Any changes in reimbursement levels under Medicare, Medicaid or insurance reimbursement programs and any changes in applicable government regulations could have a material adverse effect on Wizzard's net revenues.

As managed care assumes an increasingly significant role in markets in which Wizzard operates, Wizzard's success will, in part, depend on retaining and obtaining managed care contracts. There can be no assurance that we will retain or continue to obtain such managed care contracts. In addition, reimbursement rates under managed care contracts are likely to continue experiencing downward pressure as a result of payers' efforts to contain or reduce the costs of health care by increasing case management review of services and negotiating reduced contract pricing. Therefore, even if we are successful in retaining and obtaining managed care contracts, unless we also decrease our cost for providing services and increases higher margin services, we will experience declining profit margins.

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Wizzard is subject to extensive and frequently changing federal, state and local regulation. In addition, new laws and regulations are adopted periodically to regulate new and existing products and services in the health care industry. Changes in laws or regulations or new interpretations of existing laws or regulations can have a dramatic effect on operating methods, costs and reimbursement amounts provided by government and other third-party payers. Federal laws governing our activities include regulations related to Medicare reimbursement and certification and certain financial relationships with physicians and other health care providers. Although Wizzard intends to comply with all applicable fraud and abuse laws, there can be no assurance that administrative or judicial interpretation of existing laws or regulations or enactments of new laws or regulations will not have a material adverse effect on its business. Wizzard is subject to state laws governing Medicaid, professional training, licensure, financial relationships with physicians and the dispensing and storage of pharmaceuticals. The facilities operated by Wizzard must comply with all applicable laws, regulations and licensing standards. In addition, many of our employees must maintain licenses to provide some of the services that we offer.  There can be no assurance that federal, state or local governments will not change existing standards or impose additional standards. Any failure to comply with existing or future standards could have a material adverse effect on our results of operations, financial condition or prospects.

If we lose our key personnel or are unable to hire additional personnel, we will have trouble growing our business.

We depend to a large extent on the abilities of our key management and technical personnel, in particular Christopher J. Spencer, our Chief Executive Officer and President.  The loss of any key employee or our inability to attract or retain other qualified employees could seriously impair our results of operations and financial condition.

Our future success depends on our ability to attract, retain and motivate highly skilled technical, marketing, management, accounting and administrative personnel.  We plan to hire additional personnel in all areas of our business as we grow. Competition for qualified personnel is intense.  As a result, we may be unable to attract and retain qualified personnel.  We may also be unable to retain the employees that we currently employ or to attract additional technical personnel.  The failure to retain and attract the necessary personnel could seriously harm our business, financial condition and results of operations.

System and online security failures could harm our business and operating results.

The operation of our business depends on the efficient and uninterrupted operation of our computer and communications hardware systems.  Our systems and operations are vulnerable to damage or interruption from many sources, including fire, flood, power loss, telecommunications failure, break-ins, earthquakes and similar events.  Our servers are also vulnerable to computer viruses, physical or electronic break-ins and similar disruptions. Any substantial interruptions in the future could result in the loss of data and could destroy our ability to generate revenues from operations.

The secure transmission of confidential information over public networks is a significant barrier to electronic commerce and communications.  Anyone who can circumvent our security measures could misappropriate confidential information or cause interruptions in our operations. We may have to spend large amounts of money and other resources to protect against potential security breaches or to alleviate problems caused by any breach.

Our operating results could be impaired if we become subject to burdensome government regulation and legal uncertainties.

We are not currently subject to direct regulation by any domestic or foreign governmental agency, other than regulations applicable to businesses generally.  However, due to the increasing popularity and use of the Internet, it is possible that a number of laws and regulations may be adopted with respect to the Internet, relating to:

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user privacy;

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pricing;

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content;

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copyrights;

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distribution; and

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characteristics and quality of products and services.

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The adoption of any additional laws or regulations may decrease the expansion of the Internet.  A decline in the growth of the Internet could decrease demand for our products and services and increase our cost of doing business.  Moreover, the applicability of existing laws to the Internet is uncertain with regard to many issues, including property ownership, export of specialized technology, libel and personal privacy.  Our business, financial condition and results of operations could be seriously harmed by any new legislation or regulation.  The application of laws and regulations from jurisdictions whose laws do not currently apply to our business, or the application of existing laws and regulations to the Internet and other online services could also harm our business.

We plan to offer our speech recognition products over the Internet in multiple states and foreign countries. These jurisdictions may claim that we are required to qualify to do business as a foreign corporation in each state or foreign country. Our failure to qualify as a foreign corporation in a jurisdiction where we are required to do so could subject us to taxes and penalties.  Other states and foreign countries may also attempt to regulate our business or prosecute us for violations of their laws.  Further, we might unintentionally violate the laws of foreign jurisdictions and those laws may be modified and new laws may be enacted in the future.

There Are Substantial Risks Related to Our Common Stock and Management's Percentage of Ownership of Our Common Stock

Due to the instability in our common stock price, you may not be able to sell your shares at a profit.

The public market for our common stock is limited and volatile.  As with the market for many other companies in new and emerging industries, any market price for our shares is likely to continue to be very volatile.  In addition, the other risk factors disclosed in this Form 10-K may significantly affect our stock price.  The historical volatility of our stock price may make it more difficult for you to resell shares when you want at prices you find attractive.

In addition, the stock market in general and the market for Internet and technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies.  These broad market and industry factors may reduce our stock price, regardless of our operating performance.

Because our common stock is "penny stock," you may have greater difficulty selling your shares.

Our common stock is “penny stock” as defined in Rule 3a51-1 of the Securities and Exchange Commission.  Section 15(g) of the Exchange Act and Rule 15g-2 of the Securities and Exchange Commission require broker/dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before making any transaction in a penny stock for the investor's account.  In addition, Rule 15g-9 of the Securities and Exchange Commission requires broker/dealers in penny stocks to approve the account of any investor for transactions in these stocks before selling any penny stock to that investor.  Compliance with these requirements may make it harder for our selling stockholders and other stockholders to resell their shares.

The sale of already outstanding shares of our common stock could hurt our common stock market price.

The number of our shares available for resale in the public market may exceed the number of shares that purchasers wish to buy.  This imbalance may place downward pressure on our stock price.

Approximately 85,582,568 shares of our common stock are presently publicly traded.  This number will be increased by the 5,972,815 shares underlying the warrants, and the 7,500,000 shares that are currently issuable upon conversion of our Series A Convertible Preferred Stock.  This potential increase in the number of shares that may be available for public trading from 85,582,568 shares to 99,055,383 shares may dramatically reduce the price of our common stock on the basis of supply and demand alone.  In addition, a significant number of our other currently outstanding shares are eligible for public resale under Rule 144 of the Securities and Exchange Commission, and sales of these shares may also place downward pressure on our stock price.  In May, 2004, we registered a total of 2,472,526 shares of our common stock; in August, 2005, we registered an additional 2,800,001 shares; in May, 2007 we registered an additional 3,741,250 shares; and in August 2007 we registered an additional 6,658,536 shares, all on Registration Statements on Form SB-2.  In June 2009, we registered a total of 10,000,000 shares of our common stock, and in November 2009, we registered an unspecified number of shares of common stock, preferred stock warrants, debt securities and units that may consist of any combination of the foregoing, in the total

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amount of $12,500,000, all on Registration Statements on Form S3.  The sale of all or any portion of these shares may have a further negative effect on our stock price.

Item 1B.  Unresolved Staff Comments.

          Not applicable to smaller reporting companies.

Item 2.  Description of Property.

Wizzard's corporate offices are located at 5001 Baum Blvd., Suite 770, Pittsburgh, PA 15213.  They consist of approximately 3,100 square feet of space, which is rented for $4,428 per month.  The lease is currently on a month to month basis.  Wizzard continues to maintain a sound business relationship with the Landlord.  Even though each party may exit the lease with a 30 day written notice, Management does not foresee a significant risk, especially with the current state of the economy.  Wizzard also maintains offices in Casper, Wyoming and Billings, Montana for our Interim Healthcare operation, which are rented for $4,750 and $1,406, respectively.  The Casper lease ends June 2011, and the Billings location entered a 3 year lease agreement effective March 1, 2011.  

Item 3.  Legal Proceedings.

Wizzard is involved in routine legal and administrative proceedings and claims of various types.  We have no material pending legal or administrative proceedings, other than as discussed below or ordinary routine litigation incidental to our business, to which we or any of our subsidiaries are a party or of which any property is the subject.  While any proceeding or claim contains an element of uncertainty, management does not expect that any such proceeding or claim will have a material adverse effect on our results of operations or financial position.

Item 4.  Reserved

PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

As of March 4, 2011, 89,776,359  shares of our common stock were outstanding and the last reported sales price for our common stock on the NYSE Amex was $0.25 per share.  We have approximately 5,900 stockholders. This figure includes an indeterminate number of stockholders who hold their shares in “street name”.

Our common stock began trading on the NYSE Amex under the symbol “WZE” on February 7, 2008.  Prior to that time our common stock traded on the OTC Bulletin Board of FINRA (formerly, the “NASD”) under the symbol "WIZD."  We cannot guarantee that the present market for our common stock will continue or be maintained.

The quarterly high and low closing sales prices for our shares of common stock since public trading of these shares for the last two years are as follows:

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We have not declared any cash dividends on our common stock, and do not intend to declare dividends in the foreseeable future.  Management intends to use all available funds for the development of our plan of operation.  There are no material restrictions limiting, or that are likely to limit, our ability to pay dividends on our common stock.

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities.

We have issued the following restricted shares of common stock during the quarterly period ended December 31, 2010:

Management believes that the offer and sale of these securities was exempt from registration under the Securities Act of 1933, as amended (the “Act”), pursuant to Section 4(2) of the Act and Rule 506 of Regulation D promulgated thereunder, due to the limited number of recipients and the Company’s reasonable belief of their status as accredited or sophisticated investors.

During the quarterly period ended December 31, 2010, we did not receive any proceeds from the exercise of warrants for which the underlying shares were registered with the Securities and Exchange Commission.

During the quarterly period ended December 31, 2010, we did not receive any proceeds from the sale of common stock.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

     None; not applicable.

Item 6.  Selected Financial Data

The following selected financial data are derived from our consolidated financial statements. You should review this information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this report and the historical financial statements and related notes this report contains.

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Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with the information set forth under the caption entitled “Item 6. Selected Financial Data” and the consolidated financial statements and related notes included in this Form 10-K.

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.

Company Overview

Below is an update of our entire business, from our most recent entry into podcasting and apps, where we expect most of our future growth to occur, to our legacy businesses of offering core speech engine tools for software developers and

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technology solutions for the healthcare industry.  Currently, our healthcare operations make up 56% of our revenue, but we expect our Media business to become our largest revenue generator at some point in the near future, and provide the largest revenue growth and profits.  We believe this due to the size of our podcast operations, our market leadership position, our substantial presence in iTunes and the potential monetization of the content we distribute through our publishing platform, advertising sale of Apps and paid subscriptions for content.  The network growth of our media operation has occurred faster than initially expected and it is Management’s opinion that we are still in the early stages of growth for this industry as we are seeing the flow of quality content coming to the Internet increase at a rapid pace and advertisers and audiences showing increased interest in the medium.  Wizzard believes that our network and relevance in our industry will continue to grow by leaps and bounds and that Wizzard is positioned to be one of the leading companies in the podcast monetization business.  

1.     WIZZARD MEDIA

Wizzard Media is the four-year old division for our digital media and entertainment business.  Wizzard Media is currently the industry’s largest network of independent and professional digital media publishers utilizing RSS (podcasting) as a distribution method for episodic, audio and video shows.  The Wizzard Media Network received over 450 million download requests for shows in 2006, 1 billion download requests in 2007, 1.2 billion download requests in 2008, 1.4 billion download requests in 2009, and 1.6 billion in 2010 to approximately 50 million total audience members throughout the year.  In the fourth quarter of 2010, the Wizzard Network received 465,701,849 download requests for episodes vs. 316,271,369 download requests in the fourth quarter of 2009.  Wizzard's publishing platform grew to an adjusted 14,913 shows in 2010. Management believes that Wizzard Media offers the best podcast publishing platform in the industry and is one of only a few podcast publishing platforms that are able to charge publishers for use of the service.  The majority of podcast publishing platforms offer their service for free, in hopes of making money exclusively from advertising sales.  Management believes that our ability to charge for the services we provide is a testament to the quality of service.  The total number of episodes on the Wizzard Network grew to 1,215,661 in 2010, all of which are available for immediate distribution.  With the continuing success of iPods, iPhones, iPads, Android’s mobile phones, Blackberry’s smartphones, we expect the number of content publishers using our service and the number of consumers watching the shows to continue to grow rapidly on an annual basis.  Wizzard's LibsynPRO Enterprise service had 137 network publishers in 2010.  As Wizzard Media derives a portion of its revenues through data transfer from PRO customers, launching a new, feature rich version of the PRO publishing platform provides Management with the tools to grow the number of PRO publishers and thereby revenues associated with our data transfer business. Throughout 2010, revenue from data transfer totaled $216,744.  Below is a more detailed breakout of the information above.

WIZZARD MEDIA – PUBLISHING SERVICES

     Hosting, Distribution Network, Content, Platform Development

In 2010 the Wizzard Media Network received approximately 1.6 billion download requests for podcast episodes vs. 1.4 billion download requests in 2009, from a wide variety of distribution outlets to which Wizzard syndicates content.  The Wizzard Media network received over 4.47 million requests for shows per day throughout 2010.  Our network reaches over 19 million people around the world, creating what Management believes is a strong media asset and a very compelling platform for advertisers as well as smartphone App sales.  Download requests are calculated by counting the number of shows requested for download by audience members.  Wizzard works to generate profits by inserting advertisements in the shows in partnership with the show’s publishers, charging for the use of our publishing platform and through the sale of Apps.  As the online digital media industry is in the emerging stages, the majority of these shows are distributed without advertising and the total download requests listed above are provided to give an understanding of the potential size of advertising inventory available for Wizzard’s third party advertising partners and its in-house advertising sales team to fill.  

Currently, Wizzard Media distributes digital shows for our producers to a variety of web portals and content aggregators (approximately 27 in all), for both download and video streaming.  Approximately 70% of the shows Wizzard distributes reach audiences using Apple’s iTunes platform which includes iTunes on the computer, iPods, iPads, iPhones and Apple TV.  It is Management’s opinion that the Wizzard Media Network’s substantial presence in the iTunes Podcast Store is one of the Company’s most valuable assets as consumers using iTunes are early adopters and spend money regularly on digital media. We believe this provides Wizzard with a unique offering for advertisers seeking that type of consumer and provides Wizzard with monetization opportunities for its podcast publishers through the sale of individual and network wide Apps.

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Wizzard Media's technical development team continues to make significant accomplishments in terms of maintaining and expanding our publishing platform.  In 2010, Wizzard’s development team launched the Libsyn3 platform.  We migrated Libsyn Indie users to the new platform throughout 2010.  The migration was completed in early 2011 and represents a significant milestone in the upgrade of the features offered to our Producers.  In migrating the 5 year old Libsyn Indie customers to the new Libsyn3 platform we were able to ‘clean up’ many non paying, in-active accounts.  As a result, we now have 14,913 active podcast accounts.  While this number is down from 16,767 reported in the third quarter, the number does not represent a drop in paying customers or revenue; it is solely a more accurate count of our active accounts.

In 2010, the development team created the Wizzard Media Podcast App for sale in the Android App platform.  With this App Wizzard expanded the sale of individual podcast Apps for our paying podcast clients.  This App allows publishers to generate additional revenues for their show.  In addition to creating the core App, the development team released multiple updates throughout 2010.  The development team also released backend support for the Android App as well as for iPad functionality.

WIZZARD MEDIA - APPS

In the first quarter of 2009, Management took note of the extremely successful launch of the iTunes App Store by Apple.  Apps are small software applications that users can purchase and download to their iPhone and iPod Touch mobile devices with relative ease.  During 2010, there were over 250,000 Apps in the App Store that have been downloaded by consumers over 2 billion times.  App categories include video games, sports, productivity, entertainment, education and health & fitness. Some of these Apps are free, while others have to be purchased.  These Apps range in price from $.99 to $100.00, with the average price under $4.99.  During 2010, Wizzard aggressively entered the Apps market on several using its podcast network and active podcasters to promote the Apps to consumers.  Apple and Google retain 30% of all App sales to cover the cost of running the App Store and App owners/developers receive 70% of the sales proceeds.  Wizzard believes it is an obvious expansion of our podcasting business and the ways Wizzard believes it can generate revenue through the iTunes Store, Google Market Place and Amazon App Store are briefly outlined below.  

Sale of Podcast Apps

Wizzard created Apps that work on the iPhone and Android platforms and are currently for sale in the iTunes App Store, Google’s Market Place and coming soon, Amazon’s App Store. Wizzard currently has approximately 1,000 Apps for sale in these two App Stores.  Podcasters then market their very own App to their show’s audience, many of whom use iPhones, iPods and Android phones.  Management believes podcasters can be very successful marketing Apps to their audience, as they know their audience better than anyone else and are great influencers of their audience.  The reasons Management believes an audience member would want to purchase Apps are: 1) Easier, faster access to the content.  2) Bonus content exclusively for App users. 3) Inexpensive and easy way to support their favorite podcasts.  4) Social communication features.

Wizzard now offers this App as a free monetizational tool to podcasters on the Wizzard Network as long as they have a qualifying monthly account.  Currently, there are approximately 14,913 shows on the Wizzard Network and approximately 19 million audience members who consume podcasts.  Wizzard submits each App for approval, which is not guaranteed and is based on the respective terms of service and approval process of the App Store, and manages the collecting of the revenue and distribution of the podcaster’s share of the revenues.  Wizzard expects to retain approximately 35% of the sale price that ranges from $.99 to $4.99 in most cases.  During 2010, Wizzard submitted 1,120 podcast Apps and has received approval for 1,002 Apps.  These Apps are currently being sold around the world via Apple’s App Store and Google Market Place. Throughout 2010, revenue from App sales totaled $189,277.

At the suggestion of Apple, Wizzard developed a “Network App” which allows for hundreds of podcast Apps, inside one fully functional App.  This is very similar to Amazon’s Kindle App that includes tens of thousands of books inside one App.  This Network App, if accepted into the various App stores, allows us to: 1) continue our business plan to offer App monetization tools to all producers in a streamlined, efficient process; 2) comply with the continually evolving and sometimes inconsistent App approval standards and their desire not to have ‘cookie-cutter’ Apps for all 250,000 podcasts in iTunes in the App Store causing approval delays and rejections; 3) have more control over the actual marketing of the podcast Apps through expanded distribution of the Network App and cross promotional opportunities; 4) focus more time and attention on podcast shows with larger audiences that sell more apps than the smaller podcast shows.  As a result of this change in ‘go to market’ strategy for iPhone Apps, Wizzard believes it could enhance revenues going forward due to the fact that we will have more control over the marketing of, wider distribution and more opportunities to generate revenues with a

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Network App.  For example, we could include widespread targeted promotions for Groupon or provide offers allowing people to earn Facebook credits.  For our Android Google and Amazon App products, we plan to continue to create individual Apps for podcasts on our network and off network, focusing on podcasts with the largest audiences.  As the Android Market continues to evolve, we may consider an option to create a Network App as the business model dictates.

Sale of Podcast Subscriptions and Episodes Via Custom Podcast Apps

Once a podcaster has successfully marketed an App to its audience and has created a significant install base, Management believes that from time to time the podcaster can offer new content on a subscription basis or release a special episode, in addition to its normal podcast episodes, and charge a nominal fee ($1 - $3) for that episode to its audience.  By having a successful, extremely easy to use micropayment platform in iTunes/iPhone/iPod Touch, Android and Google, Management believes that podcast audiences will be willing to pay a nominal fee ($1.99), from time to time, for special episodes of their favorite podcast and even sign up for inexpensive subscriptions ($.99 a month; $8.99 for 12 months) of new content.  Wizzard earns a portion of the subscription and episode revenue for administering the App account and delivering the content to the consumer.

   WIZZARD MEDIA - ADVERTISING

In 2010, Wizzard executed multiple national brand advertising campaigns for companies including Audible and JC Penney. These campaigns run across multiple shows, bringing the total number of advertising campaigns launched to date to 115, with 26 different advertisers, resulting in $257,994 in 2010 advertising revenue.  In the fourth quarter of 2010, Wizzard had its best quarter in Wizzard Media history in terms of advertising impressions delivered with 27 million ads delivered vs. 22.4 million ads delivered in the fourth quarter of 2009.

Wizzard’s Alchemy system is able to handle the insertion of advertisements into audio and video shows with geographical targeting capabilities, which was used for multiple advertising campaigns throughout 2010.  Using the new system, the Wizzard Media Network had the capability to deliver 2,499,004,001 advertisements in 2010 if 2.5 advertisements were placed in every podcast request downloaded from the network.  In order to increase the percentage of filled advertising inventory we must continue to execute on our advertising sales strategy, integrate third party ad networks and portals and create relationships with more advertising agencies and their clients.  The advertising capabilities number mentioned above and the tables for download inventory (below) demonstrates to advertisers the reach of the Wizzard Media Advertising Network as most advertisers want to see the opportunity for large advertising campaigns when considering a new medium for their marketing plans.  Management believes that most advertisers prefer to deal with a few companies with large reach rather than many companies with smaller reach as it makes their advertising ‘buys’ and tracking easier to monitor.

Client results of our largest advertising execution to date were excellent in Management's opinion and we expect more buys from the client in the future. We have now had multiple advertisers renew campaigns with Wizzard including one advertiser that is on its 36^th campaign, demonstrating what Management believes is excellent back-end ad operational customer service on Wizzard's part and a satisfactory ROI for our clients.  

Wizzard Media currently has 22 distinct ad categories we take to market.  As the number of publishers joining Wizzard’s Advertising Network grows, so does the available advertising inventory for Wizzard’s advertising sales team to sell.

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*

December and January are historically strong months for downloads. June, July and August are historically slower months for downloads.  Management believes that the above numbers demonstrate to advertisers the reach of the Wizzard Media network as most advertisers want to see the opportunity for large advertising campaigns.  Management believes that most advertisers prefer to deal with a few companies with large reach rather than many companies with smaller reach as it makes their advertising ‘buys’ and tracking easier to monitor.  Formula: Nielsen certified downloads x 2.5 (to take into account pre-roll and post-roll position, and 50% of all downloads capable of handling 1 mid-roll ad).  While there can be no future pricing guarantees, the industry is currently charging, and plans to continue to charge, between $.01 and $.005 per downloaded ad.  The advertisements tend to be no longer than 15 to 30 seconds and several ads can be inserted in one twenty-minute episode.  

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December and January are historically strong months for downloads. June, July and August are historically slower months for downloads. While there can be no future pricing guarantees, the industry average is $.01 and $.005 per downloaded ad.  In order to win new business, at times, our ad sales force will give first time discounts in the per download price.  The advertisements tend to be no longer than 15 to 30 seconds and several ads can be inserted in one twenty-minute episode.

2.     WIZZARD TECHNOLOGY & SERVICES GROUP  

Wizzard Software's legacy Technology & 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 2010, our T&S Group saw a 3.0% decrease in revenue over 2009.  The T&S Group continues to focus its efforts on core assistive application, website audio and alert systems.  The website audio file distribution category currently shows the most promise for expanded business going forward.  

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The Speech Technology and Services Group's immediate focus 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 and offer non-technical hosted speech conversion services to companies that have subscriber base in fast growing market segments. There can be no guarantee that customers will be willing to pay Wizzard for these services.

3.   WIZZARD HEALTHCARE

Based in Casper, Wyoming and Billings, Montana, Interim Health Care of Wyoming has been serving its community for 17 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.  Wizzard currently derives the bulk of its revenues, 56%, from its home healthcare and staffing operations.

As was the case with most industry segments, the medical industry felt the slowing of the economy in 2009.   As a result, our staffing business in Billings, Montana experienced a significant decrease in utilization of our services from the hospitals and nursing homes.  This is driven by a decrease in the census (number of patients) utilizing these facilities.  We continue to take the necessary steps to position ourselves in preparation of an upturn in the census for these facilities as the economy recovers resulting in an increase in the use of our services.  At the same time our home healthcare service continued to be strong and provided a consistent stream of revenue through 2010.  While we have not yet returned to the levels achieved prior to the down turn in the economy, we have seen an increase in revenue for staffing services in Billings, Montana, and an increase in revenue over the prior year within our Home Healthcare segment.  Our home healthcare services continued to be strong and provided a consistent stream of revenue during 2010.

In 2011, as with most businesses in today’s economy, we are approaching our healthcare business with skeptical optimism.  As for our operations in Billings, Montana and its focus on the medical staffing industry, we anticipate a possible modest increase in the demand for our medical staffing services during the upcoming year.  As such, we will continue to evaluate opportunities to expand the realm of services we offer.  Promotional activities are being managed as the offices experience fluctuations in the day-to-day operations and as we embark on new business opportunities.  

Our home healthcare business continues to be a substantial revenue generator for our Company 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.

Critical Accounting Policies and Estimates

Revenue Recognition - Revenue is recognized when earned. The Company's revenue recognition policies are in compliance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605, 985 Software — Revenue Recognition and the Securities and Exchange Commission Staff Accounting Bulletin No. 101 and 104.

The Company recognizes revenue from providing podcast hosting services when the services are provided and the sale of apps when collection is received.   The Company recognizes revenue from the providing of healthcare services when the services are provided and collection is probable.  The Company sells packaged and custom software products and related speech recognition product development consulting.  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.  Revenue from non-recurring programming, engineering fees, consulting service, support arrangements and training programs are recognized when the services are provided.

Accounts Receivable – We evaluate the creditworthiness of our customers based on their financial information, if available, as well as information obtained from suppliers and past experiences with customers.  In some instances, we require new customers to make prepayments.  Accounts receivable consist of trade receivables arising in the normal course of business. Any allowance established is subject to judgment and estimates made by management.  The Company determines

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the allowance based on known troubled accounts, historical experience, and other currently available evidence. We established an allowance for doubtful accounts of $34,200 and $34,200 at December 31, 2010 and 2009, respectively.

Goodwill and Definite-life intangible assets - The Company accounts for Goodwill and definite-life intangible assets in accordance with provisions of the Statement of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 350, Intangibles, Goodwill and Other.  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 Topic 350.  Impairment losses arising from this impairment test, if any, are included in operating expenses in the period of impairment.  Topic 350 requires that definite intangible assets with estimable useful lives be amortized over their respective estimated useful lives, and reviewed for impairment in accordance with Topic 360, criteria for recognition of an impairment of Long-Lived Assets.

Stock-based compensation - The Company accounts for options in accordance with the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) ASC Topic 718, Compensation – Stock Compensation.  For the years ended December 31, 2010 and 2009, the Company recorded stock-based employee compensation expense of  $52,164 and $38,371, respectively,  and stock –based compensation expense to employees and consultants of $103,555 and $491,592, respectively, for options that were issued and immediately exercised. The remaining estimated pretax amortization on unvested options will be recognized during 2011.  The plans are more fully described in Note 8 of our consolidated financial statements.

Estimating the fair value of options granted requires us to utilize valuation models and to establish several underlying assumptions. The fair value of option grants was estimated using the Black-Scholes option valuation model based on the following weighted average assumptions:

The risk-free interest rate is the implied yield available for zero-coupon U.S. government issues with a remaining term equal to the expected life of the options.

The expected lives of the options are determined based on the Company’s expectations of individual option holders anticipated behavior and the term of the option.

Volatility is based upon price performance of the Company over an equivalent term of the issued options to determine potential volatility of the issued options.

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.

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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

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 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%.

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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.

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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.

Off-Balance Sheet Arrangements

We have operating leases for certain facilities, but otherwise do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, results of operations, liquidity, or capital resources.

Item 7A. Quantitative and Qualitative Disclosure about Market Risk

Not applicable to smaller reporting companies.

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Item 8.  Financial Statements and Supplementary Data.

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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Board of Directors

WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). Our internal control over financial reporting is designed to provide reasonable assurance to management and the Board of Directors regarding the preparation and fair presentation of published financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2010.  In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on our assessment, management believes that we maintained effective internal control over financial reporting as of December 31, 2010.  

Pittsburgh, Pennsylvania

March 16, 2011

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Gregory & Associates, LLC [Letterhead]

REPORT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES

Pittsburgh, Pennsylvania 15213

We have audited the accompanying consolidated balance sheets of Wizzard Software Corporation and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended December 31, 2010, 2009 and 2008. These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States).. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The company is not required to have, nor were we engaged to perform, and audit of its internal controls over financial reporting for the years ended December 31, 2010 and 2009.  Our audit included consideration of internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal controls over financial reporting for the years ended December 31, 2010 and 2009.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audit, the consolidated financial statements audited by us present fairly, in all material respects, the financial position of Wizzard Software Corporation and subsidiaries as of December 31, 2010 and 2009 and the results of their operations and their cash flows for the years ended December 31, 2010, 2009 and 2008, in conformity with generally accepted accounting principles in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.  As discussed in Note 2 to the financial statements, the Company has not yet established profitable operations and has incurred significant losses since its inception.  These factors raise substantial doubt about the Company's ability to continue as a going concern.  Management's plans in regards to these matters are also described in Note 2.  The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

/s/Gregory & Associates, LLC

March 30, 2011

Salt Lake City, Utah

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104000 - Statement - WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

[1] net of $34,200 allowance

[2] net of discount of $5,329

[3] net of discount of $154,420

[4] $.001 par value, 10,000,000 shares authorized, 4,000 Series A cumulative, convertible, contingently redeemable shares issued and outstanding with liquidation preferences.

[5] $.001 par value, 10,000,000 shares authorized, 4,182 Series A cumulative, convertible, contingently redeemable shares issued and outstanding with liquidation preferences.

[6] $.001 par value, 100,000,000 shares authorized, 69,873,112 shares issued and outstanding, respectively

[7] $.001 par value, 100,000,000 shares authorized, 56,465,322 shares issued and outstanding, respectively

See accompanying notes to these unaudited consolidated financial statements.

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124000 - Statement - WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to these unaudited consolidated financial statements.

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