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 September 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.
  001-33935  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 November 5,
2008, there were 45,149,877 shares of common stock, par value $.001, of the
registrant issued and outstanding.     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.        WIZZARD SOFTWARE CORPORATION AND
SUBSIDIARIESFINANCIAL STATEMENTSCONTENTSPAGEConsolidated Balance Sheets

3Consolidated Unaudited Statements of Operations

4Consolidated Unaudited Statements of Cash Flows

5 - 9Notes to Unaudited Consolidated Financial
Statements

10 - 25        WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS  ASSETS September 30,   2008

December 31, 2007CURRENT ASSETS:

(unaudited)Cash
$
1,752,165
$
6,036,209Accounts
receivable, net of $17,562 and $17,562 allowance, respectively

799,706

874,058Prepaid
expenses

95,054

24,143Total
current assets

2,646,925

6,934,410LEASED EQUIPMENT, net

-

75,916PROPERTY AND EQUIPMENT,
net

178,259

109,504GOODWILL

20,800,569

20,724,986DEFINITE LIFE INTANGIBLE
ASSETS, net

346,875

-OTHER ASSETS

4,757

4,757Total
assets
$
23,977,385
$
27,849,573LIABILITIES AND STOCKHOLDERS'
EQUITYCURRENT LIABILITIES:Accounts
payable
$
399,417
$
877,304Accrued
expenses

632,006

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

706,710

-Deferred
revenue

34,302

53,039Total
current liabilities

1,819,350

3,364,853NOTES PAYABLE, less current
portion

16,206

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

1,075,000

1,687,554Total
liabilities

2,910,556

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, 44,995,274 and
43,304,034 shares issued and outstanding, respectively

44,995

43,304Additional
paid-in capital

68,876,452

64,668,006Accumulated
deficit

(47,854,624)

(41,965,166)Total
stockholders' equity

21,066,829

22,746,150Total
liabilities and stockholders' equity
$
23,977,385
$
27,849,573   See accompanying notes
to these unaudited consolidated financial statements.   WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED
STATEMENTS OF OPERATIONS  For the Three Months  Ended
September  30,

For the Nine Months
 Ended
September  30,2008

2007

2008

2007REVENUESoftware
$
197,834
$
160,802
$
657,309
$
627,087Healthcare

1,011,921

1,015,715

2,957,432

2,404,950Media Services

323,584

291,959

1,052,949

590,462Total Revenue

1,533,339

1,468,476

4,667,690

3,622,499COST OF GOODS SOLDSoftware

92,366

108,607

298,630

312,734Healthcare

786,502

619,486

2,076,341

1,538,851Media Services

239,332

277,042

813,558

647,545Total Cost of Goods Sold

1,118,200

1,005,135

3,188,529

2,499,130Gross Profit

415,139

463,341

1,479,161

1,123,369OPERATING EXPENSESSelling expenses

316,736

256,331

861,926

644,259General and
administrative

1,026,557

894,025

3,543,626

2,394,543Consulting fees

394,565

480,356

2,124,315

2,795,727Research and development

10,728

54,261

66,731

147,385Total Operating Expenses

1,748,586

1,684,973

6,596,598

5,981,914LOSS FROM OPERATIONS

(1,333,447)

(1,221,632)

(5,117,437)

(4,858,545)OTHER INCOME (EXPENSE):Extension and re-pricing of
warrants

-

(105,413)

-

(795,023)Extension of convertible notes
payable

-

-

(263,483)

-Interest income

7,711

86,886

57,275

131,448Interest expense

(27,947)

(1,126,480)

(569,443)

(1,509,379)Other income(expense)

(84)

5,337

3,630

9,760Total Other Income
(Expense)

(20,320)

(1,139,670)

(772,021)

(2,163,194)LOSS BEFORE INCOME TAXES

(1,353,767)

(2,361,302)

(5,889,458)

(7,021,739)CURRENT INCOME TAX EXPENSE

-

-

-

-DEFERRED INCOME TAX EXPENSE

-

-

-

-NET LOSS
$
(1,353,767)
$
(2,361,302)
$
(5,889,458)
$
(7,021,739)DIVIDENDS:Accrued
dividend, warrants issued in connection with preferred stock, and
intrinsic value of the beneficial conversion feature of preferred stock
analogous to a dividend

(106,452)

(7,625,417)

(320,815)

(7,625,417)NET LOSS
AVAILABLE TO COMMON SHAREHOLDERS

(1,460,219)

(9,986,719)

(6,210,273)

(14,647,156)BASIC AND DILUTED LOSS PER COMMON SHARE AVAILABLE
TO COMMON SHAREHOLDERS
$
(0.03)
$
(0.24)
$
(0.14)
$
(0.36)BASIC AND DILUTED WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING

44,917,211

42,338,621

44,405,713

40,105,100   See accompanying notes
to these unaudited consolidated financial statements.   WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED
STATEMENTS OF CASH FLOWS  For the Nine Months Ended
September 30,2008

2007Cash Flows from Operating ActivitiesNet loss
$
(5,889,458)
$
(7,021,739)Adjustments to reconcile net loss to
net cash
used in operating activities:Amortization of discount on notes
payable

482,158

1,396,226Compensation for re-pricing and
extension of warrants

-

795,023Compensation for extension of
notes payable

263,483

-Stock for non cash
expenses

986,528

2,241,333Non-cash compensation - options
issued

444,490

311,999Non-cash interest expense on
notes payable

123,642

-Depreciation and amortization
expense

196,001

59,637Change in allowance for bad
debt

-

-Change in allowance for slow
moving inventory

-

(20,148)Change in assets and
liabilities:



-Accounts
receivable

74,351

(90,900)Inventory

-

27,461Prepaid
expenses

(70,910)

20,755Accounts
payable

(375,170)

(353,476)Accrued
expense

122,600

81,059Deferred
revenue

(18,737)

(1,755)Net Cash Used in
Operating Activities

(3,661,022)

(2,554,525)Cash Flows from Investing Activities:Purchase of property &
equipment

(120,649)

(26,370)Acquisition of PNPP

(6,264)

(150,324)Acquisition of iClipx

(12,500)

-Acquisition of Webmayhem

-

(328,536)Net Cash Used in Investing
Activities

(139,413)

(505,230)Cash Flows from Financing Activities:Proceeds from the issuance of
common stock

-

677,319Net Proceeds from the issuance
Series A Preferred Stock

-

6,710,000Payment of preferred
dividends

(422,074)

-Payments on capital lease

(26,726)

(28,109)Payments on note payable

(34,809)

(18,028)Net Cash Provided by
(Used in) Financing Activities

(483,609)

7,341,182Net Increase (Decrease) in Cash

(4,284,044)

4,281,427Cash at Beginning of Period

6,036,209

2,685,068Cash at End of Period
$
1,752,165
$
6,966,495Supplemental Disclosures of Cash Flow
InformationCash paid during the periods
for:Interest
$
10,880
$
10,074Income taxes
$
-
$
-    (Continued) See accompanying notes
to unaudited consolidated financial statements.   WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)  Supplemental Schedule of Non-cash
Investing and Financing Activities:  For the nine months ended September
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.    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.  On August 7,
2008, the Company issued 53,796 common shares in payment of $94,144 of accrued
interest.  On August 22,
2008, the Company issued 46,500 common shares upon the exercise of options
valued at $68,820 to consultants for services rendered.  On September 24,
2008, the Company issued 50,124 common shares in payment of a $91,500 note
payable and $8,749 of accrued interest.  On September 25,
2008, the Company issued 50,131 common shares in payment of a $91,500 note
payable and $8,761 of accrued interest.  During September
2008, the Company accrued a $106,452 dividend on Series A Convertible Preferred
Stock.  During the first
nine months of 2008, the company recorded $444,490 of non-cash compensation
expense related to the vesting of certain stock options.  For the nine months ended September
30, 2007:  On February 1,
2007, the Company issued 15,000 common shares upon the exercise of options
valued at $47,550 to consultants for services rendered.  On February 8,
2007, the Company recorded $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.    WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES UNAUDITED CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)  Supplemental Schedule of Non-cash
Investing and Financing Activities (Continued):  On March 26,
2007, the Company issued 11,909 restricted common shares valued at $36,918 for
Interim Healthcare of Wyoming Inc. attainment of Phase I Incentive.  On April 3, 2007
and April 10, 2007, the Company issued 245,099 restricted common shares valued
at $625,000 to acquire certain assets of Professional Nursing Personnel
Pool.  On April 10,
2007, the Company issued 566,000 restricted common shares valued at $1,454,620
for consulting services.  On May 24, 2007,
the Company issued 51,170 common shares upon the exercise of options valued at
$117,691 to consultants for services rendered.  On May 24, 2007,
the Company issued 5,000 restricted common shares valued at $11,500 for
consulting services.  On May 30, 2007,
the Company issued 11,000 common shares upon the exercise of options valued at
$25,630 to consultants for services rendered.  On June 13,
2007, the Company issued 6,000 common shares upon the exercise of options valued
at $16,200 to employees for services rendered.  On June 21,
2007, the Company issued 75,000 restricted common shares valued at $197,250 for
services rendered.  On June 21,
2007, the Company issued 50,330 common shares in payment of a $34,592 note
payable and $15,822 of accrued interest.  On July 6, 2007,
the Company recorded $105,413 of non- cash expense related to the re-pricing of
certain warrants.  On July 12,
2007, the Company issued 25,000 common shares in payment of a $50,000 note
payable.  On August 2,
2007, the Company issued 28,000 common shares upon the exercise of options
valued at $75,600 to consultants for services rendered.  On August 2,
2007, the Company issued 5,000 restricted common shares valued at $13,500 for
consulting services.  On August 20,
2007, the Company issued 1,085 common shares upon the exercise of options valued
at $2,463 to a consultant for services rendered.  During September
2007, the Company accrued a $125,417 dividend on Series A Convertible Preferred
Stock.  During the first
nine months 2007, the company recorded $311,999 of compensation expense related
to the vesting of certain stock options issued.       WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  NOTE 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 September 30, 2008, and the results of operations and cash
flows for the periods ended September 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 nine months ended September 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 three industry segments, Software, Healthcare and Media
Services.  The Software segment engages primarily in the development, sale,
and service of custom and packaged computer software products The Media Services
segment operates primarily in digital media publishing and advertising services.
 The Healthcare segment operates primarily in the home healthcare and
healthcare staffing services in Wyoming and Montana.  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, 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, valuation of stock options, and
realization of goodwill.  Actual results could differ from those estimated
by management.  Reclassification  The
financial statements for the period ended prior to September 30, 2008 have been
reclassified to conform to the headings and classifications used in the
September 30, 2008 financial statements.  Cash and Cash Equivalents - The Company considers
all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents. At September 30, 2008, the Company had cash
balances of $1,180,516 in excess of federally insured limits.  Accounts Receivable - Accounts receivable consist
of trade receivables arising in the normal course of business. At September 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 nine months ended September 30, 2008
and 2007, the Company had no change to the allowance for bad debt.   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 $176,313 and $232,610
for the nine months ended September 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.   WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  NOTE 1 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)  Software product revenues are recognized upon shipment of
the software product only if no significant Company obligations remain, the fee
is fixed or determinable, and collection is received or the resulting receivable
is deemed probable. Revenue from package software products are recorded when the
payment has been received and the software has been shipped.  Revenue is
recognized, net of discount and allowances, at the time of product shipment.
Provisions are recorded for bad debts and at September 30, 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.  Media Services  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.  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, and amount to $66,731 and $147,385,
respectively for the nine months ended September 30, 2008 and 2007.  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 $444,490 and
$311,999 have been recognized for the vesting of options granted to employees
and directors with an associated recognized tax benefit of $0 for the nine
months ended September 30, 2008 and 2007, respectively. Non-cash compensation
cost of $227,540 and $291,758 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 nine months ended September 30,
2008 and 2007.    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 nine
months ended September 30, 2008 and 2007 was $128,125 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 NineMonths EndedSeptember 30, 2008Net revenue
$
4,667,690Cost of sales

3,188,529Operating expenses

6,598,108Other expense

(772,021)Net loss

(5,890,968)Preferred dividends

(320,815)Net loss available to common shareholders
$
(6,211,783)Basic and diluted loss per common share available
to common shareholders
$
(0.14)Basic and diluted weighted average common shares
outstanding

44,435,421  NOTE 3  PROPERTY &
EQUIPMENT  The following is a summary of
property and equipment at: Life

September 30,
2008

December 31,
2007Furniture, fixtures and equipment
2-10 yrs
$
388,330
$
267,681Production molds
3 yrs

47,710

47,710Software
2-5 yrs

11,964

11,964448,004

327,355Less: Accumulated depreciation


(269,745)

(217,851)Property & equipment, net

$
178,259
$
109,504  Depreciation expense for the nine
months ended September 30, 2008 and 2007 was $51,894 and $35,664,
respectively.   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 $128,125 and $0 was
recorded for the nine months ended September 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 Nine Months Ended September
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    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 September 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.  On November 7, 2008, the maturity
date of one note payable was extended to October 15, 2009.  During the nine
months ended September 30, 2008 and 2007, the Company recorded interest expense
of $76,294 and $82,694, respectively and amortized $482,158 and $1,396,226 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 accrues interest at 8.25% per annum.  At September
30, 2008, the note has a remaining principal balance of $63,121.  During
the nine months ended September 30, 2008 and 2007, interest expense on the note
payable amounted to $5,206 and $4,205, respectively.  On November 4, 2008,
the Company paid the balance due of $55,104.  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
nine months ended September 30, 2008 and 2007, depreciation expense for
equipment on capital lease amounted to $15,982 and $23,973, respectively, and
has been included in depreciation expense.  During the nine months ended
September 30, 2008 and 2007, interest expense on capital lease obligation
amounted to $3,276 and $5,641, respectively.  The following is a summary of leased
equipment at: Life

September 30,
2008

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


-

(147,834)Leased equipment, net

$
-
$
75,916  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.     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 September 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
September 30, 2008, the Company had 44,995,274 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.    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 August 7, 2008, the Company
issued 53,796 common shares in payment of $94,144 of accrued interest.  On August 22, 2008, the Company
issued 46,500 common shares upon the exercise of options valued at $68,820 to
consultants for services rendered.  On September 24, 2008, the Company
issued 50,124 common shares in payment of a $91,500 note payable and $8,749 of
accrued interest.  On September 25, 2008, the Company
issued 50,131 common shares in payment of a $91,500 note payable and $8,761 of
accrued interest.  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.   WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 - CAPITAL STOCK
(Continued)  On February 15, 2007, the Company
issued 84,691 restricted common shares valued at $272,705 for consulting
services.  On March 19, 2007, the Company
issued 5,326,320 restricted common shares valued at $16,298,539 to acquire
Webmayhem Inc.  On March 26, 2007, the Company
issued 2,400 common shares upon the exercise of options valued at $6,624 to
consultants for services rendered.  On March 26, 2007, the Company
issued 11,909 restricted common shares valued at $36,918 for Interim Healthcare
attainment of Phase I Incentive.  Exercise of Warrants - On January
17, 2007, January 30, 2007, and March 16, 2007, the Company issued 11,749,
75,549, and 50,000 common shares, respectively, upon the exercise of warrants at
$1.25 per share.  Exercise of Warrants - On February
14, 2007, March 13, 2007, and March 23, 2007, the Company issued 84,167, 15,000,
and 10,000 common shares, respectively, upon the exercise of warrants at $1.36
per share.  On April 3, 2007 and April 10, 2007,
the Company issued a total of 245,099 restricted common shares valued at
$625,000 to acquire certain assets of Professional Nursing Personnel Pool.  On April 10, 2007, the Company
issued 566,000 restricted common shares valued at $1,454,620 for consulting
services.  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.  On July 6, 2007, the Company closed
a Subscription Agreement by which two institutional investors purchased a) 7,500
shares of Series A 7% Convertible Preferred Stock, par value $.001, for a total
amount of $7,500,000, convertible into common shares of the Company at $2.05 per
share, dividend payable semi-annual on January 1st and July
1st, and; b) Warrants to purchase a total of 1,829,268 shares of
common stock, at $2.85 per share, exercisable for five years. The Warrants were
valued using the Black-Scholes pricing model using the following weighted
average assumptions 74.88% volatility, 5 years expected life, 4.90% risk free
interest rate and expected dividend yield of zero.    WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS NOTE 7 - CAPITAL STOCK
(Continued)  On July 6, 2007, the Company
recorded $105,413 of non- cash expense related to the re-pricing of certain
warrants.  On July 12, 2007, the Company issued
25,000 common shares in payment of a $50,000 note payable.  On August 2, 2007, the Company
issued 28,000 common shares upon the exercise of options valued at $75,600 to
consultants for services rendered.  On August 2, 2007, the Company
issued 5,000 restricted common shares valued at $13,500 for consulting
services.  On August 20, 2007, the Company
issued 1,085 common shares upon the exercise of options valued at $2,463 to a
consultant for services rendered.  Exercise of Warrants - On April 19,
2007, April 27, 2007, June 14, 2007, June 15, 2007 and June 19, 2007, the
Company issued 10,000, 16,500, 21,833, 73,530 and 109,176 common shares,
respectively, upon the exercise of warrants at $1.36 per share.  Exercise of Warrants - On May 9,
2007, the Company issued 153,197 common shares, upon the exercise of warrants at
$1.25 per share.  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 September 30, 2008,
150,000 options were available to be granted under the 2008 Key Employee Plan.
 During the nine months ended September 30, 2008, the Company granted
250,000 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
September 30, 2008, 5,000 options were available to be granted under the 2008
Plan.  During the nine months ended September 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 September 30, 2008,
no options were available to be granted under the 2007 Key Employee Plan.
 During the nine months ended September 30, 2008 and 2007, the Company
granted 0 and 200,000 options, respectively.     WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  NOTE 8  STOCK OPTIONS AND WARRANTS
(Continued)  2007 Stock Option Plan - During
2007, the Board of Directors adopted a Stock Option Plan ("2007 Plan"). Under
the terms and conditions of the 2007 Plan, the Board is empowered to grant stock
options to employees and officers of the Company.  Additionally, the Board
will determine at the time of granting the vesting provisions and whether the
options will qualify as Incentive Stock Options under Section 422 of the
Internal Revenue Code.  The total number of shares of common stock
available under the 2007 Plan may not exceed 200,000.  At September 30,
2008, 3,245 options were available to be granted under the 2007 Plan.
 During the nine months ended September 30, 2008 and 2007, the Company
granted 56,500 and 182,255 options, respectively.  2005 Stock Option Plan - During
2005, the Board of Directors adopted a Stock Option Plan ("2005 Plan"). Under
the terms and conditions of the 2005 Plan, the Board is empowered to grant stock
options to employees, officers, directors, and consultants of the Company.
 Additionally, the Board will determine at the time of granting the vesting
provisions and whether the options will qualify as Incentive Stock Options under
Section 422 of the Internal Revenue Code.  The total number of shares of
common stock available under the 2005 Plan may not exceed 220,000.  At
September 30, 2008, total options available to be granted under the 2005 Plan
totaled 95.  During the nine months ended September 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 nine months ended September 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 nine months ended September 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
2.80%

4.65%  A summary of the status of options
granted at September 30, 2008, and changes during the period then ended are as
follows: For the Nine Months EndedSeptember 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
$
-Granted
661,500

2.26
6.0 years

-Exercised
(106,500)

-
-

-Forfeited
(210,000)

2.39
-

-Expired
-

-
-

-Outstanding at end of period
772,500

1.87
7.2 years

-Vested and expected to vest in the future
772,500

1.87
7.2 years

-Exercisable at end of period
627,500

2.16
8.0 years

-Weighted average fair value of options
granted
772,500
$
1.87
7.2 years
$
-  The Company had 40,000 non-vested
options at the beginning of the period with a weighted average exercise price of
$2.67.  At September 30, 2008 the Company had 145,000 non-vested options
with a weighted average exercise price of $2.12.   WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  NOTE 8  STOCK OPTIONS AND WARRANTS
(Continued)  The total intrinsic value of options exercised during the
nine months ended September 30, 2008 and 2007 was $227,540 and $291,758,
respectively.  Intrinsic value is measured using the fair market value at
the date of exercise (for shares exercised) or at September 30, 2008 (for
outstanding options), less the applicable exercise price.  During the nine months ended September 30, 2008 and 2007,
the Company recorded $444,490 and $311,999 of non-cash compensation expense
related to the vested stock options issued to employees.  For the nine months ended September
30, 2008 and 2007, the Company recorded non-cash compensation cost of $227,540
and $291,758 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 nine months ended:  September 30, 2008

September 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

1,829,268

2.85Exercised
-

-

(630,701)

1.10Forfeited
-

-

(110,627)

1.36Expired
-

-

(157,420)

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

4,123,851
$
2.42  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 Nine MonthsEnded September 30,

Ended September 30,2008

2007

2008

2007Net loss
(numerator)
$
(1,353,767)
$
(2,361,302)
$
(5,889,458)
$
(7,021,739)Accrued
dividend

(106,452)

(7,625,417)

(320,815)

(7,625,417)Net loss
available to common shareholders (numerator)
$
(1,460,219)
$
(9,986,719)
$
(6,210,273)
$
(14,647,156)Weighted average
number of common shares outstanding during the period used in loss per
share (denominator)

44,917,211

42,338,621

44,405,713

40,105,100    WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  NOTE 9 - LOSS PER COMMON SHARE
(Continued)  At September 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 772,500 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 890,855 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 2,967,317 shares of common stock which were not included in the loss
per share computation because their effect would be anti-dilutive.  At September 30, 2007, the Company
had 4,123,851 warrants outstanding to purchase common stock of the Company at
$2.00 to $2.85 per share, the Company had 427,500 options outstanding to
purchase common stock of the Company at $1.59 to $2.89 per share, and a 5%
convertible note payable wherein the holder could convert the note into a
minimum of 1,120,081 shares of common stock, [See Note 6], and a 7% cumulative
Series A Preferred shares wherein the holder could convert the note into a
minimum of 3,658,537 shares of common stock which were not included in the loss
per share computation because their effect would be anti-dilutive.  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 September 30, 2008 operating loss
carryforwards of approximately $24,980,000 which may be applied against future
taxable income and which expires in various years through 2028.  The amount of and ultimate
realization of the benefits from the operating loss carryforwards for income tax
purposes is dependent, in part, upon the tax laws in effect, the future earnings
of the Company, and other future events, the effects of which cannot be
determined.  Because of the uncertainty
surrounding the realization of the loss carryforwards and significant changes in
the ownership of the Company, a valuation allowance has been established equal
to the tax effect of the loss carryforwards and, therefore, no deferred tax
asset has been recognized for the loss carryforwards.  The net deferred tax
assets are approximately $12,200,000 as of September 30, 2008, with an
offsetting valuation allowance of the same amount.  The change in the
valuation allowance for the nine months ended September 30, 2008 approximated
$1,700,000.  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.   WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  NOTE 11 - COMMITMENTS AND
CONTINGENCIES (Continued)  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 September 30, 2008, the Company recorded a
liability of $150,000 for Switchpod attaining the second year incentive.
  Had the stock been issued at September 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.  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.    WIZZARD SOFTWARE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS  NOTE 12 - SEGMENT REPORTING
(Continued)  The following is a summary of the Companys operations by
segment for the nine months ended September 30, 2008 and 2007: (in
thousands) 2008

2007Software

Media

Healthcare

Total

Software

Media

Healthcare

TotalNet
revenues
$
657
$
1,053
$
2,958
$
4,668
$
627
$
590
$
2,405
$
3,622Cost of
sales

298

814

2,076

3,188

313

647

1,539

2,499General and
administrative

3,260

1,748

661

5,669

3,948

659

583

5,190Selling

124

698

40

862

215

327

102

644Research and
development

51

16

-

67

73

74

-

147Compensation for
re-pricing/extension of warrants

264

-

-

264

795

-

-

795Other
income

52

3

6

61

121

-

10

131Interest
expense

559

-

9

568

1,490

-

10

1,500Income tax
benefit/(expense)

-

-

-

-

-

-

-

-Net income
(loss)
$
(3,847)
$
(2,220)
$
178
$
(5,889)
$
(6,086)
$
(1,117)
$
181
$
(7,022)Total
assets

3,192

18,658

2,127

23,977

7,638

17,068

1,854

26,560Depreciation

29

16

23

68

15

8

37

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

2007Software

Media

Healthcare

Total

Software

Media

Healthcare

TotalNet
revenues
$
198
$
323
$
1,012
$
1,533
$
161
$
292
$
1,015
$
1,468Cost of
sales

92

239

787

1,118

109

277

619

1,005General and
administrative

670

558

192

1,420

773

389

212

1,374Selling

33

269

15

317

62

168

26

256Research and
development

2

9

-

11

29

25

-

54Compensation for
re-pricing/extension of warrants

-

-

-

-

106

-

-

106Other
income

6

-

1

7

81

-

1

82Interest
expense

26

-

2

28

1,112

-

4

1,116Income tax
benefit/(expense)

-

-

-

-

-

-

-

-Net income
(loss)
$
(619)
$
(752)
$
17
$
(1,354)
$
(1,949)
$
(567)
$
155
$
(2,361)Depreciation

11

6

3

20

5

3

11

19   NOTE 13 - SUBSEQUENT EVENT  On October 9, 2008, the Company
issued 54,891 common shares in payment of a $100,000 note payable and $9,781 of
accrued interest.  On October 23, 2008, the Company
issued 99,712 common shares in payment of an $181,700 note payable and $17,723
of accrued interest.  On November 4, 2008, The Company
paid $55,104 to pay in full the note payable. See Note 6   Item 2.
  Management's Discussion and Analysis or Plan of Operation.  Highlights of Third 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 64% 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.  As paid search advertising is the
largest and most profitable segment of the internet advertising industry
(Google, Yahoo, etc), we believe the Internet media advertising industry has the
potential over the next five years to grow into the largest segment of Internet
advertising and believe that Wizzard is positioned to be one of the leading
companies in the Internet media advertising business.   1.     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 third
quarter of 2008, the Wizzard Network received 287,400,000 download requests for
shows vs. 241,700,000 download requests in the third quarter of 2007.
 Wizzard's publishing platform grew by over 3,300 new shows in the third
quarter of 2008 vs. 700 new shows in the third quarter of 2007.  Over
88,000 new individual episodes were added across the network in the third
quarter of 2008 vs. 42,000 new episodes added in the third 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 third quarter
of 2008 with over 500,000 individual episodes in syndication.  Wizzard's
LibsynPRO Enterprise service grew to 32 network publishers in the third 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
third quarter 2008, revenue from data transfer totaled $46,790.  Wizzard Media -
Distribution  In the third quarter of 2008, traditionally a slower
quarter than the first or fourth quarter for media consumption, the Wizzard
Network received approximately 287,400,000 download requests for shows vs.
241,700,000 download requests in the third quarter of 2007, from a wide variety
of distribution outlets to which Wizzard syndicates content. The Wizzard Media
network received over 3,100,000 million requests for shows per day in the third
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 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, 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. In the third quarter of 2008, Wizzard expanded the
number of distribution points available to our publishers by 22 through a
partnership with TubeMogul, including Yahoo Video, AOL Video, Google Video and
MySpace.  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 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 third 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 third quarter of 2008, Wizzard launched seven
advertising campaigns including Puma, Panasonic, US Navy Medical, Coca-Cola,
SpikeTV, Powerade and Saturn.  These campaigns run across multiple shows
bringing the total number of advertising campaigns launched to date to 35, with
18 different advertisers, resulting in $283,942 of year to date advertising
revenue.  In the third 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 thirty nine million (439,928,687) advertisements in the third
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 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 ninth 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 completed audience
surveys in excess of 65,000, which is a critical sales component in the data
driven advertising industry and the information gathered will be used by our ad
sales team extensively.  Poll questions were added to survey regarding
campaign execution in third quarter which offers added data on effectiveness on
various components of our operations.  Wizzard's ad sales team currently
consists of five individuals in San Francisco, Los Angeles, 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 as well as streaming via the Internet.
 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 third quarter 2008, our publisher recruiting
efforts resulted in the addition of 81 new shows specifically joining the
Wizzard Media Advertising Network (vs. 74 in the 2nd quarter and 50
in the 1st quarter of 2008). As of September 30, 2008, 783 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 501 shows using our publishing platform which represent 85.6% of our
global download requests. Of these 501 shows, 253 have signed up for the Wizzard
advertising network representing 67.3% of the most coveted traffic for
advertising sales. Wizzard will continue to aggressively market our advertising
network to the remaining 23% 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
*
134,409,515July 2008

143,855,017August 2008

146,070,265September 2008

150,003,405  * 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
**
53,763,806July 2008

57,542,007August 2008

58,428,106September 2008

60,001,362  ** 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 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 3,300 new shows in the third quarter of 2008 with 88,000
new episodes added across the network.  The total number of shows published
through Wizzard Media grew to over 15,000 in the third 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 to 32 network publishers in the third 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 third quarter of 2008 were:  · WatchMojo - One of the largest
producers, publishers and syndicators of video content for broadband platforms,
including the Web, wireless and out-of-home digital video markets. WatchMojo
produces original video programming across the Automotive, Education, Fashion,
Film, Food, Gambling, Health, Music, Politics & Economy, Space, Sports,
Technology and Travel categories. · Alan Watts Podcast Audio
clips from the late Alan Watts, who is generally credited with bringing eastern
philosophy to the West. · Classic Tales One of the
largest Classic Audiobook podcasts with a focus on childrens stories, this one
came over as part of the Podshow Creator closure. This show is already part of
the Audible Kids Campaign. · Davey & Goliath The
classic claymation TV show from the 1960s and 70s. The first show brought over
from Lightworks. · ScrapCast The Largest and
first Scrapbook Podcast. This show is one of many we are working on bringing
over from Mevio / Podshow. · SomaGirls TV Network After a
year of courting SomaGirls TV, we were able to bring them on board to be part of
the Saturn Campaign. · The Moth Podcast One of the
most popular podcasts on iTunes, the Moth is part of both the Saturn and the
Audible Adult campaigns. · YogaToday  Considered the
largest and most well known of the YogaPodcasts, this one was brought in with
the help of Todd Sweeny. This show is part of the Saturn Campaign.  Wizzard Media continued to extend content distribution in
third quarter of 2008 through:  · Partners with Joost for online video
distribution · Partners with TubeMogul for online
video distribution to YouTube, YahooVideo, AOL Video and 19 other major video
portals on the internet. · Partners with Canoe for content
distribution across Canadas pre-eminent news and entertainment online
portal    Some of above mentioned new publishers are utilizing our
media services and in turn we have the ability to bring advertising to their
shows.  Others are obtaining ads themselves, and utilizing our Ad Insertion
and Ad Management technology, Alcheny, in addition to Wizzard having the
opportunity to bring advertising to their shows.  Then there are publishers
for which we are distributing their content and in turn, we have the ability to
license the content to a third party and/or bring advertising to their show.
 Any revenue generated from obtaining ads or the licensing of the content
will be shared with the publisher 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 - Technology  Wizzard Media's technical development team continues to
make significant accomplishments in terms of maintaining and expanding on our
publishing platform.  In the third quarter of 2008, Wizzard's development
team focused its efforts on development of Wizzard suite of Tools to support
launch of Media (Flash) Player, extended distribution and enhancements to the
back-end publishing and advertising support systems.  Additional technical developments in the third quarter of
2008 include:   Two updates to LibsynPRO version 2
released to beta users (v2.4)  Migration of users from v1.0 to v2.0
of LibsynPRO (100%)  Wizzard Media Platform statistics data
warehouse project started (90% complete)  Wizzard Media Player project (flash
media player) launched Wizzard Media Player enhancements for interactive Share
and Ad functionality  Wizzard Media Tools project launched
Wizzard Media integration with video distribution partner, TubeMogul
launched  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

208,185,350Number of Shows Transcribed

2,608Number of Episodes Transcribed

58,709Minutes of Processed Content

1,433,801Number of Unique Words Captured

33,418  2.     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.       3.   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, 64% for
the first nine 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.  In Billings, we hired a new director of healthcare
services who comes with extensive local healthcare management experience.
 As a result, Interim has realized the addition of one new service:
providing skilled assessment and supervision of patients at local testing
facilities, and we are evaluating additional healthcare services.  In Casper, we hired a new Administrator, who comes with a
diverse background in the healthcare industry. Interim Casper continues to
provide home care and staffing services.  Staffing services has experienced
a decline in the past year but we anticipate the hiring of a Staffing Manager to
focus on growing the business.  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 September 30, 2008 and
2007.  During the third quarter ended September 30, 2008,
Wizzard recorded revenues of $ 1,533,339, a 4% increase from revenues of $
1,468,476 in the third quarter of 2007. The increase for the third quarter of
2008 was due to the new business in our digital media publishing and incremental
sales of our speech recognition software.  Home healthcare sales were flat
compared to prior year.  Cost of goods sold totaled $1,118,200 in the third
quarter of 2008, versus $ 1,005,135 in the third quarter of 2007.  This
increase of 11% 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 $415,139 during the
third quarter of 2008, versus a gross profit of $ 463,341 in the third quarter
of 2007, a decrease of 10%.  In the third quarter ended September 30, 2008, operating
expenses totaled $1,747,586 which was a 4% increase from operating expenses of
$1,684,973 in the third quarter of 2007.  Broken down by line item our
operating expenses were:    Selling expenses in the third quarter of 2008 were
$316,736 versus $256,331 in 2007.  This 24% 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 $1,026,557 in
2008 versus $894,025 in 2007, an increase of 15%, due the additional personnel
to run the operations of the digital media publishing operations.  This
increase was also due to the recording of amortization expense associated with
the intangible assets from the purchase of iClipx; incremental internet
bandwidth fees associated with our development of the media services operating
platform; and incremental rent expense with the addition of offices in Florida,
New York and Los Angeles.  Salaries, wages and related expenses decreased to
$637,218 in 2008 from $681,940 in 2007, a decrease of 7%, due to a restructuring
of responsibilities in our Billings location and not having a General Manager in
our Casper location, within our home healthcare operations.  This was
offset by the addition of personnel with the development of our digital media
publishing and media business platforms. Consulting expense decreased to
$394,565 in 2008 from $480,356, a decrease of 18% due primarily to limited use
of consultants in the third quarter of 2008. Research and Development expenses
in the third quarter were $10,728 versus $54,261 in 2007.  Net other expenses of $20,320 versus $1,139,670 in the
third quarter of 2007 consisted of non-cash interest expense for the accretion
of the discount on notes payable net of interest income.  Wizzard's net loss available to common shareholders was
$1,460,219, or $0.03 per share, in the quarter ended September 30, 2008.
 This represents an 85% decrease from our net loss of $9,986,719, or $0.24
per share, in the third quarter of 2007.  Nine months ended September 30, 2007, and
2006.  During the nine month period ended September 30, 2008,
Wizzard recorded revenues of $4,667,690, a 29% increase over revenues of
$3,622,499 for the same period in 2007.  The increase in revenues in the
nine months ended September 30, 2008, was due primarily to the expansion through
acquisitions of our digital media services and healthcare operations.  In the nine months ended September 30, 2008, cost of
goods sold totaled $3,188,529, a 28% increase as compared to $2,499,130 in the
nine months ended September 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 $1,479,161 during
the first nine months of 2008, versus a gross profit of $1,123,369 in the first
nine months of 2007, an increase of 32%.  Wizzard recorded total operating expenses of $6,595,598
during the nine months ended September 30, 2008, a 10% increase as compared to
operating expenses of $5,981,914 in the same period of 2007.  General and
administrative expenses totaled $3,543,626 in the first nine months of 2008
versus $2,394,543 in the first nine months of 2007, an increase of approximately
48%, 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
$2,230,369 in 2008 from $700,952 in 2007, an increase of 218%, due to the
addition of personnel with the development of our digital media publishing and
media business, and home healthcare operations, and the conversion of the use of
full-time employees from consultants.  Consulting fees decreased to $2,124,315 in 2008 from $
2,795,727, a decrease of 24% due primarily to a decrease in investor relations
service fees; consulting fees related to the digital media publishing operations
and conversion to use of full-time employees.  Selling expenses in the first nine months of 2008 were
$861,926 versus $644,259 in 2007.  This 34% increase was due primarily to
the expansion of our digital media services.  Research and Development
expense totaled $66,731 in the first nine months of 2008 versus $147,385 in the
first nine months of 2007.    In the first nine 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 nine months of
2007, Wizzard recorded interest expense of $795,023, to extend the expiration
date of certain warrants.  Wizzard's net loss available to common shareholders was
$6,210,273, or $0.14 per share, in the first nine months of 2008.  This
represents a 58% decrease from our net loss of $14,647,156, or $0.36 per share,
in the first nine months of 2007. During the first nine months of 2008, non-cash
expenditures totaled $2,496,303, a 48% decrease from non-cash expenditures of
$4,804,218 in the first nine months of 2007.  The following is a summary of non-cash expenditures: For the Nine

For the ThreeMonths Ended

Months EndedSeptember 30,

September 30,2008

2007

2008

2007NON-CASH EXPENDITURESAmortization of discount on
notes payable

482,158

1,396,226

-

1,073,426Re-pricing and extension of
warrants

-

795,023

-

105,413Stock option grants

444,490

311,999

31,901

141,500Depreciation and amortization
expense

196,001

59,637

62,271

19,008Interest expense paid with
stock

123,642

-

111,654

-Issuance of warrants to extend
notes

263,483

-

-

-Non-cash expense

1,509,774

2,562,885

205,826

1,339,347Expenditures paid with issuance
of stock

986,528

2,241,333

68,820

91,563Total  non-cash expenditures

2,496,302

4,804,218

274,646

1,430,910  Liquidity and Capital
Resources.  Cash on hand was $1,752,165 at September 30, 2008, a
decrease of $4,284,044 over the $6,036,209 on hand at December 31, 2007.
 Cash used in operations for the nine months ended September 30, 2008, was
$3,661,022, an increase of 43% over the $2,554,525 cash used in operations for
the nine months ended September 30, 2007.  Cash used in investing
activities was $139,413 primarily for the purchase of equipment during the nine
months ended September 30, 2008.  Cash used in financing activities was $483,609 used for
payment of preferred dividend, capital lease and notes payable during the nine
months ended September 30, 2008.  In the first nine months of 2007, the
Company received $677,319 from the issuance of common stock and $6,710,000 from
the issuance of Series A preferred stock.  The Company used common stock to pay $986,528 in
consulting services during the nine months ended September 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 $300,000
per month to maintain current operations and grow our digital media
business.  The following table reflects our contractual obligations
as of September 30, 2008: Contractual Obligations



Less than

1-3Total

1 Year

YearsGuaranteed Royalty
$
420,000
$
295,000
$
125,000Long-Term Obligations(1)

1,844,831

46,915

1,797,916    Rent

52,471

29,521

22,950Total
$
2,317,302
$
371,436
$
1,945,866  (1) Includes
the 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.  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 September 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 September 30, 2008 that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.     PART II - OTHER INFORMATION  Item 1.   Legal
Proceedings.  None.  Item 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 September 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 nine month period ended September 30, 2008, which were not
registered under the Securities Act of 1933, as amended (the "Securities
Act"):  Name

Date

Shares

DescriptionBruce Phifer

2-29-08

5,000

Services RenderedEdward Greiner

3-24-08

1,907

Services RenderedElizabeth 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 RenderedAlpha Capital

8-7-08

53,796

Conversion on Note PayableWhalehaven

9-24-08

50,124

Conversion on Note PayableWhalehaven

9-25-08

50,131

Conversion on Note Payable  We issued all of these securities to
persons who were either "accredited investors," or "sophisticated investors"
who, by reason of education, business acumen, experience or other factors, were
fully capable of evaluating the risks and merits of an investment in our
company; and each had prior access to all material information about us.
 We believe that the offer and sale of these securities were exempt from
the registration requirements of the Securities Act, pursuant to Sections 4(2)
and 4(6) thereof, and Rule 506 of Regulation D of the Securities and Exchange
Commission and from various similar state exemptions.  Item 3.   Defaults Upon
Senior Securities.  None;
not applicable.  Item 4.   Submission of
Matters to a Vote of Security Holders.  None;
not applicable.  Item 5.   Other
Information.  (a)
  None, not applicable  (b)
 During the quarterly period ended September 30, 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.  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:
11/10/08

By:
/s/ Christopher J. SpencerChristopher J. SpencerChief Executive Officer and
President   Date:
11/10/08


/s/ John BusshausJohn BusshausChief Financial
Officer   Date:
11/10/08


/s/ J. Gregory SmithJ. Gregory SmithDirector   Date:
11/10/08


/s/ David MansuetoDavid MansuetoDirector   Date:
11/10/08


/s/  Denis YevstifeyevDenis YevstifeyevDirector   Date:
11/10/08


/s/  Douglas PolinskyDouglas PolinskyDirector