Mail Room 4561
July 8, 2005
Christopher J. Spencer
President and Chief Executive Officer
Wizzard Software Corporation
5001 Baum Boulevard, Suite 770
Pittsburgh, Pennsylvania 15213
Re: Wizzard Software Corporation
Amendment No. 2 to Registration Statement on Form SB-2
File No. 333-123715
Post-Effective Amendment No. 2 to Registration Statement
on
Form SB-2
File No. 333-114791
Form 10-KSB/A for the year ended December 31, 2004
Form 10-QSB/A for the period ended March 31, 2005
File No. 0-33381
Filed July 17, 2005
Dear Mr. Spencer:
We have reviewed your amended disclosure and responses and
have
the following comments. To the extent that the comments relate to
the disclosure in the above-cited filings, please ensure that you
revise those filings accordingly.
Amendment No. 2 to the Form 10-KSB for the year ended December 31,
2004
Disclosure Controls and Procedures
1. We note your revised statement that notwithstanding the
material
weaknesses in your internal controls, the "Chief Executive Officer
and Chief Financial Officer, or the persons performing similar
functions" concluded that your disclosure controls and procedures
were effective as of December 31, 2004. Consistent with the
disclosure in your March 31, 2005 Form 10-QSB, please specifically
indicate that your President/Treasurer rendered the conclusion of
management as to the effectiveness of your disclosure controls and
procedures.
2. Please refer to prior comment 3 of our letter dated June 7,
2005.
Disclose when the material weakness first began and when the
actions
taken by the CEO and the outside professionals, whom we presume
are
accounting professionals, were initiated. In this regard, confirm
whether the cost of $50,000 for consultants you expect to retain
during the next 12 months refers to the engagement of the "outside
professionals" mentioned in the paragraph explaining the basis for
your effectiveness conclusion. In addition, tell us whether the
accounting professionals are associated with your independent
public
accounting firm. See question 14 in Management`s Report on
Internal
Control Over Financial Reporting and Certification of Disclosure
in
Exchange Act Periodic Reports Frequently Asked Questions available
on
our website.
3. Expand the disclosure to describe in reasonable detail what
additional measures were taken by the CEO and accounting
professionals. Your references to the "significant involvement"
of
the CEO and to the "engagement" of accounting professionals are
overly vague.
4. You concluded that notwithstanding the material weaknesses
identified in connection with the completion of your audit, your
disclosure controls and procedures for the year ended December 31,
2004 were effective. However, in light of the fact that one of
the
weaknesses relates to the lack of sufficient knowledge and
experience
among the internal accounting personnel regarding the application
of
US GAAP and SEC requirements, please disclose in greater detail
the
basis for management`s conclusion that your disclosure controls
and
procedures were nonetheless effective as of the end of the period
covered by the report.
Financial Statements
Consolidated Statements of Operations, page F-3
5. Separate income statement classifications based solely on the
form
of consideration is not appropriate (i.e., non-cash compensation).
Reclassify non-cash compensation to the appropriate line items
based
on the employee who received the benefit (i.e., cost of sales,
research and development, sales and marketing or general and
administrative).
Note 1 Revenue Recognition, page F-10
6. You disclose throughout your document that you sell hardware,
software and services. Clarify the nature of the hardware you
offer
and how much revenue was derived from hardware, software and
services
for each year presented. Tell us how you considered EITF 03-05
with
regards to arrangements that include hardware.
7. Your disclosure indicates that you sell customized products
where
you create, plan and implement the entire project. Tell us and
disclose how you are accounting for these arrangements. Note that
if
an arrangement to deliver software or a software system requires
significant production, modification, or customization of
software,
the entire arrangement should be accounted for in conformity with
ARB
45 and using the relevant guidance in SOP 81-1. Clarify and
revise
to provide all disclosures required by
SOP 81-1.
8. We note that you offer text-to-speech engines from IBM and AT&T
to
businesses and software programmers. Tell us how you account for
the
royalty fees you receive from your customers and the portion you
pay
to IBM or AT&T. Tell us how you are presenting this revenue on
your
income statement and how you have considered
EITF 99-19.
Note 8 Capital Stock, page F-16
9. We note that you have had a significant number of equity
issuances
to non-employees. For each grant made tell us and disclose how
you
valued the grant and the period(s) in which the related expense
was
recorded. Also, tell us how your accounting for each of the grants
complies with EITF 96-18. Further note that MD&A should be
revised
to discuss this information.
Form 10-QSB/A filed June 17, 2005
10. Regarding the 5% minority acquisition of WSC in January 2005
which resulted in goodwill of $1.2 million, it is unclear how you
determined that the goodwill related to this acquisition should be
immediately written off and the reasons you believe this write-off
is
appropriate. Provide us with evidence to substantiate your
assessment including any materials sent to the board of directors,
trends in revenue from significant customers, monthly operating
statements, comparisons of actual with forecasted cash flows, and
timing of losses of key employees or customers, if applicable.
11. With respect to the issuance of the convertible notes in
February
2005, tell us the amount of the issuance costs as well as how you
have accounted for these costs.
As appropriate, please amend your filings and respond to the
comments relating to your Exchange Act reports within 10 business
days or tell us when you will provide us with a response. You may
wish to provide us with marked copies of the amendment to expedite
our review. Please furnish a cover letter with your amendment
that
keys your responses to our comments and provides any requested
information. Detailed cover letters greatly facilitate our
review.
Please understand that we may have additional comments after
reviewing your amendment and responses to our comments.
Please direct all accounting concerns to Melissa Rocha at
202-
551-3854 or to Marc Thomas at 202-551-3452. All other questions
should be directed Maryse Mills-Apenteng at (202) 551-3457 or, in
her
absence, you may contact the undersigned at (202) 551-3730.
Sincerely,
Barbara C. Jacobs
Assistant Director
cc: Via facsimile: 801-355-7126
Branden T. Burningham, Esq.
455 East 500 South, Suite 205
Salt Lake City, Utah 84111
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Christopher J. Spencer
Wizzard Software Corporation
July 8, 2005
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