10QSB 1 f10qq3final.htm            U

U. S. Securities and Exchange Commission

Washington, D. C.  20549


FORM 10-QSB


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


For the quarter ended September 30, 2007


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


     For the transition period from

 to


Commission File No.   000-33381


WIZZARD SOFTWARE CORPORATION

 (Name of Small Business Issuer in its Charter)


COLORADO

87-0609860

(State or Other Jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

 



5001 Baum Boulevard, Suite 770

Pittsburgh, Pennsylvania 15213

 (Address of Principal Executive Offices)


Issuer's Telephone Number:  (412) 621-0902


Check whether the Issuer (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


(1) Yes [ X]  No                (2) Yes  [ X ]  No


Indicate by check mark whether the Issuer is a shell company (as defined by Rule 12b-2 of the Exchange Act)     Yes [   ] No [X]


APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS


N/A


(APPLICABLE ONLY TO CORPORATE ISSUERS)


As of November 12,  2007, there were 43,210,081 shares of common stock, par value $.001, of the registrant issued and outstanding.


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




PART I - FINANCIAL INFORMATION


Item 1.   Financial Statements.


The Consolidated Financial Statements of the Company required to be filed with this 10-QSB Quarterly Report were prepared by management and commence on the following page, together with related Notes.  In the opinion of management, the Unaudited Consolidated Financial Statements fairly present the financial condition of the Company.








WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES

FINANCIAL STATEMENTS

 

 

 

CONTENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PAGE

Consolidated Balance Sheets

 

2

 

 

 

Consolidated Unaudited Statements of Operations

 

3

 

 

 

Consolidated Unaudited Statements of Cash Flows

 

4 - 7

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

8 - 24

 

 

 








WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES

 CONSOLIDATED BALANCE SHEET


ASSETS

 

 

September 30,   2007

 

December 31, 2006

CURRENT ASSETS:

 

(unaudited)

 

 

   Cash

$

6,966,495

$

2,685,068

Accounts receivable, net of $17,562 and $17,562 allowance, respectively

 

617,884

 

371,636

   Inventory, net of $30,218 and $50,366 allowance, respectively

 

3,564

 

10,878

   Prepaid expenses

 

26,732

 

47,487

   Notes receivable

 

-

 

50,000

       Total current assets

 

7,614,675

 

3,165,069

 

 

 

 

 

LEASED EQUIPMENT, net

 

83,907

 

107,880

PROPERTY AND EQUIPMENT, net

 

103,777

 

75,922

GOODWILL

 

18,753,595

 

945,795

OTHER ASSETS

 

3,582

 

3,582

       Total assets

$

26,559,536

$

4,298,248

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

   Accounts payable

$

380,491

$

337,758

   Accrued expenses

 

429,684

 

376,776

   Capital lease - current portion

 

38,482

 

37,813

Notes payable – current portion, net of discount of $871,174 and $2,267,400, respectively

 

1,398,156

 

107,600

   Deferred revenue

 

18,387

 

20,142

       Total current liabilities

 

2,265,200

 

880,089

NOTES PAYABLE, less current portion

 

79,903

 

-

CAPITAL LEASE, less current portion

 

52,633

 

81,411

       Total liabilities

 

2,397,736

 

961,500

STOCKHOLDERS' EQUITY

 

 

 

 

Preferred stock, $.001 par value, 10,000,000 shares authorized, 7,500 Series A cumulative, convertible, shares issued and outstanding with liquidation preferences

 

7

 

-

Common stock, $.001 par value, 100,000,000 shares authorized, 42,354,320 and 35,214,615 shares issued and outstanding, respectively

 

42,354

 

35,215

   Additional paid-in capital

 

62,490,139

 

27,570,632

   Accumulated deficit

 

(38,370,700)

 

(24,269,099)

        Total stockholders' equity

 

24,161,800

 

3,336,748

        Total liabilities and stockholders' equity

$

26,559,536

$

4,298,248



See accompanying notes to these unaudited consolidated financial statements.



WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


 

 

For the Three Months  Ended

September  30,

 

For the Nine Months  Ended

September  30,

 

 

2007

 

2006

 

2007

 

2006

REVENUE

 

 

 

 

 

 

 

 

   Software

$

452,761

$

210,751

$

1,217,550

$

612,652

   Healthcare

 

1,015,715

 

608,839

 

2,404,949

 

1,591,375

      Total Revenue

 

 1,468,476

 

819,590

 

3,622,499

 

2,204,027

COST OF GOODS SOLD

 

 

 

 

 

 

 

 

   Software

 

385,649

 

94,706

 

960,279

 

313,863

   Healthcare

 

619,486

 

369,969

 

1,538,851

 

976,050

      Total Cost of Goods Sold

 

1,005,135

 

464,675

 

2,499,130

 

1,289,913

   Gross Profit

 

463,341

 

354,915

 

1,123,369

 

914,114

OPERATING EXPENSES

 

 

 

 

 

 

 

 

   Selling expenses

 

256,331

 

168,283

 

644,259

 

393,341

   General and administrative

 

1,374,381

 

1,417,769

 

5,190,270

 

2,764,527

   Research and development

 

54,261

 

21,507

 

147,385

 

44,675

   Extension and re-pricing of warrants

 

105,413

 

-

 

374,885

 

606,668

      Total Expenses

 

1,790,386

 

1,607,559

 

6,356,799

 

3,809,211

LOSS FROM OPERATIONS

 

(1,327,045)

 

(1,252,644)

 

(5,233,430)

 

(2,895,097)

OTHER INCOME (EXPENSE):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Interest income

 

86,886

 

-

 

131,448

 

-

   Interest expense

 

(1,126,480)

 

(14,182)

 

(1,509,379)

 

(421,687)

   Other income(expense)

 

5,337

 

2,304

 

9,760

 

105,808

   Total Other Income (Expense)

 

(1,034,257)

 

(11,878)

 

(1,368,171)

 

(315,879)

LOSS BEFORE INCOME TAXES

 

(2,361,302)

 

(1,264,522)

 

(6,601,601)

 

(3,210,976)

CURRENT INCOME TAX EXPENSE

 

-

 

-

 

-

 

-

DEFERRED INCOME TAX EXPENSE

 

-

 

-

 

-

 

-

NET LOSS

$

(2,361,302)

$

(1,264,522)

$

(6,601,601)

$

(3,210,976)

 

 

 

 

 

 

 

 

 

BASIC AND DILUTED LOSS PER COMMON SHARE

$

(0.06)

$

(0.04)

$

(0.16)

$

(0.09)

BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES OUTSTANDING

 

42,338,621

 

33,749,258

 

40,105,100

 

30,860,690



See accompanying notes to these unaudited consolidated financial statements.



WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS


 

 

For the Nine Months Ended

September 30,

 

 

2007

 

2006

Cash Flows from Operating Activities

 

 

 

 

  Net loss

$

 (6,601,601)

$

 (3,210,976)

  Adjustments to reconcile net loss to net cash

  used in operating activities:

 

 

 

 

   Amortization of discount on notes payable

 

1,396,226

 

-

   Compensation for re-pricing and extension of warrants

 

374,885

 

606,668

   Compensation for extension of notes payable

 

-

 

382,500

   Stock for non cash expenses

 

2,241,333

 

1,361,202

   Non-cash compensation - options issued

 

311,999

 

99,736

   Depreciation and amortization expense

 

59,637

 

53,848

   Change in allowance for bad debt

 

-

 

 (23,000)

   Change in allowance for slow moving inventory

 

 (20,148)

 

 (6,390)

   Change in assets and liabilities:

 

 

 

 

     Accounts receivable

 

 (90,900)

 

 (109,126)

     Inventory

 

27,461

 

9,831

     Prepaid expenses

 

20,755

 

 (57,205)

     Accounts payable

 

 (353,476)

 

 (99,696)

     Accrued expense

 

81,059

 

 (18,193)

     Deferred revenue

 

 (1,755)

 

 (13,311)

     Net Cash Used in Operating Activities

 

(2,554,525)

 

 (1,024,112)

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

   Purchase of property & equipment

 

 (26,370)

 

 (6,226)

   Acquisition of PNPP

 

 (150,324)

 

-

   Acquisition of Switchpod

 

-

 

202

   Acquisition of Webmayhem

 

 (328,536)

 

-

   Net Cash Used in Investing Activities

 

 (505,230)

 

 (6,024)

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

   Proceeds from the issuance of common stock

 

677,319

 

560,004

   Net Proceeds from the issuance of Series A Preferred Stock

 

6,710,000

 

-

   Payments on capital lease

 

 (28,109)

 

 (26,204)

   Payments on note payable

 

 (18,028)

 

 (239,576)

     Net Cash Provided by Financing Activities

 

7,341,182

 

294,224

 

 

 

 

 

Net Increase (Decrease) in Cash

 

4,281,427

 

 (735,912)

Cash at Beginning of Period

 

2,685,068

 

869,277

Cash at End of Period

$

6,966,495

$

133,365

Supplemental Disclosures of Cash Flow Information

 

 

 

 

   Cash paid during the periods for:

 

 

 

 

     Interest

$

10,074

$

8,777

     Income taxes

$

-

$

-


See accompanying notes to unaudited consolidated financial statements.



WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS



Supplemental Schedule of Non-cash Investing and Financing Activities:


For the nine months ended September 30, 2007:


On February 1, 2007, the Company issued 15,000 common shares upon the exercise of options valued at $47,550 to consultants for services rendered.


On February 8, 2007, the Company recorded $269,472 of compensation expense related to the extension of certain warrants.


On February 15, 2007, the Company issued 84,691 restricted common shares valued at $272,705 for consulting services.


On March 19, 2007, the Company issued 5,326,320 restricted common shares valued at $16,298,539 to acquire Webmayhem Inc.


On March 26, 2007, the Company issued 2,400 common shares upon the exercise of options valued at $6,624 to consultants for services rendered.


On March 26, 2007, the Company issued 11,909 restricted common shares valued at $36,918 for Interim Healthcare of Wyoming Inc. attainment of Phase I Incentive.


On April 3, 2007 and April 10, 2007, the Company issued 245,099 restricted common shares valued at $625,000 to acquire certain assets of Professional Nursing Personnel Pool.


On April 10, 2007, the Company issued 566,000 restricted common shares valued at $1,454,620 for consulting services.


On May 24, 2007, the Company issued 51,170 common shares upon the exercise of options valued at $117,691 to consultants for services rendered.


On May 24, 2007, the Company issued 5,000 restricted common shares valued at $11,500 for consulting services.


On May 30, 2007, the Company issued 11,000 common shares upon the exercise of options valued at $25,630 to consultants for services rendered.


On June 13, 2007, the Company issued 6,000 common shares upon the exercise of options valued at $16,200 to employees for services rendered.


On June 21, 2007, the Company issued 75,000 restricted common shares valued at $197,250 for services rendered.


On June 21, 2007, the Company issued 50,330 common shares in payment of an $84,838 note payable and $15,822 of accrued interest.


During the first nine months 2007, the company recorded $311,999 of compensation expense related to the vesting of certain stock options issued.


On July 6, 2007, the Company recorded $105,413 of non- cash expense related to the re-pricing of certain warrants.




WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS


On July 12, 2007, the Company issued 25,000 common shares in payment of a $50,000 note payable.


On August 2, 2007, the Company issued 28,000 common shares upon the exercise of options valued at $75,600 to consultants for services rendered.


On August 2, 2007, the Company issued 5,000 restricted common shares valued at $13,500 for consulting services.


On August 20, 2007, the Company issued 1,085 common shares upon the exercise of options valued at $2,463 to a consultant for services rendered.


For the nine months ended September 30, 2006:


On January 19, 2006, the Company issued 110,000 restricted common shares valued at $180,000 for consulting services.


On January 23, 2006, the Company issued 50,330 common shares upon the exercise of options valued at $84,189 to employees and non-employees for services rendered.


On March 23, 2006, the Company issued 55,628 common shares in payment of a $75,000 note payable and $854 of accrued interest.


On March 29, 2006, the Company issued 55,672 common shares in payment of a $75,000 note payable and $917 of accrued interest.


On April 20, 2006, the Company issued 97,153 common shares in payment of a $125,000 note payable and $7,482 of accrued interest.


On April 20, 2006, the Company issued 45,100 common shares valued at $75,850 to employees and non-employees for services rendered.


On May 12, 2006, the Company recorded a $606,668 expense for the re-pricing of 513,334 warrants to purchase common stock from an exercise price of $2.27 per share reduced to $1.09 per share.  The warrants were immediately exercised.


On May 18, 2006, the Company issued 247,500 shares of common stock to the holders of the 5% notes payables to extend the maturity date of the 5% notes payable to December 28, 2006.


On May 18, 2006, the Company issued 1,925 common shares upon the exercise of options valued at $2,975 to non-employees for services rendered.


During May, 2006, the Company issued 54,978 restricted common shares valued at $84,150 for consulting services.


On July 12, 2006, the Company issued 125,714 restricted common shares valued at $204,572 to acquire the assets of Switchpod, where in, the Company acquired $202 in cash and $204,370 in goodwill.


During July, 2006, the Company issued 558,800 restricted common shares valued at $868,200 for investor relation services.




WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS


On July 24, 2006, the Company issued 38,390 common shares upon the exercise of options valued at $57,585 to employees and non-employees for services rendered.


On July 24, 2006, the Company issued 5,500 restricted common shares valued at $8,250 for consulting services.


During September 2006, the Company recorded a liability of $99,265 related to the acquisition of Interim for Interim attaining Phase I Incentive. The payment will be made with the issuance of additional shares of Common Stock valued at $74,449 and $24,816 in cash.  Had the stock been issued at September 30, 2006, 44,314 shares would have been issued.




WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Unaudited Consolidated Financial Statements - The accompanying financial statements have been prepared by the Company without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position at September 30, 2007 and 2006, and the results of operations and cash flows for the periods ended September 30, 2007 and 2006 have been made.  The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions for Form 10-QSB of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted.  The financial statements are consolidated and included the accounts of Wizzard and its wholly owned subsidiaries after the elimination of all significant intercompany balances and transactions. These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2006 audited financial statements.  The results of operations for the nine months ended September 30, 2007 and 2006 are not necessarily indicative of the operating results for the full year.

 

Organization - Wizzard Software Corporation ["Parent"], a Colorado corporation, was organized on July 1, 1998.  The Company operates in two industry segments, Software and Healthcare.  The Software segment engages primarily in the development, sale, and service of custom and packaged computer software products, and podcast hosting and advertising services.  The Healthcare segment operates primarily in the home healthcare and healthcare staffing services in Wyoming and Montana.  On April 9, 2004, Parent organized Wizzard Merger Corp., a New York corporation, to acquire and dissolve into the operations of MedivoxRx Technologies, Inc., a New York corporation, in a transaction accounted for as a purchase.  On September 8, 2005, Parent purchased all of the issued and outstanding shares of Interim Healthcare of Wyoming, Inc. ["Interim"], a Wyoming corporation, in a transaction accounted for as a purchase.  On February 27, 2007, Parent organized Wizzard Acquisition Corp., a Pennsylvania corporation, to acquire and dissolve into the operations of Webmayhem, Inc. [Libsyn], a Pennsylvania corporation, in a transaction accounted for as a purchase.  Libsyn engages primarily in providing podcast hosting services.  On April 3, 2007, Interim purchased certain assets of Professional Personnel, Inc., dba, Professional Nursing Personnel Pool [“PNPP”].

 

Consolidation - The financial statements presented reflect the accounts of Parent, MedivoxRx, Libsyn and Interim.  Libsyn and PNPP are included from the date of purchase through September 30, 2007.  All significant inter-company transactions have been eliminated in consolidation.

 

Accounting Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the 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.  Significant estimates for the Company include allowances and goodwill.  Actual results could differ from those estimated by management.


Cash and Cash Equivalents - The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. At September 30, 2007, the Company had cash balances of $6,669,490 in excess of federally insured limits.


Accounts Receivable - Accounts receivable consist of trade receivables arising in the normal course of business. At September 30, 2007, the Company has an allowance for doubtful accounts of $17,562 which reflects the Company's best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. During the nine months ended September 30, 2007 and 2006, the Company decreased the allowance for bad debt by $0 and $23,000, respectively.





WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


Inventory - Inventory consists of software, health care products and supplies and is carried at the lower of cost or market on a first in first out basis. During the nine months ended September 30, 2007 and 2006, the Company decreased the allowance for slow moving inventory by $20,148 and $6,399, respectively.


Depreciation - Depreciation of property and equipment is provided on the straight-line method over the estimated useful lives of the assets of two to ten years.


Goodwill and Definite-life intangible assets - The Company accounts for Goodwill and definite-life intangible assets in accordance with provisions of Statement of Financial Accounting Standards "SFAS" No. 142, "Goodwill and Other Intangible Assets".  Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but instead are tested for impairment at least annually in accordance with the provisions of SFAS No. 142.  Impairment losses arising from this impairment test, if any, are included in operating expenses in the period of impairment.  SFAS No. 142 requires that definite intangible assets with estimable useful lives be amortized over their respective estimated useful lives, and reviewed for impairment in accordance with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets.


Software Development Costs - Statement of Financial Accounting Standards ("SFAS") No. 86 "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed" requires software development costs to be capitalized upon the establishment of technological feasibility. The establishment of technological feasibility and the ongoing assessment of the recoverability of these costs require considerable judgment by management with respect to certain external factors such as anticipated future revenue, estimated economic life, and changes in software and hardware technologies.  Capitalizable software development costs have not been significant and accordingly no amounts are shown as capitalized at September 30, 2007.


Loss Per Share - The Company computes loss per share in accordance with Statement of Financial Accounting Standards "SFAS" No. 128 "Earnings Per Share," which requires the Company to present basic earnings per share and diluted earnings per share when the effect is dilutive [see Note 11].


Income Taxes - The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes."  This statement requires an asset and liability approach for accounting for income taxes.


Advertising Costs - Advertising costs are expensed as incurred and amounted to $232,610 and $74,807 for the nine months ended September 30, 2007 and 2006, respectively.


Fair Value of Financial Instruments - The fair value of cash, accounts receivable, accounts payable and notes payable are determined by reference to market data and by other valuation techniques as appropriate. Unless otherwise disclosed, the fair value of financial instruments approximates their recorded values due to their short-term maturities.  


Revenue Recognition - Revenue is recognized when earned. The Company's revenue recognition policies are in compliance with the American Institute of Certified Public Accountants Statement of Position ("SOP") 97-2 (as amended by SOP 98-4 and SOP 98-9) and related interpretations, "Software Revenue Recognition" and the Securities and Exchange Commission Staff Accounting Bulletin No. 101 and 104.


Software - The Company sells packaged and custom software products and related voice recognition product development consulting.



 WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)


Software product revenues are recognized upon shipment of the software product only if no significant Company obligations remain, the fee is fixed or determinable, and collection is received or the resulting receivable is deemed probable. Revenue from package software products are recorded when the payment has been received and the software has been shipped.  Revenue is recognized, net of discount and allowances, at the time of product shipment.  Provisions are recorded for bad debts and at September 30, 2007 and 2006 amounted to $0. Revenue related to obligations, which include telephone support for certain packaged products, are based on the relative fair value of each of the deliverables determined based on vendor-specific objective evidence ("VSOE") when significant. The Company VSOE is determined by the price charged when each element is sold separately. Revenue from packaged software product sales to and through distributors and resellers is recorded when payment is received and the related products are shipped. The Company's distributors or resellers do not carry packaged software product inventory and thus the Company does not offer any price protections or stock balancing rights. Revenue from non-recurring programming, engineering fees, consulting service, support arrangements and training programs are recognized when the services are provided.


Healthcare - The Company recognizes revenue from the providing of healthcare services when the services are provided and collection is probable.  Revenue for the talking bottle is recognized when the product is shipped and collections are probable.


Podcast Hosting and advertising – The Company recognizes revenue from providing podcast hosting and advertising services when the services are provided and when collection is probable.


Stock Options - The Company has stock option plans that provide for stock-based employee compensation, including the granting of stock options, to certain key employees. The plans are more fully described in Note 10.   The Company records compensation expense for all share-based awards granted according to the provisions of SFAS No. 123R.  For the nine months ended September 30, 2007 and 2006, non-cash compensation expense of $311,999 and $99,736, respectively, has been recognized for grants of options to employees and directors in the accompanying statements of operations with an associated recognized tax benefit of $0 of which $0 was capitalized as an asset for the nine months ended September 30, 2007.


Research and Development Cost - The Company expenses the cost of developing new products as incurred as research and product development costs. Included in general and administrative expense for the nine months ended September 30, 2007 and 2006 are $147,385 and $48,018, respectively, of research and development costs associated with the development of new products.


NOTE 2 – ACQUISITION


On February 27, 2007, the Company acquired Webmayhem Inc.(d/b/a Liberated Syndication) pursuant to a plan of merger signed February 27, 2007.  The merger called for the Company to pay $350,000 and to issue 5,326,320 shares of “unregistered” and “restricted” shares of common stock valued at $16,298,539 for 100% of the outstanding stock of Webmayhem Inc.(d/b/a Liberated Syndication).  As part of the merger, the Company agreed to issue additional shares of common stock upon Webmayhem achieving certain production and financial results.


Milestone 1 would include the sellers to receive an additional 713,150 shares of common stock of the Company should Webmayhem obtain monthly podcast media files downloads greater than 66,546,810 and the number of unique IP addresses is at least 5,745,067 for two consecutive months from November 2007 to January 2008.


Milestone 2 would include the sellers to receive an additional 2,281,580 shares of common stock of the Company should Webmayhem obtain gross revenue of at least $5,000,000 and EBITDA of at least $1,500,000 during their second year of operation measured from the closing date of the merger.




WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 2 – ACQUISITION (Continued)


Milestone 3 would include the sellers to receive an additional 2,281,580 shares of common stock of the Company should Webmayhem obtain gross revenue of at least $15,000,000 and EBITDA of at least $5,000,000 during their third year of operation measured from the closing date of the merger.


On April 3, 2007, the Company acquired certain assets  of Professional Personnel Inc. (Professional Nursing Personnel Pool, “PNPP”) The Purchase Agreement called for the Company to pay $150,000 in cash and to issue 245,099 of unregistered and restricted shares of common stock valued at $625,000 for certain assets and liabilities of Professional Personnel Inc.


Wizzard agreed to issue an additional 6,537 “unregistered” and “restricted” shares of its common stock for every $100,000 in gross sales revenues generated by PNPP’s operations relating to the acquired assets, to the extent that such revenues exceed $1,400,000, up to a maximum of $2,000,000, during the calendar year ended December 31, 2007 (the “Milestone Shares”).


Wizzard further agreed to employ Professional Personnel’s current office team of six employees for a minimum of 90 days and to make available an additional $50,000 worth of stock to be issued to such employees on terms similar to the issuance of the Milestone Shares.


The following unaudited proforma information summarizes the estimated fair values of the assets acquired and the liabilities assumed:


 

 

Webmayhem

 

PNPP

Cash

$

23,795

$

-

Accounts Receivable

 

80,335

 

75,013

Property Equipment

 

37,147

 

-

Accounts Payable

 

(385,919)

 

-

Accrued Liabilities

 

(24,588)

 

-

Note Payable

 

(50,000)

 

(127,099)

Net liabilities assumed in excess of assets

 

(319,230)

 

(52,086)

Goodwill

 

16,970,100

 

837,700

Purchase price

$

16,650,870

$

785,614


The following unaudited proforma information summarizes the estimated results of operations as if the acquisitions had occurred at the beginning of the period presented:


 

 

For the Nine

 

 

Months Ended

 

 

September 30, 2007

Net revenue

$

4,272,331

Cost of sales

 

2,955,509

Operating expenses

 

6,510,091

Other expense

 

(1,368,171)

Net loss

$

(6,561,440)

 

 

 

Basic and diluted loss per common share

$

(.16)

 

 

 

Basic and diluted weighted average common shares outstanding

 

41,710,859



WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 3 - INVENTORIES


The following is a summary of inventories:

 

 

September 30,

 

December 31,

 

 

2007

 

2006

Raw materials

$

25,587

$

50,356

Finished goods

 

8,195

 

10,888

Less: Allowance for obsolete inventory

 

(30,218)

 

(50,366)

 

$

3,564

$

10,878


NOTE 4 – PROPERTY & EQUIPMENT


The following is a summary of property and equipment at:

 


Life

 

September 30,

2007

 

December 31,

2006

 

 

 

 

 

 

Furniture, fixtures and equipment

2-10 yrs

$

251,639

$

177,833

Production molds

3 yrs

 

47,710

 

47,710

Software

2-5 yrs

 

11,964

 

11,964

 

 

 

311,313

 

237,507

Less: Accumulated depreciation

 

 

(207,536)

 

(161,585)

Property & equipment, net

 

$

103,777

$

75,922


Depreciation expense for the nine months ended September 30, 2007 and 2006 was $35,664 and $29,875, respectively.


The following is a summary of leased equipment at:

 


Life

 

September 30,

2007

 

December 31,

2006

 

 

 

 

 

 

Leased equipment

5.25 yrs

$

223,750

$

223,750

Less: Accumulated depreciation

 

 

(139,843)

 

(115,870)

Leased equipment, net

 

$

83,907

$

107,880


Depreciation expense for the nine months ended September 30, 2007 and 2006 was $23,973 and $23,973, respectively.


NOTE 5 – GOODWILL / DEFINITE-LIFE INTANGIBLE ASSETS


Intangible Assets - The Company classifies its intangible assets as definite-life intangible assets and amortizes them on a straight-line basis over their estimated useful lives.  Amortization expense of $0 was recorded for the nine months ended September 30, 2007 and 2006.


Goodwill - On September 8, 2005, the Company recorded goodwill of $896,570 in connection with the acquisition of Interim Health Care of Wyoming as the purchase price of $904,006 exceeded the $7,436 net book value of the assets acquired.  On September 30, 2006, the company recorded additional goodwill of $99,265 in connection with the Phase I Incentives.


On March 1, 2007, the Company recorded goodwill of $16,970,100 in connection with the acquisition of Webmayhem Inc. as the assumption of liabilities exceeded assets by $319,230 plus the purchase price of $16,650,870.



WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – GOODWILL / DEFINITE-LIFE INTANGIBLE ASSETS (Continued)


On April 3, 2007, the Company recorded goodwill of $837,700 in connection with the asset purchase of PNPP as the assumption of liabilities exceeded assets by $52,086 plus the purchase price of $785,614.


On July 12, 2006, the Company recorded goodwill of $204,370 in connection with the purchase of the assets of Switchpod Technologies.  The purchase price of $204,572 exceeded the $202 of assets acquired. The goodwill was impaired during December 2006.


On September 8, 2006, the Company recorded goodwill of $40,500 in connection with the purchase of the assets of Blastpodcast.  The purchase price of $40,500 exceeded the value of the assets acquired. The goodwill was impaired during December 2006.


The following is a summary of goodwill:

 

 

For the Nine Months Ended September 30,

 

For the Year Ended December 31,

 

 

2007

 

2006

 

 

 

 

 

Goodwill at beginning of period

$

945,795

$

896,570

 

 

 

 

 

Acquisition of Interim

 

-

 

49,225

 

 

 

 

 

Acquisition of Switchpod

 

-

 

204,370

 

 

 

 

 

Acquisition of Blastpodcast

 

-

 

40,500

 

 

 

 

 

Goodwill from acquisition of Webmayhem Inc.

 

16,970,100

 

-

 

 

 

 

 

Goodwill from acquisition of PNPP

 

837,700

 

-

 

 

 

 

 

Impairment of goodwill

 

-

 

(244,870)

 

 

 

 

 

Goodwill at end of period

$

18,753,595

$

945,795


NOTE 6 - NOTES PAYABLE


On February 8, 2005, the Company closed a Subscription Agreement by which three institutional investors purchased a)promissory notes having a total principal amount of $1,400,000, convertible into shares of the Company's common stock at a price of $1.36 per share, and bearing an annual interest rate of five percent; b)Class A Warrants to purchase a total of 513,334 shares of common stock at a price of $2.27 per share, exercisable for three years; and c)Class B Warrants to purchase a total of 1,026,667 shares of common stock at a price of $1.36 per share, exercisable until 150 days after the effective date of the Registration Statement. The fair value of the beneficial conversion feature and Class A and Class B warrants were reduced on a pro-rata basis to the $1,400,000 proceeds received from the subscription and recorded as a discount against the note. During 2006, the Company issued 824,506 common shares to payoff the remaining $950,000 in principal and $42,717 in related accrued interest.



WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - NOTES PAYABLE (Continued)

    

On October 27, 2006, the Company closed a Subscription Agreement by which three institutional investors purchased a) a 5% convertible notes payable having a total principal amount of $2,375,000, convertible into  common shares of the Company at $2.00 per share and maturing April 27, 2008; b) Class A Warrants to purchase a total of 593,750 shares of common stock, at $2.50 per share, exercisable for three years, and c)Class B Warrants to purchase a total of 1,187,500 shares of common stock at $2.00 per share, exercisable until 180 days after the effective date of the Registration Statement. As the conversion price for the note was below the fair value of the common stock on the date issued, the Company recorded a discount on the note for beneficial conversion feature of the note in accordance with the provisions found in EITF 98-5. The fair value of the beneficial conversion feature and Class A and Class B warrants were reduced on a pro-rata basis to the $2,375,000 proceeds received from the subscription and recorded as a discount against the note.  The $968,000 discount on the beneficial conversion feature is being amortized as interest expense over the term of the note. As of September 30, 2007, the Company has amortized $1,503,826 of the discount with the remaining $871,174 unamortized discount being offset against the outstanding balance of the note in the accompanying balance sheet.


The Class A Warrants and Class B Warrants were valued using the Black-Scholes pricing model using the following weighted average assumptions 77.19% volatility, 1.33 years expected life, 5.08% risk free interest rate and expected dividend yield of zero.


In April 2007, Interim signed a $127,099 note payable to a bank.  The note is unsecured, and accrues interest at 8.25% per annum.  At September 30, 2007, the note has a remaining principal balance of $109,072.  During the nine months ended September 30, 2007 and 2006, interest expense on the note payable amounted to $4,205 and $0, respectively.


NOTE 7 - CAPITAL LEASE OBLIGATION

  

The Company is leasing equipment on a 63-month capital lease terminating in August 2008.  Monthly payments of $3,750 began in June 2003 and a payment of $54,688 is due at termination.  During the nine months ended September 30, 2007 and 2006, interest expense on capital lease obligation amounted to $5,641 and $7,546, respectively.


Future minimum capital lease payments are as follows for the twelve-month periods as of:


 

 

September 30,

 

December 31,

 

 

2007

 

2006

2007

$

11,250

$

45,000

2008

 

84,688

 

84,688

Total minimum lease payments

 

95,938

 

129,688

Less amount representing interest

 

(4,823)

 

(10,464)

Present value of minimum lease payments

 

91,115

 

119,224

Less current portion

 

(38,482)

 

(37,813)

 

$

52,633

$

81,411


NOTE 8 - CAPITAL STOCK

 

Preferred Stock   The Company has authorized 10,000,000 shares of preferred stock, $.001 par value.  As of September 30, 2007, the Company had 7,500 Series A Preferred shares issued and outstanding. The Series A Preferred shares have no voting rights, with liquidation rights of stated value plus unpaid dividends and damages.  The Series A Preferred shares dividend and any damages are convertible into common shares at $2.05 per common shares.



WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - CAPITAL STOCK (Continued)


Holders of the Preferred Stock will be entitled to receive cumulative dividends of 7% per annum for the first two years after issuance of the Preferred Stock and 18% per annum thereafter, payable on January 1 and July 1, beginning on January 1, 2008, either in cash or, at the Company’s option, in shares of the Company’s common stock.  


The Company will have the right to force conversion of all or part of the outstanding Preferred Stock, plus all accrued but unpaid dividends and liquidated damages due with respect to the Preferred Stock if, after the two-year anniversary of the effectiveness of the Registration Statement referred to below, the price of the Company’s common stock exceeds $6.15 for 10 consecutive trading days and the volume for each such trading day exceeds 100,000 shares of common stock.  


Beginning two years after the issuance date of the Preferred Stock, the Company may also elect to redeem all (but not less than all) of the then outstanding Preferred Stock at a total price of:  (i) 125% of the aggregate Stated Value then outstanding; (ii) accrued but unpaid dividends; and (iii) all liquidated damages and other amounts due with respect to the Preferred Stock.  On the occurrence of certain Triggering Events as defined in Section 9(a) of the Articles of Amendment/Certificate of Designation with respect to the Preferred Stock, each holder will have the right to require the Company to redeem all of the holder’s Preferred Stock or to increase the dividend rate on that holder’s Preferred Stock to 18% per annum thereafter.

  

Common Stock   The Company has authorized 100,000,000 shares of common stock, $.001 par value.  As of September 30, 2007, the Company had 42,295,235 common shares issued and outstanding.


On February 1, 2007, the Company issued 15,000 common shares upon the exercise of options valued at $47,550 consultants for services rendered.


On February 8, 2007, the Company recorded $269,472 of compensation expense related to the extension of certain warrants.


On February 15, 2007, the Company issued 84,691 restricted common shares valued at $272,705 for consulting services.


On March 19, 2007, the Company issued 5,326,320 restricted common shares valued at $16,298,539 to acquire Webmayhem Inc.


On March 26, 2007, the Company issued 2,400 common shares upon the exercise of options valued at $6,624 to consultants for services rendered.


On March 26, 2007, the Company issued 11,909 restricted common shares valued at $36,918 for Interim Healthcare attainment of Phase I Incentive.


Exercise of Warrants - On January 17, 2007, January 30, 2007, and March 16, 2007, the Company issued 11,749, 75,549, and 50,000 common shares, respectively, upon the exercise of warrants at $1.25 per share.


Exercise of Warrants - On February 14, 2007, March 13, 2007, and March 23, 2007, the Company issued 84,167, 15,000, and 10,000 common shares, respectively, upon the exercise of warrants at $1.36 per share.


On April 3, 2007 and April 10, 2007, the Company issued a total of 245,099 restricted common shares valued at $625,000 to acquire certain assets of Professional Nursing Personnel Pool.


On April 10, 2007, the Company issued 566,000 restricted common shares valued at $1,454,620 for consulting services.



WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - CAPITAL STOCK (Continued)  


On May 24, 2007, the Company issued 51,170 common shares upon the exercise of options valued at $117,691 to consultants for services rendered.


On May 24, 2007, the Company issued 5,000 restricted common shares valued at $11,500 for consulting services.


On May 30, 2007, the Company issued 11,000 common shares upon the exercise of options valued at $25,630 to consultants for services rendered.


On June 13, 2007, the Company issued 6,000 common shares upon the exercise of options valued at $16,200 to employees for services rendered.


On June 21, 2007, the Company issued 75,000 restricted common shares valued at $197,250 for services rendered.


On June 21, 2007, the Company issued 50,330 common shares in payment of an $84,838 note payable and $15,822 of accrued interest.


On July 6, 2007, the Company closed a Subscription Agreement by which two institutional investors purchased a) 7,500 shares of Series A 7% Convertible Preferred Stock, par value $.001, for a total amount of $7,500,000, convertible into common shares of the Company at $2.05 per share, dividend payable semi-annual on January 1st and July 1st, and; b) Warrants to purchase a total of 1,829,268 shares of common stock, at $2.85 per share, exercisable for five years. The Warrants were valued using the Black-Scholes pricing model using the following weighted average assumptions 74.88% volatility, 5 years expected life, 4.90% risk free interest rate and expected dividend yield of zero.


On July 6, 2007, the Company recorded $105,413 of non- cash expense related to the re-pricing of certain warrants.


On July 12, 2007, the Company issued 25,000 common shares in payment of a $50,000 note payable.


On August 2, 2007, the Company issued 28,000 common shares upon the exercise of options valued at $75,600 to consultants for services rendered.


On August 2, 2007, the Company issued 5,000 restricted common shares valued at $13,500 for consulting services.


On August 20, 2007, the Company issued 1,085 common shares upon the exercise of options valued at $2,463 to a consultant for services rendered.


Exercise of Warrants - On April 19, 2007, April 27, 2007, June 14, 2007, June 15, 2007 and June 19, 2007, the Company issued 10,000, 16,500, 21,833, 73,530 and 109,176 common shares, respectively, upon the exercise of warrants at $1.36 per share.


Exercise of Warrants - On May 9, 2007, the Company issued 153,197 common shares, upon the exercise of warrants at $1.25 per share.


During the first nine months of 2007, the company recorded $311,999 of compensation expense related to the vesting of certain stock options issued.





WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - CAPITAL STOCK (Continued)


On January 19, 2006, the Company issued 110,000 restricted common shares valued at $180,000 for consulting services.


On January 23, 2006, the Company issued 50,330 common shares upon the exercise of options valued at $84,189 to employees and non-employees for services rendered.


On March 23, 2006, the Company issued 55,628 common shares in payment of a $75,000 note payable and $854 of accrued interest.


On March 29, 2006, the Company issued 55,672 common shares in payment of a $75,000 note payable and $917 of accrued interest.


On April 20, 2006, the Company issued 45,100 common shares valued at $75,850 to employees and non-employees for services rendered.


On May 18, 2006, the Company issued 1,925 common shares upon the exercise of options valued at $2,975 for consulting services.


During May, 2006, the Company issued 54,978 restricted common shares valued at $84,150 for consulting services.


Exercise of Warrants   On May 12, 2006, the Company issued 513,334 common shares upon exercise of warrants at $1.09.


On May 18, 2006, the Company issued 247,500 shares of common stock to the holders of the 5% notes payables to extend the maturity date of the 5% notes payables to December 28, 2006.


During July, 2006, the Company issued 558,800 restricted common shares valued at $868,200 for investor relation services.


On July 12, 2006, the Company issued 125,714 restricted common shares valued at $204,572 to acquire the assets of Switchpod, where in, the Company acquired $202 in cash and $204,370 in goodwill.


On July 24, 2006, the Company issued 38,390 common shares upon the exercise of options valued at $57,585 to employees and non-employees for services rendered.

On July 24, 2006, the Company issued 5,500 restricted common shares valued at $8,500 for consulting services.


NOTE 9 – RELATED PARTY TRANSACTIONS


During the third quarter of 2007, the Company entered into three separate exclusive advertising agreements including an agreement with Survival Spanish, a top 10 (as ranked in iTunes) Education podcaster, whereby the podcaster agreed to provide Wizzard exclusivity to his shows for advertising for six months.  Survival Spanish is owned by David Spencer.  David Spencer is a sibling of the CEO of the Company.  During the third quarter of 2007, payments were made to Mr. Spencer totaling $6,250.  Also, during the third quarter of 2007, payments were made to Mark Spencer, a sibling of the CEO, for $250 for support of the Hilary Duff podcast.



WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 10 – STOCK OPTIONS AND WARRANTS


2007 Key Employee Stock Option Plan   During 2007, the Board of Directors adopted a 2007 Key Employee Stock Option Plan ("2007 Key Employee Plan").  Under the terms and conditions of the 2007 Key Employee Plan, the Board is empowered to grant stock options to employees and officers of the Company.  Additionally, the Board will determine at the time of granting the vesting provisions and whether the options will qualify as Incentive Stock Options under Section 422 of the Internal Revenue Code.  The total number of shares of common stock available under the 2007 Key Employee Plan may not exceed 200,000.  At September 30, 2007, no options were available to be granted under the 2007 Key Employee Plan.  During the nine months ended September 30, 2007, the Company granted 200,000 options.


2007 Stock Option Plan   During 2007, the Board of Directors adopted a Stock Option Plan ("2007 Plan").  Under the terms and conditions of the 2007 Plan, the Board is empowered to grant stock options to employees and officers of the Company.  Additionally, the Board will determine at the time of granting the vesting provisions and whether the options will qualify as Incentive Stock Options under Section 422 of the Internal Revenue Code.  The total number of shares of common stock available under the 2007 Plan may not exceed 200,000.  At September 30, 2007, 18,830 options were available to be granted under the 2007 Plan.  During the nine months ended September 30, 2007, the Company granted 181,170 options.


2006 Stock Option Plan   During 2006, the Board of Directors adopted a Stock Option Plan ("2006 Plan").  Under the terms and conditions of the 2006 Plan, the Board is empowered to grant stock options to employees and officers of the Company.  Additionally, the Board will determine at the time of granting the vesting provisions and whether the options will qualify as Incentive Stock Options under Section 422 of the Internal Revenue Code.  The total number of shares of common stock available under the 2006 Plan may not exceed 137,500.  At September 30, 2007, no options were available to be granted under the 2006 Plan.  During the nine months ended September 30, 2007 and 2006, the Company granted 0 and 137,500 options, respectively.


2005 Stock Option Plan   During 2005, the Board of Directors adopted a Stock Option Plan ("2005 Plan").  Under the terms and conditions of the 2005 Plan, the Board is empowered to grant stock options to employees, officers, directors, and consultants of the Company.  Additionally, the Board will determine at the time of granting the vesting provisions and whether the options will qualify as Incentive Stock Options under Section 422 of the Internal Revenue Code.  The total number of shares of common stock available under the 2005 Plan may not exceed 220,000.  At September 30, 2007, total options available to be granted under the 2005 Plan totaled 95.  During the nine months ended September 30, 2007 and 2006, the Company granted 19,700 and 127,495 options, respectively, which were immediately exercised for service valued at $60,384 and $206,799, respectively.


The fair value of option grants during the nine months ended September 30, 2007 and 2006 was determined using the Black-Scholes option valuation model.  The significant weighted average assumptions relating to the valuation of the Company’s Stock Options for the nine months ended September 30, 2007 and 2006 were as follows:


 

2007

 

2006

Dividend yield

0 %

 

0 %

Expected life

10 yrs

 

10 yrs

Expected volatility

65.6%

 

94.9%

Risk-free interest rate

4.65 to 4.8%

 

4.86%




WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 10 – STOCK OPTIONS AND WARRANTS (Continued)



A summary of the status of options granted at September 30, 2007, and changes during the period then ended are as follows:


 

For the Nine Months Ended

 

September 30, 2007

 

Shares

 

Weighted Average Exercise Price

Weighted Average Remaining Contractual Term

 

Aggregate Intrinsic Value

Outstanding at beginning of period

137,500

$

1.59

9.4 years

$

185,625

Granted

404,655

 

1.64

5.4 years

 

-

Exercised

(114,655)

 

2.54

-

 

-

Forfeited

-

 

-

-

 

-

Expired

-

 

-

-

 

-

Outstanding at end of period

427,500

 

2.06

7.7 years

 

376,200

Vested and expected to vest in the future

427,500

 

2.06

7.7 years

 

376,200

Exercisable at end of period

320,500

 

1.97

8.0 years

 

310,885

Weighted average fair value of options granted

427,500

$

2.06

7.7 years

$

376,200


The Company had 115,500 non-vested options at the beginning of the period with a weighted average exercise price of $1.59.  At September 30, 2007 the Company had 107,000 non-vested options with a weighted average exercise price of $2.34.


The total intrinsic value of options exercised during the nine months ended September 30, 2007 and 2006 was $0 and $0, respectfully.  Intrinsic value is measured using the fair market value at the date of exercise (for shares exercised) or at September 30, 2007 and 2006 (for outstanding options), less the applicable exercise price.


During the nine month period ended September 30, 2007 and 2006, the Company expensed $291,758 and $206,799 upon the exercise of awards.  The Company realized no tax benefit due to the exercise of options as the Company had a loss for the period and historical net operating loss carry forwards.


Warrants - A summary of the status of the warrants granted is presented below for the nine months ended:


 

September 30, 2007

 

September 30, 2006

 

Shares

 

Weighted Average Exercise Price

 

Shares

 

Weighted Average Exercise Price

Outstanding at beginning of period

3,193,331

$

2.05

 

1,923,105

$

1.79

Granted

1,829,268

 

2.85

 

513,334

 

2.27

Exercised

(630,701)

 

1.10

 

(513,334)

 

1.36

Forfeited

(110,627)

 

1.36

 

-

 

-

Expired

(157,420)

 

3.41

 

-

 

-

Outstanding at end of period

4,123,851

$

2.42

 

1,923,105

$

1.79




WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 11 - LOSS PER COMMON SHARE


The following data show the amounts used in computing loss per share and the weighted average number of shares of common stock outstanding for the periods presented:


 

 

For the Three Months

 

For the Nine Months

 

 

Ended September 30,

 

Ended September 30,

 

 

2007

 

2006

 

2007

 

2006

Loss from continuing operations available to common shareholders (numerator)

$

(2,361,302)

$

(1,264,522)

$

(6,601,601)

$

(3,210,976)

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding during the period used in loss per share (denominator)

 

42,338,621

 

33,749,258

 

40,105,100

 

30,860,690


At September 30, 2007, the Company had 4,123,851 warrants outstanding to purchase common stock of the Company at $2.00 to $2.85 per share, the Company had 427,500 options outstanding to purchase common stock of the Company at $1.59 to $2.89 per share, and a 5% convertible note payable wherein the holder could convert the note into a minimum of 1,120,081 shares of common stock, [See Note 6], and a 7% cumulative Series A Preferred shares wherein the holder could convert the note into a minimum of 3,658,537 shares of common stock which were not included in the loss per share computation because their effect would be anti-dilutive.


At September 30, 2006, the Company had 1,923,105 warrants outstanding to purchase common stock of the Company at $1.36 to $3.41 per share, the Company had 137,500 options outstanding to purchase common stock of the Company at $1.59 per share, and a 5% convertible note payable wherein the holder could convert the note into 494,998 shares, [See Note 6], which were not included in the loss per share computation because their effect would be anti-dilutive.


NOTE 12 - INCOME TAXES


The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes".  SFAS No. 109 requires the Company to provide a net deferred tax asset/liability equal to the expected future tax benefit/expense of temporary reporting differences between book and tax accounting methods and any available operating loss or tax credit carryforwards.  The Company has available at September 30, 2007 operating loss carryforwards of approximately $22,770,000 which may be applied against future taxable income and which expires in various years through 2027.


The amount of and ultimate realization of the benefits from the operating loss carryforwards for income tax purposes is dependent, in part, upon the tax laws in effect, the future earnings of the Company, and other future events, the effects of which cannot be determined.  


Because of the uncertainty surrounding the realization of the loss carryforwards and significant changes in the ownership of the Company, a valuation allowance has been established equal to the tax effect of the loss carryforwards and, therefore, no deferred tax asset has been recognized for the loss carryforwards.  The net deferred tax assets are approximately $7,700,000 as of September 30, 2007, with an offsetting valuation allowance of the same amount.  The change in the valuation allowance for the nine months ended September 30, 2007 approximated $1,500,000.



WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 13 - COMMITMENTS AND CONTINGENCIES


Agreements - In connection with the agreement with AT&T to sell to AT&T's OEM Natural Voices desktop product licenses the Company is required to make minimum purchase of $125,000 per each six month period beginning  July 2004 through June 2008.


In connection with the agreement with IBM to sell IBM's OEM ViaVoice desktop products licenses the Company is required to make minimum purchases of $15,000 per quarter beginning July 2007 through June 2009.


Contingent Consideration for the Acquisition of Interim Health Care of Wyoming, Inc. – As part of the Interim Healthcare of Wyoming, Inc. acquisition, the Company agreed to issue additional shares of common stock upon Interim achieving certain financial results.  Phase II incentives include the seller to receive an additional payment of two times the EBITDA for the year ended September 30, 2007, based upon the amount that exceeds the Interim EBITDA for the year ended September 30, 2006. Twenty-five percent of which will be paid in cash and seventy-five percent paid in stock.  As of September 30, 2007, Interim Healthcare of Wyoming did not attain the Phase II incentive.


Contingent Consideration for the Acquisition of the assets of Switchpod Technology   As part of the Switchpod acquisition, the Company agreed to issue additional shares of common stock upon Switchpod obtaining certain milestones.  The second incentive would include the seller to receive an additional 12,500 “unregistered” and “restricted” common shares per month up to a maximum of 200,000 common shares, if during the second year following the completion of the acquisition, Switchpod delivers 1,000,000 podcast downloads per month in excess of the number of podcast downloads per month as of May 31, 2007 or 5,000,000 podcast downloads per month.


Contingent Consideration for the Acquisition of Webmayhem, Inc. As part of the merger, the Company agreed to issue additional shares of common stock upon Webmayhem achieving certain production and financial results.


Milestone 1 would include the sellers to receive an additional 713,150 shares of common stock of the Company should Webmayhem obtain monthly podcast media files downloads greater than 66,546,810 and the number of unique IP addresses is at least 5,745,067 for two consecutive months from November 2007 to January 2008.


Milestone 2 would include the sellers to receive an additional 2,281,580 shares of common stock of the Company should Webmayhem obtain gross revenue of at least $5,000,000 and EBITDA of at least $1,500,000 during their second year of operation measured from the closing date of the merger.


Milestone 3 would include the sellers to receive an additional 2,281,580 shares of common stock of the Company should Webmayhem obtain gross revenue of at least $15,000,000 and EBITDA of at least $5,000,000 during their third year of operation measured from the closing date of the merger.


Contingent Consideration for the Acquisition of the assets of PNPP As part of the asset purchase agreement, the Company agreed to issue additional shares of common stock upon PNPP achieving certain financial results.


Wizzard agreed to issue an additional 6,537 “unregistered” and “restricted” shares of its common stock for every $100,000 in gross sales revenues generated by PNPP’s operations relating to the acquired assets, to the extent that such revenues exceed $1,400,000, up to a maximum of $2,000,000, during the calendar year ended December 31, 2007 (the “Milestone Shares”).


Wizzard further agreed to employ Professional Personnel’s current office team of six employees for a minimum of 90 days and to make available an additional $50,000 worth of stock to be issued to such employees on terms similar to the issuance of the Milestone Shares.



WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 14 - SEGMENT REPORTING


The Company’s operations are divided into two independent segments – software and healthcare. The Company does not have any inter-segment revenues and the Company uses the same accounting principles used to prepare the consolidated financial statements for both operating segments.


Software - The Company attributes revenues from the development, sale, and service of custom and packaged computer software products at the time the product is shipped and collections are likely and from podcast hosting services at the time the service is provided.


Healthcare - The Company attributes revenue from the development, sale, and service of talking prescription pill bottles and healthcare services at the time the services are rendered and collections are likely.


The following is a summary of the Company’s operations by segment for the nine months ended September 30, 2007 and 2006:


 

 

2007

 

2006

 

 

Software

 

Healthcare

 

Total

 

Software

 

Healthcare

 

Total

Net revenues

$

1,217,550

$

2,404,949

$

3,622,499

$

612,652

$

1,591,375

$

2,204,027

Cost of sales

 

960,279

 

1,538,851

 

2,499,130

 

313,863

 

976,050

 

1,289,913

General and

    administrative

 

4,606,822

 

583,448

 

5,190,270

 

2,326,685

 

437,842

 

2,764,527

Selling

 

542,430

 

101,829

 

644,259

 

222,217

 

171,124

 

393,341

Research and

   development

 

147,385

 

-

 

147,385

 

45,018

 

(343)

 

44,675

Compensation for re-pricing/extension of warrants

 

374,885

 

-

 

374,885

 

606,668

 

-

 

606,668

Other income

 

120,658

 

10,790

 

131,448

 

73,910

 

31,897

 

105,807

Interest expense

 

1,489,545

 

10,074

 

1,499,619

 

414,588

 

7,099

 

421,687

Income tax benefit/(expense)

 

-

 

-

 

-

 

-

 

-

 

-

Net income (loss)

$

(6,783,138)

$

181,537

$

(6,601,601)

$

(3,242,476)

$

31,500

$

(3,210,976)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

24,705,260

 

1,854,276

 

26,559,536

 

1,447,031

 

657,609

 

2,104,640

Depreciation expense

 

22,348

 

37,289

 

59,637

 

17,948

 

35,900

 

53,848


The following is a summary of the Company’s operations by segment for the three months ended September 30, 2007 and 2006:


 

 

2007

 

2006

 

 

Software

 

Healthcare

 

Total

 

Software

 

Healthcare

 

Total

Net revenues

$

452,761

$

1,015,715

$

1,468,476

$

210,751

$

608,839

$

819,590

Cost of sales

 

385,649

 

619,486

 

1,005,135

 

94,706

 

369,969

 

464,675

General and

    administrative

 

1,162,058

 

212,323

 

1,374,381

 

1,251,284

 

166,485

 

1,417,769

Selling

 

230,488

 

25,843

 

256,331

 

98,980

 

69,303

 

168,283

Research and

   development

 

54,261

 

-

 

54,261

 

21,867

 

(360)

 

21,507

Compensation for

    extension of warrants

 

105,413

 

-

 

105,413

 

-

 

-

 

-

Other income

 

81,180

 

1,283

 

82,463

 

1

 

2,303

 

2,304

Interest expense

 

1,112,352

 

4,368

 

1,116,720

 

11,820

 

2,362

 

14,182

Income tax benefit/(expense)

 

-

 

-

 

-

 

-

 

-

 

-

Net income (loss)

$

(2,516,280)

$

154,978

$

(2,361,302)

$

(1,267,905)

$

3,383

$

(1,264,522)

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation expense

 

8,107

 

10,901

 

19,008

 

7,921

 

9,910

 

17,831



WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 15 - SUBSEQUENT EVENT



On October 3, 2007, the Company restructured the board of directors in its efforts to obtain a listing of its common stock on the American Stock Exchange.  The American Stock Exchange listing requirements stipulate a majority of the Company’s directors be independent.  These changes fulfill these requirements.


On October 4, 2007, the Company issued 609,757 restricted common shares upon notice of conversion of 1,250 shares of Series A Preferred Stock.


On October 12, 2007, the Company issued 10,553 restricted common shares in payment of all dividends accruing on the 1,250 shares of Series A Preferred stock that was converted on October 4, 2007.


On October 15, 2007, the Company established an Audit Committee and appointed three independent directors to service on the committee.


On October 15, 2007, the Company issued 6,000 common shares upon the exercise of options valued at $15,600 to non-employees for services rendered.


On October 15, 2007, the Company issued 5,000 restricted common shares valued at $13,000 for consulting services.


On October 15, 2007, the Company issued 32,564 restricted common shares in payment of a $62,500 note payable and $2,628 of accrued interest.


On October 16, 2007, the Company issued 100,000 restricted common shares valued at $261,000 for consulting services.


On October 19, 2007, the Company issued 20,975 restricted common shares in payment of a $40,000 note payable and $1,950 of accrued interest.


On November 2, 2007, the Company issued 70,912 restricted common shares in payment of a $135,000 note payable and $6,824 of accrued interest.




Item 2.   Management's Discussion and Analysis or Plan of Operation.


Highlights of Third Quarter, 2007


Our business, for the last ten years, has been focused around many aspects of the speech recognition technology industry.   We offer companies products, tools and services to incorporate speech technology into their products and services.  We also offer speech based products and services directly to consumers.  Below is a breakout of our entire business, from our most recent entry into podcasting, to our legacy business of offering core speech engine tools for developers and speech technology solutions for the healthcare industry.


Wizzard Corporate


In the third quarter of 2007, Wizzard announced that management had secured $7,500,000 in operating capital from four institutional investors for the Company's podcasting business.  After the raise of capital, Wizzard’s management then proceeded to file an application to list the Company's common stock on the American Stock Exchange.  In order to meet Amex’s requirements of a board of directors made up of a majority of independent board members, Mr. Gordon Berry and Mr. Armen Geronian voluntarily resigned from Wizzard's Board of Directors.  A month long search ensued and three new, independent board members were selected in Greg Smith, Doug Polinsky and Denis Yevstifeyev.  Each of these new board members brings unique skills to Wizzard's governing body.  


In the third quarter of 2007, Wizzard's CEO, Chris Spencer, was named "Best Value CEO" by the Pittsburgh Business Times. The Pittsburgh Business Times is part of American City Business Journals, the nation's largest publisher of metropolitan business newspapers.  To determine who earned this achievement, the Business Times performed a study ranking 35 CEOs of local public companies. The study was conducted by comparing a number of factors to determine how CEO pay connects with company performance. For CEO pay, the study used the most recent fiscal year compensation, including salary, bonuses and non-equity incentive plan compensation. For company performance, the Business Times looked at several commonly acknowledged measures of a company's performance: revenue growth, return on equity, stock growth (from the beginning to the end of the fiscal year), and earnings growth (as compared to revenue growth.)  Also notable, Wizzard Software ranked at #1 in terms of revenue growth and fifth in stock price increase out of the 35 public companies included in the study.  


Subsequent to the third quarter of 2007, Wizzard's CFO, John Busshaus, was named CFO of the year (Public Company) in Pittsburgh, Pennsylvania.  The Pittsburgh Business Times is part of American City Business Journals, the nation's largest publisher of metropolitan business newspapers.  The award was determined by eight judges made up by prominent business people in the Pittsburgh area, including several past winners.  


In the third quarter of 2007, Wizzard was invited to present at the 27th Annual Canaccord Adams Global Growth Conference


1.  Wizzard Media


Wizzard Media is the recently launched division for our new media podcasting business.  Wizzard Media is focused on the podcasting industry and how speech technology, when incorporated into the podcasting mix, can have a significant impact on the industry by providing a safe means for advertisers to promote their brands in user generated and professional studio content.  By incorporating speech recognition into the podcasting mix, Wizzard can search through a transcript of every participating podcast hosted on our servers and allows us to offer targeted advertising to national brands and the monetization of podcasting content for our publishers and for Wizzard.  Wizzard Media is currently the industry’s largest network of independent and professional podcasters.  The network received over 450 million download requests in 2006 and is on pace to hit 900 million in 2007, with one billion (1.0B) download requests within reach.  Wizzard's hosting grew by over 700 new shows in the third quarter with 42,000 new episodes added across the network (up from 300+ new shows and 38,000 new episodes in the second quarter of 2007).  With the recently launched new iPod Touch, Apple TV and the iPhone, we expect podcasting to continue to grow at the same annual rate for some time to come.  


Some of the accomplishments of Wizzard Media in the third quarter of 2007 and subsequently include:




Distribution


Wizzard Media’s download requests surpassed 110 million (110,000,000) in October 2007, up from 42 million (42,000,000) in October, 2006. (on a pro-forma basis)


Wizzard launched a new podcasting channel on Veoh.com, recognized as one of the top-10 streaming video sites on the Internet by Nielsen//NetRatings. With over 85,000 content publishers such as Lionsgate, NCAA Football, PBS, National Lampoon and Us Weekly, and thousands of independent filmmakers and content producers, Veoh.com draws more than 18 million unique users per month.  Veoh.com is part of Veoh Networks, a privately held company that has garnered the support of the world’s foremost technology and media investors, including Michael Eisner's Tornante Co., AOL/Time Warner, Goldman Sachs, Shelter Capital Partners, and Spark Capital. Wizzard believes the launch of this new podcasting channel on Veoh.com is another important step in the Company’s plan to introduce some of the best video podcasts available today to millions of viewers world-wide, creating a strong growth opportunity for podcast publishers and building an even more compelling vehicle for advertisers.   


Advertising


In the third quarter of 2007, Wizzard closed three advertising campaigns including the first six figure campaign with revenues expected to be generated over the next two quarters, as the campaign is executed.   Subsequent to the third quarter, Wizzard's new advertising insertion system, able to handle the insertion of advertisements into audio and video podcasts with geographical targeting capabilities, was used successfully for this campaign.  In October, 2007, the Wizzard Media Network had the potential to deliver over one hundred million (100,000,000) advertisements.


Wizzard announced in the third quarter of 2007 that the Company will implement Nielsen//NetRatings’ SiteCensus solution to certify publisher’s download data. Wizzard publicly calls the agreement a “landmark event” for its recently formed ad sales unit, Wizzard Media, which will now be able to use Nielsen//NetRatings data to verify the scope of audiences for participating podcasts. Management has repeatedly been told that advertisers want to see reputable; third-party measurement of podcast downloads.  Measurement via Nielsen//NetRatings’ SiteCensus addresses these concerns and Management believes it will have a very positive impact on our podcast advertising sales efforts.


In the third quarter of 2007, Wizzard Media developed and deployed a category based system for general podcast advertising sales and the Podcaster Relations Department is currently reaching out to podcast publishers to populate the categories.  Over 500 podcasters, representing more than 22 million monthly downloads as certified by Nielsen//NetRatings, joined Wizzard’s fast-growing advertising network in the third quarter of 2007.  All of these podcasters have agreed to allow Wizzard Media’s ad sales team to represent them to agencies and media buyers to secure advertising opportunities.


In the third quarter of 2007, Wizzard Media launched a Research Department to collect audience statistics and other important demographic data to assist Wizzard’s ad sales team in the data driven advertising sales industry.  Over 10,000 completed audience surveys have been collected to date.  Also in the third quarter, Wizzard detailed plans and staffed a back-office Advertising Operations Department to handle everything from proposal tracking through campaign execution.  To compliment the advertising operations department, Wizzard Media created and staffed a Podcaster Relations Department to work closely with the podcast publishers wanting to generate income through advertising.  A new computer system is in the works to increase productivity between the various departments and is expected to be completed in the fourth quarter of 2007.  


Content


The number of new shows on the Wizzard Network grew by over 700 in the third quarter of 2007 (versus 300+ in the second quarter of 2007).  42,000 new episodes were added for the over 8,000 podcast shows hosted on the Wizzard Network (versus 38,000 in the second quarter of 2007).


In the third quarter of 2007, Wizzard signed 27 time Grammy winner Quincy Jones, singer Hilary Duff and actress Rebekah Green to exclusive advertising and marketing partnerships.  Additionally, Wizzard signed Learn Spanish -



Survival Guide to an exclusive advertising partnership which surpassed 2.0M download requests only one year after launch.  Finally, Wizzard signed Tiki Bar TV and Keith and The Girl to exclusive advertising partnerships, two of the most watched podcasts in the world.


Wizzard Media sponsored the 3rd Annual 2007 Podcast Awards at the 2007 Portable Media Expo.  Keith and The Girl won People's Choice Podcast Award at the 2007 Podcast Awards while Firefly Talk won Best Produced Podcast at the 2007 Podcast Awards.  15 of the 22 winners at the 2007 Podcast Awards use a Wizzard hosting solution (Libsyn, Switchpod or Blast Podcast).  Out of the 220 podcast nominations spanning 22 different categories, 42% of the nominees for the 2007 Podcast Awards use a Wizzard service.


In conjunction with The Robert Thorne Company, Wizzard Media launched The Quincy Jones Podcast. Within a week, Quincy’s podcast was #23 in the Music Category in iTunes; secured press placements in The Hollywood Reporter, Billboard Magazine, Business 2.0 and CNet.com


Wizzard Media signed Six Months Later, an original video podcast comedy series that follows the struggles of life, love and relationships in L.A. The show was created by festival veterans and Hollywood up-and-comers David Frigerio and Ryan Alosio, who also stars as the main character. Ian Ziering of Beverly Hills 90210 and Dancing with the Stars, and Kristy Swanson, the original Buffy in the cult classic, Buffy the Vampire Slayer, are co-stars.


Wizzard Media signed Hot For Words, a video podcast that brings some heat into the origins of words. Hosted by a beautiful philologist named Marina, each 3-4 minute episode is created based on a word suggested by the viewers.  Launched on YouTube in February of 2007, Hot For Words is the first YouTube video series recruited by Wizzard Media to be made available as a podcast.


Wizzard Media signs Jack Palms II: This is Life, the world's first crime noir podcast novel and the second in the Jack Palms crime noir audiobook series. Hosted by author Seth Harwood, the series was originally only available as an audiobook, but will be released in print format on March 16, 2008 (Palm Sunday) by Breakneck Books. Harwood's next project, a collection of short stories called A Long Way from Disney, will also be distributed by Wizzard.


Personnel


In its ongoing effort to monetize podcasts, Wizzard Media has added several personnel in key positions including General Manager, Director of Advertising Operations, VP of Podcaster Relations, Copywriter and numerous software engineers.  


In the third quarter of 2007, Wizzard Media retained Vanguard Media Associates for advertising sales in the Midwest.  President John Moran recently left MTV Networks, where he was vice president, national advertising sales and was responsible for the Detroit region.  Mr. Moran oversaw national ad sales for MTV, MTV2, MTVu, VH1, VH1 Classic, VH1 Soul and CMT. He led the sales team in the development, presentation and execution of fully integrated, multi-platform ad programs for clients including General Motors, Ford Motor Company, DaimlerChrysler and the U.S. Navy. He joined MTV Networks in 1997 as account manager, national ad sales and was promoted to director, national ad sales in 2000. He was elevated to his most recent position in 2004. Before joining MTV Networks, Moran spent ten years in radio where he worked for WLTI-FM, WRDQ-FM and WLLZ-FM in Detroit.


Subsequent to the third quarter of 2007, Wizzard Media retained Virtus Media Sales to handle advertising sales on the West Coast with plans to tap into a wide range of brands including cutting-edge technology firms, popular energy drinks and hip clothiers as well as Hollywood film and television studios, all of which management believes are ideal marketers for podcast advertising.





Press




In the third quarter of 2007, Wizzard Media retained the public relations firm of INK to secure press placements and work closely with Wizzard's advertising public relations firm, Braff Communications.  As a result, Wizzard secured mentions in The Hollywood Reporter, Billboard Magazine, CNet, Business 2.0, Online Media Daily, Media Post, Podcasting News, Cynopsis Digital, Forbes (AP), CNN Money, Business Week, Pittsburgh Business Times, and Pittsburgh Post Gazette.  


Technology


In the third quarter of 2007, Wizzard's engineers finalized the development of a speech recognition and text-to-speech platform for podcast transcription and creation.  Implementation into the entire Wizzard network will begin in the fourth quarter of 2007 along with the development of a front end search engine for both internal and external use.  


In the third quarter of 2007, Wizzard’s computer engineers were extremely busy with the following tasks:


·

Completed a consolidated data delivery migration plan slated to save the company up to 35% on monthly bandwidth charges.

·

Implemented several new database initiatives speeding up statistical delivery for both internal and podcaster data expected to be completed in the fourth quarter of 2007.

·

Continued substantial development of a back office computer system to support advertising inventory management, podcast relations management and an advertising proposal system.  

·

Launched a data warehouse project to handle the massive amount of statistical data collected in the process of podcast delivery.  


Subsequently, in October, 2007, Wizzard's engineers completed the design and development of a new, highly targetable audio and video ad insertion technology.  This advertising insertion system is state of the art with the ability to insert advertisements as pre-roll, post roll as well as inside the podcast itself to deliver advertisements in the traditional TV and radio formats as well as the ability to target specific cities, countries or regions around the world.  The stitching of the podcast files is a very complex task and management believes this new advertising insertion system gives Wizzard Media advertising sales team a substantial competitive advantage.


Wizzard Media Receiver was launched in beta form for both the iPhone and Facebook platforms.  This new software application allows individuals to receive their favorite podcasts while spending time on Facebook or using their iPhone.  This application has been tested throughout the U.S. as well as Europe and continues to show great results.  The launch of these applications supports Wizzard's plan to allow audiences to access their favorite podcast shows where they want, when they want and how they want.  


Wizzard also announced that the latest version of the LibsynPRO 2.0 enterprise publishing service has been opened up to a small group of beta users. LibsynPRO is a media publishing solution for podcast networks, media companies and other businesses that need to manage multiple podcast shows under a single account. The same extensive level of scalability and 99.99% reliability continue to be the main components of the LibsynPRO system and the recently enhanced features include: Detailed statistics and time-sensitive reporting, a feature rich API for developers and an elegant and easy-to-operate interface for LibsynPRO’s advertising system.  Difficult tasks like content insertion can be handled quickly and easily, with the ability to schedule customized campaigns in real-time. Wizzard Media’s partnership with Nielsen//NetRatings extends into the LibsynPRO system to ensure accurate reporting for users, agencies and advertisers.


Wizzard Media Overview


As of last count, one third of the Top 25 ranked podcasts in their respective categories in iTunes are broadcast by Wizzard Media.  We handle over three million, five hundred thousand (3.58M) podcast requests per day for over 8,000 unique podcasts for a total of over fifteen million (15M) hours of monthly programming.  These podcasts are consumed by millions of people around the world creating what management believes to be a very compelling platform for brand advertisers.  We strongly believe that Wizzard Media is uniquely positioned to capture a significant portion of total advertising spending on podcasts for ourselves and our content creators as we offer a rich inventory of popular content to advertisers, strong consumption statistics and geographically targeted advertising



capabilities.  While there can be no future pricing guarantees, the podcasting industry is currently charging, and plans to continue to charge, between $0.03 and $0.05 per downloaded ad.  The ads tend to be no longer than 15 seconds and several ads can be inserted in one podcast episode.  


Podcasts are audio and video "shows" created by all types of people on standard personal computers.  Currently, podcasts are 80% audio and 20% video and are similar in format to a radio or TV show.  These shows average twenty minutes in length and range in topics from comedy to sports to fashion.  Due to the thousands of different niche topics, podcasting’s ability to reach highly targeted audiences is a very appealing proposition for both national and local advertisers.  Podcasts can be subscribed to for free and accessed through new media aggregators such as Apple's popular iTunes.  Podcasts are listened to or watched on Apple’s iPod along with almost any MP3 player, Sony’s PlayStation Portable, many new cell phones, Tivo units, and can also be played online using a standard PC.  Every time a new episode is released from the podcast creator (approximately three times per month), it is automatically downloaded to a subscriber’s computer and can be transferred over to an iPod or MP3 player with ease.  We have found this subscription model very appealing to advertisers as well.  Podcasts provide a new and exciting medium for information and entertainment distribution. Podcasts are enjoyed by consumers around the world while at their computer, exercising, on airplanes, at the beach, in their cars or on the subway and with the introduction of Apple TV, sitting at home in their living room.  One of the biggest reasons for the success of podcasting is due to the fact that, unlike traditional radio and television, consumers can enjoy podcast shows where they want, when they want, putting the control of media consumption back into the consumer’s hands.  


Today, podcasts are found by consumers in various fragmented directories based on the short description that the podcaster inputs to describe their content.  In order for viewers/listeners to find podcasts that are truly interesting to them they have to sort through long lists of shows.  In addition to turning text-based online content (blogs) into audio files for podcasting purposes, Wizzard is working to incorporate our highly accurate, server-based speech recognition technologies into the Wizzard Media network. Wizzard plans to simplify the search process by allowing audio and video podcasts to be automatically fed through its speech recognition system creating a transcript of each podcast. This feature will allow listeners to type in key words and find relevant podcasts based on the full content of each and every podcast episode.


Using our new WizzScribe speaker independent speech recognition product we can transcribe podcasts and use the resulting text to better index podcasts with popular search engines, to provide transcriptions for interested parties, to search for explicit content for compliance purposes and to assist advertisers in matching their brands with the appropriate content.  With the rapid adoption of audio and video based content on the internet (Web 2.0), we see this new hosted speech recognition engine and text-to-speech service as a critical component in the monetization of audio/video businesses that are taking hold across the internet and around the world.


Wizzard Media will be the catalyst for attracting sponsors and advertising opportunities for the podcasts we currently broadcast using speech recognition to match advertisers with very specific, engaging shows, catering to a wide variety of mainstream and niche markets.  Applying our geographical targeting capabilities we can find strong, relevant advertising opportunities for local businesses in addition to national brands, which is a significant revenue generating opportunity for Wizzard and for our content producers.  Advertisers and consumers alike want relevant, focused advertisements, something clearly lacking in today's digital media offerings, yet can be accomplished using our combined technologies and skills.  For example, if Ford Motor Company wants to advertise in all podcasts that discuss cars, a strategic search can be performed across the entire Wizzard Media network for all podcasts that discuss relative words at any place in the audio/video show, such as automobiles, trucks or minivans.  Using dynamic advertisement insertion technology we can insert the ad in the front, the back or even at a very specific point inside the podcast where it is most relevant to the listener.  Management believes this extreme targetability gives Wizzard Media a strong competitive advantage making it easier to attract advertisers and sponsors who want to successfully align their brand of products and services with high-value content and a targeted audience on our network. Management’s research shows that consumers don’t mind advertisements to support their favorite podcasts when those ads are interesting and relevant.


Wizzard Media is considered by many in the industry as the leader in the podcasting distribution business and as we introduce our speech technologies to our hosting services, we strongly believe we will be strategically positioned to maximize revenue generation for the shows we broadcast.




2. Speech Technology and Services Group


Wizzard Software's legacy Speech Technology and Services Group sells and licenses speech programming tools, related speech products and services, and distributable speech engines in over 13 languages worldwide.  Wizzard receives the majority of its sales leads through arrangements with IBM and AT&T, as well as through our own internet marketing efforts through Google, Yahoo and other major internet search engines.


In the first nine months of 2007 our T&S Group has achieved a 3% increase in revenue over the first nine months of 2006.  T&S Group continues to focus on our core Assistive Application and Medical Dictation markets and continues to add new customers in the ATM and Simulator categories throughout 2007.  Alert/broadcasting, has continued to grow and additional inroads have been made with TTS in the deployment and development of dictionary and game applications.  Significant prototyping activity has been accomplished in the dictation services industry using speech recognition and the protocol supportive attributes of our TTS offerings have been enhanced to support customer requests for large IVR type applications.


Management believes a shift in customer demand is underway from the purchase of stand alone speech engines to a more hosted services type offering.  We believe we are well positioned to capture the growing demand for hosted speech solutions with our recently announced server based text to speech offerings as well as our server based speaker independent speech recognition products.  With the recent acquisition of three hosting systems we now have the internal expertise and network platform to quickly begin offering hosted speech services.  We expect to launch these new hosted speech services in the first quarter of 2008.


The Speech Technology and Services Group's immediate focus for the remainder of 2007 is to increase revenue and be a preferred supplier for speech technologies to large businesses worldwide, emphasize great technologies, competitive prices and high quality support to the speech development community as well as offering non-technical hosted speech conversion services to companies that have subscriber bases in fast growing market segments.


3.   Speech Group - Healthcare


In the second quarter of 2007, Wizzard's Interim of Wyoming operation acquired certain assets of Professional Personnel Inc., a synergistic home healthcare business in close proximity of our current HHC operations.  As a result, Interim of Wyoming's revenues were up 71% over the third quarter of 2006.  Based in Casper, Wyoming and Billings, Montana, Interim Health Care of Wyoming has been serving its community for fifteen years and is part of the fast growing home health segment of the healthcare industry, providing a wide range of visiting nurse services to the elderly, wounded and sick. It is one of the 300 home health agencies that comprise Interim Health Care, the largest home healthcare franchise in the United States.


Both home care offices, Billings and Casper, have invested a great deal of time and effort into their respective conversions to the Interlink Software System. The process has been extremely labor intensive but has progressed to the point that it is operational in both offices.  This system integrates scheduling, physician orders, employee data, billing, and payroll functions: eliminating duplicate efforts in day to day operations.

 

Billings continues to see progressive growth in the utilization of its staffing services.  Internal operations have been given greater structure over the third quarter.  Employee hiring process and record keeping have been fine tuned.  Drug screening of employees upon hire and random quarterly screening have been implemented.  Home care client files have been restructured improving timely communication in the office and maintaining the access to information in the home.  Promotional activities are escalating as the offices experience stability in day to day operations and as we embark on a new business in Insurance Physicals.  


Our home healthcare business continues to be a strong part of our business as our country's population ages and new methods of patient data capture become critical components for delivering high quality, affordable healthcare services in a patient's home.  Although this has been a gradual process, we believe that we are building a solid business that will offer a complimentary package of new technology and traditional services.  We are currently expanding our territory within the state of Wyoming as a result of the state's willingness to increase Medicaid payments by up to 30%, and we expect insurance providers within the state to follow suit.




Branded with the name "Rex," the Talking Prescription Bottle allows end-users to "hear" medication instructions when reading a medication label is not practical or possible.  There are several billion prescriptions filled each year in the U.S. and pharmaceutical errors create billions of dollars of additional medical spending with the number one error being identified as labeling problems and education. Using unique microprocessor electronics and Wizzard's advanced text-to-speech offerings, pharmacists can automatically create a "talking" label while the traditional instruction label is being printed. At the push of a button, the prescription bottle talks to the patient, telling him or her the name of the medication, the dosage the patient should consume, the frequency of administration, refill instructions, warnings and other important information necessary to educate and help people take their prescription medication properly.


In the third quarter of 2007, Rex continued to see reorders from our current HMO customers in addition to expanded HMO territory.  We expect our largest HMO customer to expand the use of the bottle and begin placing new orders in the fourth quarter of 2007.  We plan to continue to work with legislators in several states that support legislation requiring pharmacies to carry assistive aid devices that help ensure patient safety.  We have received attention and various levels of support from members of Congress at the Federal and State levels in conjunction with the proposed legislation in Maryland, California and continue discussions with the states of Alabama, Colorado, Connecticut, Hawaii, Kentucky, Louisiana, Nebraska, Ohio, Tennessee, Texas, Virginia, Washington, and West Virginia.  We continue to believe in the Talking Prescription Bottle as the ability of the elderly and visually impaired to fully comprehend prescription medication instructions is as necessary as ever, and as new drugs are constantly introduced to the market and increasing medication combinations make following dosage instructions critical.



Results of Operations


Three Months Ended September 30, 2007 and 2006.


During the third quarter ended September 30, 2007, Wizzard recorded revenues of $1,468,476, a 79% increase from revenues of $819,590 in the third quarter of 2006. The increase for the third quarter of 2007 was due primarily to the expansion through acquisitions of our podcast hosting and healthcare operations.


Cost of goods sold totaled $1,005,135 in the third quarter of 2007, versus $464,675 in the third quarter of 2006.  This increase of 116% is attributed primarily to expenses related to the expansion through acquisition of our podcast hosting and healthcare operations.  Wizzard posted a gross profit of $463,341 during the third quarter of 2007, versus a gross profit of $354,915 in the third quarter of 2006, an increase of 31%.


In the third quarter ended September 30, 2007, operating expenses totaled $1,790,386 which was an 11% increase from operating expenses of $1,607,559 in the third quarter of 2006.  Broken down by line item our operating expenses were:


General and administrative expenses were $1,374,381 in 2007 versus $1,417,769 in 2006. This decrease is due to fewer issuances of restricted common stock for payment of consultants as compared to the third quarter of 2006.  Selling expenses in the third quarter of 2007 were $256,331 versus $168,283 in 2006.  This 52% increase was due primarily to our expanded healthcare operations as well as the ongoing growth and expansion of our podcast hosting business.  Research and Development expenses in the third quarter were $54,261 versus $21,507 in 2006.  In the third quarter of 2007, non-cash compensation for re-pricing of warrants totaled $105,413.


Other expenses of $1,034,257 versus $11,878 in the third quarter of 2007 consisted primarily of interest expense.  This increase is due to recording $1,073,426 of non-cash interest expense for the accretion of the discount on notes payable during the third quarter of 2007 versus $0 during the third quarter of 2006.


Wizzard's net loss was $2,361,302, or $0.06 per share, in the quarter ended September 30, 2007.  This represents an 87% increase from our net loss of $1,264,522, or $0.04 per share, in the third quarter of 2006. During the third quarter of 2007, non-cash expenditures totaled $1,426,789, a 45% increase from non-cash expenditures of $985,695 in the third quarter of 2006.



Nine months ended September 30, 2007, and 2006.


During the nine month period ended September 30 2007, Wizzard recorded revenues of $3,622,499, a 64% increase over revenues of $2,204,027 for the same period in 2006.  The increase in revenues in the nine months ended September 30, 2007, was due to the ongoing growth and expansion through acquisition of our podcast hosting and healthcare operations.


In the nine months ended September 30, 2007, cost of goods sold totaled $2,499,130, a 94% increase as compared to $1,289,913 in the nine months ended September 30, 2006. The increase in cost of goods sold was due to the expansion through acquisition of our podcast hosting and healthcare operations.


Wizzard recorded total operating expenses of $6,356,799 during the nine months ended September 30, 2007, a 67% increase as compared to operating expenses of $3,809,211 in the same period of 2006.  General and administrative expenses totaled $5,190,270 in the first nine months of 2007 versus $2,764,527 in the first nine months of 2006, an increase of approximately 88%. This increase is due primarily to an increase in consulting fees, as well as an increase in employee and payroll related expense with the expansion of our podcast hosting and healthcare operations.  The Company used common stock to pay $2,411,333 of General and Administrative expenses in the quarter ending September 30, 2007.


Selling expenses in the first nine months of 2007 were $644,259 versus $393,341 in 2006.  This 64% increase was due primarily to the expansion of our podcast hosting and healthcare operations.  Research and Development expense increased to $147,385 in the first nine months of 2007 from $44,675 in the first nine months of 2006.




In the first nine months of 2006, Wizzard recorded $606,668 of compensation for re-pricing of warrants. In the first nine months of 2007, Wizzard recorded interest expense of $374,885 to extend the expiration date of certain warrants.  Also during the first nine months of 2007, the Company recorded $1,396,226 of non-cash expense for the accretion of the discount on notes payable.


Wizzard's net loss was $6,601,601, or $0.16 per share, in the nine months ended September 30, 2007.  This represents a 106% increase from our net loss of $3,210,976, or $0.09 per share, in the first nine months of 2006.  Total non-cash expenditures for the first nine months of 2007 were $4,363,932, a 76% increase from non-cash expenditures of $2,474,564 in the first nine months of 2006.


The following is a summary of non-cash expenditures:


 

 

 

 

 

 

 

 

 

 

 

For the Three

 

For the Nine

 

 

Months Ended

 

Months Ended

 

 

September 30,

 

September 30,

 

 

2007

 

2006

 

2007

 

2006

NON-CASH EXPENDITURES

 

 

 

 

 

 

 

 

Amortization of discount on notes payable

 

1,073,426

 

-

 

1,396,226

 

-

Re-pricing and extension of warrants

 

105,413

 

-

 

374,885

 

989,168

Stock option grants

 

141,500

 

48,136

 

311,999

 

99,736

Depreciation expense

 

19,008

 

17,831

 

59,637

 

53,848

Bad debt expense

 

-

 

(10,000)

 

-

 

(23,000)

Obsolete inventory

 

(4,121)

 

(4,307)

 

(20,148)

 

(6,390)

Non-cash expense

 

1,335,226

 

51,660

 

2,122,599

 

1,113,362

Expenditures paid with issuance of stock

 

91,563

 

934,035

 

2,241,333

 

1,361,202

Total  non-cash expenditures

 

1,426,789

 

985,695

 

4,363,932

 

2,474,564



Liquidity and Capital Resources.


Cash on hand was $6,966,495 at September 30, 2007, an increase of $6,833,130 over the $133,365 on hand at September 30, 2006.  Cash used in operations for the nine months ended September 30, 2007, was $2,554,525, an increase of 149% over the $1,024,112 cash used in operations for the nine months ended September 30, 2006.  Cash used in investing activities was $505,230 primarily for the acquisitions of Libsyn and PNPP during the nine months ended September 30, 2007.


In the first nine months of 2007, the Company received $677,319 from the issuance of common stock, and $7,500,000 net of $790,000 in offering cost from the issuance of Series A Preferred Stock.  The Company used common stock to pay $2,241,333 in consulting, investor relations and employee services during the nine months ended September 30, 2007. In doing so, management believes we have conserved Wizzard's cash liquidity for operational and expansion purposes.


The Company believes it is still in the early stages of the new and developing speech technology market and podcast hosting services, and estimates it will require approximately $230,000 per month to maintain current operations and grow our podcasting business.


On July 9, 2007, the Company closed a Securities Purchase Agreement by which four institutional investors purchased for an aggregate purchase price of $7.5 million: a) 7,500 shares of the Company’s Series A 7% Convertible Preferred Stock, which can be convertible into shares of the Company’s common stock at a conversion price of $2.05 per share, and b) Common Stock Purchase Warrants to purchase a total of up to 1,829,268 shares of the Company’s common stock at a price of $2.85 per share, exercisable for a period of five years.




Holders of the Preferred Stock will be entitled to receive cumulative dividends of 7% per annum for the first two years after issuance of the Preferred Stock and 18% per annum thereafter, payable on January 1 and July 1, beginning on January 1, 2008, either in cash or, at the Company’s option, in shares of the Company’s common stock.  


The Company will have the right to force conversion of all or part of the outstanding Preferred Stock, plus all accrued but unpaid dividends and liquidated damages due with respect to the Preferred Stock if, after the two-year anniversary of the effectiveness of the Registration Statement referred to below, the price of the Company’s common stock exceeds $6.15 for 10 consecutive trading days and the volume for each such trading day exceeds 100,000 shares of common stock.  


Beginning two years after the issuance date of the Preferred Stock, the Company may also elect to redeem all (but not less than all) of the then outstanding Preferred Stock at a total price of:  (i) 125% of the aggregate Stated Value then outstanding; (ii) accrued but unpaid dividends; and (iii) all liquidated damages and other amounts due with respect to the Preferred Stock.  On the occurrence of certain Triggering Events as defined in Section 9(a) of the Articles of Amendment/Certificate of Designation with respect to the Preferred Stock, each holder will have the right to require the Company to redeem all of the holder’s Preferred Stock or to increase the dividend rate on that holder’s Preferred Stock to 18% per annum thereafter.




Safe Harbor Statement.


Statements made in this Form 10-QSB which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and business of the Company, including, without limitation, (i) our ability to gain a larger share of the podcasting, home healthcare and speech recognition software industries, our ability to continue to develop products and services acceptable to those industries, our ability to retain our business relationships, and our ability to raise capital and the growth of the podcasting, home healthcare and speech recognition software industries, and (ii) statements preceded by, followed by or that include the words "may", "would", "could", "should", "expects", "projects", "anticipates", "believes", "estimates", "plans", "intends", "targets", "tend" or similar expressions.


Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond the Company's control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following, in addition to those contained in the Company's reports on file with the Securities and Exchange Commission: general economic or industry conditions, nationally and/or in the communities in which the Company conducts business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, changes in the podcasting, home healthcare and/or speech recognition technology industries, the development of products and/or services that may be superior to the products and services offered by the Company, competition, changes in the quality or composition of the Company's products and services, our ability to develop new products and services, our ability to raise capital, changes in accounting principals, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting the Company’s operations, products, services and prices.


Accordingly, results actually achieved may differ materially from expected results in these statements.  Forward-looking statements speak only as of the date they are made.  The Company does not undertake, and specifically disclaims, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.


Item 3.  Controls and Procedures.


Our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")), which we refer to as disclosure controls, are controls and procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any control system. A control system, no matter how well conceived and operated, can provide only reasonable assurance that its objectives are met. No evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.


As of September 30, 2007, an evaluation was carried out under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls.  Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that, as of such date, the design and operation of these disclosure controls were effective to accomplish their objectives at the reasonable assurance level.


Changes in Internal Control over Financial Reporting.


No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended September 30, 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.




PART II - OTHER INFORMATION


Item 1.   Legal Proceedings.


None.


Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.


The following table provides information about all "unregistered" and "restricted" securities that Wizzard has sold during the nine month period ended September 30, 2007, which were not registered under the Securities Act of 1933, as amended (the "Securities Act"):


Name

 

Date

 

Shares

 

Description

Robert Batson

 

2-15-07

 

25,124

 

Services rendered

Chris Milde

 

2-15-07

 

27,234

 

Services rendered

Corporate Relations Inc.

 

2-15-07

 

29,355

 

Services rendered

Jeffrey Kahler

 

2-15-07

 

2,978

 

Services rendered

David Chekan

 

3-19-07

 

1,004,468

 

Acquisition of Webmayhem

Matthew Hoopes

 

3-19-07

 

1,004,468

 

Acquisition of Webmayhem

David Mansueto

 

3-19-07

 

1,004,468

 

Acquisition of Webmayhem

Martin Mulligan

 

3-19-07

 

1,004,468

 

Acquisition of Webmayhem

Fakespace Labs

 

3-19-07

 

234,965

 

Acquisition of Webmayhem

L. Blunt Jackson

 

3-19-07

 

117,482

 

Acquisition of Webmayhem

Christopher MacDonald

 

3-19-07

 

328,950

 

Acquisition of Webmayhem

Neil Roseman

 

3-19-07

 

375,829

 

Acquisition of Webmayhem

Robert Leppo

 

3-19-07

 

837,740

 

Acquisition of Webmayhem

Charles Mansueto

 

3-19-07

 

167,482

 

Acquisition of Webmayhem

Brenda Mosher

 

3-26-07

 

11,909

 

Phase I Incentive - Interim

Greg Roadifer

 

4/3/07

 

245,099

 

Acquisition of PNPP

Arthur Douglas & Associates

 

4/10/07

 

250,000

 

Services Rendered

Michelle Watson

 

4/10/07

 

300,000

 

Services Rendered

Patrick Grumbar

 

4/10/07

 

1,000

 

Services Rendered

Bruce Phifer

 

4/10/07

 

5,000

 

Services Rendered

John Strohsahl

 

4/10/07

 

5,000

 

Services Rendered

Paul Cooper

 

4/10/07

 

5,000

 

Services Rendered

Genesis Microcap

 

4/19/07

 

10,000

 

Exercise of warrants at $1.36

Genesis Microcap

 

4/27/07

 

16,500

 

Exercise of warrants at $1.36

Alpha Capital AG

 

5/9/07

 

153,197

 

Exercise of warrants at $1.25

Bruce Phifer

 

5/24/07

 

5,000

 

Services rendered

Genesis Microcap

 

6/14/07

 

21,833

 

Exercise of warrants at $1.36

Alpha Capital AG

 

6/15/07

 

73,530

 

Exercise of warrants at $1.36

Genesis Microcap

 

7/12/07

 

25,000

 

Conversion of Note Payable at $2.00

Bruce Phifer

 

8/2/07

 

5,000

 

Services rendered


        

We issued all of these securities to persons who were either "accredited investors," or "sophisticated investors" who, by reason of education, business acumen, experience or other factors, were fully capable of evaluating the risks and merits of an investment in our company; and each had prior access to all material information about us.  We believe that the offer and sale of these securities were exempt from the registration requirements of the Securities Act, pursuant to Sections 4(2) and 4(6) thereof, and Rule 506 of Regulation D of the Securities and Exchange Commission and from various similar state exemptions.


Item 3.   Defaults Upon Senior Securities.


     None; not applicable.





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


     None; not applicable.


Item 5.   Other Information.

        

(a)   None, not applicable


(b)  During the quarterly period ended September 30, 2007, there were no changes to the procedures by which shareholders’ may recommend nominees to the Company’s board of directors.


Item 6.   Exhibits and Reports on Form 8-K.


(a)  Exhibits.


31.1 - 302 Certification of Christopher J. Spencer


31.2 - 302 Certification of John Busshaus


32 - 906 Certification.


(b)  Reports on Form 8-K.


8-K Current Report dated April 4, 2007 filed on April 17, 2007, regarding Asset Purchase Agreement with Professional Personnel Inc.


8-K Current Report dated June 29, 2007 filed on July 3, 2007, regarding entering into a Securities Purchase Agreement by which four institutional investors agreed to purchase a total of 7,500 shares of the Company’s Series A 7% Convertible Preferred Stock for an aggregate purchase price of $7.5 million.


8-K Current Report dated September 5, 2007 filed on September 10, 2007, whereby the Company adopted the Amended and Restated Bylaws.


8-K Current Report dated October 3, 2007 filed on October 4, 2007, regarding the resignation of certain board members and appointment of new board member for the sole purpose of facilitating the creation of a Board of Directors consisting of a majority of independent directors, allowing the Company to become compliant with the mandates of the American Stock Exchange in its efforts to secure a listing.








SIGNATURES


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


                                         WIZZARD SOFTWARE CORPORATION


Date:

11/14/07

 

By:

/s/ Christopher J. Spencer

 

 

 

 

Christopher J. Spencer

 

 

 

 

Chief Executive Officer and President



Date:

11/14/07

 

 

/s/ John Busshaus

 

 

 

 

John Busshaus

 

 

 

 

Chief Financial Officer



Date:

11/14/07

 

 

/s/ J. Gregory Smith

 

 

 

 

J. Gregory Smith

 

 

 

 

Director



Date:

11/14/07

 

 

/s/ David Mansueto

 

 

 

 

David Mansueto

 

 

 

 

Director



Date:

11/14/07

 

 

/s/  Denis Yevstifeyev

 

 

 

 

Denis Yevstifeyev

 

 

 

 

Director