Wizzard Software // Annual Report 2010

Results of Operations

Year Ended December 31, 2010 Compared to Year Ended December 31, 2009

Wizzard derives its revenue from podcast publishing platform fees, podcast advertising sales, App sales as well as through speech recognition and text-to-speech programming tools, distributable engines and speech related consulting services and support. Additionally, Wizzard derives revenues through the offering of home healthcare services through its wholly-owned subsidiary Interim Healthcare of Wyoming, Inc.

During 2010, Wizzard recorded revenues of $5,540,122, an increase of $346,432, or approximately 7%, from our revenues of $5,193,690 in 2009. This increase was driven by our Healthcare segment with the recovery of the economy and expansion of the services we provide combined with expanding our geographic reach. The increase in home healthcare revenue was the result of the increased use of our services. Additionally, our Media segment experienced an increase due to an increase in our hosting fees and a full year of App sales. The increase in hosting fees was due to the increase in the number of producers using our services. Our Software segment experienced a slight decline of 1% from the previous year.

During 2010, cost of goods sold was $3,531,103, an increase of $177,672, or approximately 5%, over the 2009 figure of $3,353,431. This increase is a direct result of the increase in sales of our products and services during 2010. Wizzard generated a gross profit of $2,009,019 in 2010, versus a gross profit of $1,840,259 in 2009, an increase of 9%.

In 2010, Wizzard had operating expenses of $4,814,877, as compared to $5,724,544 in 2009, a decrease of 16%.

Selling expenses decreased to $478,801 in 2010, from $592,064 in the prior year. This decrease of 19% is due primarily to the decreased number of employees during 2009 that were focused on our media services operation and obtaining additional content with the full year impact realized in 2010.

General and administrative expenses decreased to $1,299,982 in 2010, from $1,413,825 in the prior year, a decrease of 8%, due primarily our effort to reduce overhead costs within our Media business segment during 2010. Salaries, wages and related expenses decreased to $1,987,649 in 2010 from $2,092,880 in 2009, a decrease of 5%, driven by an effort to reduce overhead costs within our Media business segment. Consulting fees decreased to $727,845 in 2010 from $1,230,922, a decrease of 41% due to a decrease in the use of outside consultants in the areas of public relations, investor relations, market research, combine with the fair market value decrease of the stock for consultants that were paid in stock.

Wizzard incurred non-cash legal, public relations and consulting fees of $103,555 in fiscal 2010, as compared to $619,092 in 2009. For fiscal 2010, $33,765 was for consulting fees, and $69,790 for selling expense. Of this non-cash amount in fiscal 2009, the non-cash amount includes $127,500 was for investor relation services, $388,472 was for consulting fees, and $103,120 for selling expense. Due to the increased liquidity of our common stock traded on the NYSE Amex, Wizzard has been able to pay for valuable and sometimes critical services with common stock. This has helped us to use our cash for operations. For all such stock issuances, we valued the stock at the market price at the close of the day of issuance. All related expense was recorded the same day.

Interest expense decreased to $1,142,642 in 2010, from $2,630,082 in 2009, due to amortization of $344,294 in 2010 versus $1,146,383 in 2009 of the discount on our 5% convertible note payable related the beneficial conversion feature and warrants issued in connection with the convertible notes payable, and the expense for re-pricing and conversion of warrants totaling $1,306,168 in 2009 versus $385,636 in 2010 for extension of maturity date on notes payable.

Net loss available to common stockholders decreased 37% to $4,110,459 in 2010, as compared to a net loss available to common stockholders of $6,509,017 in 2009. The decrease in net loss available to common stockholders for 2010 was primarily due to the recording of a non-cash expense on the amortization of 5% notes payable of $1,146,383 for 2009 versus

$344,294 for $2010, and interest expense of $1,306,168 in 2009 versus $262,284 in 2010 for issuance, re-pricing and extension of warrants. Basic and diluted loss per common share was $0.06 in 2010, compared to $0.13 in 2009.

Year Ended December 31, 2009 Compared to Year Ended December 31, 2008

During 2009, Wizzard recorded revenues of $5,193,690, a decrease of $914,450, or approximately 15%, from our revenues of $6,108,140 in 2008. This decrease was within our Healthcare segment due to the drop in the economy experience throughout 2009, but primarily due to a decrease in our staffing revenues within our home healthcare subsidiary in Billings, Mt. Our Software segment experienced growth due to expansion of our media services and podcast hosting services.

During 2009, cost of goods sold was $3,353,431, a decrease of $793,491, or approximately 19%, over the 2008 figure of $4,146,922. This decrease is a direct result of the decrease in sales of our products and services during 2009 due to current economic condition within our Healthcare segment. Wizzard generated a gross profit of $1,840,259 in 2009, versus a gross profit of $1,961,218 in 2008, a decrease of 6%.

In 2009, Wizzard had operating expenses of $5,724,544, as compared to $8,778,462 in 2008, a decrease of 35%.

Selling expenses decreased to $592,064 in 2009, from $1,121,139 in the prior year. This decrease of 47% is due primarily to the decreased number of employees during 2009 that were focused on our media services operation and obtaining additional content.

General and administrative expenses decreased to $1,413,825 in 2009, from $1,687,986 in the prior year, a decrease of 16%, due primarily our effort to reduce overhead costs within our Media business segment during 2009. Salaries, wages and related expenses decreased to $2,092,880 in 2009 from $2,874,713 in 2008, a decrease of 27%, driven by an effort to reduce overhead costs within our Media business segment. Consulting fees decreased to $1,230,922 in 2009 from $2,472,232, a decrease of 50% due to a decrease in the use of outside consultants in the areas of public relations, investor relations, market research, and to the fair market value decrease of the stock for consultants that were paid in stock.

Wizzard incurred non-cash legal, public relations and consulting fees of $619,092 in fiscal 2009, as compared to $1,054,278 in 2008. For fiscal 2009, $127,500 was for investor relation services, $388,472 was for consulting fees, $103,120 for selling expense. Of this non-cash amount in fiscal 2008, the non-cash amount includes $570,000 for investor relations’, $384,708 was for consulting fees, and $99,570 for selling expense. Due to the increased liquidity of our common stock traded on the NYSE Amex, Wizzard has been able to pay for valuable and sometimes critical services with common stock. This has helped us to use our cash for operations. For all such stock issuances, we valued the stock at the market price at the close of the day of issuance. All related expense was recorded the same day.

Interest expense increased to $2,630,082 in 2009, from $669,528 in 2008, due to amortization of $1,146,383 in 2009 versus $482,158 in 2008 of the discount on our 5% convertible note payable related the beneficial conversion feature and warrants issued in connection with the convertible notes payable, and the expense for re-pricing and conversion of warrants totaling $1,306,168 in 2009.

Net loss available to common stockholders decreased 35% to $6,509,017 in 2009, as compared to a net loss available to common stockholders of $10,064,948 in 2008, while net loss decreased 15% to $6,509,017 in 2009, as compared to a net loss of $7,691,878 in 2008. The decrease in net loss available to common stockholders for 2009 was due to the recording of a non-cash dividend of $2,373,000 for dividend on the 7% Series A Convertible Preferred Stock subscription agreement in 2008. Basic and diluted loss per common share was $0.13 in 2009, compared to $0.23 in 2008.

Liquidity and Capital Resources.

2010 compared to 2009

Current assets at December 31, 2010 included $769,099 in cash and accounts receivable, a decrease of $532,633, or 41%, from our cash and accounts receivable of $1,301,732 at December 31, 2009. The decrease is due to the use of working capital in operations during 2010.

During fiscal 2010, our operating activities used net cash of $2,423,158, as compared to $2,712,981 in net cash used by operating activities during 2009.

In 2010, depreciation and amortization expense was $209,233, which was down from $342,733 in 2009. This decrease was attributed to purchase of Developer Apps during 2009 and the related amortization of these intangibles through 2010.

Net cash used in investing activities increased to $42,530 in 2010, versus $13,886 in 2009. During 2010, the Company purchase $42,530 of equipment, versus 2009, where the Company paid $13,886 for equipment.

In 2010, net cash provided by financing activities increased to $1,975,000, from $1,754,400 in 2009. Cash of $1,975,000 was provided by the issuance of common stock in 2010, less the payment of offering costs of $25,000; in 2009, there was cash provided by the issuance of common stock of $1,754,400, less the payment of offer costs of $45,600.

At December 31, 2010, the Company had negative working capital of $1,315,558, as compared to negative working capital of $1,254,633 at December 31, 2009. This decrease in working capital is due to use of cash for operating activities.

2009 compared to 2008

Current assets at December 31, 2009 included $1,301,732 in cash and accounts receivable, a decrease of $1,193,547, or 48%, from our cash and accounts receivable of $2,495,279 at December 31, 2008. The decrease is due to the use of working capital in operations during 2009.

During fiscal 2009, our operating activities used net cash of $2,712,981, as compared to $4,555,428 in net cash used by operating activities during 2008.

In 2009, depreciation and amortization expense was $342,733, which was up from $262,665 in 2008. This increase was attributed to purchase of Developer Apps during 2009 and the related amortization of these intangibles.

Net cash used in investing activities decreased to $13,886 in 2009, versus $203,692 in 2008. During 2008, the Company purchase $184,928 of equipment, versus 2009, where the Company paid $13,886 for equipment.

In 2009, net cash provided by financing activities increased to $1,754,400, from $453,272 in 2008. Cash of $1,754,400 was provided by the issuance of common stock in 2009, less the payment of offering costs of $45,600; in 2008, there was no cash provided by the issuance of common stock. In 2008, we received $1,000,000 in proceeds from issuance of 11% notes payable.

At December 31, 2009, the Company had negative working capital of $1,254,633, as compared to a working capital of $670,156 at December 31, 2008. This decrease in working capital is due to use of cash for operating activities. Also, we received proceeds totaling $1,000,000 in proceeds from issuance of 11% notes payable in 2008.

The Company believes it is still in the early stages of the new and developing digital media publishing services, and estimates it will require approximately $200,000 per month to maintain current operations and grow our digital media business.

Contractual Obligations

Not applicable to smaller reporting companies.

Safe Harbor Statement.

Statements made in this Form 10-K 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 Wizzard, 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 acceptable to that industry, our ability to retain our business relationships, and our ability to raise capital and the growth of the speech recognition software industry, and (ii) statements preceded by, followed by or that include the words "may", "would", "could", "should", "expects", "projects", "anticipates", "believes", "estimates", "plans", "intends", "targets" or similar expressions.

Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond Wizzard'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 our reports on file with the SEC: general economic or industry conditions, nationally and/or in the communities in which Wizzard conducts business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, changes in the industries in which we operate, the development of products that may be superior to the products offered by Wizzard, demand for financial services, competition, changes in the quality or composition of Wizzard's products, our ability to develop new products, our ability to raise capital, changes in accounting principles, policies or guidelines, financial or political instability, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting Wizzard'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. Wizzard 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.

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