive Officer

/s/ David G. Lucas
David G. Lucas
Treasurer, Chief Financial Officer and Principal
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/ Troy D. Carl
Troy D. Carl Director October 26, 2001

/s/ Darrell H. Hughes
Darrell H. Hughes Director October 26, 2001

/s/ David L. Jackson
David L. Jackson Director October 26, 2001

/s/ David G. Lucas
David G. Lucas Director October 26, 2001

/s/ Christopher R. Seelbach
Christopher R. Seelbach Director October 26, 2001