UNITED STATES
                SECURITIES AND EXCHANGE COMMISSION
                      Washington, D.C. 20549

                           FORM 10-KSB

[X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

        For the fiscal year ended December 31, 2005

[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        AND      EXCHANGE ACT OF 1934

                Commission file number:  000-26731

                      PACIFIC WEBWORKS, INC.
      ------------------------------------------------------
      (Exact name of registrant as specified in its charter)

           Nevada                                     87-0627910
     ------------------------              ----------------------------------
     (State of incorporation)             (I.R.S. Employer Identification No.)

180 South 300 West, Suite 400, Salt Lake City, Utah             84101
----------------------------------------------------            -----
(Address of principal executive offices)                      (Zip code)

Issuer'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

Check whether the issuer is not required to file reports pursuant to Section
13 or 15(d) of the Exchange Act. [ ]

The issuer (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 [ ]

Disclosure of delinquent filers in response to item 405 of Regulation S-B 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-KSB or any amendment to this Form
10-KSB. [ ]

Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).   Yes [ ]   No [X]

State issuer's revenue for its most recent fiscal year:   $5,914,346

As of February 23, 2006, the registrant had 35,426,895 shares of common stock
outstanding.  The aggregate market value of the shares of voting stock held by
non-affiliates as of that date was approximately $4,462,877.

Documents incorporated by reference:  None

Transitional Small Business Disclosure Format: Yes [   ] No [X]



<PAGE>

                        TABLE OF CONTENTS

                              PART I

Item 1.  Description of Business............................................3
Item 2.  Description of Property............................................9
Item 3.  Legal Proceedings..................................................9
Item 4.  Submission of Matters to a Vote of Security Holders................9

                             PART II

Item 5.  Market for Common Equity and Related Stockholder Matters...........9
Item 6.  Management's Discussion and Analysis or Plan of Operation.........11
Item 7.  Financial Statements..............................................20
Item 8.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure..............................................41
Item 8A. Controls and Procedures...........................................41
Item 8B. Other Information.................................................41

                             PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons,
         Compliance with Section 16(a) of the Exchange Act.................41
Item 10. Executive Compensation............................................42
Item 11. Security Ownership of Certain Beneficial Owners and Management
         and Related Stockholder Matters...................................44
Item 12. Certain Relationships and Related Transactions....................46
Item 13. Exhibits..........................................................46
Item 14. Principal Accountant Fees and Services............................46
Signatures.................................................................48


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," "will," "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.


                                2

<PAGE>



                              PART I

                 ITEM 1.  DESCRIPTION OF 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.  Pacific WebWorks has four wholly-owned subsidiaries,
Intellipay, Inc., TradeWorks Marketing, Inc., FundWorks, Inc, which are
Delaware corporations, and World Commerce Network, LLC.  Intellipay
specializes in providing online, secure and real-time payment processing
services for businesses of all sizes.  TradeWorks Marketing was incorporated
in Delaware on July 17, 2003, to mass market our products and services.
FundWorks, Inc. was incorporated on August 5, 2003, to provide operating lease
arrangements for certain TradeWorks' customers.  World Commerce Network, LLC
is a non-operating, discontinued operation.

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.

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.

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(TM) software, the Intellipay
payment systems, education and hosting services.

We provide a comprehensive one-stop solution that incorporates our integrated
suite of e-commerce software tools, plus hosting, site management, web design
services, and education.  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.

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.


                                3


<PAGE>


..      ClipOn Commerce(TM) 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.

..      WebContacts is 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 website, 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.

..      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 tool is 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.

..      WebStats enables our customers to analyze visitor activities on their
       websites 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 Connection is a module that allows Visual WebTools users to
       list inventory items with Ebay at the click of a button.

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.

..      ePayment System  supports 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


                                4
<PAGE>



       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, 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(TM)  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(TM)  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(TM)  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")  IntelliPay Desktop Terminal 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") IntelliPay is now submitting
       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.


                                5


<PAGE>

Education Services - We provide more than our software, we also assist our
customers with education and site design services.  We believe this
information helps our clients understand how to use the Internet more
effectively.

..      Coaching Services are personalized electronic/telephonic instruction on
       the use of our product technologies.  These services are directed
       towards assisting clients in making their virtual operations
       successful. We recommend eight to twelve, one-half hour training
       sessions for our new customers.

..      Retreats are workshops that are held one to two times per year for
       certain TradeWork's customers for informative direction on Internet
       marketing strategies.

Rent-a-Pro offers custom web site design services to clients who elect to hire
Pacific WebWorks to build their web site for them rather than building it
themselves.

Technical Support is offered via online chat or e-mail from 8 a.m. to 9 p.m.
(MST), or by phone from 8 a.m. to 5 p.m. (MST).

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."

Sales and Marketing

In July 2003 we incorporated TradeWorks Marketing to conduct marketing events
in locations throughout the United States. TradeWorks Marketing's product
offerings include Intellipay Virtual Terminal Software, Pacific WebWorks
Visual WebTools Web site manager and builder, including integration with
ebay(TM).com., TradeWorks Product Club
and coaching and training.  TradeWorks Marketing also has entered into
factoring arrangements with an outside leasing company with recourse for
certain sales of e-commerce software and merchant accounts.

In August 2003 we incorporated FundWorks, Inc. to provide operating lease
arrangements for certain TradeWorks' customers.  The operating lease
agreements are for the purchase of e-commerce software and merchant accounts
over 24 to 36 months for the price of $59.95 per month.  The customers relying
on these operating lease agreements have a higher credit risk.

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 market and sell our products primarily through reseller channels, including
our wholly-owned reseller TradeWorks Marketing, our own internal sales force
and strategic partnerships.  We sell our products to our partners at
wholesale.  The partners then mark the products up and sell them at retail.
We also sell our products through resellers who are paid a commission for each
merchant who purchases our products and subsequent services.  Each merchant
must sign a purchase agreement with the reseller, which the reseller must in
turn provide to us. We then provide software to the resellers' customers,
allowing them to create Internet web sites and/or complete e-business
solutions. We provide the initial reseller with training in the use of the
software.

We believe we may be able to develop a substantial presence in our target
market through a combination of broad channels of distribution, marketing
strategy, unique proprietary technology, technical expertise, and training and
education in the use of our products.  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



                                6


<PAGE>


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.  A number of
companies are now providing Internet services to small businesses.  They
include organizations like Microsoft, Yahoo!, Bigstep, Zyweb, Register.com,
GoDaddy, Bizfinity, MeZine.com and many others.  Our success in our target
market will depend upon our ability to 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(TM) product family.  We believe that "Yahoo! Store" is
our most significant competitor, with its brand name recognition and
significantly greater financial, technical, marketing, and managerial
resources. Yahoo! Store has significantly higher sales and customers than we
do and has entered into a significantly higher number of license agreements
with third parties.  We believe that our product provides a comparable service
for a lower price than that provided by Yahoo! Store.  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
the generality of the Yahoo! Store may be inadequately addressing potential
customer needs and that we will be better able to address their 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; and,
..     our ability to recruit resellers who can market and sell our products
      and services in significant volumes to the market.

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 approximately 10,000 active paying customer accounts.
We rely on the efforts of third party resellers, including our wholly-owned
reseller, TradeWorks Marketing, to add accounts to our customer base.  A
significant portion of our past 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 primarily dependent
upon TradeWorks Marketing for our product sales.  If we lose them, then we
expect our revenues to be adversely affected by attrition in our customer
account portfolios if there is not immediate replacement.

Trademark, Licenses and Intellectual Property

On October 9, 1998 Utah WebWorks filed a trademark application for Visual
WebTools(TM) that we acquired and became responsible for upon our merger with
Utah WebWorks.  In December of 1998 the United States Patent and


                                7


<PAGE>


Trademark Office assigned Serial No. 567,136 to this mark.  In addition we
have trademarks for Pacific WebWorks(TM) and ClipOn Commerce(TM).

On October 25, 2002 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 through October 29, 2006.  The mark
may be renewed one year prior to its expiration.

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.
We recorded research and  development expense of $264,829 for the year ended
December 31, 2005 primarily related to the further development of the
Intellipay products, our online auction tool and maintenance of our core
products.  During the year ended December 31, 2004, we recorded research and
development expense of $242,012 primarily related to development of our online
auction connector product, Intellipay Desktop Terminal, Intellipay Wirelees
Terminal and the updating of our core products.

Material Contracts

We initially entered into an informal agreement with Electric Lightwave, Inc.
for telecommunications and Internet access in January 1998.  We formalized the
agreement in February 1998 and negotiated an extension in November 2001, which
terminated in January 2004.  As of the date of this filing, this contract is
on a month-to-month basis.  The extension agreement requires that we pay
approximately $4,300 per month for a dedicated DS3 Internet and telephone
connection, and a redundant T-1.

Employees

As of the date of this filing we have 21 employees in Pacific WebWorks and 21
in Pacific WebWorks and 12 in our TradeWorks Marketing subsidiary.  We have
six employees in administration, two in sales/marketing, eight in operations
and five development engineers and twelve seminar/telesales 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 employees are good.


                                8

<PAGE>


                 ITEM 2.  DESCRIPTION OF PROPERTY

Our principal offices are located in the Westgate Business Center, which is
located in Salt Lake City, Utah.  This property serves as our main office and
data center.  We lease approximately 8,000 square feet of commercial office
space and pay approximately $8,400 per month until the lease expires in
December 2006.  In January of 2006 we leased an additional 3,500 square feet
on a month to month basis at $3,500 per month to house our telesales
personnel.  We believe this property will be adequate for our short term
needs.


                    ITEM 3.  LEGAL PROCEEDINGS

We are involved in various disputes and legal 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 2005 fiscal year.


                             PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

The principal market for our common stock is the NASD OTC Bulletin Board and
our common shares trade under the symbol "PWEB."  The following table presents
the range of the high and low bid 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.

     Year          Quarter Ended          High Bid     Low Bid
     ----          --------------         --------     --------
     2004          March 31               $  0.18      $  0.11
                   June 30                   0.13         0.09
                   September 30              0.10         0.052
                   December 31               0.10         0.06

     2005          March 31               $  0.095     $  0.06
                   June 30                   0.095        0.051
                   September 30              0.19         0.061
                   December 31               0.1475       0.09


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;
..     excluded from the definition on the basis of price (at least $5.00 per
      share) or the issuer's net tangible assets.

Trading in the penny stocks is subject to additional sales practice
requirements on broker-dealers who sell penny


                                9


<PAGE>


stocks to persons other than established customers and accredited investors.
Accredited investors, in general, include certain institutional investors and
individuals with assets in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 together with their spouse.

For transactions covered by these rules, broker-dealers must make a special
suitability determination for the purchase of our securities and must have
received the purchaser's written consent to the transaction prior to the
purchase.  Additionally, for any transaction involving a penny stock, the
rules require the delivery, prior to the first transaction, of a risk
disclosure document relating to the penny stock.  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 the purchaser disclosing recent price information
for the penny stocks.  Consequently, 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.

Holders

As of February 23, 2006, we had approximately 410 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

The following discussion describes all securities sold by Pacific WebWorks
during the fourth quarter of 2005 through the date of this filing that have
not been previously disclosed.

On December 9, 2005, we issued 408,500 shares of common stock to Universal
Business Insurance for director/officer liability insurance premium valued at
$40,850.  We relied on an exemption from registration for a private
transaction not involving a public distribution provided by Section 4(2) of
the Securities Act.

In the above private transaction we believe the purchaser either had
unrestricted access to detailed material information regarding our operations
due to personal relationships with us or was provided the same kind of
information regarding our operations as would be available in a registration
statement.  We believe the purchaser possessed sufficient sophistication to
evaluate the information provided and was able to bear the economic risk of
the purchase.  Also, we believe the purchaser:
..     was aware that the securities had not been registered under federal
      securities laws;
..     acquired the securities for its own account for investment purposes of
      the federal securities laws;
..     understood that the securities would need to be indefinitely held unless
      registered or an exemption from registration applied to a proposed
      disposition; and,
..     was aware that the certificate representing the securities would bear a
      legend restricting its transfer.
We believe that, in light of the foregoing, the sale of our securities to the
acquirer did not constitute the sale of an unregistered security in violation
of the federal securities laws and regulations by reason of the exemptions
provided under 4(2) of the Securities Act, and the rules and regulations
promulgated thereunder.

Issuer Purchase of Securities

None.


                                10

<PAGE>



ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Executive Overview

During the past year management has continued to focus on the marketing and
distribution channels, which, while costly, are believed to be the most
effective solution to increase our sales.  Our management took steps to
intensify our marketing and distribution strategy between several of our
product offerings in 2003 and those actions have led to revenue growth for
2005.  We continued to refine and expand our marketing efforts throughout the
year.  These refinements resulted in significantly increased registrations,
attendance and product purchases at our nationwide sales and training events.

Our net revenues for the year ended December 31, 2004 ("2004") were $3,617,486
compared to $5,914,346 for the year ended December 31, 2005 ("2005").  This
represented growth of 63.5% year over year.  Revenues of $1,972,897 for the
fourth quarter of 2005 were up 88.5% compared to the 2004 fourth quarter
revenues of $1,046,321.  This growth was primarily related to the sales and
training events in locations throughout the United States conducted through
our subsidiary, TradeWorks Marketing, Inc.  These events focus on the sale of
Pacific WebWorks and Intellipay products and the training necessary to
properly utilize these products.

Intellipay, Inc., a wholly owned subsidiary, made considerable progress in the
marketing of its Municipal Bill Pay solution during the 2005 year. This
product represents the only solution that is fully integrated into the Caselle
municipal accounting system used by hundreds of municipalities nationwide.
Intellipay added 17 new users to the system over the final six months of 2005
and is in negotiations with many others.

Progress was also made in the marketing of two new Intellipay products
introduced to the market during 2004.  The Intellipay Desktop Terminal which
brings all of the functionality of a Virtual Terminal application to your
desktop computer, reducing costs and allowing the merchant to receive a
qualified discount rate, and the Intellipay Wireless Terminal which allows
customers to process remote wireless transactions through a Nextel Cell phone,
a must for all mobile merchants.  Also, the addition of check processing
capabilities as a compliment to our credit card processing has significantly
enhanced the market's reception of the Intellipay product package.

As is always the case, our greatest challenges are:
..     increased and intense competition,
..     the identification and implementation of new distribution channels and
      sales and marketing techniques, and
..     the need to stay ahead of the curve in the development of our
      technologies.

Couple these operational hurdles with the constant need for more capital and
greater resources and the need for more and better communication with our
shareholders and prospective shareholders and you have a picture of the
challenges Pacific WebWorks will face in the coming year.

Pacific WebWorks and IntelliPay have great potential in the marketplace.
However, hurdles exist, such as identifying and implementing effective product
distribution channels, economic changes generally, gaining marketplace
acceptance and addressing shifting public attitudes for technology products
that could pose a threat to our success.

Liquidity and Capital Resources

While our revenues have increased in 2005, we have recorded net losses for the
past two years.  We rely on revenues, loans, and equity transactions to fund
our operations.  We are dependent on the efforts of our resellers, including
our wholly-owned subsidiary, TradeWorks Marketing, independent sales
representatives and our in-house sales personnel to increase our revenues,
while we continue to work to control expenses.  Our monthly cash outflows are
primarily related to our marketing and operating expenses.  These cash
outflows can exceed monthly cash inflows based on timing differences between
marketing campaigns and sales.

Net cash used in continuing operations for 2004 was $190,195 compared to net
cash used in continuing operations of $241,057 for 2005.  Net cash used by
operations for 2004 was primarily the result of increased advertising expense


                                11

<PAGE>


and commissions paid to obtain revenues for our products and services and the
related timing differences in recognition of those deferred revenues, along
with non-recurring expenditures for enhancement of our data center and
security features related to our online credit card transaction processing
product.  Net cash used by operations for 2005 was primarily the result of
continued increases in marketing and advertising and administrative expenses.

For the 2004 year, net cash used by investing activities was $107,534 compared
to net cash used in investing activities of $67,405 for the 2005 year.
Investing activities for the 2004 year were primarily related to cash placed
on reserve with a financial institution related to TradeWorks Marketing's
merchant account.  Investing activities for the 2005 year consisted primarily
of purchases of property and equipment and the increase in cash placed on
reserve with a financial institution related to TradeWorks Marketing's
merchant account.

We expect 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 inflows.  It
should be noted that 55 % of our current liabilities are made up of deferred
revenues that will be recognized over the next eight to twelve months and this
liability does not require a specific cash outlay, but only that we remain a
going concern.

In 2004 we covered our cash shortfalls by selling our common stock for an
aggregate $250,000.  In 2005 we have relied on loans and equity financing to
cover cash shortfalls.  In June 2005 we entered into promissory note
agreements with two different lenders for an aggregate $200,000, at 8%
interest.  The promissory notes were executed on June 28 and 30, 2005 with two
different lenders.  Each note had a principle amount of $100,000 and each note
is due and payable on December 31, 2006.  The notes are collateralized by our
business assets and are convertible into our common stock at $0.06 per share.
We paid off these notes in the third quarter of 2005.

Net cash provided by financing activities for 2005 was $600,000 and was the
result of proceeds from convertible notes, sales of our common stock and the
exercise of warrants.  On July 1, 2005 we negotiated a Unit Purchase Agreement
with three accredited investors.  Under this agreement we issued 4,166,667
units at a unit price of $0.06 for net proceeds of $250,000.  Each unit
consisted of one share of common stock and one warrant to purchase one
additional share of common stock at a specified price.  One half of the
warrants had an exercise price of $0.12 per share and one half had an exercise
price of $0.17 per share.  The warrants were immediately exercisable and
expire October 26, 2006, one year from the effective date of a registration
statement filed to register the unit shares.  Warrants were exercised for the
purchase of an additional 2,083,334 shares at $0.12 for net proceeds of
$250,000.  We received a total of $500,000 from this agreement and the
remaining $350,000 from the equity financing is in the form of warrants that
are exercisable at $0.17 per share at some future date.  We used $200,000 of
these monies to repay the promissory notes discussed above and used the
balance for operations.  We registered the shares and the underlying shares of
the warrants issued under this agreement on a Form SB-2 that was declared
effective by the SEC on October 26, 2005.

On October 30, 2005 we entered into a promissory note agreement for $100,000.
The note interest was 8% per annum and is due in full on April 30, 2007.  This
note is collateralized by our business assets.

We also issue common stock to pay for services that we require, whenever
prudent, in an effort to conserve our cash for working capital and to support
growth.  On July 1, 2005, we granted warrants to purchase 1,000,000 shares of
common stock to Chesapeake Group, Inc.  The warrants were granted in
consideration for consulting services and were valued at $9,832, using the
Black-Scholes option pricing model.  Warrants to purchase 500,000 shares have
an exercise price of $0.10 and warrants to purchase 500,000 shares have an
exercise price of $0.15.  The warrants have an exercise term of three years,
expiring in July 1, 2008.  We also granted registration rights to the
underlying shares of the warrants.  We registered the shares and the
underlying shares of the warrants issued under this agreement on a Form SB-2
that was declared effective by the SEC on October 26, 2005.

During 2005 we also issued shares of common stock to purchase insurance
policies.  In May 2005 we issued 230,000 shares for insurance policies valued
at $15,000 and in December 2005, we issued 408,500 shares of common stock to
Universal Business Insurance for a director/officer liability insurance
premium valued at $40,850.

We operate in a very competitive industry in which large amounts of capital
are required in order to continually


                                12


<PAGE>


develop and promote products.  Many of our competitors have significantly
greater capital resources than we have.  We believe that we may need an
additional $1 to 2 million during the next twelve 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.  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.

Commitments and Contingent Liabilities

Our operating commitments consist of our operating lease for our Salt Lake
City office that approximates $8,400 per month.  Future minimum lease payments
under this lease are $101,760 through 2006.  As of December 31, 2005, we had
an accrued liability of approximately $91,522 related to the Intellipay's
operating lease default.  Intellipay defaulted on its operating lease in May
2002 after we closed Intellipay's physical office, located in Fremont,
California, and moved its technological infrastructure and operations to Salt
Lake City, Utah in February 2002.  The Intellipay lease required approximately
$6,000 per month, plus late fees and interest, through December 2003.  The
accrued liability has been reduced for time that the property was leased to a
third party by the property manager.

Our total current liabilities at December 31, 2005, were comprised of accounts
payable, accrued liabilities, deferred revenue, net current liabilities from
discontinued operations, and convertible notes payable.  Accounts payable
totaled $94,053 and were related to operating costs such as advertising
expenses, professional fees and seminar expenses.  Our accrued liabilities of
$125,280 were primarily the result of the operating lease default for the
Intellipay office space, contingent reseller commissions, payroll liabilities,
and estimated refunds and factoring obligations.  Deferred revenues included
up-front fees received for license fees, software services and education not
yet performed or delivered and totaled $679,206 at December 31, 2005.  Current
liabilities from discontinued operations were $235,274 and are related to
World Commerce Network, LLC.

The operations of World Commerce Network, LLC, our subsidiary, are ceased and
discontinued.  Management is attempting to negotiate settlements of World
Commerce Network's accrued liabilities.  As of December 31, 2005, World
Commerce Network's accrued liabilities totaled $171,264 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 over two years.

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, 2005 were approximately $321,392 through December
31, 2006 and $199,094 through December 31, 2007.  Collectability of future
minimum lease receipts cannot be assured because the customers placed in these
operating leases have a higher credit risk.

Off-balance Sheet Arrangements

None.


                                13

<PAGE>


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, goodwill and the annual tests for impairment of goodwill,
contingent liabilities, and valuing stock option compensation.

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.

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.

Our ability to avoid impairment of the goodwill related to Intellipay is
largely dependent on Intellipay's ability to further generate revenues and
cash flows in accordance with budgeted amounts.  We currently do not expect
impairment to occur for the Intellipay business unit in the near term;
however, if an impairment occurs it would have a material effect on our
financial condition by resulting in a net decrease in our consolidated assets
and consolidated net earnings.  We performed a goodwill impairment test during
2005 and concluded there was no impairment of goodwill.

In addition to deferred revenue and goodwill impairment, our consolidated
financial statements include estimates for contingent liabilities that are
considered probable.  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 affect on our cash balances at
December 31, 2005.  Any judgments that may be received by us for pending or
threatened litigation related to discontinued operations may not have a direct
affect 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.  Any settlements that might occur below amounts accrued would result
in a favorable impact to our earnings and working capital.

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.


                                14


<PAGE>


Results of Operations

The following discussions are based on the consolidated financial statements
for the year ended December 31, 2004 and 2005 for Pacific WebWorks,
Intellipay, TradeWorks Marketing, Fundworks and the discontinued operations of
World Commerce Network, LLC, a non-operating company.  The following chart is
a summary of our financial statements for 2004 and 2005 and should be read in
conjunction with the financial statements, and notes thereto, included with
this report at Item II, Part 7, below.


        Comparison of 2004 and 2005 Fiscal Year Operations
       ---------------------------------------------------

                                        2004                        2005
                                    ------------               ------------

Revenues, net                       $  3,617,486               $ 5,914,346

Cost of sales                          1,071,241                 1,771,725

Gross profit                           2,546,245                 4,142,620

Total operating expenses               3,036,640                 4,499,580

Loss from operations                    (490,395)                 (356,960)

Other income and (expense), net            2,068                    61,087

Income taxes                                 300                         -

Net earnings (loss)                     (488,627)                 (295,873)

Net earnings (loss) per share       $      (0.02)              $     (0.01)


We recognize hosting, maintenance, transaction and processing fees in the
period in which fees are fixed or determinable and the related products or
services are provided to the user.  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.  Fees for the set-up of merchant
accounts are deferred and recognized as services are delivered, which is
generally two months.  Training and design revenues are recognized as the
related services are performed.

As discussed above in our Executive Overview, new marketing plans and
strategies implemented over the past two years have resulted in increased
revenues.  Even with the deferral of a significant amount of our 2005 sales,
our sales increased  63.5% for 2005 compared to 2004.  Management expects
revenues to continue to increase as a result of our continued marketing
activities.

Cost of sales include fulfillment, customer service, certain royalties and
commissions, amortization of purchased customer portfolios, service personnel,
telecommunications and data center costs.  Cost of sales for 2004 and 2005 was
primarily related to our new marketing strategy and related increases in
reseller fees and commissions.  The cost of sales increased 65.4% in 2005
compared to 2004.  Management anticipates that cost of sales will increase
over the next year due to our continued marketing efforts.

Total operating expenses increased 48.0% from 2004 to 2005.  Selling expenses
for 2005 increased 55.8% compared to 2004.  Selling expenses include
advertising expenses, seminar expenses, commissions and personnel expenses for
sales and marketing.  We have expended significant amounts on sales and
marketing, including direct mail, radio, and print advertising.

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 9.4% in 2005 compared
to 2004 and management anticipates that these expenses will increase at
approximately the same rate over the next year.



                                15


<PAGE>


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 50.0% largely due to increased personnel expense and bad debt
expense related to our expanded operations.

Net other income for 2004 was primarily related to interest income earned on
certificates of deposit.  Net other income for 2005 was primarily related to
interest income earned on certificates of deposit and the recovery of a
previously booked expense.

As a result of the above items, we recorded a net loss and net loss per share
for both 2004 and 2005, but our net loss decreased 39.4% in 2005 compared to
2004.

Balance Sheet - the following chart is a summary of our balance sheet.


      Comparison of 2004 and 2005 Fiscal Year Balance Sheet
      -----------------------------------------------------

                                             2004                2005
                                         --------------    --------------

Cash and cash equivalents                $     452,983     $     744,521

Total current assets                           623,445         1,166,814

Total assets                                 3,799,588         4,368,083

Total current liabilities                      937,125         1,133,812

Total liabilities                              937,125         1,233,812

Accumulated deficit                        (12,727,027)      (13,022,900)

Total stockholders equity                $   2,862,462     $   3,134,271


Total current assets increased in 2005 primarily as a result of increased
prepaid expenses, receivables from our marketing efforts, and increased cash
balances.  Total liabilities also increased in 2005 as a result of increases
in deferred revenue and notes payable of $100,000.

Factors Affecting Future Performance

      We have a history of losses and anticipate future losses.

We are unable to fund our day-to-day operations from revenues alone.  For the
year ended December 31, 2005, we incurred a net loss of $295,873 compared to a
net loss of $488,627 for the year ended December 31, 2004.  We anticipate
revenue from operations and equity transactions will fund our operations for
the next twelve months; however, we cannot assure you that we will be able to
attain or maintain profitability.

      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.  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

                                16



<PAGE>


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(TM) 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(TM) and the
IntelliPay payment system through a combination of licenses and 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.


                                17



<PAGE>


      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 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.


                                18

<PAGE>


      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.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, beginning with our
Annual Report on Form 10-KSB for the fiscal year ending December 31, 2007, we
will be 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 will need to engage in a process to document and
evaluate our internal control over financial reporting, which will be both
costly and challenging.  In this regard, management will need to dedicate
internal resources, engage outside consultants and adopt a detailed work plan
to:
..     assess and document the adequacy of internal control over financial
      reporting,
..     take steps to improve control processes where appropriate,
..     validate through testing that controls are functioning as documented,
      and
..     implement a continuous reporting and improvement process for internal
      control over financial reporting.
We can not assure you as to our, or our independent auditors', conclusions at
December 31, 2007 with respect to the effectiveness of our internal control
over financial reporting.  There is a risk that neither we nor our independent
auditors will be able to conclude at December 31, 2007 that our internal
controls over financial reporting are effective as required by Section 404 of
the Act.

During the course of our testing we may identify deficiencies which we may not
be able to remediate in time to meet the deadline imposed by the
Sarbanes-Oxley Act for compliance with the requirements of Section 404. In
addition, 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;


                                19

<PAGE>



..     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.

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 7: FINANCIAL STATEMENTS



             Pacific WebWorks, Inc. and Subsidiaries

                CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2005






                                20

<PAGE>



             Pacific WebWorks, Inc. and Subsidiaries





     CONTENTS                                                   PAGE
     --------                                                   ----

     Independent Auditors' Report................................22

     Consolidated Balance Sheets, December 31,
     2005 and December 31, 2004 .................................23

     Consolidated Statements of Operations for
     the years ended December 31, 2005 and 2004..................24

     Consolidated Statements of Stockholders Equity for
     the years ended December 31, 2005 and 2004..................25

     Consolidated Statements of Cash Flows for the
     years ended December 31, 2005 and 2004......................26

     Notes to the Unaudited Financial Statements............27 - 40





                                21

<PAGE>



Chisholm                                         533 West 2600 South, Suite 25
  Bierwolf &                                             Bountiful, Utah 84010
    Nilson, LLC                                          Phone: (801) 292-8756
Certified Public Accountants                               Fax: (801) 292-8809


     REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders
of Pacific Webworks, Inc.

We have audited the accompanying consolidated balance sheets of Pacific
Webworks, Inc. and Subsidiaries as of December 31, 2005 and 2004 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, 2005 and 2004
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 3, 2006




                                22

<PAGE>




             Pacific WebWorks, Inc. and Subsidiaries
                   CONSOLIDATED BALANCE SHEETS


                              ASSETS

                                                          December 31,
                                                      2004           2005
                                                 -------------- -------------
CURRENT ASSETS

  Cash and cash equivalents                      $     452,983  $    744,520
  Receivables
    Trade, less allowance
    for doubtful receivables of
    $127,421 in 2004 and $97,592 in 2005                96,260       269,002
  Prepaid expenses                                      74,202       153,291
                                                 -------------- -------------

     Total current assets                              623,445     1,166,814
                                                 -------------- -------------

PROPERTY AND EQUIPMENT, NET AT COST                     70,382        81,039
RESTRICTED CASH                                        136,519       163,472
GOODWILL                                             2,946,253     2,946,253
OTHER ASSETS, NET                                       22,989        10,505
                                                 -------------- -------------

                                                 $   3,799,588  $  4,368,083
                                                 ============== =============


               LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Accounts payable                               $      89,164  $     94,053
  Accrued liabilities                                  181,109       125,280
  Deferred revenue                                     431,578       679,206
  Current liabilities from discontinued operations     235,274       235,274
                                                 -------------- -------------

    Total current liabilities                          937,125     1,133,812
                                                 -------------- -------------

Notes payable                                                -       100,000
                                                 -------------- -------------

    Total liabilities                                  937,125     1,233,812
                                                 -------------- -------------
STOCKHOLDERS' EQUITY

  Common stock - par value $0.001; authorized
   50,000,000; issued and outstanding
   28,517,622 shares in 2004 and
   35,426,895 shares in 2005                            28,518        35,427
  Additional paid-in capital                        15,560,971    16,121,744
  Accumulated deficit                              (12,727,027)  (13,022,900)
                                                 -------------- -------------

    Total stockholders' equity                       2,862,462     3,134,271
                                                 -------------- -------------

                                                 $   3,799,587  $  4,368,083
                                                 ============== =============




 The accompanying notes are an integral part of these statements.

                                23
<PAGE>




             Pacific WebWorks, Inc. and Subsidiaries
              CONSOLIDATED STATEMENTS OF OPERATIONS


                                                         Year ended
                                                         December 31,
                                                      2004           2005
                                                 -------------- -------------
Revenues, net
  Software, access and license fees              $     655,440  $  1,392,093
  Hosting, gateway and maintenance fees              1,430,328     1,814,550
  Training and education                               817,197     1,219,231
  Merchant accounts, design and other                  714,521     1,488,471
                                                 -------------- -------------
                                                     3,617,486     5,914,346

Cost of sales                                        1,071,241     1,771,725
                                                 -------------- -------------

    Gross profit                                     2,546,245     4,142,620

Selling expenses                                     1,516,567     2,362,694
Research and development                               242,012       264,829
General and administrative                           1,228,324     1,842,262
Depreciation and amortization                           49,736        29,795
                                                 -------------- -------------

    Total operating expenses                         3,036,640     4,499,580
                                                 -------------- -------------

    Net loss from operations                          (490,395)     (356,960)
                                                 -------------- -------------
Other income (expense)
  Interest income                                        3,054        11,817
  Other income (expense), net                             (986)       49,270
                                                 -------------- -------------
                                                         2,068        61,087
                                                 -------------- -------------
    Net income (loss) from continuing operations
    before income taxes                               (488,327)     (295,873)
                                                 -------------- -------------
Income Taxes                                               300             -
                                                 -------------- -------------

    Net income (loss) from continuing operations      (488,627)     (295,873)

Discontinued operations
  Gain (loss) from operations (net of income tax)            -             -

  Gain on disposal (net of income tax)                       -             -
                                                 -------------- -------------
    Total gain (loss) from discontinued operations           -             -

    NET LOSS                                      $    (488,627) $   (295,873)
                                                 ============== =============
Net loss per common share - basic and dilutive
  Net income loss from continuing operations     $       (0.02) $      (0.01)
  Gain from discontinued operations                          -             -
                                                 -------------- -------------
  Net earnings (loss)                            $       (0.02) $      (0.01)
                                                 ============== =============
Weighted-average number of shares outstanding
  Basic                                             24,853,964    31,497,718
                                                 ============== =============
  Dilutive                                          25,165,075    32,656,228
                                                 ============== =============



 The accompanying notes are an integral part of these statements.

                                24




<PAGE> 19
<TABLE>
<CAPTION>

             Pacific WebWorks, Inc. and Subsidiaries

          CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

              Years ended December 31, 2004 and 2005


                                                             Additional
                         Price per        Common Stock         Paid-in     Accumulated
                           share       Shares      Amount      Capital       Deficit       Totals
                         ---------- ------------ ---------- ------------- ------------- -------------

                      <c>        <c>          <c>        <c>           <c>           <c>
Balances at
 January 1, 2004         $       -   24,587,622     24,588    15,288,181   (12,238,400)    3,074,369

Issuance of stock for
 insurance policies           0.09      300,000        300        26,420             -        26,720

Issuance of common
 stock for cash               0.07    3,630,000      3,630       246,370             -       250,000

Net loss 2004                    -            -          -             -      (488,627)     (488,627)
                                    ------------ ---------- ------------- ------------- -------------
Balances at
 December 31, 2004                   28,517,622     28,518    15,560,971   (12,727,027)    2,862,462

Issuance of stock for
 insurance policies           0.01      639,273        638        55,210             -        55,849

Issuance of stock for
 portfolio                    0.10       20,000         20         1,980             -         2,000

Issuance of common
 stock for cash               0.12    6,250,000      6,250       493,750             -       500,000

Compensation for
 Issuance of Warrants
  to Investor
  Relations Firm                 -            -         -          9,832             -         9,832

Net loss 2005                    -            -         -              -      (295,873)     (295,873)
                                    ------------ ---------- ------------- ------------- -------------
Balances at
  December 31, 2005                  35,426,895  $  35,426  $ 16,121,744  $(13,022,900) $  3,134,270
                                    ============ ========== ============= ============= =============




    The accompanying notes are an integral part of this financial statement

                                      25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>




                    Pacific WebWorks, Inc. and Subsidiaries
                     CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                       For the
                                                                     year ended
                                                                     December 31,
                                                                 2004          2005
                                                            -------------- -------------
<S>                                                         <C>            <C>
Increase (decrease) in cash and cash equivalents
  Cash flows from operating activities
    Net earnings (loss)                                     $    (488,627) $   (295,873)
    Adjustments to reconcile net earnings (loss)
     to net cash used in operating activities
      Depreciation & amortization                                  49,736        29,795
      Issuance of  options and warrants for compensation                -         9,832
      Bad debt expense                                            512,914       828,437
    Changes in assets and liabilities
      Receivables                                                (579,525)   (1,001,180)
      Prepaid expenses and other assets                            65,827        (8,756)
      Accounts payable and accrued liabilities                     23,502       (50,940)
      Deferred revenue                                            225,977       247,628
                                                            -------------- -------------

        Total adjustments                                         298,431        54,816
                                                            -------------- -------------

        Net cash provided by continuing operating activities     (190,196)     (241,057)
                                                            -------------- -------------
Cash flows from investing activities
  Purchases of property and equipment                             (21,966)      (40,452)
  Cash on reserve with bank                                       (85,568)      (26,953)
                                                            -------------- -------------

        Net cash provided by (used in) investing activities      (107,534)      (67,405)
                                                            -------------- -------------
Cash flows from financing activities
  Proceeds from notes payable                                           -       100,000
  Proceeds from convertible notes payable                               -       200,000
  Payments on convertible notes payable                                 -      (200,000)
  Proceeds on issuance of stock                                   250,000       250,000
  Proceeds on exercise of warrants                                      -       250,000
                                                            -------------- -------------

        Net cash used in financing activities                     250,000       600,000
                                                            -------------- -------------

        Net increase in cash and cash equivalents                 (47,730)      291,538

  Cash and cash equivalents at beginning of period                500,713       452,983
                                                            -------------- -------------

  Cash and cash equivalents at end of period                $     452,983  $    744,521
                                                            ============== =============

  Supplemental disclosures of cash flow information:
    Cash paid for interest                                  $           -  $          -
    Cash paid for income taxes                                        800           800

  Non-cash financing activities:
    Issuance of stock for prepaid insurance policies               26,720        55,849
    Reseller note settlement                                            -             -

       The accompanying notes are an integral part of these statements.

                                      26

</TABLE>
<PAGE>

             Pacific WebWorks, Inc. and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2005

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 also provides website development and training for
its customers.

The Company was organized under the laws of the state of Nevada on May 18,
1987 as Asphalt Associates, Inc.  On December 31, 1998, the board of directors
changed the name of the Company to Pacific WebWorks, Inc.  On January 11,
1999, the Company merged with Utah Webworks, Inc., a Utah corporation
organized April 10, 1997.  The share exchange with Utah Webworks was accounted
for as a reverse merger; therefore, all financial information prior to January
11, 1999 is that of the accounting survivor, Utah Webworks.

TradeWorks Marketing, Inc. and FundWorks, Inc. were organized in the state of
Delaware in July and August of 2003, respectfully.  TradeWorks began
operations in August 2003 and engages in the marketing and sales of Pacific
WebWorks and Intellipay products.  FundWorks began operations in December 2003
and provides operating leases for customers with higher credit risk.


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. All significant intercompany accounts and
transactions have been eliminated in consolidation.

Certain prior period balances have been reclassified to conform with current
period presentation.


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.


                                27


<PAGE>



             Pacific WebWorks, Inc. and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2005


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.

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 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 2005 and
concluded there was no impairment of 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.  The Company also follows American Institue of Certified
Public Accountants Statement of Position ("SOP") 97-2, as amended by SOP 98-9.
In the third quarter 2003, the company adopted EITF Issue No. 00-21, Revenue
Arrangements with Multiple Deliverables ("EITF Issue No. 00-21").


                                28

<PAGE>


             Pacific WebWorks, Inc. and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2005

NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION - CONTINUED

Revenue Recognition - Continued
-------------------------------
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.

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 (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
--------------
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, and print advertising. 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.

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.


                                29

<PAGE>


             Pacific WebWorks, Inc. and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2005

NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION - CONTINUED

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.

Stock Based Compensation
------------------------
The Company has applied the disclosure provisions of Statement of Financial
Accounting Standards No. 148, "Accounting for Stock-Based Compensation
Transition and Disclosure   An amendment of FASB Statement No. 123," for the
years ended December 31, 2004 and 2003.  This Statement provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based compensation.  In addition, this Statement amends
the disclosure requirements of SFAS No. 123 to require prominent disclosures
in both interim and annual financial statements about the method of accounting
for stock-based compensation and the effect of the method on reported results.
As permitted by SFAS No. 148, the Company continues to account for stock
options under APB Opinion No. 25, under which no compensation has been
recognized.

The following table illustrates the effect on net losses and loss per share if
the Company had applied the fair value recognition provisions of SFAS No. 123,
as amended by SFAS 148 to stock-based compensation:


                                                Year Ended December 31,
                                                   2004          2005
                                              ------------- --------------
Net loss
  From continuing operations
                              As reported     $   (488,327) $    (295,873)
                              Pro forma           (809,358)      (507,332)

Net earnings (loss)           As reported     $   (488,327) $    (295,873)
                              Pro forma           (809,358)      (507,332)

Net earnings (loss) per
 common share from continuing
 operations basic and
 fully diluted                As reported     $      (0.02) $       (0.00)
                              Pro forma              (0.03)         (0.01)

Net earnings (loss) per
  common  share               As reported     $      (0.02) $       (0.00)
                              Pro forma              (0.03)         (0.01)



                                30

<PAGE>


             Pacific WebWorks, Inc. and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2005

Stock Based Compensation - Continued
------------------------------------
The fair value of these options was estimated at the date of grant using the
Black-Scholes American option-pricing model with the following
weighted-average assumptions for options granted in 2004 and 2005: expected
volatility of 101 percent and 174 percent, respectively; risk-free interest
rate of 4.00 percent and 4.23 percent, respectively; and expected life of 3.5
and 5 years, respectively.  The weighted-average fair value of options granted
was $0.05 and $0.11 in 2004 and 2005, respectively.

Option pricing models require the input of highly sensitive assumptions,
including expected stock volatility.  Also, the Company's 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.

Earnings (loss) Per Share
-------------------------
The computation of net 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 loss per share.  Potentially
issuable common shares totaling 5,334,424 related to options were excluded
from the calculation of diluted loss per share because their effects were
anti-dilutive for the year ended December 31, 2004.  Potentially issuable
common shares totaling 6,802,151 related to options and 1,000,000 related to
warrants were excluded from the calculation of diluted loss per share because
their effects were anti-dilutive for the year ended December 31, 2005.

The following is the calculation for weighted average common shares used in
basic and dilutive net earnings (loss) per share:


                                                      Year ended December 31,
                                                        2004       2005
                                                    ------------- ------------
Common shares outstanding during the period           24,587,622   28,517,622
Weighted average common shares issued                    266,342    2,980,096
                                                    ------------- ------------
Weighted average common shares used
   in basic earnings (loss) per share                 24,853,964   31,497,718
                                                    ------------- ------------
Dilutive effects of potentially issuable
   common shares (warrants)                              311,111    1,158,510
                                                    ------------- ------------
Weighted average number of common shares
  and dilutive potential common stock used
   in diluted earnings (loss) per share               25,165,075   32,656,228
                                                    ============= ============


Recent Accounting Pronouncements
--------------------------------
In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment".
This Statement revises SFAS No. 123, "Accounting for Stock-Based Compensation"
and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees."
SFAS No. 123(R) requires that the compensation cost relating to share-based
payment transactions be recognized in financial statements.  The cost will be
measured based on the fair value of the instruments issued.  The Company will
be required to apply SFAS No. 123(R) as of the first interim reporting period
that



                                31
<PAGE>


             Pacific WebWorks, Inc. and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2005

Recent Accounting Pronouncements - Continued
--------------------------------------------
begins after June 15, 2005.  Accordingly, the Company will adopt SFAS No.
123(R) in the third quarter of 2005.  Management is currently evaluating the
impact SFAS No. 123(R) will have on the Company's results of operations as a
result of adopting this new Standard.

NOTE 2 - PROPERTY AND EQUIPMENT
                                                                  Estimated
Property and equipment includes the following:   December 31,     useful
                                                2004      2005    life (years)
                                          ----------- ----------- ------------
      Computer Equipment                  $  340,760  $  350,338       3-5
      Equipment                              116,710     141,306       2-10
      Software                                93,958      98,847       1-3
      Furniture and Fixtures                  86,780      87,787       3-10
      Leasehold Improvements                   4,598       4,980 Life of lease
                                          ----------- -----------
                                             642,806     683,258
      Less Accumulated Depreciation         (572,424)   (602,219)
                                          ----------- -----------
                                          $   70,382  $   81,039
                                          =========== ===========

NOTE 3 - OTHER ASSETS

Other assets include the following:             December 31,
                                             2004          2005
                                         -------------- -------------
      Purchased customer portfolio       $     278,309  $    280,309
      Deposits                                   9,672         9,672
                                         -------------- -------------
                                               287,981       289,981
                                         -------------- -------------
      Accumulated amortization                (264,992)     (279,476)
                                         -------------- -------------
                                         $      22,989  $     10,505
                                         ============== =============

Pacific WebWorks, Inc. has entered into agreements with resellers for the
purchase of residual interests in customer hosting and terminal portfolios.
These definite-life intangible assets are being amortized over the period of
expected future cash flows these charges are included in cost of sales.


                                32

<PAGE>




             Pacific WebWorks, Inc. and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2005

NOTE 4 - ACCRUED AND OTHER LIABILITIES

Accrued liabilities consist of the following:             December 31,
                                                        2004       2005
                                                  ------------- ------------
      Payroll related liabilities                 $     38,130  $    46,054
      Sales contractor commissions                       6,766        2,346
      Contingent reseller commissions                   39,790            -
      Operating lease in default                        90,357       91,522
      Refunds and factor                                 4,426      (16,282)
      Income tax payable                                 1,200          900
      Other                                                440          440
                                                  ------------- ------------
                                                  $    181,109  $   181,109
                                                  ============= ============

NOTE 5 - OPERATING LEASE REVENUES

During years ended December 31, 2004 and 2005, certain customers of TradeWorks
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.

Future annual minimum lease receipts for FundWorks operating leases as of
December 31, 2005 are as follows:
                                                     Through
                                                  December 31,
                                                  -----------
                                                    2006        $  321,392
                                                    2007           199,094
                                                    2008                 -
                                                  Thereafter             -
                                                                -----------
                                                                $  520,486
                                                                ===========

Collectability of future minimum lease receipts cannot be assured as the
customers placed in operating leases are of a higher credit risk.  TradeWorks
also enters into factoring arrangements for certain sales of e-commerce
software and merchant accounts to an outside leasing company with recourse.
Estimated recourse amounts are reduced from the amount funded to the company
and netted against sales for reporting purposes as they are not considered
realizable.  Additional amounts due under the factoring arrangements are
estimated and recorded as an accrued liability (Note 4).

NOTE 6 - NOTES PAYABLE / CONVERTIBLE NOTES PAYABLE

During June 2005, the Company entered into Promissory Note agreements with
limited liability companies for $200,000.  The notes interest was at 8% per
annum, and was due in full including principal and interest on December 31,
2006.  The notes were collateralized by the Company's business assets.   The
notes were paid in full during the third quarter 2005.


                                33


<PAGE>


             Pacific WebWorks, Inc. and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2005

NOTE 6 - NOTES PAYABLE  / CONVERTIBLE NOTES PAYABLE - CONTINUED

On October 30, 2005, the Company entered into 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.

NOTE 7 - STOCKHOLDERS' EQUITY

Stock Issuance
--------------
On July 1, 2005, the Company entered into a Unit Purchase Agreement with
investors for up-to 4,500,000 units at $0.06 per unit.  A unit consists of one
share of the Company's common stock and one warrant for the purchase of an
additional share at a specified exercise price. One half of the warrants have
an exercise price of $0.12 per share and one half have an exercise price of
$0.17 per share.   Warrants are immediately exercisable and will expire one
year from the effective date of a registration statement to be filed covering
the shares.

During July 2005, 4,166,667 units were purchased resulting in the issuance of
4,166,667 shares of the Company's common stock for total funding of $250,000.
Also in July 2005, investors exercised warrants at $0.12 per share for
2,083,333 shares of the Company's common stock for $250,000 in cash.
Immediately following these transactions warrants representing 2,083,333
shares of the Company's common stock were outstanding at an exercise price of
$0.17 per share.

During May and October 2005, the Company issued 230,000 and 408,500 shares of
its common stock for payment of $15,000 and $40,850 related to insurance
premiums.

During February 2005, the Company issued 20,000 shares of its common stock to
purchase a portfolio of recurring service customers and related technology
valued at $2,000.

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
Company may grant awards representing up to 7,500,000 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, 2005.

Directors, officers, and employees have been granted options to acquire
6,802,151 shares of the company's common stock and 5,834,651 of the options
are exercisable as of December 31, 2005. The options were granted at exercise
prices ranging from $0.07 - $2.00 per share.  The options vest periodically
through April 2006 and expire through April 2011.


                                34
<PAGE>




             Pacific WebWorks, Inc. and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2005


NOTE 7 - STOCKHOLDERS' EQUITY  - CONTINUED

Equity Incentive Plan - Continued
---------------------------------
Options to purchase 50,000 shares of the Company's common stock were granted
in April 2005 at an exercise price of $0.10 per share. These options vest
through October 2005 and expire in April 2010.

Information with respect to the Company's stock options follows:

                                                              Weighted-average
                                Stock options  Exercise price  exercise price
                                ------------- ---------------  --------------
Outstanding at January 1, 2003     4,696,302    $0.14-$2.00       $0.54
   Granted                         1,400,000       0.07            0.07
   Exercised                               -          -               -
   Forfeited                         761,878     0.14- 2.00        0.82
                                ------------- ---------------  --------------
Outstanding at December 31, 2004   5,334,424    $0.07-$1.75       $0.37
                                ============= =============== ===============
   Granted                         1,935,000       0.12            0.12
   Exercised                               -          -               -
   Forfeited                         471,773    $0.07-$1.75       $0.48
                                ------------- --------------- ---------------
Outstanding at December 31, 2005   6,797,651    $0.07-$0.87       $0.28
                                ============= =============== ===============

Options outstanding


                                                           Weighted-
                   Number        Weighted-average     average remaining
Exercise price     outstanding   exercise price       contractual life (years)
---------------    -----------   ----------------     -----------------------
   0.87                40,151           0.87                    5
   0.75             1,582,500           0.75                    4.75
   0.23             1,230,000           0.23                    1.5
   0.14               385,000           0.14                    2.75
   0.12             1,935,000           0.12                    4.75
   0.07             1,625,000           0.07                    3.75
                  ------------
                    6,802,151
                  ============

Options exercisable


                                                           Weighted-
                   Number        Weighted-average     average remaining
Exercise price     exercisable   exercise price       contractual life (years)
---------------    -----------   ----------------     -----------------------
   0.87                40,151           0.87                     5
   0.75             1,582,500           0.75                     4.75
   0.23             1,230,000           0.87                     1.5
   0.14               385,000           0.14                     2.75
   0.12               967,500           0.12                     4.75
   0.07             1,625,000           0.07                     3.75
                   -----------
                    5,834,651
                   ===========



                                35

<PAGE>



             Pacific WebWorks, Inc. and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2005

NOTE 7 - STOCKHOLDERS' EQUITY  - CONTINUED

Issuance of Warrants
--------------------
During July 2005, the Company issued warrants to purchase 1,000,000 shares of
its common stock to an investor relations firm.  The warrants are immediately
exercisable for 500,000 shares at $0.10 and 500,000 shares at $0.15 and expire
in July 2008.  The fair value of this transaction totals $9,832 which has been
estimated using the Black Scholes option-pricing model and recorded as a
general and administrative expense.

As discussed above, during July 2005, the Company issued warrants to purchase
2,083,333 shares of its common stock at $0.12 per share and warrants to
purchase 2,083,333 shares of its common stock at $0.17 per share.  The
warrants were issued in conjunction with a common stock transaction.  A total
of 2,083,333 warrants were exercised in July 2005 for $250,000 in cash.

As of December 31, 2005, warrants to purchase a total of 1,000,000 shares of
the Company's common stock are outstanding and exercisable at a price of $0.17
per share.

NOTE 8 - DISCONTINUED OPERATIONS

The following includes the net current liabilities for the Company's
discontinued operations as of December 31, 2004 and December 31, 2005:

                                             World
                                             Commerce
                                             Network, LLC.
                                             -------------
ASSETS
Current assets                               $         -
Long-term assets                                       -
                                             -------------
  Total assets                               $         -
                                             =============
LIABILITIES
Payables past due                                 64,010
Accrued liabilities                              171,264
                                             -------------
  Total current liabilities                  $   235,274
                                             =============
Net current liabilities                      $   235,274
                                             =============

Discontinued subsidiary - World Commerce Network, LLC
-----------------------------------------------------
In July 2002, the Board of Directors of Pacific WebWorks, Inc. resolved to
discontinue World Commerce Network, LLC and set forth a formal plan of
disposal.  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.

Other current liabilities
-------------------------
Other current liabilities of World Commerce Network, LLC consist of estimated
customer refunds approximating $56,000 and estimated contingent liabilities
from the legal matter noted below approximating $95,000 as of December 31,
2005.


                                36
<PAGE>



             Pacific WebWorks, Inc. and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2005

NOTE 8 - DISCONTINUED OPERATIONS - CONTINUED

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, 2005 and December
31, 2004 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 amounts in the consolidated
financial statements representing its estimated liability for this matter.
Management believes that the amount recorded is sufficient to cover the
resulting liability from this complaint.

NOTE 9 - OPERATING COMMITMENTS

Operating lease in default
--------------------------
In June 2002, in conjunction with the migration of the Intellipay operations
to our Salt Lake City facilities, Intellipay, Inc. 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, 2005, Intellipay, Inc. has recorded an accrued liability of
approximately $91,522 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.

Operating leases
----------------
The Company has entered into a lease agreement for the lease of office space
for its operations in Salt Lake City, Utah.  The lease requires $8,400 per
month from January 2005 through expiration in December 2006.  Rent expense for
the Salt Lake offices for the years ended December 31, 2004 and 2005
approximates and $100,000 and $100,000 respectively.

The following is a schedule of future minimum lease payments under the
operating lease:

                Year ended        Lease
                December 31,      Commitment
                ------------      -----------
                  2006            $  101,760
                Thereafter                 -
                                  -----------
                                  $  101,760
                                  ============


                                37


<PAGE>



             Pacific WebWorks, Inc. and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2005

NOTE 9 - OPERATING COMMITMENTS - CONTINUED

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.

NOTE 10 - INCOME TAXES

The company has sustained losses in all periods presented. Consequently, there
is no income tax provision or benefit for the periods presented.
Reconciliation of income taxes computed at the federal statutory rate and
income tax expense are as follows:


                                                     12/31/2005
                                                 ----------------
 Federal income taxes at statutory rate           $    (100,597)
 State income taxes net of federal benefit        $      (9,704)
 Change in the Valuation Allowance                $      89,671
 Other                                            $      20,630
                                                  --------------
 Total                                            $          (0)

 Deferred taxes consist of the following:

 Deferred Tax Assets:
      Allowance for doubtfull accounts            $      36,402
      Net operating loss carryforwards            $   3,536,767
      Excess book depreciation and amortization   $      61,557
      Capital loss Carryforwards                  $     219,530
      Deferred expenses                           $      31,506
                                                  --------------
                                                  $   3,885,762
      Less valuation Allowance                    $  (3,885,762)
                                                  --------------
      Net Tax Assets                              $           -
                                                  ==============



                                38
<PAGE>





             Pacific WebWorks, Inc. and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        December 31, 2005

NOTE 10 - INCOME TAXES - CONTINUED

The Company has sustained net operating losses in all periods presented.
There were no deferred tax assets or income tax benefits recorded in the
financial statements for net deductible temporary  differences or net
operating loss carryforwards because the likelihood of realization of the
related tax benefits cannot be established. Accordingly, a valuation allowance
has been recorded to reduce the net deferred tax asset to zero. The increase
in the valuation allowance was $89,671 for the year ended December 31, 2005.

As of December  31, 2005, the Company had net operating loss carryforwards for
tax reporting purposes of approximately $9,700,000 expiring through 2025. As
of December 31, 2005 the Company had a federal capital loss carryforward for
tax reporting purposes of approximately $650,000 expiring in 2008.

NOTE 11 - 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:


<TABLE>
<CAPTION>


Year ended             Pacific                    Trade        Fund-      Discontinued
December 31, 2004(a)   WebWorks     Intellipay    Works        Works      Operations(b)
--------------------   ------------ ------------- ------------ ---------- -------------

                    <c>          <c>           <c>          <c>        <c>
Revenues, net          $ 1,081,088  $    484,339  $ 1,936,246  $ 115,812  $          -

Income (loss) from
continuing operations     (176,259)       75,635     (402,077)    11,233             -

Gain (loss) from
discontinued operations          -             -            -          -             -

Net income (loss)      $  (174,247) $     75,565  $  (401,951) $  12,306  $          -
____________________________________________________
(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.



                                 39
</TABLE>
<PAGE>



               Pacific WebWorks, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          December 31, 2005


NOTE 11 - SEGMENT REPORTING - CONTINUED


<TABLE>
<CAPTION>

Year ended             Pacific                    Trade        Fund-      Discontinued
December 31, 2005(a)   WebWorks     Intellipay    Works        Works      Operations(b)
--------------------   ------------ ------------- ------------ ---------- -------------

                    <c>          <c>           <c>          <c>        <c>

Revenues, net          $ 1,385,647  $    542,899  $ 3,746,691  $ 239,108  $          -

Income (loss) from
continuing operations     (239,026)       97,555     (318,784)   103,526             -

Gain (loss) from
discontinued operations          -             -            -          -             -

Net income (loss)      $  (176,702) $     97,269  $  (319,736) $ 103,526  $          -
______________________________________________________________________
(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.

</TABLE>

NOTE 12 - MARKET RISK

We rely on the efforts of third party resellers to add accounts to our
customer base.  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 additional resellers,
including the Company's TradeWorks Marketing subsidiary, we are primarily
dependent upon further addition of reseller distribution channels for future
sales growth.

NOTE 13 - SUBSEQUENT EVENTS

No significant subsequent events have taken place since December 31, 2005.



                                40

<PAGE>


     ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
              ON ACCOUNTING AND FINANCIAL DISCLOSURE

In our current report dated February 9, 2004, we reported that our independent
auditors, Chisholm & Associates, Certified Public Accountants, resigned as our
independent auditors and we engaged Chisholm, Bierwolf & Nilson, LLC to serve
as our independent auditors.

                ITEM 8A.  CONTROLS AND PROCEDURES

Our Chief Executive Officer, who also acts in the capacity of our 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, they concluded that our disclosure controls and procedures were
effective.

Also, he determined that there were no changes made in our internal controls
over financial reporting during the fourth quarter of 2005 that have
materially affected, or are reasonably likely to materially affect our
internal control over financial reporting.

                   ITEM 8B.  OTHER INFORMATION

None.


                             PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
        COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

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 prospectus
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 since
------------------    -----    -----------------------------    --------------

Christian R. Larsen      31      President and Director         April 1999
Kenneth W. Bell          56      Chairman of the Board,         January 2001
                                 Chief Executive Officer,
                                 Treasurer, and Director
R. Brett Bell            30      Secretary and Controller

Christian R. Larsen - Mr. Larsen currently serves as our President and 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 nine years experience providing
computer consulting and business management services.

Kenneth W. Bell -  On April 14, 2004, our board of directors appointed Kenneth
W. Bell as Chairman of the Board.  On July 15, 2004, our board of directors
appointed him to serve in the capacity of Treasurer.  He has served as our
Chief Executive Officer since January 2001.  Prior to that time Mr. Bell 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 Bachelors degree from Brigham Young
University in 1972.


                                41


<PAGE>


R. Brett Bell - On April 14, 2004 our board of directors appointed Robert
Brett Bell as Secretary of the company.  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. from 1998 to 2001.  He studied Economics and Finance at the University of
Utah.

Audit Committee Financial Expert

We do not currently have an audit committee and, accordingly, we do not have
an audit committee financial expert serving on an audit committee.

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, 2005,
Kenneth W. Bell filed late one Form 4 related to one option grant, Christian
R. Larsen filed late one Form 4 related to one option grant, R. Brett Bell
filed late one Form 4 related to one option grant.

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.

            ITEM 10.  EXECUTIVE COMPENSATION

The following table shows the compensation paid to our named executive
officers in all capacities during the past three fiscal years.

                    SUMMARY COMPENSATION TABLE
                                                             Long Term
                       Annual Compensation                   Compensation
                       --------------------                  ------------
                                                             Securities
Name and principal                                           underlying
position               Year       Salary ($)      Bonus ($)  Options/SAR's (#)
---------------------  -----      ----------      --------   --------------
Christian R. Larsen    2005       $ 74,125        $ 17,000       250,000
President              2004         70,396           5,000       250,000
                       2003         67,896           4,000       275,000

Kenneth W. Bell        2005       $ 98,550        $ 17,000       275,000
CEO, Treasurer         2004         94,250           5,000       250,000
                       2003         90,917           4,000       300,000

R. Brett Bell          2005       $ 62,875        $ 13,000       225,000
Secretary,             2004         58,458           2,000       175,000
Controller             2003         52,107           1,500       100,000


                                42

<PAGE>



              OPTION/SAR GRANTS IN LAST FISCAL YEAR

                        Individual Grants
                        -----------------

                                    Percent of
                     Number of      total
                     securities     options/SARs
                     underlying     granted to     Exercise or
                     Options/SAR's  employees in   base price  Expiration
     Name            granted(#)     fiscal year      ($/sh)    date
-------------------  -------------  -------------- ----------- ------------
Christian R. Larsen     250,000        12.9%        $0.12       10/20/10
Kenneth W. Bell         275,000        14.2%         0.12       10/20/10
R. Brett Bell           225,000        11.6%         0.12       10/20/10


      (1)  One half of the options granted vest immediately and the remaining
           half of the options granted vest after six months.

Employment Contracts

On April 1, 2004 we entered into employment agreements with Kenneth W. Bell
and Christian R. Larsen.  Mr. Bell was employed as the Chief Executive Officer
of Pacific WebWorks with a salary of $96,000 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 $72,000 per year and will
devote 100% of his working time to the business of the company.  The remaining
material terms of the employment agreements are identical.

The employment agreements terminate on March 31, 2006.  Each year the salary
shall be increased at a rate determined by the board of directors or in the
amount of 6%.  Each executive is entitled to yearly bonuses as determined by
the board of directors, along with health and medical insurance and four weeks
vacation time.  Each executive agreed not to disclose company confidential
information to third parties.  If the executive resigns his position, he will
be entitled to compensation for services rendered only.  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 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's employment is terminated due to a change in
control of the company, as defined in the agreement, then he will receive two
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 while employed, then he is
entitled to a portion of his salary for an 18 month period.  If he 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.

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.

                                43

<PAGE>



ITEM 11.  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.  This chart includes
individual compensation agreements.

               EQUITY COMPENSATION PLAN INFORMATION
----------------------------------------------------------------------------
                                                            Number of
                                                            securities
                                                            remaining
                                                            available for
                                                            future issuance
                                                            under equity
                 Number of securities   Weighted-average    compensation
                 to be issued upon      exercise price of   plans (excluding
                 exercise of out-       outstanding         securities
                 standing options,      options, warrants   reflected
Plan category    warrants and rights    and rights          in column (a))
                        (a)                (b)                  (c)
---------------- ---------------------- ------------------- ---------------
Equity
compensation
plans approved
by security
holders                  0              $   0.00                  0
---------------- ---------------------- ------------------- ---------------
Equity
compensation
plans not
approved by
security
holders              7,797,651 (1)          0.26               702,349
---------------- ---------------------- ------------------- ---------------
Total                7,797,651          $   0.26               702,349
---------------------------------------------------------------------------
     (1)     Represents 6,797,651 shares for 2001 Equity Incentive Plan and
             1,000,000 shares for individual compensation agreement.

      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 2003 to reserve 7,500,000 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 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.


                                44


<PAGE>



On October 7, 2005 we issued options to purchase 1,935,000 shares of common
stock pursuant to our 2001 Equity Incentive Plan.  The stock options have an
exercise price of $0.12 per share and expire five years from the date of
issuance.  One half of the options vested immediately and the other half vest
six months from the date of issuance.

As of December 31, 2005, the board of directors has granted options to acquire
an aggregate of 6,797,651 shares of common stock with exercise prices ranging
from $0.07 to $1.75 per share.  The options vest periodically through October
2010 and expire through April 2010.  The plan continues in effect until March
8, 2011, unless terminated by the board of directors.

      Consulting Agreement

On July 1, 2005, we entered into a consulting agreement with Chesapeake Group,
Inc. (the "Chesapeake Group").  Chesapeake Group provides consulting services
regarding all phases of our investor relations with brokers or dealers and the
investing public.  In consideration for its services we granted warrants to
purchase 1,000,000 shares, valued at $9,832.  Chesapeake Group agreed to
provide consultation in the areas of our marketing to investors, advising us
on securing nationwide interest in our securities, assist us with conference
calls and road shows and help us with the preparation and dissemination of
press releases and news announcements.  The consulting agreement may be
terminated by either party with a 90-day written notice.  Warrants to purchase
500,000 shares have an exercise price of $0.10 and warrants to purchase
500,000 shares have an exercise price of $0.15.  The warrants have an exercise
term of three years, expiring in July 1, 2008.  We granted registration rights
for the underlying shares to Chesapeake Group and we registered the underlying
shares of the warrants issued under this agreement on a Form SB-2 that was
declared effective by the SEC on October 26, 2005.

Beneficial Ownership

The following table lists the beneficial ownership of our outstanding common
stock by our management and each person or group known to us to own
beneficially 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 35,426,895 shares of common
stock outstanding as of February 23, 2006, plus any shares which each of the
following persons may acquire within 60 days by the exercise of rights,
warrants and/or options.

                            MANAGEMENT

Name and Address of             Number of Shares of                  Percent
Beneficial Owners               Common Stock          Options (1)    of Class
------------------------------  -------------------   ------------   ---------

Christian R. Larsen                  878,000 (2)        1,025,000      5.2%
180 South 300 West, Suite 400
Salt Lake City, Utah 84101

Kenneth W.  Bell                     217,311 (3)        1,375,378      4.3%
180 South 300 West, Suite 400
Salt Lake City, Utah 84101

R. Brett Bell                          1,758 (4)          459,775      1.3%
180 South 300 West, Suite 400
Salt Lake City, Utah 84101

All executive officers and          1,095,311           2,860,153      10.3%
directors as a group




                                45


<PAGE>


          (1)    Represents options exercisable within the next 60 days.
          (2)    Represents 878,000 shares held by Net Strategic Investments
                 LLC of which Mr. Larsen is  an affiliate.
          (3)    Represents shares owned jointly with his spouse.
          (4)    Represents 758 shares held by Mr. Bell and 1,000 shares held
                 jointly with his spouse.


     ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We have not engaged in any transactions in excess of $60,000 during the past
two years involving our executive officers, directors, 5% or more stockholders
or immediate family members of such persons.

ITEM 13.  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 and Restated 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    Unit Purchase Agreement between Pacific WebWorks and Investors, dated
       July 1, 2005 (Incorporated by reference to exhibit 4.1 to Form 10-QSB,
       filed August 12, 2005)
4.2    Form of Unit Warrants, dated July 1, 2005 (Incorporated by reference to
       exhibit 4.2 to Form 10-QSB, filed August 12, 2005)
10.1   Master Service Agreement between Electric Lightwave, Inc., and Utah
       WebWorks, Inc., dated February 2, 1998  (Incorporated by reference to
       exhibit No. 10.1 for Form 10, as amended, file No. 0-26731, filed July
       16, 1999.)
10.2   Internet Access Agreement, Addendum to Master Service Agreement between
       Electric Lightwave, Inc., and Pacific WebWorks, Inc., dated January 1,
       2002 (Incorporated by reference to exhibit No. 10.2 for Form 10-K,
       filed  March 26, 2002)
10.3   Lease Agreement between Pacific WebWorks, Inc. and Westgate Business
       Center, dated November 20, 2003 (Incorporated by reference to exhibit
       10.3 for Form 10-KSB, filed March 22, 2004)
10.4   Form of employment agreement for executive officers, dated April 1,2004
       (Incorporated by reference to exhibit 10.5 for Form 10-KSB, filed March
       31, 2005)
10.5   Consulting agreement between Pacific WebWorks and Chesapeake Group,
       Inc., dated July 1, 2005 (Incorporated by reference to exhibit 10.5 to
       Form 10-QSB, filed August 12, 2005)
10.6   Registration Rights Agreement between Pacific WebWorks and Unit
       Investors, dated July 1, 2005 (Incorporated by reference to exhibit
       10.6 to Form 10-QSB, filed August 12, 2005)
21.1   Subsidiaries of Pacific WebWorks (Incorporated by reference to exhibit
       21.1 for Form 10-QSB, filed November 13, 2003)
31.1   Chief Executive Officer Certification
31.2   Principal Financial Officer Certification
32.1   Section 1350 Certification



         ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

Accountant Fees

The following table presents the aggregate fees billed for each of the last
two fiscal years by our principal accountant, Chisholm, Bierwolf & Nilson, LC,
Certified Public Accountants, in connection with the audit of our financial
statements and other professional services rendered by that firm.

                             2005               2004
                           --------          --------
     Audit fees            $  7,834          $ 7,900
     Audit-related fees       2,100            1,600
     Tax fees                     0                0
     All other fees               0                0



                                46


<PAGE>



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
accountant in connection with statutory and regulatory filings or engagements.
Audit-related fees represent professional services rendered for assurance and
related services by the principal accountant 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 principal accountant
for tax compliance, tax advice, and tax planning.  All other fees represent
fees billed for products and services provided by the principal accountant,
other than the services reported for the other categories.

Pre-approval Policies

We do not have an 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 auditor before the auditor renders audit and non-audit
services.  We do not rely on pre-approval policies and procedures.

                                47



<PAGE>


                            SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

                                    Pacific WebWorks, Inc.


                                    /s/ Christian R. Larsen
Date: March 28, 2006            By:_____________________________________
                                    Christian R. Larsen, President


In accordance with the Exchange Act, 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/ Christian R. Larsen
Date: March 28, 2006                _____________________________________
                                    Christian R. Larsen
                                    President and Director




                                    /s/ Kenneth W. Bell

Date: March 28, 2006                _____________________________________
                                    Kenneth W.  Bell
                                    Chairman of the Board, Chief Executive
                                    Officer, Principal Financial and
Accounting
                                    Officer and Treasurer


                                    /s/ R. Brett Bell
Date: March 28, 2006                _____________________________________
                                    R. Brett Bell
                                    Secretary and Controller



                                48