UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  FORM
10-K  [X] ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the
fiscal year ended December 31, 2008  [
 ] TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For
transition period ___ to ____  Commission file number: 000-26731  PACIFIC WEBWORKS, INC. (Exact
name of registrant as specified in its charter) Nevada
(State
or other jurisdiction of incorporation or organization)
87-0627910
(I.R.S.
Employer Identification No.)230
West 400 South, Salt Lake City, Utah
(Address
of principal executive offices)
84111
(Zip
Code)
  Registrants
telephone number:  (801) 578-9020  Securities registered
under Section 12(b) of the Exchange Act:  None  Securities registered
under Section 12(g) of the Exchange Act:  Common Stock  Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined in Rule 405
of the Securities Act.         Yes
[   ]   No [X]  Indicate by check
mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act.         Yes [
  ]   No [X]  Indicate by check
mark whether the registrant (1) filed all reports required to be filed by
Section 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.            Yes [X]
  No [  ]  Indicate by check
mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K
is not contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
  [X]    1   Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company: Large
accelerated filer [  ]
Non-accelerated
filer [  ]
Accelerated
filed [  ]
Smaller
reporting company [X]  Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).   Yes [  ]   No [X]  The aggregate market
value of the 41,444,826 shares of voting and non-voting common equity held by
non-affiliates computed by reference to the price of at which the common equity
was last sold on June 30, 2008, was approximately $3,324,426.  The number of shares
outstanding of the registrants common stock as of March 2, 2009, was
41,663,895.  Documents
incorporated by reference:  None  TABLE
OF CONTENTS  PART
I Item
1.  Business 3 Item
1A.  Risk Factors 10 Item
2.  Properties 14 Item
3.  Legal Proceedings 14 Item
4.  Submission of Matters to a Vote of Security Holders 14  PART
II Item 5.  Market
for Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities 14 Item
6.  Selected Financial Data 16 Item
7.  Managements Discussion and Analysis of Financial Condition and Results
of Operations 16 Item
8.  Financial Statements and Supplementary Data 21 Item9.
 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 40 Item
9A(T).  Controls and Procedures 40 Item
9B.  Other Information 41  PART
III Item
10.  Directors, Executive Officers and Corporate Governance 41 Item
11.  Executive Compensation 42 Item 12.
 Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters 45 Item
13.  Certain Relationships and Related Transactions, and Director
Independence 47 Item
14.  Principal Accounting Fees and Services 47  PART
IV Item
15.  Exhibits, Financial Statement Schedules 48 Signatures 49   2   In
this annual report references to Pacific WebWorks, we, us, and our refer
to Pacific WebWorks, Inc. and its subsidiaries.  FORWARD LOOKING STATEMENTS  The Securities and
Exchange Commission (SEC) encourages companies to disclose forward-looking
information so that investors can better understand future prospects and make
informed investment decisions.  This report contains these types of
statements.  Words such as may,  expect, believe, anticipate,
estimate, project, or continue or comparable terminology used in
connection with any discussion of future operating results or financial
performance identify forward-looking statements.  You are cautioned not to
place undue reliance on the forward-looking statements, which speak only as of
the date of this report.  All forward-looking statements reflect our
present expectation of future events and are subject to a number of important
factors and uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements.  PART I  ITEM
1.  BUSINESS  Historical
Development  The company was
incorporated in the state of Nevada on May 18, 1987, as Asphalt Associates, Inc.
and changed its name to Pacific WebWorks, Inc. in January 1999.  On July
31, 2007 we formed Pacific WebWorks International, LTD, a United Kingdom limited
company.  On November 11, 2008,
Pacific WebWorks formed PWI, LLC, a Utah limited liability company.  We
hold a 51% membership interest in this entity and Interform, a local sporting
goods and apparel wholesaler, holds the remaining 49% membership interest.
 PWI, LLC was formed to manage InterformDirect.com, a virtual golf
equipment and accessories store.  Pacific
WebWorks Business  Pacific WebWorks is
an application service provider and software development firm that develops
business software technologies and services for business merchants and
organizations using Internet and other technologies.  We specialize in
turnkey applications allowing small to medium sized businesses to expand over
the Internet.  Our product family provides tools for web site creation,
management and maintenance, electronic business storefront hosting and Internet
payment systems for the small to medium sized business and organization.
 Additionally, we have integrated our product with many of the popular
online auction/sales portals enabling our customers to easily sell their
products at these portals using our Visual WebTools product.  We initially focused
entirely on virtual retailing software solutions, meaning merchants that do not
have a physical store location and would exist only on the Internet.  Due
to requests in the marketplace, we expanded our technologies to include features
for small to medium-sized physical brick and mortar entities, in addition to
our virtual merchants. This is expected to give these businesses and other
organizations a complete solution for all physical store and Internet concerns
and at the same time reduce the costs of operations and introduce new profit
centers for them.  We have four
wholly-owned operating subsidiaries:  Intellipay, Inc., TradeWorks
Marketing, Inc., and FundWorks, Inc, which are all Delaware corporations, and
Pacific WebWorks International, LTD, a United Kingdom limited company.
 Intellipay specializes in providing online, secure and real-time payment
processing services for businesses of all sizes.  TradeWorks Marketing was
incorporated to mass market our products and services.  FundWorks, Inc. was
incorporated to provide operating lease  3   arrangements
for certain TradeWorks customers.  In July of 2007 we formed Pacific
WebWorks International, LTD to market our products and services in Europe and
also provide a vehicle for the establishment of offshore credit card processing
capabilities.  To date we have not initiated any of these activities
offshore.  We also hold a non-operating, discontinued operation, World
Commerce Network, LLC.  Our
Products  Even though small
business, including small office/home office, typically understands how
traditional brick and mortar businesses operate, we believe they need assistance
in order to replicate business processes effectively and economically using the
Internet.  Pacific WebWorks assists small businesses in succeeding online
through our Visual WebTools software, including our eBay submission tool, the
Intellipay payment systems and our hosting services.  We provide a
comprehensive one-stop solution that incorporates our integrated suite of
e-commerce software tools, plus hosting, site management, and web design
services.  By leveraging a shared commerce platform across many customers,
we bring economies of scale to our customers.  We believe this structure
allows our customers to focus on their business instead of technology, enabling
them to achieve a much faster return on investments made in technology and to
experience more success on the Internet.  Pacific
WebWorks Product Characteristics  Visual WebTools
Version 4.1 (V4.1") -V4.1 is a suite of software programs that fit
together to perform the basic business functions we believe are the most
effective on the Internet.  The following products are included as part of
this suite.  WebWizard
is an easy-to-use web page design program that possesses a simple user interface
and templates for the novice, yet it has a very powerful additional
functionality for web design professionals.  It incorporates sophisticated
site components like tables, frames, flash and other multimedia capabilities in
a straightforward, menu driven process.  No complicated programming skills
are required to use the WebWizard tool.  Our customers can manage their
sites layout, colors, contents, tables, and graphics easily. WebWizard includes
a library of hundreds of graphics that are freely accessible by our customers.
 WebWizard allows our customers to quickly and easily create, update,
modify, and enhance their web sites.  Changes can be uploaded to our
servers within minutes 24 hours a day, 7 days a week from any Internet-connected
Microsoft Windows® computer.  ClipOn
Commerceis an e-storefront and product management system, complete with
shopping cart technology.  ClipOn Commerce allows our customers to build an
Internet storefront.  They can create a complete product catalog, organize
and search products by unlimited categories and import/export to and from their
database.  ClipOn Commerce is designed to function with a third party
merchant account and is integrated with our Intellipay payment system, which
allows our clients to accept all major credit cards online.  ClipOn
Commerce has support for QuickBooks® accounting software enabling our customers
to update between their accounting records and Internet storefront.  ClipOn
Commerce also features UPS shipping integration.  Contactsis a contact management program.  Companies that use our system can
utilize WebContacts to organize information about all the entities they do
business with, including customers, suppliers, distributors, potential
customers, etc.  WebContacts will also enable them to capture information
about people who visit their web site, if those visitors elect to supply contact
information at the site.  This database functionality enables our customers
to be more effective when using the web as a marketing and communications tool.   4   WebChannels
is an e-mail distribution program that enables our customers to send customized
e-mails in either plaintext or HTML format to their WebContacts database of
visitors.  Since email is the most popular activity on the web, and one of
the most effective forms of Internet marketing, WebChannels provides our
customers with a practical tool with which to promote their businesses.
 For example, by using WebChannels, a client could easily send out a weekly
newsletter, coupons or special offers to an entire customer base, certain
visitor types or to a segment of their customers  Web
profiling toolis a form and survey creation tool that helps capture
feedback and valuable demographic information from customers and web site
visitors.  Our clients can create customizable forms, surveys and
interactive questionnaires. The web profiling tool includes a catalog of
pre-designed questions, such as education level, hobbies, satisfaction level,
etc.  The profiling forms may also be custom created by our customers.  WebStatsenables our customers to analyze visitor activities on their web sites in
order to track pages viewed, hits, time of access, etc.  WebStats is a
statistics program that provides detailed reports and graphs related to
referring pages, geographic location of visitors, browsers and the operating
systems web site visitors are using, what web pages generate hits, and what
pages are the most popular.  WebStats can produce reports of business
information, including year-long trends and the effectiveness of the clients
sites.  Auction
Connectionis a module that allows Visual WebTools users to list inventory
items with eBay at the click of a button.  Increase
My Marginis a tool that allows eBay users to quickly and effectively
analyze information and data related to the sale of thousands of products sold
on eBay over a period of time.  Intellipay
Product Characteristics  Intellipay
Payment System - This group of products offers payment technologies for
business-to-business and business-to-customer uses on the Internet and in
physical store locations.  They allow our customers to accept real time
credit card payments from their web site, Internet appliances, kiosks or at
remote locations through their Nextel cell phone or at the physical point of
sale.  The Intellipay products use the same standards used by all major
commerce sites, industry standard security components and methods and has been
tested under strict banking network procedures.  Point-of-sale
professionals provide technical support and ePayment professionals can even help
the business locate an Internet-approved merchant account if needed.  Once
customers enter the necessary data in a secure form, Intellipay quickly
processes the transaction in real-time (2 - 5 seconds) and returns the customer
back to the business site.  Intellipay also provides methods for
enterprise-level businesses to link Intellipay products, services and features
into their ecommerce web sites and transmit transactional data for use in
back-office systems.  Intellipay is entirely compliant with PCI 2.0, which
is a combined security regulation for VISA and Mastercard.  ePayment
Systemsupports all major card types including Visa, MasterCard, American
Express, Discover, Diners Club and JCB.  Also, support is provided for Visa
and MasterCard debit (check) cards and Level Two corporate/commercial cards
through various bank networks.  Transaction types include industry standard
transactions such as normal authorizations, pre-authorizations intended for
delayed settlement, the so-called force allowing a transaction authorized
offline (possibly a voice authorization) to be settled, credits for refunds and
Intellipays innovative address verification system allows merchants to retrieve
a score and verify the account validity.  This Intellipay
product allows our customers to control transaction level behavior depending on
AVS scores, duplicate transaction attempt detection, and more.  Intellipay
also automatically settles merchant batches nightly so our customers are freed
from forcing settlement via manual or programmatic methods,  5   which
also helps reduce our customers costs by settling within the 24-hour window
mandated by most merchant accounts.  The Intellipay system is fully
transportable meaning that a customer can switch web site hosting companies,
move between most e-commerce software programs or change to or from many
merchant account providers.  Our products can grow and change with our
customer at little or no additional charges and with minimal technology
issues.  ExpertLinkis Intellipay's proprietary connection protocol for high-volume Internet
businesses requiring reliable, high velocity real-time transaction
authorizations linked to their own secure web site and/or back office systems.
ExpertLink is a standards-based secure communications method allowing web
developers and application developers to build in the ePayment processing and
various features, including batch management commands, duplicate transaction
detection and management, and more.  Our customers usually purchase
ExpertLink or LinkSmart, and both come with Smart Terminal and the Secure
Account Management System.  LinkSmart
gives our online customers the ePayment features with minimal technical
installation on their side. With LinkSmart, our customer does not need to pay
for installation and maintenance of expensive secure servers since LinkSmart
serves the secure, customizable payment pages for them.  LinkSmart offloads
many expensive mission-critical e-commerce tasks from the merchant.  Smart
Terminalallows our customers to securely log into their Intellipay account
from any Internet browser and authorize manual transactions and orders they have
received through offline methods.  Smart Terminal supports
industry-standard transactions including normal authorizations,
authorization-only for delayed settlement, settlement for non-Intellipay
authorized transactions, credits, partial credits and more. Most clients receive
Smart Terminal along with LinkSmart or ExpertLink, but Smart Terminal can also
be purchased as a stand-alone product.  Secure
Account Management System (SAMS)allows Intellipay customers to securely
log into Intellipay's Secure Account Management System from any web browser to
configure and control various Intellipay components and behaviors. They can
manage today's authorized transaction batches, control passwords, enforce
transaction data components, control various features such as our new duplicate
transaction detection and management system, control email transaction receipts,
access Smart Terminal, control LinkSmart payment page contents, target returning
live data streams, configure Visa-required invoice numbering, and more.
 Customers can also view transaction histories for any day in the past 180
day period.  IntelliPay
Desktop Terminal (IDT)brings all of the functionality of a Virtual
Terminal application to your desktop while supporting hardware such as a card
reader and receipt printer.  This allows merchants to receive a qualified
discount rate on their transactions and save hundreds of dollars in equipment
and processing fees.  They can also take advantage of sharing printers on
their network allowing several terminals to print to the same receipt printer,
reducing the amount of hardware they need to purchase.  IntelliPay
Wireless Terminal (IWT) submits wireless transactions with retail
qualifications using Nextel data service.  This allows a merchant to accept
either swiped or keyed transactions using a Nextel Cellular / Data phone using a
card reader. The merchant has all of the benefits of retail rates with the added
value of visual batch management and settlement process.  IntelliPay
Wireless Terminal is the perfect solution for all mobile merchants that also use
a cellular phone.  Other Services
and Products  Technical Support is
offered via online chat or e-mail from 8 a.m. to 7 p.m. (MST), or by phone from
8 a.m. to 5 p.m. (MST).   6   Hosting
Infrastructure allows us to host our customers web sites, therefore eliminating
the cost of hardware investment and maintenance for them.  Domain Names are
offered to customers online at retail prices.  These include .com,
.org, .biz, .net, .us and .info.  Additionally, during
2008 we launched several new product offers including: · Amazing
WebStores  allows users to set up a store to sell Amazon products directly from
their web site. · SEO
Supervisor  this product combines our Visual WebTools product with Google
Adsense and Google Adwords. · eSuccess2U.com
 our revolutionary new proprietary e-mail marketing system. · Forex
GTG.com.   a state of the art foreign exchange offer which teaches people
how to trade in the foreign exchange markets. · InteformDirect.com
 a virtual store that we market and maintain that sells golf equipment and
accessories.   (See Historical Development, above)  These products have
received an enthusiastic reception in the marketplace and have been a positive
addition to our portfolio of virtual products.  Sales and
Marketing  Previously our
subsidiary TradeWorks Marketing conducted sales events throughout the United
States. In July 2006 we discontinued our nationwide sales events, avoiding the
excessive costs and risks associated with that type of sales campaign.  We
have since initiated an aggressive online marketing strategy that has resulted
in the addition of significantly greater numbers of customers and a significant
increase in our recurring revenues.  This has been accomplished at
considerably less risk and without the excessive costs associated with the
nationwide marketing events.  We do not believe
that our competitors are effectively targeting our market niche: A totally
Internet based, end-to-end business solution for small- and medium-sized
businesses.  We believe that our products will allow businesses to generate
leads, sell products, run sales promotions, capture demographic information
about web site visitors, communicate with web site visitors, and obtain
intelligent information about who is visiting their web sites and what they are
doing while they are there.  Our products allow our customers to stay in
complete control of their web sites and provide tools that can facilitate a
successful Internet experience for them.  We now market and
sell our products primarily through a variety of online marketing partners and
programs. We believe we are developing a substantial presence in our target
market through a combination of broad channels of distribution, marketing
strategy, unique proprietary technology, technical expertise, and full service
hosting and web site maintenance.  It is our opinion that in the past,
businesses which have attempted to maintain interactive web sites and conduct
business on the Internet have either developed technical expertise themselves,
paid employees to create and maintain their web sites, or retained contract web
professionals to do so.  We believe our products allow small businesses to
participate in Internet commerce by creating and managing their own Internet web
sites and storefronts at a reasonable cost.  Competition  Our market is quickly
evolving, is very competitive and subject to rapid technological change.
 We expect competition to persist, increase, and intensify in the future as
the markets for our products and services continue to develop and as additional
companies enter our markets.  Many companies are now providing Internet
services to small businesses.  Our success in our target market will depend
upon our  7   ability
to establish successful ongoing marketing programs, build name brand recognition
and to provide quality, cost-effective products and services to our customers.  At the present time,
we have not identified any other companies that are using an identical approach
to ours.  Nonetheless, it is probable that larger interests will choose to
enter the market we are developing or that a new market may emerge.
 Although we feel the market is vast and should accommodate many technology
providers, we may not be able to compete effectively with current and future
competitors.  In our estimation,
few major competitors currently offer products comparable to the Visual
WebTools product family.  We believe that our product provides a
comparable service for a lower price than that provided by our competitors.
 In addition, because we have focused our efforts on small businesses,
including providing Internet tools which allow businesses to develop their own
web sites, we believe that we will be better able to address our customers site
development needs.  Our Intellipay
payment system competes with AuthorizeNet products and certain VeriSign
products, along with other companies that provide e-commerce solutions.
 Our ability to successfully compete will depend upon a number of factors,
including:  · our
ability to successfully maintain and sell existing products; · our
ability to conceive, develop, improve, and market new products; · our
ability to identify and take advantage of emerging technological trends within
our target markets; · our
ability to respond effectively to technological changes or new product
announcements by competitors; · our
ability to carve out niche markets in combination with our technologies; · our
ability to recruit resellers who can market and sell our products and services
in significant volumes to the market; · our
ability to maintain satisfactory relationships with our online marketing
partners; and · our
ability to manage and maintain our merchant accounts.  We believe that we
will need to make significant expenditures for research and development and
marketing in the future to compete effectively.  Major
Customers  Our client base
includes nearly 40,000 active customer accounts.  We rely on the efforts of
our internal marketing staff and on third party resellers, including our
wholly-owned reseller, TradeWorks Marketing, to add accounts to our customer
base.  In the past a significant portion of our customer accounts were
provided by previous Pacific WebWorks and Intellipay resellers who no longer
resell our products and services.  While we continue to add resellers, we
are now primarily dependent upon our internal marketing staff and our online
marketing partners for our product sales.  Trademark,
Licenses and Intellectual Property  We own trademarks for
Visual WebTools (United States Patent and Trademark Office Serial No. 567,136)
that we acquired and became responsible for upon our merger with Utah WebWorks.
 In addition we have trademarks for Pacific WebWorks and ClipOn Commerce.  On August 2, 2007 we
received notice of acceptance and acknowledgment from the U.S. Department of
Commerce Patent and Trademark Office validating our registration of a trademark
for Intellipay.  The mark has been renewed for 10 years subject to
constructive notice by July 24, 2013 of our claim to exclusive ownership.   8   On
August 30, 2007 we received notice of acceptance and acknowledgment from the
U.S. Department of Commerce Patent and Trademark Office validating our
registration of a trademark for Increase My Margin.  The mark has been
registered for 10 years subject to constructive notice of our claim to exclusive
ownership by August 13, 2013.  Our success will
depend, in part, on our ability to obtain and protect our trademark and trade
secrets and operate without infringing upon the proprietary rights of others in
the United States and other countries.  If we were to become involved in a
dispute regarding our intellectual property, it may become necessary for us to
participate in interference proceedings before the United States Patent and
Trademark Office to determine whether we have a valid claim to the rights
involved.  We could also be forced to seek a judicial determination
concerning the rights in question.  These proceedings could be costly and
time consuming, even if we were to eventually prevail.  Should we not
prevail, we could be forced to pay significant damages, obtain a license to the
technology in question, or stop marketing one or more of our products.  All of our core
technology was developed internally by either our engineers or by the engineers
of Utah WebWorks and Intellipay.  Other than Internet connectivity and
other information technology infrastructure, the performance of our products
does not significantly rely on any third party technology, although we continue
to support as many third party technologies as possible.  We also rely upon
trade secrets, proprietary know-how, and confidentiality provisions in
agreements with employees, consultants, and resellers to protect our
intellectual property rights.  There are risks that these other parties may
not comply with the terms of their agreements with us, and that we may not be
able to adequately enforce our rights against these parties.  We have
adopted a policy of requiring our employees and resellers to execute
confidentiality agreements when they commence employment with us or resell our
products.  These agreements generally provide that all confidential
information developed or made known to the employees or resellers during the
course of their relationship with us is to be kept confidential and not
disclosed to third parties, except under certain specific circumstances.
 In the case of employees, the agreements also provide that all inventions
conceived by the employees in the course of their employment will be our
exclusive property.  Research and
Development  We continue to
improve our existing products and release new related products.  During the
year ended December 31, 2008 we recorded research and development expense of
$303,502 and during the year ended December 31, 2007, we recorded research and
development expense of $307,490 primarily related to the maintenance of our
technologies and the development of our new offerings.  Material
Contracts  During 2007 we relied
on Electric Lightwave, Inc. for telecommunications and Internet access.
 This agreement was on a month-to-month basis and required that we pay
approximately $3,500 per month for a dedicated DS3 Internet and telephone
connection, and a redundant T-1.   This agreement was discontinued in
March 2007 and was replaced with a telecommunications and Internet access
agreement with Verizon Business Services, Inc. (Verizon).  The Verizon
agreement, accepted on October 9, 2007, provides local and long distance
telephone service and Internet service to 10MB burstable to 45 MB.  Employees  As of the date of
this filing we have 21 employees in Pacific WebWorks.  We have five
employees in administration, three in sales, marketing and design, two in
operations, four development engineers and seven customer service personnel.
 Our employees are not presently covered by any collective bargaining
agreement.  We have not experienced any work stoppages and believe that our
relations with our  9   employees
are good.  ITEM
1A.  RISK FACTORS  Factors
Affecting Future Performance  We may need
additional external capital and may be unable to raise it.  Based on our current
growth plan we believe we may require $1 to $2 million additional financing
within the next twelve months to remain competitive in our market and to
capitalize on growth opportunities.  If we fail to obtain funds on
acceptable terms, then we might be forced to delay or abandon some or all of our
business plans.  Our success will depend upon our ability to access equity
capital markets and borrow on terms that are financially advantageous to us.
 Also, we may not be able to obtain additional funds on acceptable terms.
 If we are unable to obtain additional capital, then we may not have
sufficient working capital to develop products, finance acquisitions, or pursue
business opportunities.  If we borrow funds, then we could be forced to use
a large portion of our cash reserves to repay principal and interest on those
funds.  If we issue our securities for capital, then the interests of
investors and shareholders could be diluted.  We are subject to
intense competition from large and small companies that limits our ability to
obtain market share and may force our prices down.  We face competition
in the overall Internet software market, as well as in the web site building
market.  Our ability to earn significant revenues from our Visual WebTools
or IntelliPay payment system will depend in part on their acceptance by a
substantial number of online businesses.  Broad acceptance of our products
and services and their use in large numbers is critical to our success because a
large portion of our revenues are derived from one-time and recurring fees we
charge to customers buying our products and services.  Our success in
obtaining market share will depend upon our ability to build name brand
recognition and to provide cost-effective products and services to our
customers.  We have developed our products to meet the needs of small
businesses and we believe the generality of our competitors services may be
inadequately addressing the small business owners needs. We expect competition
to persist, increase, and intensify in the future as the markets for our
products and services continue to develop and as additional competitors enter
our market.  In addition, many of our current or potential competitors have
broad distribution channels that they may use to bundle competing products
directly to end-users or purchasers.  If these competitors were to bundle
competing products for their customers, it could adversely affect our ability to
obtain market share and may force our prices down.  We may be unable
to achieve market acceptance because technological standards for payment
processing are not established.  One obstacle to
widespread market acceptance for the IntelliPay payment system is that widely
adopted technological standards for accepting and processing payments over the
Internet have not yet emerged.  As a result, merchants and financial
institutions have been slow to select which service to use.  Until one or
more dominant standards emerge, we must design, develop, test, introduce and
support new services to meet changing customer needs and respond to other
technological developments.  To be successful, we must obtain widespread
acceptance of our technologies, or modify our products and services to meet
whatever industry standards do ultimately develop.  It is not certain that
we will be able to do either.  We depend upon our
proprietary rights, none of which can be completely safeguarded against
infringement.  Our ability to
compete effectively will depend, in part, upon our ability to protect our
proprietary source codes for Visual WebTools and the IntelliPay payment system
through a combination of licenses and  10   trade
secrets.  These agreements and procedures may not effectively prevent
disclosure of our confidential information and may not provide us with an
adequate remedy in the event of unauthorized disclosure of such information.
 Intellectual property rights, by their nature, are uncertain and involve
complex legal and factual questions.  We rely upon trade secrets with
respect to our source code and functionalities and other unpatented proprietary
information in our product development activities.  We seek to protect
trade secrets and proprietary knowledge in part through confidentiality
agreements with our employees, resellers, and collaborators.  If employees or
collaborators develop products independently that may be applicable to our
products under development, disputes may arise about ownership of proprietary
rights to those products or services.  Protracted and costly litigation
could be necessary to enforce and determine the scope of our proprietary rights.
 It would be impossible to predict whether litigation might be successful.  We rely in part on
third party technology licenses which we cannot guarantee will be available to
us in the future.  We rely on certain
technology which we license from third parties, including software which is
integrated with internally developed software and used in our software to
perform key functions.  Our inability to maintain any of these technology
licenses could result in delays in distribution of our services or increased
costs of our products and services.  We cannot assure you that third party
technology licenses will continue to be available to us on commercially
reasonable terms, or at all.  We must update our
products and services and may experience increased costs and delays which could
reduce operating profit.  The electronic
commerce, web hosting and merchant processing markets in which we compete are
characterized by technological change, new product introductions, evolving
industry standards and changing customer needs.  In order to remain
competitive, we may be required to engage in a number of research and
development projects, which carries the risks associated with any research and
development effort, including cost overruns, delays in delivery and performance
problems.  Any delay in the delivery of new products or services could
render them less desirable by our customers, or possibly even obsolete.
 Any performance problem with a new product or service may require
significant funds to correct the problem.  As a result of these factors,
our research and development efforts could result in increased costs that could
reduce our operating profit, a loss of revenue if promised new products are not
timely delivered to our customers, or a loss of revenue or possible claims for
damages if new products and services do not perform as anticipated.  We may experience
software defects which may damage customer relations.  Despite rigorous
testing, our software may nevertheless contain undetected bugs, errors or
experience failures when introduced, or when the volume of services provided
increases.  Any material errors could damage the reputation of our service
or software, as well as damage our customer relations. We have detected errors,
defects, and bugs in the past and have corrected them as quickly as possible.
 Correcting any defects or bugs we may discover in the future may require
us to make significant expenditures of capital and other resources.  We
believe that we follow industry-standard practices relating to the
identification and resolution of errors, defects, or bugs encountered in the
development of new software and in the enhancement of existing features in our
products.  As of the date of this filing we have not experienced any
material adverse effect by reason of an error, defect, or bug.  We may experience
breakdowns in our hosting services, infrastructure or payment processing
systems, which may expose us to liabilities and cause customers to abandon our
products and services.  We would be unable to
deliver our payment processing services or hosting services if our system  11   infrastructures
break down or are otherwise interrupted.  Events that could cause system
interruptions are: · fire, · earthquake, · power
loss, · terrorist
attacks, · harmful
software programs, · telecommunications
failure, and · unauthorized
entry or other events.  Although we regularly
back up data from operations, and take other measures to protect against loss of
data, there is still some risk of such losses.  Despite the security
measures we maintain, our infrastructure may be vulnerable to computer viruses,
hackers, rouge employees or similar sources of disruption.  Any problem of
this nature could result in significant liability to customers or financial
institutions and also may deter potential customers from using our services.
 We attempt to limit this sort of liability through back-up systems,
contractual provisions, insurance and other security measures.  However, we
cannot assure you that these contractual limitations on liability would be
enforceable, or that our insurance coverage would be adequate to cover any
liabilities we might sustain.  Also, a breach of our
e-commerce security measures could reduce demand for our services.  The
e-commerce industry is intensely focused on the need for Internet security,
particularly with respect to the transmission and storage of confidential
personal and financial data.  Any compromise or elimination of our security
could erode customer confidence in our systems and could result in lower demand
for our services or possible litigation.  We are dependent
upon license renewal which cannot be assured to occur.  We derive revenues
from user licenses and license renewals on a month to month arrangement.
 We also intend to increase the brand recognition of our products among
users through these types of relationships.  If a substantial number of our
customers were to decline to renew their contracts for any reason, then we could
experience a substantial drop in revenues. Our success in establishing our
products as a recognized brand name and achieving their acceptance in the market
will depend in part on our ability to continually engineer and deliver new
product technologies and superior customer service, so that customers renew
their licenses month to month.  We may pursue
acquisitions of complementary service product lines, technologies or business
which may interfere with our operations and negatively affect our financial
position.  From time to time, we
evaluate potential acquisitions of businesses, services, products, or
technologies.  These acquisitions may result in a potentially dilutive
issuance of equity securities, the incurrence of debt and contingent
liabilities, and amortization of expenses related to goodwill and other
intangible assets.  In addition, acquisitions involve numerous risks,
including difficulties in the assimilation of the operations, technologies,
services, and products of the acquired companies; the diversion of managements
attention from other business concerns; risks of entering markets in which we
have no or limited direct prior experience; and, the potential loss of key
employees of the acquired company.  As of the date of this filing, we have
no present commitment or agreement with respect to any material acquisition of
other businesses, services, products, or technologies.  Failure to achieve
and maintain effective internal controls in accordance with Section 404 of the
Sarbanes-Oxley Act could lead to loss of investor confidence in our reported
financial information.  12    Pursuant to Section
404 of the Sarbanes-Oxley Act of 2002, beginning with this annual report we are
required to furnish a report by our management on our internal control over
financial reporting.  If we cannot provide reliable financial reports or
prevent fraud, then our business and operating results could be harmed,
investors could lose confidence in our reported financial information, and the
trading price of our stock could drop significantly.  In order to achieve
compliance with Section 404 of the Act within the prescribed period, we have
engaged in a process to document and evaluate our internal control over
financial reporting, which has been challenging.  We cannot assure you as
to our independent auditors, conclusions at December 31, 2009 with respect to
the effectiveness of our internal control over financial reporting.  There
is a risk that our independent auditors will not be able to conclude at December
31, 2009 that our internal controls over financial reporting are effective as
required by Section 404 of the Act.  If we fail to achieve
and maintain the adequacy of our internal controls, as such standards are
modified, supplemented or amended from time to time, we may not be able to
ensure that we can conclude on an ongoing basis that we have effective internal
controls over financial reporting in accordance with Section 404 of the
Sarbanes-Oxley Act.  Moreover, effective internal controls, particularly
those related to revenue recognition, are necessary for us to produce reliable
financial reports and are important to helping prevent financial fraud.  We may not be able
to adapt as the Internet market changes.  Our failure to
respond in a timely manner to changing market conditions or client requirements
could have a material adverse effect on our business, prospects, financial
condition, and results of operations.  The Internet is characterized by: · rapid
technological change; · changes
in advertiser and user requirements and preferences; · frequent
new product and service introductions embodying new technologies; and · the
emergence of new industry standards and practices that could render our existing
service offerings, technology, and hardware and software infrastructure
obsolete.  In order to compete
successfully in the future, we must:  · enhance
our existing products and develop new services and technology that address the
increasingly sophisticated and varied needs of our prospective or current
customers; · license,
develop or acquire technologies useful in our business on a timely basis;
and · respond
to technological advances and emerging industry standards and practices on a
cost-effective and timely basis.  Our future success
depends on continued growth in the use of the Internet and Internet-based
services for small business.  Because the Internet
is a rapidly evolving industry, the ultimate demand and market acceptance for
our products will be subject to a high level of uncertainty.  Significant
issues concerning the commercial use of the Internet and online service
technologies, including security, reliability, cost, ease of use, and quality of
service, remain unresolved and may inhibit the growth of Internet business
solutions that use these technologies.  In addition, the Internet or other
online services could lose their viability due to delays in the development or
adoption of new standards and protocols required to handle increased levels of
Internet activity, or due to increased governmental regulation.  Regulation of the
Internet and Internet-based services may decrease the demand for our services
and/or increase our cost of doing business.  13    Due to the increasing
popularity and use of the Internet and online services, federal, state, local,
and foreign governments may adopt laws and regulations, or amend existing laws
and regulations, with respect to the Internet and other online services.
 These laws and regulations may affect issues such as user privacy,
pricing, content, taxation, copyrights, distribution, and quality of products
and services.  Any new legislation could hinder the growth in use of the
Internet generally or in our industry and could impose additional burdens on
companies conducting business online, which could, in turn, decrease the demand
for our services, increase our cost of doing business.  The laws governing
the Internet remain largely unsettled, even in areas where legislation has been
enacted.  It may take years to determine whether and how existing laws,
such as those governing intellectual property, privacy, libel, and taxation,
apply to the Internet.  In addition, the growth and development of the
market for electronic commerce may prompt calls for more stringent consumer
protection laws, both in the United States and abroad, that may impose
additional burdens on companies conducting business via the Internet.   ITEM
2.  PROPERTIES  Our principal
offices, including our main office and data center, are located in Salt Lake
City, Utah.  On February 1, 2008 we entered a monthly lease agreement with
Development Specialties, Inc. for 8700 square feet of office space.  Under
the lease agreement we paid approximately $10,500 per month for the first year
and the agreement called for annual rent increases each year for the term of the
lease.  Our lease payment will be approximately $10,875 per month for the
2009 year.  The lease agreement provides for a five year term, expiring on
February 1, 2013 and we have the option to buy out the remaining term of the
less after three years for approximately $70,000.   ITEM
3.  LEGAL PROCEEDINGS  Agami Media LLC
(Agami) filed a complaint against Pacific WebWorks, Inc. in the Superior Court
of California County of San Francisco on September 29, 2008.  The complaint
alleges that Pacific WebWorks breached its contract with Agami and that Pacific
WebWorks owes approximately $70,000 to Agami for advertising.  We dispute
the amount of the fees allegedly owed to Agami and we have engaged legal counsel
to answer this complaint and vigorously defend our position.  We are involved in
various other disputes and claims arising in the normal course of our business.
 In the opinion of management, any resulting litigation from these disputes
and claims will not have a material effect on our financial position and results
of operations.   ITEM
4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  We have not submitted
a matter to a vote of our shareholders during the fourth quarter of the 2008
fiscal year.   PART II  ITEM
5.  MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES  Market
Information  Our common stock is
listed to trade on the OTC Bulletin Board under the symbol PWEB.  The  14   following
table presents the range of the high and low bid prices of our common stock for
each quarter for the past two years, as reported by the OTC Bulletin Board.
 These quotations represent prices between dealers and may not include
retail markups, markdowns, or commissions and may not necessarily represent
actual transactions.  2007

2008Fiscal
Quarter Ended
High
Low

High
LowMarch 31
June 30
September
30
December
31
$
 0.06
0.05
0.08
0.15
$ 0.04
0.04
0.04
0.05

$
 0.13
0.10
0.09
0.07
$
0.07
0.07
0.05
0.02  Our shares are
subject to Section 15(g) and Rule 15g-9 of the Securities and Exchange Act,
commonly referred to as the penny stock rule.  The rule defines penny
stock to be any equity security that has a market price less than $5.00 per
share, subject to certain exceptions.  The rule provides that any equity
security is considered to be a penny stock unless that security is registered
and traded on a national securities exchange meeting specified criteria set by
the SEC; issued by a registered investment company; or excluded from the
definition on the basis of share price or the issuers net tangible assets.  These rules may
restrict the ability of broker-dealers to trade or maintain a market in our
common stock and may affect the ability of shareholders to sell their shares.
 Broker-dealers who sell penny stocks to persons other than established
customers and accredited investors must make a special suitability determination
for the purchase of the security.  Accredited investors, in general,
include individuals with assets in excess of $1,000,000 or annual income
exceeding $200,000 or $300,000 together with their spouse, and certain
institutional investors.  The rules require the broker-dealer to receive
the purchasers written consent to the transaction prior to the purchase and
require the broker-dealer to deliver a risk disclosure document relating to the
penny stock prior to the first transaction.  A broker-dealer also must
disclose the commissions payable to both the broker-dealer and the registered
representative, and current quotations for the security.  Finally, monthly
statements must be sent to customers disclosing recent price information for the
penny stocks.  Holders  As of March 2, 2009
we had 421 stockholders of record of our common stock, which does not include
shareholders who hold shares in street accounts of securities brokers.  Dividends  We have not paid cash
or stock dividends and have no present plan to pay any dividends.  Instead,
we intend to retain any earnings to finance the operation and expansion of our
business.  We are not presently subject to any restriction on our present
or future ability to pay any dividends, but the payment of any cash dividends on
our common stock is unlikely.  Recent Sales of
Unregistered Securities  On December 1, 2008,
we issued an aggregate of 662,000 shares of restricted common stock to Donald R.
Mayer, the owner of Universal Business Insurance, in consideration for the
$33,100 renewal fee for the Corporations Officers and Directors Liability
insurance.  We relied on an exemption from the registration requirements
provided for a private transaction not involving a public distribution pursuant
to Section 4(2) of the Securities Act.     15   Issuer
Purchase of Securities  None.   ITEM
6.  SELECTED FINANCIAL DATA Not applicable.   ITEM
7.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS  Executive
Overview  During the final
quarter of 2008 we continued our recovery from the affiliate fraud attack
suffered earlier in the year. This attack is the primary reason for the
reduction in revenue of approximately $1,500,000 we suffered in 2008, resulting
in lost profits and additional expenses, including opportunity costs related to
merchant account problems attributable to this attack.  Systems and
procedures have been put in place preventing the possibility of a similar attack
in the future.  We solidified our relationship with our new credit card
processing partner and resumed revenue growth quarter over quarter.  We
went to market with a new e-mail marketing program, a foreign exchange trading
program and we introduced our new golf accessories web store, Interform Direct.  Our market continues
to be highly competitive.  We believe our product offerings and marketing
strategies are among the strongest in the industry.  During 2009 we intend
to focus on these areas along with a commitment to increasing customer retention
through improved customer service and more targeted marketing.  Challenges continue
to revolve around dealing with our rapid growth, in particular as it relates to
retaining sufficient credit card processing capabilities.  We are
negotiating several new processing options that we believe will relieve that
strain.  While conventional merchant accounts are unreasonably confining
and may affect our progress, the industry is beginning to recognize the problems
related to conventional merchant accounts and we expect to see modified options
develop in the marketplace.  We expect to see
continued growth through 2009 and beyond.  We have established excellent
relationships with online media firms throughout the United States and
anticipate working closely with them to continue these results.  Our most
immediate challenge is that of managing this explosive growth and communicating
our progress to the financial markets.  Competition
throughout the Internet software industry continues to intensify.  In
particular, competition for the small office/home office business is
intensifying with greater attention being directed to this market from a larger
variety of product and service providers using new and more aggressive means to
market to this industry.  We believe Pacific WebWorks has great potential
in the marketplace, but we constantly need more capital and greater resources.
 We also have the challenge of identifying and effectively implementing our
products into new product distribution channels, responding to economic changes
generally, continuing to gain marketplace acceptance and we must address
shifting public attitudes for technology products.  These challenges could
pose a threat to our success.  Liquidity and
Capital Resources  Historically we have
relied upon revenues, loans, and equity transactions to fund our operations, but
for 2007 we relied upon revenues and proceeds from the sale of our common and
during 2008 where we relied on revenues.  We expect to continue to generate
positive cash flows through further development  16   of
our business and distribution channels and we plan to address only the
liabilities of our operating subsidiaries with our current cash balances and
cash inflows.  The majority of our
revenues are from hosting, gateway and maintenance fees.  We are dependent
upon the efforts of our internal marketing staff and on third party resellers,
including our wholly-owned reseller, TradeWorks Marketing, to increase our
revenues.  For 2008 our monthly
cash outflows were primarily related to selling expenses which totaled
$5,949,459 for the year and general and administrative expenses that totaled
$2,361,847.  For the 2008 year our selling expense decreased 16.8% compared
to 2007 due to reduced revenues and increased marketing efficiencies.
  These cash outflows can exceed monthly cash inflows based on timing
differences between marketing campaigns and sales.  We believe that we
may need an additional $1 to $2 million during the next twelve to twenty-four
months to continue to keep up with technological improvements and further our
business development strategies.  We believe funding may be obtained
through additional debt arrangements or equity offerings in addition to
internally generated cash flows.  However, if we are unable to obtain
additional funds on acceptable terms, then we might be forced to delay or
abandon some or all of our product development, marketing or business plans, and
growth could be slowed, which may result in declines in our operating results
and common stock market price.  If we rely on equity
offerings for funding or services, then we will likely use private placements of
our common stock pursuant to exemptions from the registration requirements
provided by federal and state securities laws.  The purchasers and manner
of issuance will be determined according to our financial needs and the
available exemptions.  We also note that if we issue more shares of our
common stock our stockholders may experience dilution in the value per share of
their common stock.  Results of
Operations  The following
selected financial data for the year ended December 31, 2007 is based on the
consolidated financial statements of Pacific WebWorks, Intellipay, TradeWorks
Marketing, Fundworks and the discontinued operations of World Commerce Network,
LLC, a non-operating company.  For the year ended December 31, 2008 the
selected financial data includes those companies and our new majority owned
subsidiary, PWI, LLC.  The following chart is a summary of our financial
statements for those periods and should be read in conjunction with the
financial statements, and notes thereto, included with this report at Part II,
Item 8, below.  Year ended December 31SUMMARY
OF BALANCE SHEET
2007
2008Cash
and cash equivalents
$    
     891,062
$   
     377,743Total
current assets
1,421,689
1,252,886Total
assets
4,465,572
4,482,215Total
current liabilities
1,125,974
526,316Total
liabilities
1,125,974
526,316Accumulated
deficit
(13,173,104)
(12,682,239)Total
stockholders equity
$       3,339,598
$     3,955,899  17    SUMMARY
OF OPERATING RESULTS
2007
2008Revenues,
net
$     10,711,771
$     9,220,583Cost
of sales
364,482
230,621Gross
profit
10,347,289
8,989,962Total
operating expenses
10,208,397
8,648,876Net
income (loss) from continuing operations
138,892
341,086Total
other income (expense)
117,337
36,304Income
tax provision (benefit)
(600,000)
Net
income (loss)
$        876,229
$        490,865Basic
net income per share from continuing operations
$
            0.02
$
           0.01  Our recorded net
revenues decreased in 2008 when compared to 2007.  Our income from
continuing operations also decreased due to the one time recognition of a
$600,000 tax benefit in 2007.  After adjusting for the 2007 tax benefit for
this one-time recognition, our income from continuing operations were
essentially flat when compared to 2007.  Management expects future revenue
increases to come largely from recurring residual income rather than from
one-time upfront fees.  We recognize revenue from hosting, gateway, and
maintenance fees, software, access and licensing fees, training and education
and the sale of merchant accounts, as well as custom website design work.
 Revenues from up-front fees from customers are recorded on the balance
sheets as deferred revenues and are recognized over the period services are
performed, ranging from eight months to one year.  Fees for the set-up of
merchant accounts are deferred and recognized as services are completed, which
is generally two months.  Revenues from monthly hosting, maintenance,
transaction and processing fees are recorded when earned.  Operating lease
revenues for merchant accounts and software are recorded as they become due from
customers.  Cost of sales include
costs related to fulfillment, customer service, certain royalties and
commissions, amortization of purchased customer portfolios, service personnel,
telecommunications and data center costs.  The cost of sales decreased for
2008 compared to 2007 due to the elimination of seminar related expenses
incurred under our old marketing methods.  Management anticipates that cost
of sales will remain lower in the short term as we continue our new marketing
strategies.  Total operating
expenses decreased for 2008 compared to 2007 primarily due to decreases in
selling expenses.  Selling expenses include advertising expenses, seminar
expenses, commissions and personnel expenses for sales and marketing.
 Starting in November 2006 we shifted our focus from nationwide sales
events to online marketing strategies and we anticipated that selling expenses
would decrease as a percentage of revenues in the short term.   But
selling expenses increased in 2007 due to increased costs related to our online
marketing programs.  Selling expenses decreased in 2008 due to decreased
marketing and increased marketing efficiencies.  Management anticipates
that selling expense will increase overall but decrease as a percentage of
revenues in 2009.  General and
administrative expenses include personnel expenses for executive, finance, and
internal support personnel.  In addition, general and administrative
expenses include fees for bad debt costs, professional legal and accounting
services, insurance, office space, banking and merchant fees, and other
overhead-related costs.  General and administrative expenses decreased for
2008 compared to 2007 due to decreased expenses that accompanied the companies
reduced revenues.  Management expects to see increases in general and
administrative expenses in the short term consistent with continued increases in  18   customer
accounts expected in 2009.  Total other income
for 2008 included interest income earned on certificates of deposit and other
income from an insurance recovery on a stolen piece of equipment.  Other
income for 2007 included interest income earned on certificates of deposit and
the recovery of a previously booked expense offset by impairment of goodwill
related to Intellipay and interest expense related to a loan payable.  Having attained
profitability for the year ended December 31, 2007 we booked a one-time
estimated tax benefit based upon projected future earnings.  Based upon our
accumulated net operating losses, a $600,000 deferred tax asset and related
income tax benefit was recorded at the 2007 year end.  Due to a marked
improvement in net income from operations we recorded net income and income per
share for both 2007 and 2008.  Off-balance
Sheet Arrangements  None.  Commitments and
Contingent Liabilities  Our operating
commitments include our operating lease for our Salt Lake City office that
approximates $10,875 per month as of February 2009.  Our total current
liabilities at December 31, 2008, included accounts payable of $382,014 related
to operating costs such as marketing and advertising expenses and professional
fees.  Our accrued liabilities of $39,311 were primarily the result of
payroll related liabilities and sales commission, offset by estimated refunds
and factoring obligations.  Current liabilities
from discontinued operations were $101,799 and were related to World Commerce
Network, LLC.  The operations of World Commerce Network, LLC, our
subsidiary, are ceased and discontinued.  These liabilities decreased from
$215,274 in 2007 to $101,799 as a result of a recovery of previously recognized
expenses related to the defunct World Commerce Network operations.
 Management continues to attempt to negotiate settlements of World Commerce
Networks accrued liabilities.  As of December 31, 2008, World Commerce
Networks accrued liabilities totaled $101,799.  We continue to work
through various matters related to these liabilities and management believes the
recorded liabilities are sufficient to cover any resulting liability.
 There has been no activity on any of these accounts for nearly three
years.  At the year ended
December 31, 2006, we had a promissory note payable of $100,000, with 8%
interest per annum, which was due in full on April 30, 2007.  This note was
collateralized by our business assets.  In November 2007 we paid the note
in full including principal and interest.  Critical
Accounting Estimates  The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes.  Estimates of particular significance in
our financial statements include deferred revenue calculations, trade
receivables and collections, goodwill and the annual tests for impairment of
goodwill, contingent liabilities, and valuing stock option compensation.  Deferred revenue - In
the past deferred revenue calculations materially affect our financial results.
 In this area cash revenues received for certain product sales, such as
revenues from up-front fees, are recognized over the period services are
performed.  This requires deferring the immediate recognition of those  19   revenues
from eight months to one year and creating a deferred revenue liability account.  Trade receivables and
collections - We apply a range of collection techniques to manage delinquent
accounts.  Management reviews accounts receivable monthly and records an
estimate of receivables determined to be uncollectible due to allowance for
doubtful accounts and bad debt.  Accounts receivable and the corresponding
allowance for doubtful accounts are reviewed for collectability by management
quarterly and uncollectible accounts receivable are written off.  Goodwill - Goodwill
related to Intellipay is assessed annually for impairment by comparing the fair
values of Intellipay to its carrying amount, including goodwill.  In
testing for a potential impairment of goodwill, the estimated fair value of
Intellipay is compared with book value, including goodwill.  If the
estimated fair value exceeds book value, goodwill is considered not to be
impaired and no additional steps are necessary.  If, however, the fair
value of Intellipay is less than book value, then the carrying amount of the
goodwill is compared with its implied fair value.  The estimate of
implied fair value of goodwill may require independent valuations of certain
internally generated and unrecognized intangible assets such as our paying
monthly gateway portfolio, software and technology and trademarks.  If the
carrying amount of our goodwill exceeds the implied fair value of that goodwill,
an impairment loss would be recognized in an amount equal to the excess.
 The fair value of Intellipay is estimated using both cash flow information
from internal budgets and multiples of revenue.  In the event that an
impairment indicator arises prior to our annual impairment test of goodwill, we
will provide a full test relative to the indicator in the period that the
indicator is present.  We performed a goodwill impairment test during 2008
and concluded that was no impairment indicators of goodwill.  Contingent
liabilities - Material estimates for contingent liabilities include
approximately $0 for our operating companies and approximately $101,799 in net
current liabilities of our discontinued operations. From a liquidity standpoint,
any settlement or judgment received by us from pending or threatened litigation
may have a direct effect on our cash balances at December 31, 2008.  Any
judgments that may be received by us for pending or threatened litigation
related to discontinued operations may not have a direct effect on our assets as
management does not intend to satisfy such claims with the assets of our
operating companies.  Management believes that all amounts estimated and
recorded as contingent liabilities approximate the amount of liabilities that
could be owed to parties in the form of settlement or in a judgment.  We
have had no communication for over three years with any of the parties related
to the contingent liabilities of our discontinued operations.  Any
settlements that might occur below amounts accrued would result in a favorable
impact to our earnings and working capital.  Valuing stock options
- We measure and record compensation cost relative to performance stock option
costs in accordance with Statement of Financial Accounting Standards No. 123R,
"Accounting for Stock-Based Compensation", which requires the Company to use the
Black-Scholes pricing model to estimate the fair value of options at the option
date of grant.  The fair value of the option grant is established at the
date of grant using the Black-Scholes option pricing model based on assumptions
related to the five year risk free interest rate, dividend yield, volatility,
and average expected term (years to exercise).   20   ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA   PACIFIC
WEBWORKS, INC.  CONSOLIDATED FINANCIAL STATEMENTS  December
31, 2008 and 2007   CONTENTS  Report
of Registered Independent Public Accounting Firm 22  Consolidated
Balance Sheets 23  Consolidated
Statements of Operations 24  Consolidated
Statements of Stockholders Equity 25  Consolidated
Statements of Cash Flows 26  Notes
to the Consolidated Financial Statements 27   21


[Logo]
CHISHOLM,
BIERWOLF, NILSON & MORRILL, LLC
Certified Public
Accountants
Phone
(801) 292-8756   Fax (801) 292-8809   www.cbnmcpa.com
Todd D.
Chisholm
Nephi J. Bierwolf
Troy F. Nilson
Douglas W.
Morrill  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM  To
the Board of Directors and Shareholders Pacific
Webworks, Inc. and Subsidiaries Salt
Lake City, Utah  We have audited the accompanying consolidated balance sheets of
Pacific Webworks, Inc. and Subsidiaries as of December 31, 2008 and 2007
and the related consolidated statements of operations, stockholders equity and
cash flows for the years then ended.  These financial statements are the
responsibility of the Companys management.  Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.  We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States).  Those standards
require that we plan and perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatement.
 The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Companys
internal control over financial reporting.  Accordingly, we express no such
opinion.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements.  An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation.  We believe that our audits provide a
reasonable basis for our opinion.  In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Pacific Webworks, Inc. and Subsidiaries as of December 31, 2008 and
2007 and the consolidated results of their operations and cash flows for the
years then ended in conformity with U.S. generally accepted accounting
principles.  /s/ Chisholm, Bierwolf, Nilson & Morrill, LLC  Chisholm, Bierwolf, Nilson & Morrill, LLC Bountiful, Utah March 27, 2009   PCAOB
Registered, Members of AICPA, CPCAF and UACPA533 West 2600 South, Suite
25   Bountiful, Utah 84010
12
South Main, Suite 208, Layton, Utah 84041


22    Pacific Webworks, Inc. and SubsidiariesCONSOLIDATED BALANCE SHEETSDecember 31,

December 31,ASSETS




2007

2008CURRENT
ASSETSCash
and cash equivalents


$
891,062
$
377,743ReceivablesTrade,
less allowancefor
doubtful receivables of$45,975 in 2007 and $0 in 2008



279,403

518,709Prepaid
expenses and other current assets


96,027

142,824Inventory


70,419

139,423Deferred
tax asset




84,778

74,187Total
Current Assets



1,421,689

1,252,886PROPERTY
AND EQUIPMENT, NET AT COST


83,464

96,665Restricted
cash




487,472

649,899Goodwill





1,946,253

1,946,253Deferred
tax asset




515,222

525,813Deposits





11,472

10,699Total
Assets



$
4,465,572
$
4,482,215LIABILITIES
AND STOCKHOLDERS' EQUITYCURRENT
LIABILITIESAccounts
payable



$
828,792
$
382,014Accrued
liabilities




71,414

39,311Deferred
revenue




10,494

3,192Current
liabilities from discontinued operations

215,274

101,799Total
Current Liabilities



1,125,974

526,316Total
Liabilities




1,125,974

526,316Commitments




-

-STOCKHOLDERS'
EQUITYCommon
stock - par value $0.001; authorized50,000,000;
issued and outstanding  40,526,895 sharesin
2007 and  41,663,895 shares in 2008


40,527

41,664Additional
paid-in capital



16,472,175

16,596,474Accumulated
deficit




(13,173,104)

(12,682,239)Total
Stockholders' Equity



3,339,598

3,955,899Total
Liabilities and Stockholders' Equity

$
4,465,572
$
4,482,215  The accompanying notes
are an integral part of these consolidated financial statements  23    Pacific Webworks, Inc. and SubsidiariesCONSOLIDATED STATEMENTS OF OPERATIONSYear Ended December 31,2007

2008RevenuesSoftware,
access and license fees


$
1,250,366
$
474,015Hosting,
gateway and maintenance fees


8,968,344

8,741,545Training
and education



196,556

-Merchant
accounts, design and other


296,505

5,02310,711,771

9,220,583Cost
of Sales





364,482

230,621Gross
Profit




10,347,289

8,989,962Selling
expenses




7,151,289

5,949,458Research
and development



307,490

303,502General
and administrative



2,718,961

2,361,847Depreciation
and amortization



30,657

34,069Total
Operating Expenses



10,208,397

8,648,876Net
Income from Operations



138,892

341,086Other
Income (Expense)Interest
income




18,608

7,192Interest
expense




(15,534)

-Other
income (expense), net



114,263

29,112Total
Other Income (Expense)



117,337

36,304Net
Income from Continuing Operations Before Income Taxes


256,229

377,390Income
Tax Provision/(Benefit)



(600,000)

-Income
Tax Expense




-

-Income
from Continuing Operations


$
856,229
$
377,390Discontinued
OperationsIncome
from operations of discontinued World CommerceNetwork,
LLC (including income on disposal of $20,000, net of tax)

$
20,000
$
113,475NET
INCOME


$
876,229

490,865EARNINGS
PER SHAREBasicIncome
from continuing operations

$
0.02
$
0.01Income
from discontinued operations, net of tax

0.00

0.00Net
income



$
0.02
$
0.01DilutedIncome
from continuing operations

$
0.02
$
0.01Income
tax expense



0.00

0.00Net
income



$
0.02
$
0.02Weighted-average
common shares outstandingBasic






36,495,251

41,663,895Fully
Diluted




36,704,251

45,225,756  The accompanying notes
are an integral part of these consolidated financial statements     24


Pacific
Webworks, Inc. and SubsidiariesCONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITYFor the Period January 1, 2007 through December 31,
2008AdditionalCommon Stock

Paid-in

AccumulatedShares

Amount

Capital

Deficit

TotalsBalances
at January 1, 2007





35,426,895
$
35,427
$
16,180,898
$
(14,049,333)
$
2,166,992Issuance
of stock for insurance policies




600,000

600

28,694

-

29,294Issuance
of common stock for cash





3,500,000

3,500

171,500

-

175,000Issuance
of stock for consulting services




1,000,000

1,000

49,000

-

50,000Valuation
of stock options





-

-

42,083

-

42,083Net
income for the year ended December 31, 2007



-

-

-

876,229

876,228Balances
at December 31, 2007





40,526,895

40,527

16,472,175

(13,173,104)

3,339,598Issuance
of stock for insurance policies




1,062,000

1,062

64,622

-

65,684-Issuance
of common for exercised options




75,000

75

4,625

-

4,700-Valuation
of stock options





-

-

55,052

-

55,052-Net
income for year ended December 31, 2008




-

-

-

490,865

490,865Balances
at December 31, 2008





41,663,895
$
41,664
$
16,596,474
$
(12,682,239)
$
3,955,899   The
accompanying notes are an integral part of these consolidated financial
statements


25


Pacific
Webworks, Inc. and SubsidiariesCONSOLIDATED STATEMENTS OF CASH FLOWSYear EndedDecember 31,2007

2008Cash
Flows From Operating ActivitiesNet
Income



$
876,229
$
490,865Adjustments
to reconcile net incometo
net cash used in operating activitiesDepreciation
& amortization



30,657

34,069Stock
issued for services



79,473

65,685Valuation
of stock options



42,083

55,052Bad
debt expense



201,269

-Changes
in assets and liabilitiesDeferred
tax asset



(600,000)

-Receivables




(321,793)

(238,535)Prepaid
expenses and other assets


(52,027)

(46,796)Inventory

(70,419)

(69,004)Accounts
payable and accrued liabilities

654,442

(478,881)Current
liabilities from discontinued operations

-

(113,475)Deferred
revenue



(17,340)

(7,302)Net
cash provided (used) by operating activities

822,574

(308,322)Cash
flows from investing activitiesPurchases
of property and equipment


(23,437)

(47,270)Cash
on reserve with bank (restricted cash)


(375,708)

(162,427)Net
cash (used) by investing activities

(399,145)

(209,697)Cash
flows from financing activitiesProceeds
on issuance of stock from exercise of options

-

4,700Proceeds
on issuance of stock



75,000.00

-Payment
of note payable



(100,000.00)

-Net
cash provided by financing activities

75,000

4,700Net
increase/(decrease) in cash and cash equivalents
498,429

(513,319)Cash
and cash equivalents at beginning of period

392,633

891,062Cash
and cash equivalents at end of period

$
891,062
$
377,743Supplemental
disclosures of cash flow information:Cash
Paid for Interest


$
-
$
-Cash
paid for income taxes



1,200

1,200Non-cash
financing activities:



-

-Stock
issued for services



79,473

65,685  The accompanying notes
are an integral part of these consolidated financial statements  26    Pacific WebWorks, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2008 and 2007  NOTE
1 - THE COMPANY AND BASIS OF PRESENTATION  The
Company Pacific
WebWorks, Inc. and its subsidiaries, engage in the development and distribution
of web tools software, electronic business storefront hosting, and Internet
payment systems for individuals and small to mid-sized businesses.  Basis
of Presentation The
accompanying condensed consolidated financial statements include the accounts of
Pacific WebWorks, Inc. and its wholly owned subsidiaries, Intellipay, Inc.,
TradeWorks Marketing, Inc., FundWorks, Inc., PWI, LLC and World Commerce
Network, LLC.  All significant intercompany accounts and transactions have
been eliminated in consolidation.  The operations of World Commerce
Network, LLC have been discontinued. On July 31, 2007 the Company formed Pacific
WebWorks International, LTD, a United Kingdom limited company.  Pacific
WebWorks, Interanational, LTD is currently nonoperating.  Use
of Estimates The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes.  Management believes that the
estimates used in preparing the financial statements are reasonable and prudent;
however, actual results could differ from these estimates.  Significant
estimates include the allowance for doubtful accounts, impairment assessments of
goodwill, and certain accrued liabilities such as contingent liabilities.  Cash
Equivalents The
Company considers all highly liquid instruments maturing in three months or less
when purchased to be cash equivalents.  Concentrations Financial
instruments that potentially subject the Company to concentrations of credit
risks consist of cash and cash equivalents, accounts receivable and accounts
payable.  The Company places its cash and cash equivalents at well known
quality financial institutions.  At times, such cash and investments may be
in excess of the FDIC insurance limit.  Depreciation
and amortization Depreciation
of property and equipment is provided on the straight-line method over the
estimated useful lives of the assets.  Accelerated methods of depreciation
of property and equipment are used for income tax purposes.  Restricted
Cash Restricted
cash includes cash maintained in a reserve account with the Companies merchant
bank in connection with the Companies acceptance of credit card payment for its
services.  Goodwill The
Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, in
2002. Under SFAS No. 142, goodwill is no longer amortized, but is tested
for impairment at a reporting unit level on an annual basis and between annual
tests if an event occurs or circumstances change that would more likely than not
reduce the  27    Pacific WebWorks, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2008 and 2007  NOTE
1 - THE COMPANY AND BASIS OF PRESENTATION - CONTINUED fair
value of a reporting unit below its carrying amount. Events or circumstances
which could trigger an additional impairment review include a significant
adverse change in legal factors or in the business climate, an adverse action or
assessment by a regulator, unanticipated competition, a loss of key personnel,
significant changes in the manner of our use of the acquired assets or the
strategy for our overall business, significant negative industry or economic
trends or projected future results of operations. For purposes of financial
reporting and impairment testing in accordance with SFAS No. 142, the
Companys Intellipay business unit operates in one principal business segment, a
provider of online credit card gateway services. In
testing for a potential impairment of goodwill, the estimated fair value of the
business unit is compared with book value, including goodwill. If the estimated
fair value exceeds book value, goodwill is considered not to be impaired and no
additional steps are necessary. If, however, the fair value of the Company is
less than book value, then the carrying amount of the goodwill is compared with
its implied fair value. The estimate of implied fair value of goodwill may
require independent valuations of certain internally generated and unrecognized
intangible assets such as our paying monthly gateway portfolio, software and
technology and trademarks. If the carrying amount of our goodwill exceeds the
implied fair value of that goodwill, an impairment loss would be recognized in
an amount equal to the excess. In accordance with SFAS No. 142, the Company
performed a goodwill impairment test during 2006 and concluded that the carrying
amount of goodwill exceeds the implied fair value of the goodwill, accordingly
an impairment loss was recognized in December 2006 of $1,000,000.  At
December 31, 2008, the company determined that there was no impairment to
goodwill.  Fair
value of financial instruments The
fair value of the Companys cash and cash equivalents, receivables, accounts
payable, accrued liabilities and capital lease obligations approximate carrying
value based on their effective interest rates compared to current market
prices.  Revenue
Recognition The
Company recognizes revenue in accordance with the Securities and Exchange
Commission, Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in
Financial Statements and its revisions in SAB No. 104.  SAB 101 and 104
clarify application of generally accepted accounting principles related to
revenue transactions. In the third quarter 2003, the company adopted EITF Issue
No. 00-21, Revenue Arrangements with Multiple Deliverables ("EITF Issue No.
00-21").  We
receive revenue for hosting, gateway, and maintenance fees, software access and
licensing fees. Revenues from up-front fees are deferred and recognized over the
period services are performed ranging from one month to one year.  Fees for
the set-up of merchant accounts are deferred and recognized
as services are completed (which is generally two months).  Revenues from
monthly hosting, maintenance, transaction and processing fees are recorded when
earned. Operating lease revenues for merchant accounts and software are recorded
as they become due from customers.  The
Company recognizes revenues when all of the following criteria are met: (1)
persuasive evidence of an arrangement exists, (2) delivery of products and
services has occurred, (3) the fee is fixed or determinable and (4)
collectibility is reasonably assured.    28   Pacific WebWorks, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2008 and 2007  NOTE
1 - THE COMPANY AND BASIS OF PRESENTATION - CONTINUED  In
an arrangement with multiple deliverables, the delivered item(s) is considered a
separate unit of accounting if all of the following criteria are met: (1) the
delivered item(s) has value to the customer on a standalone basis, (2) there is
objective and reliable evidence of the fair value of the undelivered item(s) and
(3) if the arrangement includes a general right of return, delivery or
performance of the undelivered item(s) is considered probable and substantially
in the control of the vendor. If all the conditions above are met and there is
objective and reliable evidence of fair value for all units of accounting in an
arrangement, the arrangement consideration is allocated to the separate units of
accounting based on their relative fair values.  Trade
Receivables and Collections The
Company applies a range of collection techniques to manage deliquent accounts.
 Management reviews accounts receivable monthly and records an estimate of
receivables determined to be uncollectible to allowance for doubtful accounts
and bad debt. Accounts receivable and the corresponding allowance for doubtful
accounts are reviewed for collectiblitly by management quarterly and
uncollectible accounts receivable are written off.  The Company had bad
debt expense of $0 and $201,269 for the period ended December 31, 2008 and
2007.  Cost
of sales Cost
of sales includes costs related to fulfillment, customer service, certain
royalties and commissions, amortization of purchased customer portfolios,
service personnel, telecommunications and data center costs.  Sales
and marketing costs Sales
and marketing expenses include advertising expenses, commissions and personnel
expenses for sales and marketing. The Company has expended significant amounts
on sales and marketing. Marketing and advertising costs to promote the Company's
products and services are expensed in the period incurred.  Research
and development costs Product
development expenses include expenses for the maintenance of existing software
and the development of new or improved software and technology, including
personnel expenses for the product engineering department.  Costs incurred
by the Company to develop, enhance, manage, monitor and operate the Company's
technology services are generally expensed as incurred.  Total research and
development costs for the year ended December 31, 2007 and 2008 was $307,490 and
$303,502 respectively.  General
and administrative costs General
and administrative expenses include personnel expenses for executive, finance,
and internal support personnel. In addition, general and administrative expenses
include fees for bad debt costs, professional legal and accounting services,
insurance, office space, banking and merchant fees, and other overhead-related
costs.  Income
Taxes The
Company utilizes the liability method of accounting for income taxes.
 Under the liability method, deferred income tax assets and liabilities are
provided based on the difference between the financial statement and tax bases
of assets and liabilities measured by the currently enacted tax rates in effect
for the years in which these differences are expected to reverse.  Deferred
tax expense or benefit is the result of changes in deferred tax assets and
liabilities.  Capital
Structure The
Company has 50,000,000 shares authorized of voting common stock with 41,663,895
issued and outstanding.  29   Pacific WebWorks, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2008 and 2007  NOTE
1 - THE COMPANY AND BASIS OF PRESENTATION - CONTINUED  Inventories Inventories
are stated at the lower of average cost or market value.  When there
is evidence that the inventories value is less than original cost, the inventory
is reduced to market value.  Inventories consisting of golf equipment,
sports apparel, health supplements, and electronics totaling $139,423 and
$70,419 at December 31, 2008 and 2007, respectively.  The allowance for
obsolete inventory is $0 at December 31, 2008 and 2007.  Reclassifications Certain
amounts in the accompanying consolidated financial statements have been
reclassified to conform to the current year presentation. These
reclassifications had no material effect on our consolidated financial
statements.  Earnings
per share: The
computation of net earnings (loss) per share of common stock is based on the
weighted average number of shares outstanding during each period presented.
 The Company utilizes the treasury stock method to calculate diluted
earnings (loss) per share, which considers potentially issuable shares on common
stock equivalents.  In accordance with SFAS No. 128, "Earnings per
Share," common stock options have a dilutive effect when the average market
price of the common stock during the period exceeds the exercise price of the
options.  The average market price of the Company's common stock during the
years ended December 31, 2007 and 2008 was $0.06 and $0.06, respectively.
 Potentially issuable common shares totaling 209,000 and 3,561,861 related
to options were included in the calculation of diluted earnings per share for
the period ended December 31, 2007 and 2008, respectively.  Year ended
December 31,Statement
of Operations Summary Information
2007
2008Numerator:
Income
from continuing operations
$       856,229
$     377,390Income
from discontinued operations, net of tax
$   
     20,000
$     113,475Net
income
$       876,229
$     490,865Denominator:
Weighted-average
common shares outstandingBasic
36,495,251
41,663,895Diluted
36,704,251
45,225,756EARNINGS
PER SHARE:BasicIncome
from continuing operations
$   
        0.02
$
        0.01Income
from discontinued operations, net of tax
$       
    0.00
$
        0.00Net
income
$     
      0.02
$
        0.01DilutedIncome
from continuing operations
$    
       0.02
$
        0.01Income
from discontinued operations, net of tax
$    
       0.00
$
        0.00Net
income
$     
      0.02
$
        0.02     30   Pacific WebWorks, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2008 and 2007  NOTE
2   PROPERTY AND EQUIPMENT  EstimatedDecember 31
usefulProperty
and equipment includes the following
2007
2008
life (years)Computer
Equipment
$       368,286
$     371,713
3-5Equipment
170,401
194,822
2-10Software
111,977
111,976
1-3Furniture
and Fixtures
89,567
99,040
3-10Leasehold
Improvements
5,514
15.409
Lesser of Lease
or Useful  Life745,744
792,960Less
Accumulated Depreciation
(662,280)
(696,295)$      
   83,464
$        96,665  Depreciation
expense for the years ended December 31, 2007 and 2008 was $30,657 and $34,069,
respectively.  NOTE
3  ACCRUED AND OTHER LIABILITIES  Accrued
liabilities consist of the following:
December 31,2007
2008Payroll
related liabilities
85,329
49,405Sales
commissions
3,564
-Refunds
and factor
(20,019)
(12,384)Income
tax payable
2,100
2,100Other
440
190$      71,414
$      39,311  NOTE
4 - STOCKHOLDERS EQUITY  Stock
Issuance During
January 2008, the Company issued 400,000 shares of its common stock for payment
of $32,585 related to insurance premiums.  The term of the policy coverage
is August 2007 through August 2008.  The Company recognized expenses of
$8,146 immediately for the period between August 2007 and December 31, 2007.
 The remaining amount has been recognized over the term of the policy on a
straight-line basis.  At December 31, 2008 the remaining amount of $24,439
has been recognized in the Companys statements of operations.  During
December 2008, the Company issued 662,000 shares of its common stock for payment
of $33,100 related to insurance premiums.  The term of the policy coverage
is August 2008 thru August 2009.  The Company recognized expenses of
$13,792 immediately for the period between August 2008 and December 31, 2008.
 The remaining amount will be recognized over the term of the policy on a
straight-line basis.  31    Pacific WebWorks, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2008 and 2007  NOTE
4 - STOCKHOLDERS EQUITY  CONTINUED  During
January 2008, a former employee of the Company exercised vested options.
 The Company issued 75,000 shares of its common stock for payment of
$4,700.  Equity
Incentive Plan On March 8, 2001, the Board of Directors adopted the Pacific
WebWorks, Inc. 2001 Equity Incentive Plan (the Plan). The Plan allows for the
granting of awards in the form of stock options, stock appreciation rights or
restricted shares to employees, independent directors and certain consultants.
The Plan was amended by the  Company
on March 15, 2007, to allow for grant awards representing up to 10,000,000
shares of the Company's common stock under the Plan.  The Plan has not been
approved by the Companys shareholders as of December 31, 2008.  During
2007, the Company granted 1,540,000 common stock options to employees as part of
their incentive plan.  The options vest 1/2 upon grant and 1/2 over the
next six months.  The options can be exercised at a price of$0.061 any time
after vesting for a period of five years from the date of grant. During 2008,
the Company granted a total of 1,765,000 common stock options to employees as
part of the plan.  The options vest 1/2 upon grant and 1/2 over the next
six months.  The options can be exercised at a price of $0.04 any time
after vesting for a period of five years from the date of grant.  A
summary of our common stock options as of December 31, 2007 and 2008, and the
changes during 2007 and 2008 are presented below:  Stock options
Exercise price
Weighted-average
exercise priceOutstanding
at January 1, 2007
7,822,651
$0.048 - $0.87
$0.25Granted
1,540,000
$0.061
$.061Exercised
-
-
-Forfeited
(810,000)
$0.048 - $.087
$0.22Outstanding
at December 31, 2007
8,552,651
$0.048 - $0.87
$0.23Granted
1,765,000
$0.04
$0.04Exercised
(75,000)
$0.048 - $0.07
$0.06Forfeited
(1,840,000)
$0.048 - $0.07
$0.23Outstanding
at December 31, 2008
8,402,651
$0.048 - $0.87
$0.24  Effective
January 1, 2006, we adopted the fair value recognition provisions of FASB
Statement No. 123R, "Share- based Payment" (SFAS 123R), using the
modified-prospective-transition method.  Under this transition method,
total compensation cost for 2006 and 2007 includes compensation costs for all
share-based payments granted prior to, but not yet vested as of January 1, 2006,
based on the grant date fair value estimated in accordance with the original
provisions of SFAS 123, and compensation costs for all share-based payments
granted subsequent to January 1, 2006, based on the grant date fair value
estimated in accordance with the provisions of SFAS 123R.  As a result
$42,083 and $55,052 was recognized for the years ended December 31, 2007 and
2008 respectively.     32   Pacific WebWorks, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2008 and 2007  NOTE
4 - STOCKHOLDERS EQUITY - CONTINUED  The
fair value of the option grant was established at the date of grant using the
Black-Scholes option pricing model with the following assumptions:  2007
2008Five
Year Risk Free Interest Rate
4.42%
2.90%Dividend
Yield
0%
0%Volatility
100%
81%Average
Expected Term (Years to Exercise)
5
5
  Employee
stock options outstanding and exercisable under this plan as December 31, 2008
are:  Options
outstandingNumber
outstanding
Weighted-average
exercise price
Weighted-
average remaining
contractual life
(years)Exercise
price0.87
40,151
0.87
2.250.75
1,562,500
0.75
2.250.12
1,435,000
0.12
1.500.07
1,235,000
0.07
0.500.048
960,000
0.048
2.000.061
1,405,000
0.061
3.750.04
1,765,000
0.04
4.758,402,651Options
exercisableExercise price
Exercisable
Weighted-exercise
price
Contractual life
(years)0.87
40,151
0.87
2.250.75
1,562,500
0.75
2.250.12
1,435,000
0.12
1.500.07
1,235,000
0.07
0.500.048
960,000
0.048
2.000.061
1,405,000
0.061
3.750.04
882,500
0.04
4.757,520,151
   33   Pacific WebWorks, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2008 and 2007  NOTE 5  DISCONTINUED OPERATIONS  The following includes the net current liabilities for the
Companys discontinued operations as of December 31, 2007 and December 31, 2008:  December 31, 2007
December 31, 2008World Commerce
World CommerceNetwork, LLC
Network, LLCASSETSCurrent assets
$       
                    -
$
                       -Long-term assets
-
-Total assets
$       
                    -
$
                       -LIABILITIESPayables past due
64,010
-Accrued liabilities
151,264
101,799Total current liabilities
$    
             215,274
$
            101,799Net current liabilities
$      
           215,274
$
            101,799
  Discontinued subsidiary  World Commerce Network, LLC In July 2002, the Board of Directors of Pacific WebWorks, Inc.
resolved to discontinue World Commerce Network, LLC.  Negotiations and
settlements of World Commerce liabilities are currently underway as the LLC is
phasing out its related operations.  World Commerce Network became a
consolidated entity with the Company in March 2000.  Pending litigation In
September 2002, World Commerce Network, LLC received a complaint from a leasing
company for recourse obligations funded for customer leases during 2000 for
seminar related activities.  The agreement between World Commerce Network
and the leasing company provides for recourse on leases in which customers have
not made first payment.  Estimated recourse obligations for World Commerce
Network approximate $95,000 at December 31, 2007 and December 31, 2008 and have
been recorded as an accrued liability.  Management believes that the
recorded liability for this matter is sufficient to cover any resulting judgment
from this claim.  In
April 2001, one of World Commerce Networks former vendors filed a complaint
alleging default under a certain application for credit and personal guaranty
made by a former officer of the Company.  The vendor seeks approximately
$65,000 plus interest.  The Company is defending the claim and believes the
amount should be reduced based upon the vendors performance and other disputes.
 The Company has filed an answer to the complaint and further litigation is
pending.   The Company has recorded $20,000 to accrued liabilities in
the consolidated financial statements in December 31, 2007 representing its
estimated liability for this matter.  Legal counsel asserts that an
unfavorable outcome is unlikely and, therefore, the Company has recovered these
amounts as income from discontinued operations at December 31, 2008 per the
provisions of SFAS #5 Accounting for Contingencies.  34     Pacific WebWorks, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2008 and 2007  NOTE
6  COMMITMENTS  Operating
Leases The
Company has entered into a 5 year lease in 2008 for approximately 8,000 square
feet of commercial business office space at $10,500 per month in the first year,
escalating by approximately $350-$375 monthly at the beginning of each new lease
year.  The following is a schedule of future minimum lease payments under
the operating lease agreement:  Year
Lease
Commitment2009
$ 130,5002010
$ 130,5002011
$ 135,0002012
$ 139,2002013
$ 143,400  The Company
records rent on a straight line basis over the life of the lease in accordance
with FTB 85-3.  Rent
expense for the years ending December 31, 2008 and December 31, 2007 was
$125,007 and $105,185, respectively.  Litigation Agami
Media LLC (Agami) filed a complaint against Pacific WebWorks, Inc. in the
Superior Court of California County of San Francisco on September 29, 2008.
 The complaint alleges that Pacific WebWorks breached its contract with
Agami and that Pacific WebWorks owes approximately $70,000 to Agami for
advertising.  We dispute the amount of the fees allegedly owed to Agami and
we have engaged legal counsel to answer this complaint.  Legal counsel
asserts that an unfavorable outcome is unlikely and, therefore, the Company has
not accrued for a contingent liability per the provisions of SFAS #5 Accounting
for Contingencies.  Other
matters The
Company is involved in other various disputes and legal claims in the normal
course of business.  It is not possible to state the ultimate liability, if
any, in these matters.  In the opinion of management, any resulting
litigation will have no material effect on the financial position and results of
operations of the Company in excess of amounts recorded.   35   Pacific WebWorks, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS December 31, 2008 and 2007  NOTE
7 - INCOME TAXES  The
Financial Accounting Standards Board (FASB) has issued Financial Interpretation
No. 48, "Accounting for Uncertainty in Income Taxes - An Interpretation of FASB
Statement No. 109 (FIN 48).  FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise's financial statements
in accordance with FASB Statement No. 109, Accounting for Income Taxes.
 FIN 48 requires a company to determine whether it is more likely than not
that a tax position will be sustained will be sustained upon examination based
upon the technical merits of the position.  If the more-likely-than- not
threshold is met, a company must measure the tax position to determine the
amount to recognize in the financial statements.  As a result of the
implementation of FIN 48, the Company performed a review of its material tax
positions in accordance with recognition and measurement standards established
by FIN 48.  At
the adoption date of January 1, 2007, the Company had no unrecognized tax
benefit which would affect the effective tax rate if recognized.  The
Company includes interest and penalties arising from the underpayment of income
taxes in the consolidated statements of operations in the provision for income
taxes.  As of December 31, 2007, the Company had no accrued interest or
penalties related to uncertain tax positions. Deferred
taxes are provided on a liability method whereby deferred tax assets are
recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences.  Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax basis.
 Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.  Deferred tax assets and
liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment  The
Companies utilize the liability method of accounting for income taxes for
earnings of the Company. Income taxes (benefit) for the Company consist of the
following:  12/31/2007
12/31/2008CurrentFederal
$     
             -
$
              -State
$     
             -
$
              -DeferredChange
in deferred tax asset
$    
    (83,858)
$     450,941Change
in valuation allowance
$       (516,142)
$   (450,941)Income
tax expense/(benefit)
$       (600,000)
$
              -   36   Pacific WebWorks, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2008 and 2007  NOTE
7 - INCOME TAXES - CONTINUED  Reconciliation
of income taxes computed at the federal statutory rate and income tax expenses
are as follows:  12/31/2007
12/31/2008Federal
income taxes at statutory rate
$   
       93,918
$        171,583State
income taxes net of federal benefit
9,182
18,536Change
in the Valuation Allowance
$        (516,143)
(450,941)Non-deductible
Goodwill Impairment
-
-Net
operating loss carryforward
$        (186,956)
219,530Other
-
41,292Total
$        (600,000)
$    
             -Deferred
taxes consist of the following:CurrentAllowance
for doubtful accounts
$      
    11,190
$
                -Deferred
expenses
(1,011)
(411)Net
operating loss carryforwards
$    
      74,600
$  
      74,601Total
Current
$     
     84,779
$  
      74,190Long
TermNet
operating loss carryforwards
$       3,525,420
$     3,306,779Capital
loss carryforwards
219,530
-Excess
book depreciation and amortization
$      
    50,560
$ 
       48,381Total
Long-Term
$       3,795,510
$     3,355,160Less
Valuation Allowance
$      (3,280,290)
$    (2,829,350)Net
Tax Assets
$         600,000
$  
     600,000
  During
the current year the Company incurred net income. During the prior year the
Company recorded a net deferred tax asset and income tax benefit in the
financial statements due to the net deductible temporary differences or net
operating loss carryforwards because the likelihood of realization of the
related tax benefits was established.  Based on an analysis of the Company
net operating losses, a $600,000 deferred tax asset and related income tax
benefit was recorded in 2007 and continues as a deferred tax asset on the books
at 12/31/08. Accordingly, a valuation allowance has been recorded to reduce the
net deferred tax asset to $600,000. The decrease in the valuation allowance was
$450,941 for the year ended December 31, 2008.  As
of December 31, 2008, the Company had federal and state net operating loss
carryforwards for tax reporting purposes of approximately $9,000,000 and
$9,500,000 respectively, expiring through 2028.    37   Pacific WebWorks, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2008 and 2007  NOTE
8 - SEGMENT REPORTING  Segment
reporting by business unit follows:  The year ended
December 31,
2007a
Pacific
WebWorks
IntelliPay
TradeWorks
FundWorks
Discontinued
Operationsb
TotalRevenues, net
$9,483,517
$566,787
$541,467
$120,000
$    -
$ 10,711,771Net income(loss)
$2,429,594
$203,168
$(1,811,726)
$ 35,193
$ 20,000
$
876,229
  aAmounts
include all intercompany receivables, payables, revenues and expenses prior to
elimination for consolidation. bIncludes
World Commerce Network, LLC. a non-operating, discontinued subsidiary.  The year ended
December 31,
2008a
Pacific
WebWorks
IntelliPay
TradeWorks
FundWorks
PWI,
LLC
Discontinued
Operationsb
TotalRevenues, net
$8,707,710
$479,959
$16,788
$13,888
$2,238
$    -
$9,220,583Net income(loss)
$1,740,298
$99,538
$(1,449,065)
$(15,871)
$2,490
$113,475
$490,865
  aAmounts
include all intercompany receivables, payables, revenues and expenses prior to
elimination for consolidation. bIncludes
World Commerce Network, LLC. a non-operating, discontinued subsidiary.  NOTE
9  RECENT ACCOUNTING PRONOUNCEMENTS  The
FASB has issued Statement of Financial Accounting Standards No. 163, Accounting
for Financial Guarantee Insurance Contracts.  SFAS No. 163 clarifies how
SFAS No. 60, Accounting and Reporting by Insurance Enterprises, applies to
financial guarantee insurance contracts issued by insurance enterprises, and addresses the recognition and measurement of premium revenue and
claim liabilities.  It requires expanded disclosures about contracts, and
recognition of claim liability prior to an event of default when there is
evidence that credit deterioration has occurred in an insured financial
obligation.  It also requires disclosure about (a) the risk-management
activities used by an insurance enterprise to evaluate credit deterioration in
its insured financial obligations, and (b) the insurance enterprises
surveillance or watch list.  The Company is currently evaluating the impact
of SFAS No. 163.  In
May 8, 2008, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 162, the Hierarchy of Generally
Accepted Accounting Principles, which will provide framework for selecting
accounting principles to be used in preparing financial statements that are
presented in conformity with U.S. generally accepted accounting principles
(GAAP) for nongovernmental entities.  With the issuance of SFAS No. 162,
the GAAP hierarchy for nongovernmental entities will move from auditing
literature to accounting literature.  The Company is currently assessing
the impact of SGAS No. 162 on its financial position and results of
operations.   38   Pacific WebWorks, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2008 and 2007  NOTE
9  RECENT ACCOUNTING PRONOUNCEMENTS - CONTINUED  In March 2008, the FASB issued Statement No. 161, Disclosures
about Derivative Instruments and Hedging Activities (SFAS 161), which is
effective January 1, 2009.  SFAS 161 requires enhanced disclosures about
derivative instruments and hedging activities to allow for a better
understanding of their effects on an entitys financial position, financial
performance, and cash flows.  Among other things, SFAS 161 requires
disclosures of the fair values of derivative instruments and associated gains
and losses in a tabular formant.  SFAS 161 is not currently applicable to
the Company since the Company does not have derivative instruments or hedging
activity.  In December 2007, the FASB issued SFAS No. 141(R), Business
Combinations. This Statement provides greater consistency in the accounting and
financial reporting of business combinations. It requires the acquiring entity
in a business combination to recognize all assets acquired and liabilities
assumed in the transaction, establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities assumed, and
requires the acquirer to disclose the nature and financial effect of the
business combination. SFAS No. 141(R) is effective for fiscal years beginning
after December 15, 2008. We will adopt SFAS No. 141(R) no later than the first
quarter of fiscal 2010 and are currently assessing the impact the adoption will
have on its financial position and results of operations. In December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements. This Statement amends
Accounting Research Bulletin No. 51, Consolidated Financial Statements, to
establish accounting and reporting standards for the noncontrolling interest in
a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 is
effective for fiscal years beginning after December 15, 2008. We will adopt SFAS
No. 160 no later than the first quarter of fiscal 2010 and are currently
assessing the impact the adoption will have on its financial position and
results of operations. In February 2007, the FASB issued SFAS No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities, which permits entities
to choose to measure at fair value eligible financial instruments and certain
other items that are not currently required to be measured at fair value. The
standard requires that unrealized gains and losses on items for which the fair
value option has been elected be reported in earnings at each subsequent
reporting date. SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007. We will adopt SFAS No. 159 no later than the first quarter of
fiscal 2009.  We are currently assessing the impact the adoption of SFAS
No. 159 will have on its financial position and results of operations.  39   ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE  We have not had a
change or disagreement with our independent registered public accounting firm
during the past two fiscal years.  ITEM
9A(T).  CONTROLS AND PROCEDURES  Disclosure
Controls and Procedures  We maintain
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our reports filed with the SEC pursuant to the
Exchange Act is recorded, processed, summarized and reported within the periods
specified in the rules and forms of the SEC.  This information is
accumulated and communicated to our management to allow timely decisions
regarding required disclosure.  Our Chief Executive Officer and Chief
Financial Officer evaluated the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report.  Based on
that evaluation, they concluded that our disclosure controls and procedures were
effective.  Managements
Annual Report on Internal Control over Financial Reporting  Our management is
responsible to establish and maintain adequate internal control over financial
reporting.  Our Chief Executive Officer and Chief Financial Officer
are responsible to design or supervise a process that provides reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles.  The policies and procedures include:  · maintenance
of records in reasonable detail to accurately and fairly reflect the
transactions and dispositions of  assets, · reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with  generally accepted accounting
principles, and that receipts and expenditures are being made only in accordance
with authorizations of management and directors, and · reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of assets that could have a material effect on our financial
statements.  For the year ended
December 31, 2008, our management has relied on the Committee of Sponsoring
Organizations of the Treadway Commission (COSO), Internal Control - Integrated
Framework, issued in 1992, to evaluate the effectiveness of our internal
control over financial reporting and based upon that framework management has
determined that our internal control over financial reporting is effective.  Our management has
also determined that there were no changes made in our internal controls over
financial reporting during the fourth quarter of 2008 that have materially
affected, or are reasonably likely to materially affect our internal control
over financial reporting.  This annual report
does not include an attestation report of our registered public accounting firm
regarding managements report on internal control over financial reporting.
 The managements report was not subject to attestation by our registered
public accounting firm pursuant to temporary rules of the SEC that permit the
company to provide only the managements report in this annual report.     40   ITEM 9B.  OTHER INFORMATION  None.   PART III  ITEM
10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE  Directors and
Executive Officers  The directors and
executive officers of Pacific WebWorks are listed below, with their respective
ages, positions and biographical information.  Our articles of
incorporation provide for a board of directors consisting of at least three, but
no more than nine persons.  As of the date of this report we have one
vacancy on our board of directors.  Our directors serve until our next
annual meeting or until each is succeeded by a qualified director.  Our
executive officers are chosen by our board of directors and serve at its
discretion.  R. Brett Bell is the son of Kenneth W. Bell.  Name
Age
Position
Held
Director
Term of OfficeKenneth
W. Bell
59
Chairman
of the Board
Chief Executive
Officer
Treasurer
January
2001 until next annual meeting.Christian
R. Larsen
34
Director
President
April
1999 until next annual meeting.R.
Brett Bell
33
Chief
Financial Officer
Secretary
  Kenneth W.
Bell  Kenneth Bell has served as Chairman of the Board since April 2004
and has served as Treasurer since July 2004.  He has served as our Chief
Executive Officer since January 2001.  Prior to that time, he was President
and Chief Executive Officer of Logio, Inc., our former subsidiary.  He
formerly served as President and Chief Financial Officer of Kelmarc Corporation,
a financial and management advisory company.  He has over thirty years
experience in a variety of finance and management positions, including
employment for fifteen years in the commercial banking industry in Utah and
California.  Mr. Bell received a Bachelors degree from Brigham Young
University in 1972.  Christian R.
Larsen Mr. Larsen has served as our President since April 1999.
 He served as our Chief Executive Officer from April 1999 through January
2001.  Prior to 1999 he served as Chief Operating Officer of Pacific
WebWorks and as a consultant for Utah WebWorks.  He has over fifteen years
experience providing computer consulting and business management services.  R. Brett
Bell  Effective January 1, 2009, Brett Bell was appointed Chief
Financial Officer of Pacific WebWorks.  He has served as corporate
Secretary since April 2004.  He served as Vice President of Finance from
January 2008 through December 2008.  He has been employed as a controller
for Pacific WebWorks since 2001.  Prior to becoming a controller for
Pacific WebWorks, he held positions in Investor Relations and Accounting with
Logio, Inc.  He studied Economics and Finance at the University of Utah.   41   Compliance
with Section 16(a)  Section 16(a) of the
Securities Exchange Act of 1934 requires our directors, executive officers and
person who own ten percent or more of our common stock to file initial reports
of ownership and reports of changes in ownership of our common stock with the
SEC.  Officers, directors and ten-percent beneficial owners are required by
SEC regulations to furnish Pacific WebWorks with copies of all Section 16(a)
reports they file.  Based upon review of the copies of such forms furnished
to us during the fiscal year ended December 31, 2008, and representations that
Forms 5 were not required, we believe such forms were filed in a timely
manner.  Code of
Ethics  We have not adopted a
code of ethics for our principal executive and financial officers.
 However, our management intends to promote honest and ethical conduct,
full and fair disclosure in our reports to the SEC, and compliance with
applicable governmental laws and regulations.  Committees  We are a smaller
reporting company with a small number of directors and officers who have active
roles in our operations.   As a result, we do not have a standing
nominating committee for directors, nor do we have an audit committee with an
audit committee financial expert serving on that committee.  Our entire
board of directors, Messrs. Kenneth Bell and Larsen, acts as our nominating and
audit committee.  ITEM
11.  EXECUTIVE COMPENSATION  Executive
Officer Compensation  The following table
shows the compensation paid to our named executive officers in all capacities
during the past two years.


SUMMARY COMPENSATION TABLEName and
Principal Position
Year
Salary
($)
Bonus
($)
Option
Awards (1)
($)
Total
($)Kenneth
W. Bell
CEO
2008
125,791
79,500
13,000
218,2912007
116,583
74,834
16,775
208,192Christian
R. Larsen
President
2008
102,250
78,500
12,000
192,7502007
91,583
70,666
15,250
177,499R.
Brett Bell
CFO
2008
91,364
76,500
11,000
178,8642007
80,698
66,500
13,725
160,923
 (1) Value
of options granted (See Outstanding Equity Awards below) are computed in
accordance with FAS 123R.


42


Employment
Contracts  On January 1, 2008 we
entered into employment agreements with Kenneth W. Bell, Christian R. Larsen and
R. Brett Bell.  Kenneth Bell was employed as the Chief Executive Officer of
Pacific WebWorks with a salary of $120,000 a year and will devote 80% of his
working time to the business of the company.  Mr. Larsen was employed as
the President of Pacific WebWorks with a salary of $96,000 per year and will
devote 100% of his working time to the business of the company.  R. Brett
Bell was employed as the Vice-President of Finance of Pacific WebWorks with a
salary of $85,000 per year and will devote 100% of his working time to the
business of the company.  The employment agreements terminate on December
31, 2009.  The remaining material terms of the employment agreements are
identical as described below.  Each year the salary
for each executive officer shall be increased annually at a rate determined by
the board of directors or in the amount of 6%.  Each executive is entitled
to yearly cash bonuses as determined by the board of directors, along with
vacation time, health and medical insurance, participation in retirement,
pension, profit sharing or other plans approved by the board.  Each
executive agreed not to disclose company confidential information to third
parties.  If the executive officer resigns his position, he will be
entitled to only compensation for services rendered.  The company may
terminate his employment for cause; but if his employment is terminated other
than for cause, then he will receive a lump sum payment of three times his
salary and incentive compensation within 30 days of the termination.  Upon
termination each executive shall have continued coverage under the insured
employee benefit plan.  Each executive promised to not release any
proprietary information about the company for a period of two years after his
termination of employment.  In the event the
executive officers employment is terminated due to a change in control of the
company, as defined in the agreement, then he will receive three times the
average sum of amounts paid to him for salary, bonus and profit sharing for the
five fiscal years immediately preceding the date of change in control.  If
the executive suffers disability for a period of more than nine consecutive
months while employed, then he is entitled to one-half of his salary for an 18
month period.  If the disability continues for an 18 month consecutive
period, then the company may terminate the employment agreement.  If the
executive officer dies during his employment, then the company will pay one
years salary and incentives to his estate.  Each executive is entitled to
request by written notice that any shares he holds be registered, subject to
itemized limitations in the employment agreement, when the company files certain
registration statements.  Retirement
Benefits or Other Arrangements  We offer a SIMPLE IRA
plan to our full time employees, including our executive officers.  This
plan provides that each employee may elect to contribute to an individual
retirement plan through salary reduction contributions.  During the year
ended December 31, 2008 the company did not contribute to a retirement plan for
an executive officer.  We have described
above the agreements we have entered into with our named executive officers
regarding resignation, retirement or other termination following a change in
control.  Outstanding
Equity Awards  The following table
shows the outstanding equity awards of our named executive officers at December
31, 2008.   43    OUTSTANDING EQUITY AWARDS AT FISCAL YEAR ENDOption AwardsName
Number of
Securities
Underlying
Unexercised
Options
Exercisable
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
Option
Exercise
Price
Option
Expiration
DateKenneth
W. Bell
37,878
600,000
250,000
275,000
200,000
275,000
162,500








162,500







162,500
$  0.87
0.75
0.07
0.12
0.048
0.061
0.04
0.04
1/31/2011
4/4/2011
10/20/2009
10/7/2010
10/9/2011
10/12/2012
10/15/2013
10/15/2013Christian
R. Larsen
300,000
325,000
250,000
250,000
175,000
250,000
150,000








150,000







150,000
$   0.04
0.75
0.07
0.12
0.048
0.061
0.04
0.04
10/15/2013
4/4/2011
10/20/2009
10/7/2010
10/9/2011
10/12/2012
10/15/2013
10/15/2013R.
Brett Bell
2,273
35,000
175,000
225,000
150,000
225,000
137,500








137,500







137,500
$   0.87
0.75
0.07
0.12
0.048
0.061
0.04
0.04
1/31/2011
4/4/2011
10/20/2009
10/7/2010
10/9/2011
10/12/2012
10/15/2013
10/15/2013
  Compensation of
Directors  We do not have any
standard arrangement for compensation of our directors for any services provided
as director, including services for committee participation or for special
assignments.  Under our 2001 Equity Incentive Plan, an independent director
is eligible to receive 5,000 shares of our common stock or options to acquire
our common stock each year in which they serve as a member of our board of
directors and 10,000 options upon joining our board of directors.  At this
time we do not have any independent directors.   44   ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS  Securities
Authorized Under Equity Compensation Plans  The following table
lists the securities authorized for issuance under any equity compensation plans
approved by our shareholders and any equity compensation plans not approved by
our shareholders as of December 31, 2008.  EQUITY COMPENSATION PLAN INFORMATIONPlan
category
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
Weighted-average
exercise price of
outstanding
options,
warrants and
rights
(b)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding
securities reflected
in
column (a))
(c)Equity
compensation plans approved by security holders
0
$  0.00
0Equity
compensation plans
not
approved by security holders
8,402,651
$ 0.24
1,597,349Total
8,402,651
$ 0.24
1,597,349
  2001
Equity Incentive Plan  On March 8, 2001,
Pacific WebWorks board of directors adopted the Pacific WebWorks, Inc. 2001
Equity Incentive Plan.  Under this plan we may grant stock options, stock
appreciation rights or restricted shares to employees, independent directors and
certain consultants.  The board of directors amended the plan in 2006 to
reserve 10,000,000 shares for this plan subject to periodic adjustments for
changes in the outstanding common stock occasioned by stock splits, stock
dividends, recapitalizations or other similar changes.  In the event of a
merger, consolidation or plan of exchange to which we are a party or a sale of
all, or substantially all, of our assets the committee may continue, assume,
substitute, accelerate or settle the outstanding awards.  The board of
directors may suspend or terminate the plan at any time.  All of Pacific
WebWorks and our subsidiaries employees are eligible for incentive stock
options.  Employees, independent directors and consultants are eligible for
restricted shares, non-qualified stock options and stock appreciation rights.
 We currently have twenty-one employees, officers and directors eligible to
participate in the plan.  An independent director is eligible to receive
5,000 shares of our common stock or options to acquire our common stock each
year in which he or she serves as a member of our board of directors and 10,000
options upon joining our board of directors.  As of the date of this
filing, we do not have any independent directors.  The plan is
administered by a committee which is responsible for determining the type,
amount and terms of any consideration awarded to a recipient.  Under the
plan any options granted to a recipient are  45   exercisable
in accordance with the terms of the agreement governing the grant.  If the
option is an incentive stock option, those terms must be consistent with the
requirements of the Internal Revenue Code, as amended, and applicable
regulations, including the requirement that the option price not be less than
the fair market value of the common stock on the date of the grant.  If the
option is not an incentive stock option, the option price may be any price
determined by the committee.  On October 15, 2008
we issued options to purchase 1,765,000 shares of common stock pursuant to plan.
 These stock options have an exercise price of $0.04 per share and expire
five years from the date of issuance.  One half of the options vested upon
grant and the other half vest April 16, 2009, six months from the date grant.  During the year ended
December 31, 2008, an aggregate of 1,840,000 options previously granted under
the plan expired or were forfeited.  As of December 31, 2008, the board of
directors has granted options under the plan to acquire an aggregate of
8,402,651 shares of common stock with exercise prices ranging from $0.04 to
$0.87 per share.  Of the options outstanding, 7,520,151 are exercisable and
the remainder vest periodically through October 2013.  This plan continues
in effect until March 8, 2011, unless terminated by the board of directors.  Beneficial
Ownership  The following table
lists the beneficial ownership of our outstanding common stock by our
management.  We are unaware of a person or group who beneficially owns more
than 5% of our outstanding common stock.  Beneficial ownership is
determined in accordance with the rules of the SEC and generally includes voting
or investment power with respect to securities.  Based on these rules, two
or more persons may be deemed to be the beneficial owners of the same
securities.  Except as indicated by footnote, the persons named in the
table below have sole voting power and investment power with respect to the
shares of common stock shown as beneficially owned by them.  The percentage
of beneficial ownership is based on 41,663,895 shares of common stock
outstanding as of March 2, 2009, plus any shares which each of the following
persons may acquire within 60 days by the exercise of rights, warrants and/or
options.  MANAGEMENTName
of beneficial owner
Amount and nature
of
beneficial ownership
Percent
of
classKenneth
W.  Bell
2,180,189 (1)
5.0Christian
R. Larsen
2,428,000 (2)
5.6R.
Brett Bell
1,088,031 (3)
2.5All
executive officers and
directors
as a group
5,696,220
12.3 (1) Represents
217,311 shares and options to purchase 1,962,878 shares. (2) Represents
878,000 shares held by Net Strategic Investments LLC of which Mr. Larsen is an
affiliate and options to purchase 1,550,000 shares. (3) Represents
758 shares and options to purchase 1,087,273 shares.  46   ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND
DIRECTOR INDEPENDENCE  Related
Transactions  We have not engaged
in any transactions during the past two fiscal years involving our executive
officers, directors, 5% or more stockholders or immediate family members of such
persons.  Director
Independence  None of our directors
are independent directors as defined by Nasdaq Stock Market Rule 4200(a)(15).   ITEM
14.  PRINCIPAL ACCOUNTING FEES AND SERVICES  Accountant
Fees  The following table
presents the aggregate fees billed for each of the last two fiscal years by our
independent registered public accounting firm, Chisholm, Bierwolf, Nilson &
Morrill, LLC, Certified Public Accountants, in connection with the audit of our
financial statements and other professional services rendered by that firm.  2007

2008Audit
fees
$   10,983

$    25,750Audit-related
fees
0

9,090Tax
fees
4,046

3,400All
other fees
$
         0

$
          0  Audit fees represent
the professional services rendered for the audit of our annual financial
statements and the review of our financial statements included in quarterly
reports, along with services normally provided by the accounting firm in
connection with statutory and regulatory filings or engagements.
 Audit-related fees represent professional services rendered for assurance
and related services by the accounting firm that are reasonably related to the
performance of the audit or review of our financial statements that are not
reported under audit fees.  Tax fees represent
professional services rendered by the accounting firm for tax compliance, tax
advice, and tax planning.  All other fees represent fees billed for
products and services provided by the accounting firm, other than the services
reported for the other categories.  Pre-approval
Policies  We do not have a
standing audit committee currently serving and as a result our board of
directors performs the duties of an audit committee.  Our board of
directors will evaluate and approve in advance, the scope and cost of the
engagement of an accounting firm before the accounting firm renders audit and
non-audit services.  We do not rely on pre-approval policies and
procedures.    47   PART IV  ITEM
15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES  Exhibits  No. Description 3.1 Articles
of Incorporation, as amended (Incorporated by reference to exhibit No. 3.1 for
Form 10-Q filed November 13, 2001) 3.2 Amended
Bylaws of Pacific WebWorks, Inc. (Incorporated by reference to exhibit No. 3.2
for Form 10, as amended, file No. 0-26731, filed July 16, 1999.) 10.1 Service
Agreement between Pacific WebWorks and Verizon Business Network Services, Inc.,
dated September 30, 2007 (Incorporated by reference to exhibit 10.1 for Form
10-K filed March 31, 2008) 10.2 Lease
Agreement between Pacific WebWorks, Inc. and Development Specialties, Inc.,
dated February 1, 2008 (Incorporated by reference to exhibit 10.2 for Form 10-K
filed March 31, 2008) 10.3 Form
of employment agreement for executive officers, dated January 1, 2008
(Incorporated by reference to exhibit 10.4 for Form 10-KSB, filed April 2,
2008) 21.1 Subsidiaries
of Pacific WebWorks, Inc. 31.1 Chief
Executive Officer Certification 31.2 Chief
Financial Officer Certification 32.1 Section
1350 Certification    48   SIGNATURES  Pursuant to the
requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized  PACIFIC WEBWORKS,
INC.    By:  /s/
Christian R. Larsen Christian
R. Larsen, President  Date:  March 31,
2009  Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.    /s/ Kenneth W.
Bell Kenneth W. Bell Chairman of the
Board Chief Executive
Officer Treasure,  Date:  March 31,
2009    /s/ Christian
R. Larsen Christian R. Larsen Director President  Date:  March 31,
2009    /s/ R. Brett
Bell R. Brett Bell Chief Financial
Officer Secretary  Date:  March 31,
2009    49