FORM 10-Q  Securities and Exchange
Commission Washington, D. C.
 20549   [X] QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the quarterly
period ended June 30, 2008  [ ] TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934  For
the transition period from to  Commission File No.
  000-33381  WIZZARD SOFTWARE
CORPORATION (Exact name of
registrant as specified in its charter)  COLORADO
87-0609860(State or other jurisdiction of incorporation or
organization)
(I.R.S. Employer Identification No.)  5001 Baum Boulevard,
Suite 770 Pittsburgh,
Pennsylvania 15213 (Address of
Principal Executive Offices)  Registrant's Telephone
Number:  (412) 621-0902  Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.   (1) Yes [ X]  No
               (2)
Yes  [ X ]  No  Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer or a
smaller reporting company. See definition of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):  Large accelerated filer  [
 ]


Accelerated filer
[X]Non-accelerated filer  [
 ]


Smaller reporting
company  [  ]   Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes [ ]  No [X]   As of August 6, 2008,
there were 44,794,723 shares of common stock, par value $.001, of the registrant
issued and outstanding.   1     PART I - FINANCIAL
INFORMATION  Item 1.   Financial
Statements.  The Consolidated Financial
Statements of the Company required to be filed with this 10-Q 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.   2        WIZZARD SOFTWARE CORPORATION AND
SUBSIDIARIESFINANCIAL STATEMENTSCONTENTSPAGEConsolidated Balance Sheets

4Consolidated Unaudited Statements of Operations

5Consolidated Unaudited Statements of Cash Flows

6 - 9Notes to Unaudited Consolidated Financial
Statements

10 - 24       3    WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEET  ASSETS June 30,   2008

December 31, 2007CURRENT ASSETS:

(unaudited)Cash
$
3,099,755
$
6,036,209Accounts
receivable, net of $17,562 and $17,562 allowance, respectively

944,753

874,058Prepaid
expenses

56,381

24,143Total
current assets

4,100,889

6,934,410LEASED EQUIPMENT, net

-

75,916PROPERTY AND EQUIPMENT,
net

185,251

109,504GOODWILL

20,800,569

20,724,986INTANGIBLES, net

389,583

-OTHER ASSETS

4,757

4,757Total
assets
$
25,481,049
$
27,849,573LIABILITIES AND STOCKHOLDERS'
EQUITYCURRENT LIABILITIES:Accounts
payable
$
812,578
$
877,304Accrued
expenses

447,768

356,341Accrued
acquisition costs - Webmayhem, PNPP

-

1,949,843Capital
lease

-

81,411Notes
payable - current portion

46,915

46,915CONVERTIBLE
NOTES PAYABLE, net of discount of $0 and $0, respectively

1,964,710

-Deferred
revenue

49,357

53,039Total
current liabilities

3,321,328

3,364,853NOTES PAYABLE, less current
portion

28,048

51,016CONVERTIBLE NOTES PAYABLE,
less current portion, net of discount of $0 and $482,158,
respectively

-

1,687,554Total
liabilities

3,349,376

5,103,423STOCKHOLDERS' EQUITYPreferred
stock, $.001 par value, 10,000,000 shares authorized, 6,083 and 6,147
Series A cumulative, convertible, contingently redeemable shares issued
and outstanding with liquidation preferences, respectively

6

6Common
stock, $.001 par value, 100,000,000 shares authorized, 44,794,723 and
43,304,034 shares issued and outstanding, respectively

44,795

43,304Additional
paid-in capital

68,587,729

64,668,006Accumulated
deficit

(46,500,857)

(41,965,166)Total
stockholders' equity

22,131,673

22,746,150Total
liabilities and stockholders' equity
$
25,481,049
$
27,849,573   See accompanying notes
to these unaudited consolidated financial statements.  4    WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED
STATEMENTS OF OPERATIONS  For the Three Months  Ended
June  30,

For the Six Months
 Ended
June  30,2008

2007

2008

2007REVENUESoftware
$
205,810
$
249,324
$
459,476
$
466,285Healthcare

932,380

960,409

1,945,511

1,389,234Media Services

327,684

218,364

729,365

298,504Total Revenue

1,465,874

1,428,097

3,134,352

2,154,023COST OF GOODS SOLDSoftware

116,727

116,092

206,264

204,126Healthcare

708,974

622,320

1,289,839

919,366Media Services

242,992

286,990

574,226

370,503Total Cost of Goods Sold

1,068,693

1,025,402

2,070,329

1,493,995Gross Profit

397,181

402,695

1,064,023

660,028OPERATING EXPENSESSelling expenses

320,448

186,194

545,191

387,928General and
administrative

1,259,513

985,772

2,517,069

1,500,518Consulting fees

558,722

1,891,226

1,729,750

2,315,371Research and development

20,750

40,946

56,003

93,124Total Expenses

2,159,433

3,104,138

4,848,013

4,296940LOSS FROM OPERATIONS

(1,762,252)

(2,701,443)

(3,783,990)

(3,636,913)OTHER INCOME (EXPENSE):Extension and re-pricing of
warrants

-

-

-

(689,610)Extension of notes payable

-

-

(263,483)

-Interest on income

14,292

21,210

49,564

44,562Interest expense

(146,547)

(190,174)

(541,496)

(382,899)Other income(expense)

3,265

4,099

3,714

4,423Total Other Income
(Expense)

(128,990)

(164,865)

(751,701)

(1,023,524)LOSS BEFORE INCOME TAXES

(1,891,242)

(2,866,308)

(4,535,691)

(4,660,437)CURRENT INCOME TAX EXPENSE

-

-

-

-DEFERRED INCOME TAX EXPENSE

-

-

-

-NET LOSS
$
(1,891,242)
$
(2,866,308)
$
(4,535,691)
$
(4,660,437)DIVIDENDS:Preferred dividend

(106,983)

-

(214,363)

-NET LOSS
AVAILABLE TO COMMON SHAREHOLDERS

(1,998,225)

(2,866,308)

(4,750,054)

(4,660,437)BASIC AND DILUTED LOSS PER COMMON SHARE AVAILABLE
TO COMMON SHAREHOLDERS
$
(0.04)
$
(0.07)
$
(0.11)
$
(0.12)BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING

44,677,752

41,807,211

44,180,115

38,969,830   See accompanying notes
to these unaudited consolidated financial statements.  5    WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED
STATEMENTS OF CASH FLOWS  For the Six Months Ended
June 30,2008

2007Cash Flows from Operating ActivitiesNet loss
$
(4,535,691)
$
(4,660,437)Adjustments to reconcile net loss to
net cash
used in operating activities:Amortization of discount on notes
payable

482,158

322,800Compensation for re-pricing and
extension of warrants

-

689,610Compensation for extension of
notes payable

263,483

-Stock for non cash
expenses

917,708

2,149,770Non-cash compensation - options
issued

412,589

170,499Non-cash interest expense on
notes payable

11,988

-Depreciation and amortization
expense

133,730

40,629Change in allowance for bad
debt

-

-Change in allowance for slow
moving inventory

-

(16,027)Change in assets and
liabilities:Accounts
receivable

(70,696)

(81,030)Inventory

-

23,402Prepaid
expenses

(32,237)

9,766Accounts
payable

(68,462)

(362,923)Accrued
expense

(61,637)

93,662Deferred
revenue

(3,682)

6,458Net Cash Used in
Operating Activities

(2,550,749)

(1,613,821)Cash Flows from Investing Activities:Purchase of property &
equipment

(108,079)

(22,042)Acquisition of PNPP

(6,264)

-Acquisition of iClipx

(12,500)

(150,324)Acquisition of Webmayhem

-

(228,536)Net Cash Used in Investing
Activities

(126,843)

(400,902)Cash Flows from Financing Activities:Proceeds from the issuance of
common stock

-

677,319Payment on preferred
dividend

(209,169)

-Payments on capital lease

(26,726)

(18,575)Payments on note payable

(22,967)

(7,141)Net Cash Provided by
Financing Activities

(258,862)

651,603Net Decrease in Cash

(2,936,454)

(1,363,120)Cash at Beginning of Period

6,036,209

2,685,068Cash at End of Period
$
3,099,755
$
1,321,948Supplemental Disclosures of Cash Flow
InformationCash paid during the periods
for:Interest
$
6,069
$
5,677Income taxes
$
-
$
-    (Continued) See accompanying notes
to unaudited consolidated financial statements.  6    WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)  Supplemental Schedule of Non-cash
Investing and Financing Activities:  For the six months ended June 30,
2008:  On February 1,
2008, the Company issued 50,000 common shares in payment of a $100,000 note
payable.  On February 1,
2008, the Company issued 200,000 restricted common shares valued at $570,000 for
consulting services.  On February 6,
2008, the Company issued 220,000 restricted common shares valued at $653,400 to
acquire the operations of iClipx Inc.  On February 12,
2008, the Company issued 13,296 common shares in payment of a $25,000 note
payable and $1,592 of accrued interest.  On February 29,
2008, the Company issued 49,000 common shares upon the exercise of options
valued at $134,750 to consultants for services rendered.  On February 29,
2008, the Company issued 5,000 restricted common shares valued at $13,750 for
consulting services.  On March 5,
2008, the Company issued 4,715 restricted common shares upon notice of
conversion of 11 shares of Series A Preferred Stock.  On March 5,
2008, the Company issued 688 restricted common shares in payment of all
dividends accruing on the shares of Series A Preferred stock that was converted
on March 5, 2008.  On March 24,
2008, the Company issued 49,038 restricted common shares valued at $106,412 for
Professional Nursing Personnel Pool attainment of the Milestones.  On March 24,
2008, the Company issued 1,000 common shares upon the exercise of options valued
at $2,170 to consultants for services rendered.  On March 24,
2008, the Company issued 713,150 restricted common shares valued at $1,547,535
for Webmayhem Inc. attainment of Milestone I.  On March 24,
2008, the Company issued 1,907 restricted common shares valued at $4,138 for
consulting services.  On March 15,
2008, the Company issuance of 400,000 warrants to extend the maturity date of
three notes payable to April 28, 2009.  The Company recorded a $263,483
non-cash expense related to the Fair Market Value of the 400,000 warrants.  On April 15,
2008, the Company issued 9,792 restricted common shares valued at $21,249 for
Professional Nursing Personnel Pool attainment of the Milestones.  On May 5, 2008,
the Company issued 20,000 common shares in payment of a $40,000 note
payable.  On May 7, 2008,
the Company issued 22,575 common shares in payment of a $40,000 note payable and
$5,150 of accrued interest.   7    WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)  Supplemental Schedule of Non-cash
Investing and Financing Activities (Continued):  On May 14, 2008,
the Company issued 25,852 restricted common shares upon notice of conversion of
53 shares of Series A Preferred Stock.  On May 14, 2008,
the Company issued 676 restricted common shares in payment of all dividends
accruing on the shares of Series A Preferred stock that was converted on May 14,
2008.  On May 15, 2008,
the Company issued 10,000 common shares upon the exercise of options valued at
$21,800 to consultants for services rendered.  On May 15, 2008,
the Company issued 5,000 restricted common shares valued at $10,900 for
consulting services.  On June 19,
2008, the Company issued 89,000 restricted common shares valued at $160,200 for
consulting services.  During the first
six months of 2008, the company recorded $412,589 of non-cash compensation
expense related to the vesting of certain stock options issued.  For the six months ended June 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 $689,610 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.   8    WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)  Supplemental Schedule of Non-cash
Investing and Financing Activities (Continued):  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 a $34,592 note
payable and $15,822 of accrued interest.  During the first
six months 2007, the company recorded $170,499 of compensation expense related
to the vesting of certain stock options issued.       9      WIZZARD SOFTWARE
CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  NOTE 1   SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES  Unaudited Consolidated Financial Statements - The
accompanying consolidated 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 June 30, 2008, and the results of operations and cash
flows for the periods ended June 30, 2008 and 2007 have been made.  The
accompanying unaudited consolidated financial statements have been prepared in
accordance with the instructions for Form 10-Q of the Securities and Exchange
Commission.  Certain information and footnote disclosures normally included
in consolidated financial statements prepared in accordance with generally
accepted accounting principles in the United States of America have been
condensed or omitted.  The consolidated 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 consolidated financial statements and notes thereto
included in the Company's December 31, 2007 audited financial statements.
 The results of operations for the six months ended June 30, 2008 and 2007
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 digital media publishing 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 digital media publishing services.
 On April 3, 2007, Interim purchased the operations of Professional
Personnel, Inc., d.b.a., Professional Nursing Personnel Pool [PNPP].  Consolidation - The consolidated financial
statements presented reflect the accounts of Parent, MedivoxRx, Libsyn and
Interim.  All significant inter-company transactions have been eliminated
in consolidation.  Accounting Estimates - The preparation of
consolidated 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 consolidated financial
statements, and the reported amounts of revenues and expenses during the
reporting period.  Significant estimates for the Company include
depreciation, amortization, allowances and realization of 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 June 30, 2008, the Company had cash balances of
$2,864,612 in excess of federally insured limits.  Accounts Receivable - Accounts receivable consist
of trade receivables arising in the normal course of business. At June 30, 2008
and December 31, 2008, 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 six months ended June 30, 2008 and 2007, the Company had no
change to the allowance for bad debt.  10    WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  NOTE 1 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)  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 - We account for
software development costs, including costs to develop software products or the
software component of products to be marketed to external users, as well as
software programs to be used solely to meet our internal needs in accordance
with SFAS No. 86, Accounting for Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed and Statement of Position No. 98-1,
Accounting for Costs of Computer Software Developed or Obtained for Internal
Use. We have determined that technological feasibility for our products to
be marketed to external users was reached shortly before the release of those
products. As a result, the development costs incurred after the establishment of
technological feasibility and before the release of those products were not
material, and accordingly, were expensed as incurred. In addition, costs
incurred during the application development stage for software programs to be
used solely to meet our internal needs were not material.  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 9].  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. (see Note 10).  Advertising Costs -
Advertising costs are expensed as incurred and amounted to $98,016 and $153,742
for the six months ended June 30, 2008 and 2007, 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.  11    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 June 30, 2008 and 2007
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.  Digital media publishing  Digital media
publishing services are billed on a month to month basis.  The Company
recognizes revenue from providing digital media publishing services when the
services are provided and when collection is probable.  Digital media Advertising  The Company recognizes
revenue from the insertion of advertisements in digital media, as the digital
media with the advertisement is downloaded and collection is probable.  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 six months ended June 30, 2008 and 2007 are $56,003 and $93,124,
respectively, of research and development costs associated with the development
of new products.  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 8.  During the periods presented in the
accompanying consolidated financial statements, the Company has granted options
under its 2005, 2007 and 2008 defined stock option plans. The Company accounts
for options in accordance with the provisions of SFAS No. 123R using the
modified-prospective transition method and the disclosures that follow are based
on applying SFAS No. 123R.  Non-cash compensation cost of $412,589 and
$170,499 have been recognized for the vesting of options granted to employees
and directors with an associated recognized tax benefit of $0 for the six months
ended June 30, 2008 and 2007, respectively.  Non-cash compensation cost of
$158,720 and $213,695 have been recognized for options issued to employee and
consultants which immediately vested and were exercised with an associated
recognized tax benefit of $0 for the six months ended June 30, 2008 and 2007.   12    WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  NOTE 2  ACQUISITION  On January 20, 2008, the Company purchased the operations
of iClipx.  The Purchase Agreement called for the Company to pay $12,500 in
cash and issue 220,000 unregistered and restricted shares of common stock valued
at $653,400. As part of the purchase agreement, the Company agreed to issue an
additional 200,000 shares of common stock of the Company should iClipx obtain
gross revenue of at least $300,000 through June 30, 2009.  The following unaudited proforma information summarizes
the estimated fair values of the assets acquired and the liabilities
assumed: iClipxDigital media content
$
400,000Non-compete agreement

75,000Net assets in excess of liabilities

475,000Purchase price

665,900Goodwill
$
190,900  Amortization expense for the six
months ended June 30, 2008 and 2007 was $85,416 and $0, respectively.  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 SixMonths EndedJune 30, 2008Net revenue
$
3,134,352Cost of sales

2,070,329Operating expenses

4,849,522Other expense

(751,701)Net loss

(4,537,200)Preferred dividends

(214,363)Net loss available to common shareholders
$
(4,751,563)Basic and diluted loss per common share available
to common shareholders
$
(0.11)Basic and diluted weighted average common shares
outstanding

44,722,477  NOTE 3  PROPERTY &
EQUIPMENT  The following is a summary of
property and equipment at: Life

June 30,
2008

December 31,
2007Furniture, fixtures and equipment
2-10 yrs
$
375,759
$
267,681Production molds
3 yrs

47,710

47,710Software
2-5 yrs

11,964

11,964435,433

327,355Less: Accumulated depreciation


(250,182)

(217,851)Property & equipment, net

$
185,251
$
109,504  Depreciation expense for the six
months ended June 30, 2008 and 2007 was $32,331 and $24,647, respectively.  13    WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  NOTE 4  GOODWILL / DEFINITE-LIFE
INTANGIBLE ASSETS  Intangible Assets  The
Companys definite life intangible assets consist of digital media content and a
non-compete agreement which are amortized on a straight-line basis over their
estimated useful lives.  Amortization expense of $85,416 and $0 was
recorded for the six months ended June 30, 2008 and 2007, respectively.  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 $49,225 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.  On December 31, 2007, the Company recorded
additional goodwill of $1,818,532 in connection with Milestone I, and was
subsequently adjusted on March 24, 2008 to $1,547,535 upon actual issuance of
stock.  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 December 31, 2007, the Company recorded additional goodwill of
$131,311 and $5,680 on March 24, 2008 in connection with achieving certain
financial results and meeting the contingent purchase price contingency.  On January 20, 2008, the Company
recorded goodwill of $190,900 in connection with the purchase of operations of
iClipx, as the purchase price exceeded the $475,000 of assets acquired.
 The purchase price, totaling $665,900 consisted of cash of $12,500 and
restricted common stock valued at $653,400.  On June 30, 2008, the Company
recorded a liability for additional goodwill of $150,000 in connection with
Switchpod attaining the second year incentive.  The following is a summary of
goodwill: For the Six Months Ended June
30,

For the Year Ended December
31,2008

2007Goodwill at beginning of period
$
20,724,986
$
945,795Goodwill from acquisition of iClipx

190,900

-Goodwill from incentive - Switchpod

150,000

-Goodwill from acquisition of Webmayhem Inc.

(270,997)

18,810,180Goodwill from acquisition of PNPP

5,680

969,011Goodwill at end of period
$
20,800,569
$
20,724,986   14    WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 5 - NOTES PAYABLE  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 was
amortized as interest expense over the term of the note. As of June 30, 2008,
the Company has amortized $2,375,000 of the discount.  On March 15, 2008,
the Company issuance of 400,000 warrants to extend the maturity date of three
notes payable to April 28, 2009.  During the six months ended June 30, 2008
and 2007, the Company recorded expense interest expense of $51,696 and $54,393,
respectively and amortized $482,158 and $322,800 of the discount,
respectively.  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 June 30, 2008, the note has a remaining principal balance of $74,963.
 During the six months ended June 30, 2008 and 2007, interest expense on
the note payable amounted to $3,709 and $1,751, respectively.  NOTE 6 - LEASES  Capital Lease - The Company leased equipment on a
63-month capital lease which terminated in June 2008. Upon termination of the
lease, the Company acquired the leased equipment for $5,000.  During the
six months ended June 30, 2008 and 2007, depreciation expense for equipment on
capital lease amounted to $15,982 and $15,982, respectively, and has been
included in depreciation expense.  During the six months ended June 30,
2008 and 2007, interest expense on capital lease obligation amounted to $3,276
and $3,925, respectively.  The following is a summary of leased
equipment at: Life

June 30,
2008

December 31,
2007Leased equipment
5.25 yrs
$
-
$
223,750Less: Accumulated depreciation


-

(147,834)Leased equipment, net

$
-
$
75,916  Depreciation expense for the six
months ended June 30, 2008 and 2007 was $15,982 and $15,982, respectively.   Operating Lease - The Company leases office space,
in Pittsburgh, Pennsylvania, on a month to month basis for $4,033 a month. The
Company leases additional office space in Casper, Wyoming from the former owner
of Interim Healthcare of Wyoming, Inc. and current shareholder, on a month to
month basis for $4,750 a month.  The Company leases space in New York, New
York, on a month to month basis for $2,200 a month.  The Company leases
space in Hollywood California, for $1,903 a month through April 2009. The
Company further leases space in Billings, Montana for of $1,350 a month through
February 2011.   15     WIZZARD SOFTWARE
CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 - CAPITAL STOCK  Preferred Stock - The Company
has authorized 10,000,000 shares of preferred stock, $.001 par value.  As
of June 30, 2008, the Company had 6,083 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, dividends, and any damages are convertible into
common shares at $2.05 per common shares.  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
June 30, 2008, the Company had 44,794,723 common shares issued and
outstanding.  On February 1, 2008, the Company
issued 50,000 common shares in payment of a $100,000 note payable.  On February 1, 2008, the Company
issued 200,000 restricted common shares valued at $570,000 for consulting
services.  On February 6, 2008, the Company
issued 220,000 restricted common shares valued at $653,400 to acquire the
operations of iClipx Inc.  On February 12, 2008, the Company
issued 13,296 common shares in payment of a $25,000 note payable and $1,592 of
accrued interest.  On February 29, 2008, the Company
issued 49,000 common shares upon the exercise of options valued at $134,750 to
consultants for services rendered.  On February 29, 2008, the Company
issued 5,000 restricted common shares valued at $13,750 for consulting
services.  On March 5, 2008, the Company issued
4,715 restricted common shares upon notice of conversion of 11 shares of Series
A Preferred Stock.  On March 5, 2008, the Company issued
688 restricted common shares in payment of all dividends accruing on the shares
of Series A Preferred stock that was converted on March 5, 2008.  16    WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 - CAPITAL STOCK
(Continued)  On March 24, 2008, the Company
issued 49,038 restricted common shares valued at $106,412 for Professional
Nursing Personnel Pool attainment of the Milestones.  On March 24, 2008, the Company
issued 1,000 common shares upon the exercise of options valued at $2,170 to
consultants for services rendered.  On March 24, 2008, the Company
issued 713,150 restricted common shares valued at $1,547,535 for Webmayhem Inc.
attainment of Milestone I.  On March 24, 2008, the Company
issued 1,907 restricted common shares valued at $4,138 for consulting
services.  On April 15, 2008, the Company
issued 9,792 restricted common shares valued at $21,249 for Professional Nursing
Personnel Pool attainment of the Milestones.  On May 5, 2008, the Company issued
20,000 common shares in payment of a $40,000 note payable.  On May 7, 2008, the Company issued
22,575 common shares in payment of a $40,000 note payable and $5,150 of accrued
interest.  On May 14, 2008, the Company issued
25,852 restricted common shares upon notice of conversion of 53 shares of Series
A Preferred Stock.  On May 14, 2008, the Company issued
676 restricted common shares in payment of all dividends accruing on the shares
of Series A Preferred stock that was converted on May 14, 2008.  On May 15, 2008, the Company issued
10,000 common shares upon the exercise of options valued at $21,800 to
consultants for services rendered.  On May 15, 2008, the Company issued
5,000 restricted common shares valued at $10,900 for consulting services.  On June 19, 2008, the Company issued
89,000 restricted common shares valued at $160,200 for consulting services.  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 $689,610 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.    17    WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 - CAPITAL STOCK
(Continued)  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.  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 a $34,592 note payable and $15,822 of accrued
interest.  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 six months 2007,
the company recorded $170,499 of compensation expense related to the vesting of
certain stock options issued.      18    WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 8  STOCK OPTIONS AND WARRANTS  2008 Key Employee Stock Option Plan
- During 2008, the Board of Directors adopted a 2008 Key Employee Stock Option
Plan ("2008 Key Employee Plan").  Under the terms and conditions of the
2008 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 2008 Key Employee Plan may not exceed 400,000.  At June 30, 2008, no
options were available to be granted under the 2008 Key Employee Plan.
 During the six months ended June 30, 2008, the Company granted 400,000
options.  2008 Stock Option Plan - During
2008, the Board of Directors adopted a Stock Option Plan ("2008 Plan").
 Under the terms and conditions of the 2008 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 2008 Plan may not exceed 200,000.  At June
30, 2008, 5,000 options were available to be granted under the 2008 Plan.
 During the six months ended June 30, 2008, the Company granted 195,000
options.  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 June 30, 2008, no
options were available to be granted under the 2007 Key Employee Plan.
 During the six months ended June 30, 2008 and 2007, the Company granted 0
and 200,000 options, respectively.  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 June
30, 2008, 59,745 options were available to be granted under the 2007 Plan.
 During the six months ended June 30, 2008 and 2007, the Company granted 0
and 143,170 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 June 30, 2008, total options available to be granted under the 2005
Plan totaled 95.  During the six months ended June 30, 2008 and 2007, the
Company granted 0 and 19,700 options, respectively, which were immediately
exercised for service valued at $0 and $60,384, respectively.  The fair value of
option grants during the six months ended June 30, 2008 and 2007 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 six months ended June 30, 2008 and 2007 were as follows: 2008

2007Dividend yield
0 %

0 %Expected life
4 yrs

5 yrsExpected volatility
85.6%

65.6%Risk-free interest rate
3.80%

4.65%  19    WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  NOTE 8  STOCK OPTIONS AND WARRANTS
(Continued)  A summary of the status of options
granted at June 30, 2008, and changes during the period then ended are as
follows:  For the Six Months EndedJune 30, 2008Shares

Weighted Average Exercise
Price
Weighted Average Remaining Contractual
Term

Aggregate Intrinsic
ValueOutstanding at beginning of period
427,500
$
2.06
7.5 years
$
33,000Granted
605,000

2.07
7.1 years

-Exercised
(60,000)

-
-

158,720Forfeited
(60,000)

2.48
-

-Expired
-

-
-

-Outstanding at end of period
912,500

2.19
7.9 years

33,000Vested and expected to vest in the future
912,500

2.19
7.9 years

-Exercisable at end of period
617,500

2.14
8.3 years

33,000Weighted average fair value of options
granted
912,500
$
2.19
7.9 years
$
33,000  The Company had 40,000 non-vested
options at the beginning of the period with a weighted average exercise price of
$2.67.  At June 30, 2008 the Company had 295,000 non-vested options with a
weighted average exercise price of $2.29.  The total intrinsic value of options exercised during the
six months ended June 30, 2008 and 2007 was $158,720 and $213,695, respectively.
 Intrinsic value is measured using the fair market value at the date of
exercise (for shares exercised) or at June 30, 2008 (for outstanding options),
less the applicable exercise price.  During the six months ended June 30, 2008 and 2007, the
Company recorded $412,589 and $170,499 of non-cash compensation expense related
to the vested stock options issued to employees.  For the six months ended June 30,
2008 and 2007, the Company recorded non-cash compensation cost of $158,720 and
$213,695 for vested and exercised options issued to employees and
consultants.  Warrants - A summary of the status
of the warrants granted is presented below for the six months ended:  June 30, 2008

June 30, 2007Shares

Weighted Average Exercise
Price

Shares

Weighted Average Exercise
PriceOutstanding at beginning of period
4,123,851
$
2.42

3,193,331
$
2.05Granted
400,000

2.85

-

-Exercised
-

-

(630,701)

1.10Forfeited
-

-

(110,627)

1.36Expired
-

-

(157,420)

3.41Outstanding at end of period
4,523,851
$
2.46

2,294,583
$
2.19   20    WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  NOTE 8  STOCK OPTIONS AND WARRANTS
(Continued)  On March 15, 2008, the Company
issuance of 400,000 warrants to extend the maturity date of three notes payable
to April 28, 2009.  The Company recorded a $263,483 non-cash expense
related to the Fair Market Value of the 400,000 warrants.  During February 2007, the Company extended the expiration
of 366,666 warrants from February 8, 2007 to June 14, 2007 and recorded $689,610
in compensation expense.  NOTE 9 - 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 Six MonthsEnded June 30,

Ended June 30,2008

2007

2008

2007Net loss
(numerator)
$
(1,891,242)
$
(2,866,308)
$
(4,535,691)
$
(4,660,437)Accrued
dividend

(106,983)

-

(214,363)

-Net loss
available to common shareholders (numerator)
$
(1,998,225)
$
(2,866,308)
$
(4,750,054)
$
(4,660,437)Weighted average
number of common shares outstanding during the period used in loss per
share (denominator)

44,677,752

41,807,211

44,180,115

38,969,830  At June 30, 2008, the Company had
4,523,851 warrants outstanding to purchase common stock of the Company at $2.00
to $2.85 per share, the Company had 912,500 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
1,022,356 shares of common stock, [See Note 5], and a 7% cumulative Series A
Preferred shares wherein the holder could convert the note into a minimum of
2,945,365 shares of common stock which were not included in the loss per share
computation because their effect would be anti-dilutive.  At June 30, 2007, the Company had
2,294,583 warrants outstanding to purchase common stock of the Company at $2.00
to $2.50 per share, the Company had 417,500 options outstanding to purchase
common stock of the Company at $1.59 to $2.59 per share, and a 5% convertible
note payable wherein the holder could convert the note into a minimum of
1,145,081 shares of common stock, [See Note 7], which were not included in the
loss per share computation because their effect would be anti-dilutive.  NOTE 10 - 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 June 30, 2008 operating loss carryforwards of
approximately $23,780,000 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.   21    WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  NOTE 10 - INCOME TAXES
(Continued)  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 $11,800,000 as of June 30, 2008, with an offsetting
valuation allowance of the same amount.  The change in the valuation
allowance for the six months ended June 30, 2008 approximated $1,300,000.  NOTE 11 - 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 March 2010.  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 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 digital media downloads per month in excess of the number of
digital media downloads per month as of May 31, 2007 or 5,000,000 digital media
downloads per month.  As of June 30, 2008, the Company recorded a liability
of $150,000 for Switchpod attaining the second year incentive.   Had
the stock been issued at June 30, 2008, the Company would have issued an
additional 100,000 shares of restricted common stock.  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 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
operations of iClipxAs part of the purchase agreement, the
Company agreed to issue an additional 200,000 unregistered and restricted
shares of its common stock should iClipx obtain gross revenue of at least
$300,000 through June 30, 2009.  NOTE 12 - SEGMENT REPORTING  The Companys operations are divided into three
independent segments  software, media 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 all operating
segments.    22    WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  NOTE 12 - SEGMENT REPORTING
(Continued)  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
digital media publishing services at the time the service is provided.  Media  The Company attributes revenue from
digital media publishing service at the time the service is provided and
collection is likely.  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 six months ended June 30, 2008 and 2007: (in thousands) 2008

2007Software

Media

Healthcare

Total

Software

Media

Healthcare

TotalNet
revenues
$
460
$
729
$
1,945
$
3,134
$
466
$
299
$
1,389
$
2,154Cost of
sales

206

574

1,290

2,070

204

371

919

1,494General and
administrative

2,590

1,189

468

4,247

3,174

271

371

3,816Selling

91

429

25

545

153

159

76

388Research and
development

49

7

-

56

44

49

-

93Compensation for
re-pricing/extension of warrants

264

-

-

264

689

-

-

689Other
income

45

3

5

53

39

-

10

49Interest
expense

534

-

7

541

377

-

6

383Income tax
benefit/(expense)

-

-

-

-

-

-

-

-Net income
(loss)
$
(3,229)
$
(1,467)
$
160
$
(4,536)
$
(4,136)
$
(551)
$
27
$
(4,660)Total
assets

4,569

18,
856

2,056

25,481

2,121

17,103

1,707

20,931Depreciation

18

10

20

48

10

4

26

40  The following is a summary of the Companys operations by
segment for the three months ended June 30, 2008 and 2007:  2008

2007Software

Media

Healthcare

Total

Software

Media

Healthcare

TotalNet
revenues
$
205
$
328
$
933
$
1,466
$
249
$
219
$
960
$
1,428Cost of
sales

117

243

709

1,069

116

287

622

1,025General and
administrative

1,044

551

223

1,818

2,411

225

241

2,877Selling

32

275

13

320

59

96

31

186Research and
development

15

6

-

21

16

25

-

41Compensation for
re-pricing/extension of warrants

-

-

-

-

-

-

-

-Other
income

13

-

4

17

18

7

7

25Interest
expense

139

-

1

146

186

4

4

190Income tax
benefit/(expense)

-

-

-

-

-

-

-

-Net income
(loss)
$
(1,129)
$
(747)
$
(15)
$
(1,891)
$
(2,521)
$
(414)
$
69
$
(2,866)Depreciation

10

6

10

26

5

3

13

21   23    WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  NOTE 13 - SUBSEQUENT EVENT  On August 6, 2008, the Company
issued 53,796 restricted common shares in payment of $94,144 of accrued interest
on the 5% Note Payable.  24    Item 2.
  Management's Discussion and Analysis or Plan of Operation.  Highlights of Second Quarter, 2008  Our business, for the last twelve years, has been focused
on the speech recognition technology industry.  As a result of our
commitment to speech technologies, we have been able to position ourselves as a
leader in the fast growing digital media aggregation, syndication and
advertising industry currently taking shape on the internet. Using sophisticated
speech recognition technologies, we are able to offer advertisers highly
targeted advertising packages from the 15,000+ digital media 'shows' hosted and
published using Wizzard Media's products and services.  Below is an update
of our entire business, from our most recent entry into digital media where we
expect most of our future growth to occur, to our legacy businesses of offering
core speech engine tools for developers and speech technology solutions for the
healthcare industry.  Currently, our healthcare operations make up 62% of
our revenue, but we expect our digital media publishing business to become our
largest revenue generator at some point in 2009 and provide the largest revenue
growth in the future.  We believe this is due to the size of our digital
media operations and the potential advertising inventory available for sale by
Wizzards ad sales team.  The growth of our media operations 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
showing growing interest in the medium.  1.     GENERAL &
ADMINISTRATIVE  In the second quarter of 2008, Wizzard
Software was added to the Russell Microcap Index.  2.     WIZZARD MEDIA  Wizzard Media is the one year old division for our
digital media business.  Wizzard Media is focused on the digital media
industry and how speech technology, when used effectively, can have a
significant impact on the industry by providing a safe means for advertisers to
promote their brands in professional and semi-professional content.  By
incorporating speech recognition into the digital media mix, Wizzard can search
through a transcript of every participating show utilizing our publishing
platform and offer targeted keyword advertising to national brands while
providing monetization of digital content for our publishers and for Wizzard.
 Wizzard Media is currently the industrys largest network of independent
and professional digital media publishers utilizing RSS as a distribution
method.  The network received over 450 million download requests for shows
in 2006 and surpassed 1 billion download requests in 2007.  In the second
quarter of 2008, traditionally a slower quarter than the first or fourth quarter
for media consumption, the Wizzard Network received approximately 241,600,000
download requests for shows vs. 196,700,000 download requests in the second
quarter of 2007.  Wizzard's publishing platform grew by over 1,500 new
shows in the second quarter of 2008 vs. 300 new shows in the second quarter of
2007.  Over 54,000 new individual episodes were added across the network in
the second quarter of 2008 vs. 38,000 new episodes added in the second quarter
of 2007.  With the continuing success of Apple's iPod, iPhone and Apple TV
2.0 along with new RSS aggregators from Adobe and others, 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.  The total number of
episodic shows published through Wizzard Media grew to over 15,000 in the second
quarter of 2008 with over 500,000 individual episodes in syndication.
 Wizzard's LibsynPRO Enterprise service grew by 20 network publishers in
the second quarter of 2008.  We continue to receive positive feedback from
major media publishers for our new LibsynPRO Enterprise publishing and
advertising platform.  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.  During the second quarter 2008, revenue from data transfer
totaled $48,750.  Wizzard Media -
Distribution  In the second quarter of 2008, traditionally a slower
quarter than the first or fourth quarter for media consumption, the Wizzard
Network received approximately 241,600,000 download requests for shows vs.
196,700,000 download requests in the second quarter of 2007, from a wide variety
of distribution outlets to which Wizzard syndicates content.  The Wizzard
Media network received over 2,655,000 million requests for shows per day in the
second  25    quarter.  These shows are
consumed by over thirteen million people around the world creating what
Management believes is a very compelling platform for advertisers. Download
requests are calculated by counting the number of shows requested for download
by audience members.  Wizzard uses its proprietary Libsyn Estimated
Statistics (LES) to calculate download requests received by its media servers
from audience members all over the world.  Wizzard intends to generate
profits by inserting advertisements in the shows in partnership with the shows
publishers.  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 advertising
sales team.  Currently, Wizzard Media distributes digital shows for
our producers to a variety of web portals and content aggregators including:
Wizzard.tv, Veoh.com, Apple TV (Featured Provider), iTunes (Featured Provider),
Second Life, iPhone, YouTube (Partner Channel), Google (Affiliate Network),
Adobe Media Player, Daily Motion (Featured Channel), Zune Marketplace, Sandra
Carter Global (traditional TV), Media Rights America (cell phone) and Facebook.
 Some of these partner channels were created solely to expand audience
reach and some to expand both audience reach and generate revenues for Wizzard
and our publishers. While no material revenue has been generated from these
distribution channels to date, we expect to realize revenue in the fourth
quarter of 2008 with anticipated growth throughout 2009.  In the second
quarter of 2008, Wizzard Media entered into an agreement with Adobe to
distribute video media via Adobe's new media player.  In the first quarter of 2008, Wizzard announced a content
licensing and advertising agreement with YouTube. As a YouTube content partner,
Wizzard has its own branded channel that enables users to access streaming video
from the Wizzard Media Network.  Wizzard worked with YouTube and several of
its other distribution partners/content licensees in the second quarter to
monetize the shows Wizzard distributes through their third party service.
 Management expects to have numerous working advertising campaigns through
third party audience consumption platforms (distribution partners) in the fourth
quarter of 2008.  Wizzard is in the process of entering into advertising
agreements with several of its distribution partners but expects third party ad
sales to be minimal in 2008 as Wizzard posts content to the partner channels and
builds audiences for the various shows.  Wizzard Media - Advertising  In the second quarter of 2008, Wizzard launched nine
advertising campaigns including SpikeTV, Panasonic and RushCard.  These
campaigns run across multiple shows bringing the total number of advertising
campaigns launched to date to 28, with 13 different advertisers, resulting in
$196,325 of year to date advertising revenue.  In the second quarter of 2008, Wizzard's new technical
advertising insertion system, able to handle the insertion of advertisements
into audio and video shows with geographical targeting capabilities, continued
to be successfully tested for multiple advertising campaigns.  Using the
new system, the Wizzard Media Network had the capability to deliver over four
hundred and twenty three million (423,053,117) advertisements in the second
quarter.  This was calculated using the formula* described below.
 In order to increase the percentage of filled advertising inventory we
must continue to execute on our advertising sales strategy, grow our ad sales
force, integrate third party ad networks and create relationships with more
advertising agencies and their clients.  This demonstrates 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.  Wizzard announced more than 3.9 million ad
insertions were delivered across the network in the second quarter of 2008 as a
result of multiple advertising campaigns in our second official quarter of ad
sales.  Wizzard continues to ramp up its advertising sales efforts with a
goal to fill 35% of all available inventory for any given quarter at some point
in 2009.  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 seventh campaign demonstrating
what Management believes is excellent back-end ad operational service on
Wizzard's part and a satisfactory ROI for our clients.  Wizzard's Data Research department has increased the
number of completed audience surveys to over 50,000, a critical sales component
in the data driven advertising industry and the information gathered will be
used by our ad  26    sales team extensively.
Wizzard's ad sales team currently consists of five individuals in San Francisco,
Chicago and New York who have been aggressively courting media buyers through
extensive education sessions raising awareness of digital media advertising
opportunities delivered via subscribable, episodic RSS.  Neither the
Research Department, nor the Advertising Operations Department directly generate
revenues for Wizzard but are critical components in the advertising sales
process providing data to demonstrate audiences for individual and collective
shows as well as reporting the status and results of an advertising campaign
both ongoing and at its conclusion.  In the second quarter 2008, our publisher recruiting
efforts resulted in the addition of 74 new shows specifically joining the
Wizzard Media Advertising Network (vs. 50 in the 1st quarter of 2008). As of
June 30, 2008, 721 publishers have signed up for Wizzard's advertising network.
 Wizzard Media currently has 22 distinct ad categories we take to market
with more than 450 shows available in those categories.  Our efforts to
date have been focused on the top 477 shows using our publishing platform which
represent 84.7% of our global download requests. Of these 477 shows, 247 have
signed up for the Wizzard advertising network representing 70.0% of the most
coveted traffic for advertising sales. Wizzard will continue to aggressively
market our advertising network to the remaining 30% of the desired publishers
not yet signed up through our Publisher Relations team.  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. Month

Potential Ad ImpressionsOctober 2007

118,789,270November 2007

129,220,048December 2007
*
137,212,313January 2008
*
155,842,635February 2008

145,449,788March 2008

148,176,155April 2008

142,014,592May 2008

146,629,010June 2008
*
134,409,515  * 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 $.02 and $.05 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.  Nielsen Certified Downloads for Ad
NetworkMonth

DownloadsJanuary 2008
**
62,337,054February 2008

58,179,915March 2008

59,270,462April 2008

56,805,837May 2008

58,651,604June 2008
**
53,763,806  ** 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 $.02 and $.05 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.  Wizzard believes the data shown below demonstrates strong
growth in RSS digital media consumption with 41% of respondents being new to the
medium while at the same time it demonstrates the "stickiness" of the medium
with 31% having been consuming entertainment this way for over two years.    27    Survey Response Breakout for
Demographic Purposes  Q4 2007 Total Survey Responses to Date
21,203 Q1 2008 Total Survey Responses to
Date 38,754 Q2 2008 Total Survey Responses to Date
55,035  You have been watching or listening to this show for:  Two or more
years 31.99% Between one
and two years 26.39% Less than
one year 41.61%   Wizzard Media - Content  Wizzard Media is currently the industrys largest network
of independent and professional digital media publishers utilizing RSS as a
distribution method.  Wizzard's publishing platform grew by over 1,500 new
shows in the second quarter of 2008 with 54,000 new episodes added across the
network.  The total number of shows published through Wizzard Media grew to
15,000 in the second quarter of 2008 with over 500,000 individual episodes in
syndication.  An increase in shows helps Wizzard gain additional
distribution for our publishers and correlates to more downloads, greater
audiences and increases our chances of securing advertisers for said shows in
addition increasing hosting/publishing revenues.  With the continuing
success of Apple's iPod, iPhone and Apple TV 2.0 along with new RSS aggregators
from Adobe and other companies, we expect the number of publishers using our
service and the number of consumers watching the shows we distribute to continue
to grow rapidly.  Wizzard's LibsynPRO enterprise service grew by 20 network
publishers in the second quarter of 2008.  We continue to see extremely
positive reception by major media publishers for our new LibsynPRO publishing
and advertising platform.  Some of the more notable shows joining the Wizzard Media
Network in the second quarter of 2008 were:  · Megastar Usher Launches Digital Show
- Ucast · Fishman Productions to Distribute
Film and Television Content · Signs Global Content Distribution
Agreement with eLatinoWeekly.Com · Partners with Independent Music Label
iRecords in Landmark Content Distribution Deal · Distributes Content for Up-and-Coming
Content Provider Auliese Media · TV Teen Drama Whittaker Bay Joins the
Wizzard Media Network · Partners with CJM Productions to
Distribute TVs Inside Music Row · Good News Broadcast Joins the Wizzard
Media Network · Quick and Dirty Tips (QD Tips)
Chooses LibsynPRO 2.0 And Joins Wizzard Media Network · Podiobooks.com Chooses LibsynPRO 2.0
and Joins Wizzard Media Network · CommandN, Start Cooking, Butchers
Bunch, PetCast, Connected Life, Filmspotting, The Project Management Show all
join the Wizzard Media Network  Some of these producers are utilizing our media services
and in turn we have the ability to advertise on their shows.  Others are
obtaining ads themselves, and utilizing our Ad Insertion and Ad Management
technology, in addition to us having the ability to advertise on their shows.
 Then there are producers for which we are distributing their content and
in turn, we have the ability to license the content to a third party and or
advertise on their show.  Any revenue generated from obtaining ads or
license of the content will be shared with the producer of the show.  While
the addition of these shows will have little impact on revenue during 2008,
Management believes that by publicizing our high profile shows it lends
credibility to our service and helps to attract new publishers, distribution
outlets and advertisers.  Wizzard Media - Press  Wizzard Media utilizes the public relations firm INK to
secure press placements and works closely with Wizzard's advertising public
relations firm, Braff Communications.  It is Managements opinion that by
securing press mentions it will raise Wizzard Medias profile, lend credibility
to our product offerings and attract new publishers  28    and advertisers to our
network.  As a result of their efforts combined with internal efforts in
the second quarter, Wizzard secured significant mentions in: Investors Business
Daily, Bloomberg and Fox Business TV, in addition to a host of regional and
online publications.  Wizzard Media - Technology  Wizzard Media's technical development team continues to
make significant accomplishments in terms of maintaining and expanding on our
publishing platform.  In the second quarter of 2008, Wizzard's development
team focused its efforts on finalizing the flash player as well as the back-end
decision engine and business intelligence that powers the new offering for our
publishers.  Additional technical developments in the second quarter
of 2008 include:   Two updates to LibsynPRO version 2
released to beta users  Migration of users from v1.0 to v2.0
of LibsynPRO (60%)  Wizzard Media Platform statistics data
warehouse project started (80% complete)  Wizzard Media Player project (flash
media player) started (95% complete)  Wizzard Media Tools project started
(90% complete)  Wizzard Media Ad-ops project redesign
started (95% complete)  Wizzard Media Receiver iPhone Service
(65% complete)  Wizzard's speech recognition system continues to process
hours upon hours of digital media allowing for better discovery of content,
advertising targeting and brand safety and confidence.  Below are various
statistics from the speech system and its efforts of converting shows on the
Wizzard Media Network to searchable text.  Wizzard Speech System for Digital
Media StatisticsNumber of Total Words Captured

142,602,068Number of Shows Transcribed

2,006Number of Episodes Transcribed

41,837Minutes of Processed Content

989,769Number of Unique Words Captured

33,308  3.     SPEECH TECHNOLOGY &
SERVICES GROUP  Wizzard Software's legacy Speech 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.  The T&S Group continues to focus its efforts on core
assistive application and medical dictation markets and continues to add new
customers in the language learning and website audio file distribution
categories.  The website audio file distribution category currently shows
the most promise for expanded business going forward.  Management believes a shift in customer demand is fully
underway from the purchase of stand alone speech engine applications to a more
hosted services type offering.  We believe we are well positioned to
capture the growing demand for hosted speech solutions with our 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 begin offering hosted
speech services and Wizzard's speech team secured their first client for hosted
speech services.  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 bases in fast growing market segments. There can be no guarantee that
customers will be willing to pay Wizzard for these services.  29     4.   HEALTHCARE  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.  Wizzard
currently derives the bulk of its revenues, 62% for the first six months of
2008, from its home healthcare operations.  As is the case within the
medical industry, we continue to be faced with the challenge of identifying and
retaining personnel with the required skill set for our home healthcare
operations.   As a result, we have shifted functional responsibility
to better utilize available and qualified personnel.  As an example,
functions that were once completed by a Registered Nurse are now being performed
by a Licensed Practicing Nurse while maintaining all federal and state
compliance requirements.  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.  Both offices have worked with Wizzard in tracking process for
compliance with Sarbanes-Oxley requirements.  Billings hired a new director of healthcare services
recently who comes with extensive local healthcare management experience.
 As a result, Interim has realized the addition of two new services:
providing skilled assessment and supervision of patients at local testing
facilities, and local foot clinics.  We expect these two new services to
impact revenues over the next two quarters.  Interim Casper continues to provide home care and
staffing services.  Staffing services has experienced a decline in the past
year but as Casper is seeing the opening of two new facilities in the first six
months of 2008, opportunities are expanding.  Casper staffing is exploring
the potential of new facilities for use of supplemental services.  Overall, internal operations have been given greater
structure.  Employee hiring processes 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.  Our home healthcare business continues to be a strong
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. Recruiting and retaining nurses continues to be one of the biggest
challenges for our home healthcare businesses and we plan to continue our
aggressive marketing efforts to satisfy our customers' demands.  Results of Operations  Three Months Ended June 30, 2008 and 2007.  During the second quarter ended June 30, 2008, Wizzard
recorded revenues of $ 1,465,874, a 3% increase from revenues of $ 1,428,097 in
the second quarter of 2007. The increase for the second quarter of 2008 was due
to the new business in our digital media publishing.  Cost of goods sold totaled $1,068,693 in the second
quarter of 2008, versus $ 1,025,402 in the second quarter of 2007.  This
increase of 4% is attributed primarily to an increase in wages within our
healthcare operations, offset by a decrease in bandwidth costs within our media
services operation.  Wizzard posted a gross profit of $397,181 during the
second quarter of 2008, versus a gross profit of $ 402,695 in the second quarter
of 2007, a decrease of 1%.   30    In the second quarter ended
June 30, 2008, operating expenses totaled $2,159,433 which was a 30% decrease
from operating expenses of $3,104,138 in the second quarter of 2007.
 Broken down by line item our operating expenses were:  Selling expenses in the second quarter of 2008 were
$320,448 versus $186,194 in 2007.  This 72% increase was due to the
addition of personnel with the development of our digital media publishing and
media business operations.  General and administrative expenses were $1,259,513 in
2008 versus $985,772 in 2007, an increase of 28%, due the additional personnel
to run the operations of the digital media publishing operations.
 Salaries, wages and related expenses increased to $829,214 in 2008 from
$691,571 in 2007, an increase of 20%, due to the addition of personnel with the
development of our digital media publishing and media business. Consulting fees
decreased to $ 558,722 in 2008 from $ 1,891,226, a decrease of 70% due primarily
to limited use of consultants in the second quarter of 2008. Research and
Development expenses in the second quarter were $ 20,750 versus $ 40,946 in
2007.  Other expenses of $128,990 versus $164,865 in the second
quarter of 2007 consisted primarily of non-cash interest expense for the
accretion of the discount on notes payable.  Wizzard's net loss available to common shareholders was
$1,998,225, or $0.04 per share, in the quarter ended June 30, 2008.  This
represents a 30% decrease from our net loss of $2,866,308, or $0.07 per share,
in the second quarter of 2007.  Six months ended June 30, 2007, and 2006.  During the six month period ended June 30, 2008, Wizzard
recorded revenues of $3,134,352, a 46% increase over revenues of $2,154,023 for
the same period in 2007.  The increase in revenues in the six months ended
June 30, 2008, was due primarily to the expansion through acquisitions of our
digital media services and healthcare operations.  In the six months ended June 30, 2008, cost of goods sold
totaled $2,070,329, a 39% increase as compared to $1,493,995 in the six months
ended June 30, 2007. The increase in cost of goods sold was due primarily to the
expansion through acquisitions of our digital media services and healthcare
operations. Wizzard posted a gross profit of $1,064,023 during the first six
months of 2008, versus a gross profit of $660,028 in the first six months of
2007, an increase of 61%.  Wizzard recorded total operating expenses of $4,848,013
during the six months ended June 30, 2008, a 13% increase as compared to
operating expenses of $4,296,940 in the same period of 2007.  General and
administrative expenses totaled $2,517,069 in the first six months of 2008
versus $1,500,518 in the first six months of 2007, an increase of approximately
68%, due primarily to the additional expenses with the acquisition of the
digital media publishing and home healthcare operations.  Salaries, wages and related expenses increased to
$1,595,158 in 2008 from $1,013,659 in 2007, an increase of 57%, due to the
addition of personnel with the development of our digital media publishing and
media business, and home healthcare operations.  Consulting fees decreased to $1,729,750 in 2008 from $
2,315,371, a decrease of 25% due primarily to a decrease in investor relations
services and consulting fees related to the digital media publishing
operations.  Selling expenses in the first six months of 2008 were
$545,191 versus $387,928 in 2007.  This 41% increase was due primarily to
the expansion of our digital media services.  Research and Development
expense increased to $56,003 in the first six months of 2008 from $93,124 in the
first six months of 2007.  In the first six months of 2008, Wizzard recorded
$263,483 of interest expense for the issuance of warrants for the one year
extension of the 5% notes payable. In the first six months of 2007, Wizzard
recorded interest expense of $689,610, to extend the expiration date of certain
warrants.   31    Wizzard's net loss available
to common shareholders was $4,750,054, or $0.11 per share, in the first six
months of 2008.  This represents a 2% increase from our net loss of
$4,660,437, or $0.12 per share, in the first six months of 2007. During the
first six months of 2008, non-cash expenditures totaled $2,221,656, a 34%
decrease from non-cash expenditures of $3,373,308 in the first six months of
2007.   The following is a summary of non-cash expenditures:  For the Six

For the ThreeMonths Ended

Months EndedJune 30,

June 30,2008

2007

2008

2007NON-CASH EXPENDITURESAmortization of discount on
notes payable

482,158

322,800

113,595

161,400Re-pricing and extension of
warrants

-

689,610

-

-Stock option grants

412,589

170,499

255,073

123,409Depreciation and amortization
expense

133,730

40,629

68,448

21,566Interest expense paid with
stock

11,988

-

10,396

-Issuance of warrants to extend
notes

263,483

-

-

-Non-cash expense

1,303,948

1,223,538

447,512

306,375Expenditures paid with issuance
of stock

917,708

2,149,770

192,900

1,822,891Total  non-cash expenditures

2,221,656

3,373,308

640,412

2,129,266  Liquidity and Capital
Resources.  Cash on hand was $3,099,755 at June 30, 2008, an increase
of $1,777,807 over the $1,321,948 on hand at June 30, 2007.  Cash used in
operations for the six months ended June 30, 2008, was $2,550,749, an increase
of 58% over the $1,613,821 cash used in operations for the six months ended June
30, 2007.  Cash used in investing activities was $126,843 primarily for the
purchase of equipment during the six months ended June 30, 2008.  Cash used in financing activities was $258,862 used for
payment of preferred dividend, capital lease and note payable during the six
months ended June 30, 2008.  In the first six months of 2007, the Company
received $677,319 from the issuance of common stock versus $0 for 2008.  The Company used common stock to pay $917,708 in
consulting services during the six months ended June 30, 2008. 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 digital
media publishing services, and estimates it will require approximately $350,000
per month to maintain current operations and grow our digital media
business.  The following table reflects our contractual obligations
as of June 30, 2008: Contractual Obligations



Less than

1-3Total

1 Year

YearsGuaranteed Royalty
$
435,000
$
280,000
$
155,000Long-Term Obligations(1)

2,169,712

-

2,169,712Rent

63,580

35,230

28,350Total
$
2,676,942
$
315,230
$
2,361,712   32    (1) This
represents the gross amount of long term notes payable held by three
institutional investors.  The obligations are convertible into common stock
at $2.00 per share.   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-Q
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
digital media, 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 digital media, 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 digital
media, 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. Quantitative and
Qualitative Disclosures About Market Risk.  We are not subject to financial market risk exposure
related to changes in interest rates as our debt is at a fixed rate of
interest. 33    Item 4. Controls and Procedures.  (a)
Evaluation of Disclosure 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 June 30, 2008, 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.  (b)
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 June 30, 2008 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.    34    PART II - OTHER INFORMATION  Item 1.   Legal
Proceedings.  None.  Item 1A.   Risk
Factors.  Risks relating to our business and
our common stock are described in Item 1A of our Annual Report on Form 10-K for
the calendar year ended December 31, 2007, which was filed with the Securities
and Exchange Commission on March 17, 2008.  During the quarterly period
ended June 30, 2008, there were no material changes in these risk factors.  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 six month period ended June 30, 2008, which were not
registered under the Securities Act of 1933, as amended (the "Securities
Act"):  Name

Date

Shares

DescriptionElizabeth Montgomery

4-15-08

3,354

Milestone - PNPPJoan Pinske

4-15-08

1,464

Milestone - PNPPGreg Roadifer

4-15-08

4,974

Milestone - PNPPBruce Phifer

5-15-08

5,000

Services RenderedPeriscope Partners

6-19-08

89,000

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 June 30, 2008, there were no changes to
the procedures by which shareholders may recommend nominees to the Companys
board of directors.  Item 6.   Exhibits.  31.1 - 302
Certification of Christopher J. Spencer  31.2 - 302
Certification of John Busshaus  32 - 906
Certification.   35    SIGNATURES  Pursuant to the requirements of the
Securities Exchange Act, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.  WIZZARD
SOFTWARE CORPORATION  Date:
8/11/08

By:
/s/ Christopher J. SpencerChristopher J. SpencerChief Executive Officer and
President   Date:
8/11/08


/s/ John BusshausJohn BusshausChief Financial
Officer   Date:
8/11/08


/s/ J. Gregory SmithJ. Gregory SmithDirector   Date:
8/11/08


/s/ David MansuetoDavid MansuetoDirector   Date:
8/11/08


/s/  Denis YevstifeyevDenis YevstifeyevDirector   Date:
8/11/08


/s/  Douglas PolinskyDouglas PolinskyDirector   36