**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-K/A**

**Amendment No. 1**

**[X]**

**ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE**

**ACT OF 1934**

For the fiscal year endedDecember 31, 2007

**[  ]**

**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, including area code:  (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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes [  ]   No [   ]

1

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. [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [  ]

Non-accelerated filer   [  ]

Accelerated filer [  ]

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 voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold on June 29, 2007 was approximately $1,596,193.

The number of shares outstanding of the registrant’s common stock as of June 24, 2009 was 41,663,895.

Documents incorporated by reference:  None

**EXPLANOTORY NOTE**

The Securities and Exchange Commission (the “SEC”) conducted a limited review of our Form 10-K for the year ended December 31, 2007 and requested that we revise and amend certain disclosures in this Form 10-K.  Note 12 of the attached financial statements outlines the revisions that have been made to the financial statements and we have revised “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operation” to reflect those changes.  In addition we have revised “Item 9A(T).  Controls and Procedures” to conform to the requirements of Item 308T(a)(1) of Regulation S-K.  Other than these changes, the disclosures in this amended report are as of the initial filing date of March 31, 2008 and this report does not include subsequent events.

**TABLE OF CONTENTS**

PART II

Item 6.  Selected Financial Data 

3

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operation

3

Item 8.  Financial Statements and Supplementary Data

9

Item 9A(T).  Controls and Procedures 

30

PART IV

Item 15.  Exhibits, Financial Statement Schedules

31

Signatures

31

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 II**

**ITEM 6.  SELECTED FINANCIAL DATA**

Not applicable.

**ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION**

**AND RESULTS OF OPERATION**

***Executive Overview***

Pacific WebWorks, Inc. enjoyed a record year in 2007.  Revenues of $10,711,770 for the year ended December 31, 2007 (“2007") amounted to 250% of revenues of $4,299,681 for the year ended December 31, 2006 (“2006") and represented a record for annual revenues for the company.  Additionally, the company generated record net income of $856,229 for 2007 due in large part to a one-time $600,000 recognition of a tax benefit.  The increase in net income was an improvement from a net loss of $1,026,433 for the previous year ended.  Earnings per share for 2007 increased to $0.02 per share, up from a loss per share of $0.03 for 2006.  Cash provided by operating activities increased by in excess of $1.1 million for 2007 over 2006.  

Pacific WebWorks introduced several new product offerings during the year and will release additional new offerings throughout 2008. We have further developed our marketing system and are actively seeking to expand the marketing of our technologies and products complimentary to our technologies. 

In February of 2008 we moved into new offices at 230 West 400 South, Salt Lake City, Utah.  These offices will facilitate our growth over the next several years and have enabled us to better functionalize our operations. 

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.  In addition, 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 2008 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.  

3

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 mainly upon revenues and proceeds from the sale of stock.  We expect to continue to generate positive cash flows through further development 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.  

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 2007 our monthly cash outflows were primarily related to selling expenses which totaled $7,151,288 for the year and general and administrative expenses that totaled $2,718,962.  These cash outflows can exceed monthly cash inflows based on timing differences between marketing campaigns and sales.  

A small portion of our revenues are comprised of deferred revenue that we recognized over the year.  We carried deferred revenue of $10,494 on our books as a current liability as of December 31, 2007.  Deferred revenue includes up-front fees received for license fees, software services and education not yet performed or delivered.  These deferred revenues will be recognized over the next eight to twelve months.  It should be noted that this liability does not require a specific cash outlay, but only that we remain a going concern. 

We also record monthly revenues from operating leases.  Certain customers of TradeWorks Marketing entered into operating leases to purchase e-commerce software and merchant account agreements that were assigned by TradeWorks Marketing to FundWorks.  The customers pay $59.95 per month for the operating lease agreement and the agreements have terms over 24 to 36 months and are non-cancelable.  Related revenues are recorded monthly as earned.  The future annual minimum lease receipts for FundWorks’ operating leases as of December 31, 2007 were approximately $22,841 through December 31, 2008.  Collectability of future minimum lease receipts cannot be assured because the customers placed in these operating leases have a higher credit risk.  

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.

4

***Results of Operations***

The following selected financial data 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 years ended December 31, 2007 and 2006.  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 31,

2006

2007

SUMMARY OF BALANCE SHEET

 

 

Cash and cash equivalents

$          392,633

$        891,062

Total current assets

584,217

1,421,689

Total assets

2,746,390

4,465,572

Total current liabilities

579,398

1,125,974

Total liabilities

579,398

1,125,974

Accumulated deficit

(14,049,333)

(13,173,104)

Total stockholders’ equity

$      2,166,992

$     3,339,598

 

 

 

SUMMARY OF OPERATING RESULTS

 

 

Revenues, net

$      4,299,681

$  10,711,770

Cost of sales

512,595

364,482

Gross profit

3,787,086

10,347,288

Total operating expenses

4,867,936

10,208,397

Net income (loss) from operations

(1,080,850)

138,892

Total other income (expense)

(54,417)

117,337

Income tax provision (benefit)

– 

(600,000)

Discontinued operations income

–

20,000

Net income (loss)

$   (1,026,433)

$     856,229

Net income (loss) per share 

$          (0.03)

$          0.02 

Our net revenues increased in 2007 compared to 2006 as a result of our continued marketing activities.  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.  

5

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 2007 compared to 2006 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 increased for 2007 compared to 2006 primarily due to increases 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.  However, selling expenses increased due to increased costs related to our online marketing programs.  While selling expense increased, the long term recurring value of the revenues received versus the one-time upfront sale, more than justifies the increase.

Total operating expenses for 2006 included a one-time charge for impairment of goodwill related to Intellipay’s operations.  Based upon an analysis in 2006 of the current and forecast cash flows related to our Intellipay operation, coupled with a review of valuation multiples in the market, we determined that a $1 million impairment of our goodwill related to Intellipay was appropriate and the impairment was recorded at the 2006 year end as an operating expense.  

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 increased for 2007 compared to 2006 largely due to an increase in staff and related expenses necessary to facilitate our rapid growth.  Management expects to see increases in general and administrative expenses in the short term consistent with continued increases in customer accounts expected in 2008.

Research and 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.  Research and development expenses increased for 2007 compared to 2006 due to the increased expense related to the development of our new product offers.

Total other income for 2007 included interest income earned on certificates of deposit that was offset by interest expense related to a loan payable and the recovery of a previously booked expense.  Other income for 2006 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 year end.  

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 Pacific WebWorks.  Pacific 

6

WebWorks is defending the claim and has had no further communication on this matter.  During 2007 we recognized income of $20,000 related to the discontinued operations of World Commerce Network, LLC.

Due to a successful 2007 year showing marked improvement in revenues we recorded net income and income per share for 2007 compared to a net loss and loss per share for 2006.  In addition our net income increased due to a one-time recognition of an income tax benefit of $600,000.

***Off-balance Sheet Arrangements***

None.

***Commitments and Contingent Liabilities***

Our operating commitments include our operating lease for our Salt Lake City office that approximates $10,500 per month.  Our total current liabilities at December 31, 2007, included accounts payable of $828,792 related to operating costs such as marketing and advertising expenses and professional fees.  Our accrued liabilities of $71,413 were primarily the result of payroll related liabilities, contract seller commissions offset by estimated refunds and factoring obligations.  Deferred revenues of $10,494 included up-front fees received for license fees, software services and education not yet performed or delivered.  Current liabilities from discontinued operations were $215,274 and are related to World Commerce Network, LLC. 

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, 2008.  This note was collateralized by our business assets.  In November 2007 we paid the note in full including principal and interest. 

The operations of World Commerce Network, LLC, our subsidiary, are ceased and discontinued.  Management continues to attempt to negotiate settlements of World Commerce Network’s accrued liabilities.  As of December 31, 2007, World Commerce Network’s accrued liabilities totaled $59,764 and included estimated contingent recourse obligations and attorneys fees approximating $95,000 and approximately $56,000 for estimated customer refunds.  In addition, World Commerce Network had a contingent liability of approximately $65,000 plus interest related to an alleged default of application for credit and personal guaranty made by a former officer of Pacific WebWorks.  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.

***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 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 receiveable and the corresponding 

7

allowance for doubtful accounts are reviewed for collectiblity 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 2007 and concluded that was no impairment indicators of good will.  However, we performed a goodwill impairment test during 2006 and concluded there was an impairment indicator of goodwill for Intellipay.  Based upon an analysis of current and forecast cash flows related to our Intellipay operation coupled with a review of valuation multiples in the market we determined that a $1 million impairment of our goodwill related to Intellipay was appropriate and the impairment was recorded at the 2006 year end.  

Contingent liabilities - Material estimates for contingent liabilities include approximately $74,000 for our operating companies and approximately $151,000 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, 2007.  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. 

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.  We are defending the claim and believe the amount should be reduced based upon the vendor’s performance and other disputes.  We filed an answer to the complaint and further litigation is pending.   We recorded $20,000 to accrued liabilities in the consolidated financial statements in December 31, 2006 and December 31, 2007 representing our estimated liability for this matter.  Management believes that the amount recorded is sufficient to cover the resulting liability from this complaint.

Valuing stock options - As permitted by Statement of Financial Accounting Standards No. 148, we continue to account for stock options under APB Opinion No. 25, under which no compensation has been recognized.  The fair value of the options we have granted is estimated at the date of grant using the Black-Scholes American option-pricing model.  Option pricing models require the input of highly sensitive assumptions, including expected stock volatility.  Also, our stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value estimate.  Management believes the best input assumptions available were used to value the options and that the resulting option values are reasonable.

8

**ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

**Pacific WebWorks, Inc.**

**CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2007**

CONTENTS

Report of Registered Independent Public Accounting Firm

10

Consolidated Balance Sheets

11

Consolidated Statements of Operations 

12

Consolidated Statements of Stockholders’ Equity

13

Consolidated Statements of Cash Flows

14

Notes to the Consolidated Financial Statements

15

9

Chisholm

  Bierwolf &

    Nilson, LLC Certified Public Accountants

Todd D. Chisholm, Audit Partner

Nephi J. Bierwolf, Tax Partner

Troy F. Nilson, Audit Partner

533 West 2600 South, Suite 25  • Bountiful, Utah 84010  • Phone:  (801) 292-8756  • Fax: (801) 292-8809 • www.cbncpa.com

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board of Directors and Stockholders

of Pacific Webworks, Inc. 

Salt Lake City, Utah

We have audited the accompanying consolidated balance sheets of**Pacific Webworks, Inc. and Subsidiaries**as of December 31, 2007 and 2006 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 PCAOB (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, 2007 and 2006 and the results of its operations and cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

*  /s/ Chisholm, Bierwolf & Nilson, LLC*

Chisholm, Bierwolf & Nilson, LLC

Bountiful, UT

February 29, 2008

Member of AICPA, UACPA & Registered with PCAOB

10

**Pacific WebWorks, Inc.**

**CONSOLIDATED BALANCE SHEETS**

 

 

 

 

 

 

 

 

December 31,

 

December 31**,**

** **

** **

** **

** **

**ASSETS**

** **

** **

** **

** **

2006

 

2007

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

$

392,633 

$

   891,062 

 

Receivables

 

 

 

 

 

 

 

 

 

Trade, less allowance for doubtful receivables of

 

 

 

 

 

 

 

 

 

$30,000 in 2006 and $45,975 in 2007

 

 

 

149,584 

 

279,403 

 

Prepaid expenses and other current assets

 

 

42,000 

 

96,027 

 

Inventory

 

 

 

 

- 

 

70,419 

 

Deferred Tax Asset

 

 

 

 

- 

 

84,778 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

 

584,217 

 

1,421,689 

 

 

 

 

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT, NET AT COST

 

 

90,683 

 

83,464 

RESTRICTED CASH 

 

 

 

 

111,765 

 

487,472 

GOODWILL 

 

 

 

 

1,946,253 

 

1,946,253 

DEFERRED TAX ASSET

 

 

 

 

- 

 

515,222 

DEPOSITS

 

 

 

 

13,472 

 

11,472 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

 

 

 

$

 2,746,390 

$

 4,465,572 

 

 

 

 

 

 

 

 

 

 

 

 

 

             **LIABILITIES AND STOCKHOLDERS' EQUITY**

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

Accounts payable

 

 

 

$

92,468 

$

828,792 

 

Notes payable - Current 

 

 

 

100,000 

 

- 

 

Accrued liabilities

 

 

 

 

123,822 

 

71,414 

 

Deferred revenue 

 

 

 

 

27,834 

 

10,494 

 

Current liabilities from discontinued operations 

 

 

235,274 

 

215,274 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

 

579,398 

 

1,125,974 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

 

 

579,398 

 

1,125,974 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commitments

 

 

 

 

- 

 

- 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY 

 

 

 

 

 

 

 

Common stock - par value $0.001; authorized

 

 

 

 

 

 

 

50,000,000; issued and outstanding 35,426,895 

 

 

 

 

 

 

shares in 2006 and  40,526,895 shares in 2007

 

 

35,427 

 

40,527 

 

Additional paid-in capital

 

 

 

16,180,898 

 

16,472,175 

 

Accumulated deficit

 

 

 

 

(14,049,333)

 

(13,173,104)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders' equity

 

 

 

2,166,992 

 

3,339,598 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders' Equity

 

$

2,746,390 

$

  4,465,572 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements

11

**Pacific WebWorks, Inc.**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

 

 

 

 

 

 

 

 

 

Year Ended

 

 

 

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

 

 

2006

 

2007

Revenues

 

 

 

 

 

 

 

 

 

 

Software, access and license fees

 

$

1,234,923 

$

1,250,366 

 

Hosting, gateway and maintenance fees

 

 

1,044,309 

 

8,968,344 

 

Training and education

 

 

 

1,222,409 

 

196,556 

 

Merchant accounts, design and other

 

 

798,040 

 

296,505 

 

 

 

 

 

 

 

 

 

4,299,681 

 

10,711,771 

Cost of sales

 

 

 

 

 

512,595 

 

364,482 

 

 

 

Gross profit

 

 

 

 

3,787,086 

 

10,347,289 

 

Selling expenses

 

 

 

 

2,323,267 

 

7,151,289 

Research and development

 

 

 

 

250,224 

 

307,490 

General and administrative

 

 

 

 

1,265,041 

 

2,718,961 

Depreciation and amortization 

 

 

 

29,404 

 

30,657 

Impairment of goodwill

 

 

 

 

1,000,000 

 

- 

 

 

Total operating expenses

 

 

 

4,867,936 

 

10,208,397 

 

 

 

Net income (loss) from operations

 

 

(1,080,850)

 

138,892 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

30,862 

 

18,608 

 

Interest expense

 

 

 

 

(8,000)

 

(15,534)

 

Other income (expense), net

 

 

 

31,555 

 

114,263 

 

 

Total other income (expense)

 

 

 

54,417 

 

117,337 

 

 

 

Net income (loss) from continuing operations before income taxes

 

 

 

 

(1,026,433)

 

256,229 

 

Income tax provision/(benefit)

 

 

 

- 

 

(600,000)

Income (loss) from continuing operations

 

 

(1,026,433)

 

856,229 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued operations

 

 

 

 

 

 

 

 

Income from operations of discontinued World Commerce Network,

 

 

 

 

 

 

   LLC (including income on disposal of $20,000, net of tax)

 

 

-

 

20,000 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

 

$

(1,026,433)

$

856,229 

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE:

 

 

 

 

 

 

 

 

Basic

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(0.03)

$

0.02 

 

 

Income (loss) from discontinued operations, net of tax

- 

 

0.00 

 

 

Net income (loss)

 

 

 

$

(0.03)

$

0.02 

 

Diluted

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations

 

$

(0.03)

$

0.02 

 

 

Income (loss) from discontinued operations, net of tax

- 

 

0.00 

 

 

Net income (loss)

 

 

 

$

(0.03)

$

0.02 

 

Weighted-average common shares outstanding

 

 

 

 

 

 

Basic

 

 

 

 

 

35,426,125 

 

36,495,251 

 

Diluted

 

 

 

 

 

35,426,125 

 

36,704,251 

 

The accompanying notes are an integral part of these consolidated financial statements

12

**Pacific WebWorks, Inc.**

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**

 

**For the period January 1, 2006 through December 31, 2007**

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 Paid-in 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 Shares 

 

 Amount 

 

 Capital 

 

Deficit

 

 Totals 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at January 1, 2006

 

 

 

 

 

  35,426,895 

$

     35,427 

$

 16,121,744 

$

(13,022,900)

$

 3,134,271 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Valuation of Stock Options

 

 

 

 

 

- 

 

- 

 

        59,154 

 

- 

 

     59,154 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss for the year ended December 31, 2006

 

 

                - 

 

              - 

 

               - 

 

     (1,026,433)

 

 (1,026,433)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2006

 

 

 

 

 

 35,426,895 

 

      35,427 

 

    16,180,898 

 

     (4,049,333)

 

  2,166,992 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of stock for insurance policies

 

 

 

 

      600,000 

 

          600 

 

        28,694 

 

             - 

 

       29,473 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for cash

 

 

 

 

 

   3,500,000 

 

       3,500 

 

  171,500 

 

               - 

 

    175,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of stock for consulting services

 

 

 

 

   1,000,000 

 

      1,000 

 

      49,000 

 

- 

 

     50,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Valuation of stock options

 

 

 

 

 

               - 

 

              - 

 

      42,083 

 

              - 

 

      42,083 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income for year ended December 31, 2007

 

 

 

 

               - 

 

              - 

 

            - 

 

        876,228 

 

    876,228 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2007

 

 

 

 

 

  40,526,895 

$

    40,527 

$

 16,472,175 

$

 (13,173,105)

$

 3,339,599 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements

13

**Pacific WebWorks, Inc.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

 

 

 

 

 

 

 

 

 

For the year ended

 

 

 

 

December 31,

 

 

 

 

2006

 

2007

 

**Cash Flows From Operating Activities**

 

 

 

 

 

 

Net earnings (loss)

 

 

 

$

(1,026,433)

$

876,229 

 

Adjustments to reconcile net earnings (loss) to net cash used in operating activities

 

 

 

 

 

 

Depreciation & amortization

 

 

 

29,404 

 

30,657 

 

 

Stock issued for services

 

 

 

 -  

 

79,473 

 

 

Valuation of Stock Options 

 

 

 

59,154 

 

42,083 

 

 

Bad debt expense

 

 

 

192,500 

 

201,269 

 

 

Impairment of Goodwill

 

 

 

1,000,000 

 

 

 

Changes in assets and liabilities 

 

 

 

 

 

 

 

Deferred tax asset

 

 

 

 -  

 

(600,000)

 

 

Receivables

 

 

 

 

(73,082)

 

(321,793)

 

 

Prepaid expenses and other assets

 

 

(108,324)

 

(52,027)

 

 

Inventory

 

 

 

 

- 

 

(70,419)

 

 

Accounts payable and accrued liabilities

 

(3,041)

 

654,442 

 

 

Deferred revenue

 

 

 

(651,372)

 

(17,340)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided (used) by operating activities

(364,546)

 

822,574 

 

 

 

 

 

 

 

 

 

 

 

**    Cash Flows From Investing Activities**

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(39,048)

 

(23,437)

 

Cash on reserve with bank (Restricted Cash)

 

51,707 

 

(375,708)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash (used) by investing activities

 

12,659 

 

(399,145)

 

 

 

 

 

 

 

 

 

 

 

**    Cash Flows From Financing Activities**

 

 

 

 

 

 

 

Payment of note payable

 

 

 

- 

 

(100,000)

 

Proceeds on issuance of stock

 

 

 

- 

 

175,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net cash provided by financing activities

 

- 

 

75,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase/(decrease) in cash and cash equivalents

(351,887)

 

498,429 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

744,520 

 

392,633 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

392,633 

$

891,062 

 

 

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Cash Paid for Interest

 

 

 $

- 

$

- 

 

 

Cash paid for income taxes

 

 

 

- 

 

1,200 

 

Non-cash financing activities:

 

 

 

- 

 

- 

 

 

Stock issued for services

 

 

 

- 

 

79,473 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these consolidated financial statements

14

**Pacific WebWorks, Inc.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 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.  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.  

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., 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.  We are in the process of forming Pacific WebWorks GmbH, an Austrian company. Neither of these companies are currently operating.

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.

15

**Pacific WebWorks, Inc.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION - CONTINUED

GoodwillThe 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 fair value of a reporting unit below its carrying amount. Events or circumstances which could trigger an 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. 

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, training and education and the sale of merchant accounts as well as custom website design work.  Revenues from up-front fees are deferred and 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 

16

**Pacific WebWorks, Inc.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION - CONTINUED

Revenue Recognition - continued

(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.

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 recieveable and the correcsponding allowance for doubtful accounts are reviewed for collectiblitly by management quarterly and uncollectible accounts receivable are written off.

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, seminar expenses, commissions and personnel expenses for sales and marketing. The Company has expended significant amounts on sales and marketing, including national television, radio, print, and Internet 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 December 31, 2007 and 2006 was $307,490 and $250,224 respectively.  

17

**Pacific WebWorks, Inc.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION - CONTINUED

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 40,526,895 issued and outstanding.

Earnings (loss) 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, 2006 and 2007 was $0.08 and $0.06, respectively.  As such, potentially issuable common shares totaling 3,890,000 related to options were excluded from the calculation of diluted loss per share for the period ended December 31, 2006 because their effect was anti-dilutive.  Potentially issuable common shares totaling 209,000 related to options were included in the calculation of diluted earnings per share for the period ended December 31, 2007. 

 

 

Year ended

 

 

December 31,

 

 

2006

 

2007

Statement of Operations Summary Information

 

 

 

 

 

 

 

 

 

Numerator:

 

 

 

 

     Income (loss) from continuing operations

$

(1,026,433)

$

856,229 

     Net income (loss)

$

(1,026,433)

$

876,229 

 

 

 

 

 

Denominator

 

 

 

 

Weighted-average common shares outstanding

 

 

 

 

     Basic

 

35,426,125 

 

36,704,251 

     Diluted

 

35,426,125 

 

36,495,251 

18

**Pacific WebWorks, Inc.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION - CONTINUED

Earnings (loss) Per Share - continued

EARNINGS (LOSS) PER SHARE:

Basic

 

 

 

 

Income (loss) from continuing operations

$

(0.03)

$

0.02 

Income (loss) from discontinued operations, net of tax

 

- 

 

0.00 

     Net income (loss)

$

(0.03)

$

0.02 

 

 

 

 

 

Diluted

 

 

 

 

Income (loss) from continuing operations

$

(0.03)

$

0.02 

Income (loss) from discontinued operations, net of tax

 

- 

 

0.00 

     Net income (loss)

$

(0.03)

$

0.02 

NOTE 2 – PROPERTY AND EQUIPMENT

 

 

December 31,

Estimated useful

Property and equipment includes the following

 

2006

 

2007

life (years)

 

 

 

 

 

 

Computer Equipment

$

365,908 

$

368,285 

3-5

Equipment

 

158,222 

 

170,401 

2-10

Software

 

102,711 

 

111,976 

1-3

Furniture and Fixtures

 

89,567 

 

89,567 

3-10

Leasehold Improvements

 

5,897 

 

5,514 

Lesser of Lease 

or Useful  Life

 

 

722,305 

 

745,744 

 

Less Accumulated Depreciation

 

(631,623)

 

(662,280)

 

 

$

90,683 

$

83,464 

 

Depreciation expense for the years ended December 31, 2007 and 2006 was $30,657 and $29,404, respectively.

NOTE 3 – ACCRUED AND OTHER LIABILITIES

December 31,

Accrued liabilities consist of the following

 

2006

 

2007

 

 

 

 

 

Payroll related liabilities

$

49,560 

$

85,329 

Sales contractor commissions

 

1,419 

 

3,564 

Contingent reseller commissions

 

- 

 

 

Operating lease in default

 

91,522 

 

- 

Refunds and factor

 

(20,019)

 

(20,019)

Income tax payable

 

900 

 

2,100 

Other

 

440 

 

440 

 

$

123,822 

$

71,414 

19

**Pacific WebWorks, Inc.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

NOTE 4 – OPERATING LEASE REVENUES

During the year ended December 31, 2006, certain customers of TradeWorks, a subsidiary of the Company, entered into operating lease agreements that were assigned to FundWorks to purchase e-commerce software and merchant accounts over 24 to 36 months for $59.95 per month.  The leases are non-cancelable and related revenue is recorded monthly as earned.

NOTE 4 – OPERATING LEASE REVENUES- CONTINUED

Future annual minimum lease receipts for FundWorks operating leases as of December 31, 2007 are as follows:

Through December 31,

 

 

2008

$

22,841

2009

 

-

2010

 

-

Thereafter

 

-

 

$

22,841

Collectability of future minimum lease receipts cannot be assured as the customers placed in operating leases are of a higher credit risk.  

NOTE 5 – NOTES PAYABLE / CONVERTIBLE NOTES PAYABLE 

On December 27, 2005, the Company entered into a Promissory Note agreement for $100,000.  The note interest was at 8% per annum, and is due in full including principal and interest on April 30, 2007.  The note is collateralized by the Company’s business assets.  The Company paid the note in full including principal and interest in November 2007.

NOTE 6 – STOCK HOLDERS’ EQUITY

Stock Issuance

In November 2007, the company issued a total of 3,500,000 shares of its common stock to two separate companies for $175,000 in cash as a private offering.

During February and June 2007, the Company issued 350,000 and 250,000 shares of its common stock for payment of $17,500 and $11,973 related to insurance premiums.

During November 2007, the Company issued 1,000,000 shares of its common stock for payment of $50,000 related investor relations consulting services.

20

**Pacific WebWorks, Inc.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

NOTE 6 – STOCK HOLDERS’ EQUITY – CONTINUED

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, 2007.   

During 2006, the Company granted 1,230,000 common stock options to employees as part of their incentive plan. These options vested equally over a 12 month period.  The options can be exercised at a price of $0.048 any time after vesting for a period of five years.  During 2007, the Company granted a total of 1,540,000 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 $0.061 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, 2006 and 2007, and the changes during 2006 and 2007 are presented below:

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

Number

 

Average

 

 

 

options

 

Exercise Price

 

Vesting Period

Outstanding at January 1, 2006

6,797,651 

$

0.270 

 

 

Granted

1,230,000 

 

0.048 

 

Equally over 12 months

Exercised

- 

 

- 

 

 

Forfeited

(205,000)

 

(0.130)

 

 

Outstanding at December 31, 2006

7,822,651 

 

0.240 

 

 

Granted

1,540,000 

 

0.061 

 

1⁄2 upon grant, 1⁄2 equally

 

 

 

 

 

over six months

Exercised

- 

 

- 

 

 

Forfeited

(810,000)

 

(0.110)

 

 

Outstanding at December 31, 2007

8,552,651 

$

0.240 

 

 

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.  Accordingly, compensation cost for grants of stock options of $59,154 and $42,083 has been recognized in the accompanying consolidated statements of operations for 2006 and 2007, respectively.  We estimated the fair value of our option awards granted using the Black-Scholes option-pricing model.  We record compensation expense ratably over the option’s vesting period.

21

**Pacific WebWorks, Inc.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

NOTE 6 – STOCK HOLDERS’ EQUITY – CONTINUED

Equity Incentive Plan - Continued

The fair value of each option granted has been estimated on the date of grant using the Black-Scholes option valuation model, using the following assumptions:

 

2006

 

2007

Five year risk free interest rate

4.71%

 

4.42%

Dividend yield

0.00%

 

0.00%

Volatility

113%

 

100%

Average expected term (years to exercise)

5

 

5

Common stock options outstanding and exercisable under this plan as of December 31, 2006 and 2007 are:

 

Options Outstanding

 

Options Exercisable

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

Weighted

 

 

 

 

Weighted

 

 

 

 

 

Remaining

 

 

Average

 

 

 

 

Average

 

Exercise

 

Number

 

Contractual

 

 

Exercise

 

Number

 

 

Exercise

 

Price

 

Outstanding

 

Life (Years)

 

 

Price

 

Exercisable

 

 

Price

$

0.870

 

40,151

 

3.00

 

$

-

 

40,151

 

$

0.870

 

0.750

 

1,562,500

 

3.25

 

 

0.15

 

1,562,500

 

 

0.750

 

0.230

 

1,120,000

 

0.75

 

 

0.02

 

1,120,000

 

 

0.230

 

0.140

 

320,000

 

0.50

 

 

0.01

 

320,000

 

 

0.140

 

0.120

 

1,620,000

 

2.50

 

 

0.02

 

1,620,000

 

 

0.120

 

0.070

 

1,360,000

 

1.50

 

 

0.02

 

1,360,000

 

 

0.070

 

0.048

 

1,045,000

 

3.00

 

 

0.01

 

1,045,000

 

 

0.048

$

0.061

 

1,485,000

 

4.75

 

$

0.01

 

971,666

 

$

0.061

 

 

 

8,552,651

 

 

 

 

 

 

8,039,317

 

 

 

There are 2,177,349 and 1,447,349 stock options available for grant at December 31, 2006 and 2007, respectively.  The aggregate intrinsic value of stock options outstanding and exercisable at December 31, 2006 and 2007 totaled $2,490 and $615 and $285,955 and $250,535, respectively.  The weighted average grant date fair value of options granted during the years ended December 31, 2006 and 2007 is $0.04 and $0.05, respectively.  The fair value of options vested during the year ended December 31, 2006 and 2007 totaled $15,375 and $171,905, respectively.

22

**Pacific WebWorks, Inc.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

NOTE 7 – DISCONTINUED OPERATIONS

The following includes the net current liabilities for the Company’s discontinued operations as of December 31, 2006 and December 31, 2007:

 

 

December31, 2006

 

December 31, 2007 

 

 

World Commerce 

 

World Commerce 

ASSETS

 

Network, LLC 

 

Network, LLC 

 

 

 

 

 

Current assets

$

- 

$

- 

Long-term assets

 

- 

 

- 

Total assets

$

- 

$

- 

 

 

 

 

 

LIABILITIES

 

 

 

 

Payables past due

$

64,010 

$

64,010 

Accrued liabilities

 

171,264 

 

151,264 

  Total current liabilities

$

235,274 

$

215,274 

 

 

 

 

 

Net current liabilities

$

235,274 

$

215,274 

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, 2006 and December 31, 2007 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, 2006 and December 31, 2007 representing its estimated liability for this matter.  Management believes that the amount recorded is sufficient to cover the resulting liability from this complaint.

23

**Pacific WebWorks, Inc.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

NOTE 7 – DISCONTINUED OPERATIONS - CONTINUED

Operating Lease in Default

In June 2002, in conjunction with the migration of the Intellipay operations to our Salt Lake City facilities, Intellipay, Inc., a subsidiary of the Company, defaulted on its operating lease for office space in Fremont, California.  The lease agreement required payment of approximately $6,000 per month plus applicable late fees and interest through December 2003 when the lease expired.

As of December 31, 2006, Intellipay, Inc. has recorded an accrued liability of approximately $91,500 related to the months of office lease under default, less months re-leased by the property manager to others, including estimated interest and late fees.  

The Company is not aware of any legal proceedings related to this lease and believes there is only a very remote chance of any action being taken.  Accordingly, during December 2007 the Company recovered this $91,500 to other income

NOTE 8 – COMMITMENTS

Litigation

On December 29, 2006 Jeffrey Robinson filed a complaint against TradeWorks Marketing, Inc., a subsidiary of the Company, in the Superior Court of the State of California, County of Los Angeles.  Mr. Robinson alleges that Tradeworks Marketing violated the Americans with Disabilities Act of 1990, the Unruh Civil Rights Act and the California Disabled Persons Act.  The complaint alleges that TradeWorks Marketing failed to provide an American Sign Language Interpreter for Mr. Robinson at a seminar.  Mr. Robinson seeks injunctive relief compelling TradeWorks Marketing to comply with the Americans with Disabilities Act of 1990 and the Unruh Civil Rights Act.  He is seeking damages either under the Americans with Disabilities Act of 1990 or the Unruh Civil Rights Act and will make an election at trial.  He is also seeking costs and attorneys fees.  

This matter was settled on May 21, 2007 for the negotiated amount of $18,000, which has been recorded as an expense during the period ended June 30, 2007.

Operating Leases

The Company had a month to month lease in 2007 for 8,080 square feet of commercial business office space at $8,080 per month plus parking.  Rent expense in 2006 and 2007 was $133,762 and $105,185 respectively.

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.

24

**Pacific WebWorks, Inc.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

 

NOTE 9 - 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).  FIN48 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.

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.

Income tax (benefit) for the Company consists of the following:

 

 

12/31/06

 

12/31/07

Current

 

 

 

 

    Federal

$ 

- 

 

- 

    State

 

- 

 

- 

Deferred

 

 

 

 

   Change in deferred tax asset

 

(89,330)

 

(83,858)

   Change in valuation allowance

 

89,330 

 

516,142 

Income tax expense (benefit)

$ 

- 

$ 

(600,000)

Reconciliation of income taxes computed at the federal statutory rate and income tax expenses are as follows:

 

 

12/31/06 

 

12/31/07 

Federal income taxes at statutory rate

$ 

(348,987)

$ 

93,918 

State income taxes net of federal benefit

 

(813)

 

9,182 

Change in the valuation allowance

 

(89,330)

 

(516,144)

Non-deductible goodwill impairment

 

340,000 

 

- 

Net operating loss carryforward

 

99,130 

 

(186,956)

     Total

$ 

- 

$ 

(600,000)

25

**Pacific WebWorks, Inc.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

NOTE 9 - INCOME TAXES – CONTINUED

Deferred taxes consist of the following:

 

 

 

 

Current

 

 

 

 

     Allowance for doubtful accounts

$

11,190 

$

11,190 

     Deferred expenses

 

28,923 

 

(1,011)

     Net operating loss carry forwards

 

- 

 

74,600 

Total current

$

40,113 

$

84,779 

 

 

 

 

 

Long-term

 

 

 

 

     Net operating loss carryforwards

$

3,484,005 

$

3,525,420 

     Capital loss carryforwards

 

219,530 

 

219,531 

     Excess book depreciation and amortization

 

52,784 

 

50,560 

Total long-term

$

3,756,319 

$

3,795,511 

Less: valuation allowance

 

(3,796,432)

 

(3,280,290)

     Net tax assets

$

- 

$

600,000 

During the current year the Company incurred net income.  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.  Prior to 2007, and since inception of the Company, management was unable to project when the Company would be in a position to utilize their net operating loss carryforwards.  The Company booked an estimated tax benefit based on projected earnings.  Based on an analysis of the Company’s net operating losses, a $600,000 deferred tax asset and related income tax benefit was recorded.  Accordingly, a valuation allowance has been recorded to reduce the net deferred tax asset to $600,000.  The decrease in the valuation allowance was $516,143 for the year ended December 31, 2007.

As of December 31, 2007, the Company had federal and state net operating loss carryforwards for tax reporting purposes of approximately $9,600,000 and $10,200,000, respectively, expiring through 2027.  As of December 31, 2007 the Company had a federal capital loss carryforward for tax reporting purposes of approximately $650,000 expiring in 2008 related to goodwill from the sale of a subsidiary of the company in 2003.

Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for federal income tax reporting purposes are subject to annual limitations.  Should a change in ownership occur, net operating loss carryforwards may be limited as to use in future years.

26

**Pacific WebWorks, Inc.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

NOTE 9 - INCOME TAXES - CONTINUED

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

 

 

Year ended December 31,

 

 

2006

 

2007

Beginning balance

$

- 

$

- 

Additions based on tax positions related to current year

 

- 

 

- 

Additions for tax positions of prior years

 

- 

 

674,600 

Reductions for tax positions of prior years

 

- 

 

- 

Reductions in benefit due to income tax expense

 

- 

 

(74,600)

Ending balance

$

- 

$

600,000 

At December 31, 2007, the total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate amounted to approximately $3,300,000.

The Company did not have any tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within the next 12 months.

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.

The tax years that remain subject to examination by major taxing jurisdictions are those for the years ended December 31, 2007, 2006 and 2005.

NOTE 10 - SEGMENT REPORTING

Although the Company operates in one business segment, the production and distribution of business e-commerce software, management reports by individual business unit. 

Segment reporting by business unit follows:

Year ended

Pacific 

 

Trade 

Fund- 

Discontinued 

December 31, 2006**a**

WebWorks 

Intellipay 

Works 

Works 

Operations**b** 

 

 

 

 

 

 

Revenues, net

$   1,414,728 

$     533,577 

$    2,754,769 

$     340,117 

$                  - 

 

 

 

 

 

 

Net income (loss)

$  (1,303,472)

$     141,927 

$       143,232 

$       (3,563)

$                  - 

**a**Amounts include all intercompany receivables, payables, revenues and expenses prior to elimination for consolidation.

**b**Includes World Commerce Network, LLC. a non-operating, discontinued subsidiary.

27

**Pacific WebWorks, Inc.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

NOTE 10 - SEGMENT REPORTING – CONTINUED

Year ended

Pacific 

 

Trade 

Fund- 

Discontinued 

December 31, 2007**a**

WebWorks 

Intellipay 

Works 

Works 

Operations**b** 

 

 

 

 

 

 

Revenues, net

$    9,483,517 

$    566,527 

$      541,466 

$    120,260 

$                 - 

 

 

 

 

 

 

Net income (loss)

$    1,829,594 

$    203,168 

$  (1,811,727) 

$      35,193 

$       20,000 

**a**Amounts include all intercompany receivables, payables, revenues and expenses prior to elimination for consolidation.

**b**Includes World Commerce Network, LLC. a non-operating, discontinued subsidiary.

NOTE 11 – SUBSEQUENT EVENTS

On January 28, 2008, the Company issued 400,000 shares of the Company’s common stock for payment of $32,585 related to insurance premiums.

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 or $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.

NOTE 12 – RECLASSIFICATION AND AMENDMENT

We have reclassified and amended our financial statements for the year ended December 31, 2006 and 2007 to reflect issued identified during 2008.

The following are descriptions of the revisions affecting the 2006 and 2007 year-end financial statements.

·

  During the year ended December 31, 2006, the Company recorded an impairment to goodwill in the amount of $1,000,000.  This amount has been reclassified from the other income (expense) section of the statements of operations to the operating expense section of the statements of operations since the goodwill was directly related to the operations of the business of the Company.  This reclassification of this amount did not affect the Company’s net income or its earnings per share.

·

   During the year ended December 31 2007, the Company recorded the results of the discontinued operations within the operating expenses section of the statement of operations.  This amount has been properly recorded and disclosed within the discontinued operations section of the statements of operations.  This reclassification had no effect on the Company’s net income or the Company’s earnings per share.

28

**Pacific WebWorks, Inc.**

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2007

NOTE 12 – RECLASSIFICATION AND AMENDMENT - CONTINUED

·

   During the year ended December 31, 2007, the Company erroneously reported the number of the weighted average shares of common stock outstanding in their calculation of earnings per share.  The Company has followed the guidance provided by Statement of Financial Accounting Standards No. 128,*“Earnings per Share,”*to properly disclose earnings per share related to the discontinued operations of the Company during the year.   The Company also included the entire number of potentially issuable common stock options in their earnings per share calculation rather than including only the incremental shares as prescribed by SFAS 128.    The difference between what was reported and the amounts that have been amended are as follows:

 

 

 

2007

 

 

 

Reported

 

Amended

 

Weighted-average common shares outstanding

 

 

 

 

 

Basic

 

40,526,895

 

36,495,251

 

Diluted

 

49,079,546

 

36,704,251

 

The results of this amendment changed the basic earnings per share amount by $0.01 and had no affect on the diluted earnings per share amount.

·

This amendment also includes changes to our earnings per share, equity incentive plan, and income tax footnote disclosures to properly reflect items required by accounting guidance.  None of the above items had any effect on the Company’s net income.

29

**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 executive officers to allow timely decisions regarding required disclosure.  Our Chief Executive Officer, who also acts in the capacity of principal 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, he concluded that our disclosure controls and procedures were effective.

***Management’s Annual Report on Internal Control over Financial Reporting***

Management is responsible to establish and maintain adequate internal control over financial reporting.  Our Chief Executive Officer, who also acts in the capacity of principal financial officer, is 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, andreasonable 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, 2007, 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 2007 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 internal control over financial reporting.  Our 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 management’s report in this annual report.

30

**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.)

4.1

Pacific WebWorks, Inc. 2001 Equity Incentive Plan (Incorporated by reference to exhibit 4.1 to

Form S-8, effective May 26, 2006)

10.1

Service Agreement between Pacific WebWorks and Verizon Business Network Services, Inc.,

dated September 30, 2007 (Filed March 31, 2008) 

10.2

Lease Agreement between Pacific WebWorks, Inc. and Development Specialties, Inc., dated 

February 1, 2008 (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, 2007)

21.1

Subsidiaries of Pacific WebWorks (Incorporated by reference to exhibit 21.1 to Form 10-QSB,

filed August 14, 2007)

31.1

Chief Executive Officer Certification

31.2

Principal Financial Officer Certification

32.1

Section 1350 Certification

**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/ Kenneth W. Bell*

Kenneth W. Bell 

Chief Executive Officer

 

Date:   July 2, 2009

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