<PAGE>
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB
(Mark One)

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

                   For the fiscal year ended December 31, 2002
                                       OR
[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                          For the transition period to

                         Commission file number 0-27751

                            WORLDQUEST NETWORKS, INC.
                 (Name of small business issuer in its charter)

         DELAWARE                                           75-2838415
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                              Identification No.)

         14911 QUORUM DRIVE, SUITE 140, DALLAS, TEXAS       75254
         (Address of principal executive offices)           (Zip Code)

         Issuer's telephone number, including area code: (972) 361-1980

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01 per share

Check whether 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 past 12 months (or
for such shorter period that the issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES   X           NO
    -----           ----

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained herein, and none will 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. [ ]

The issuer's revenues for its most recent fiscal year were: $11,019,491.

The aggregate market value of the voting common stock held by non-affiliates of
the issuer, based on the closing sales price of $1.87 per share, was $6,204,757
as of December 31, 2002.

At January 31, 2003, the registrant had outstanding 6,386,199 shares of par
value $.01 common stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Annual Report on Form 10-KSB incorporates certain information
by reference from the definitive Proxy Statement for the registrant's 2003
Annual Meeting of Stockholders.

Transitional Small Business Disclosure Format (check one):

                           Yes               No   X
                               -----            -----



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                                TABLE OF CONTENTS

<Table>

<S>            <C>                                                                      <C>
PART I
ITEM 1         DESCRIPTION OF BUSINESS ..............................................    3
ITEM 2         DESCRIPTION OF PROPERTY ..............................................   13
ITEM 3         LEGAL PROCEEDINGS ....................................................   13
ITEM 4         SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ..................   15

PART II
ITEM 5         MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS .............   16
ITEM 6         MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS ...........   17
ITEM 7         FINANCIAL STATEMENTS .................................................   28
ITEM 8         CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
               ACCOUNTING AND FINANCIAL DISCLOSURE ..................................   29

PART III
ITEM 9         DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
               PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT ...........   30
ITEM 10        EXECUTIVE COMPENSATION ...............................................   30
ITEM 11        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT .......   30
ITEM 12        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .......................   30
ITEM 13        EXHIBITS AND REPORTS ON FORM 8-K .....................................   31
ITEM 14        CONTROLS AND PROCEDURES ..............................................   32
</Table>




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                            WORLDQUEST NETWORKS, INC.

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

FORWARD LOOKING STATEMENTS

         This Form 10-KSB includes certain statements that are not historical
facts and are deemed to be "forward looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934. See Item 6 - "Management's
Discussion and Analysis of Financial Condition Or Plan of Operation -- Forward
Looking Statements" for a further discussion of these "forward looking
statements."

GENERAL

         We are an international Internet telephony and money transfer company.
Our customers utilize our networks of Internet gateways and other traditional
networks to place long-distance calls online at discounted rates. We also sell
virtual calling cards processed through other companies' platforms and from time
to time we sell our excess capacity to other long distance carriers. We market
our WebOrganizer, an intelligent address book and calendar that enables
customers to make domestic and international phone calls from anywhere in the
world. Through our wholly-owned subsidiary, buyindiaonline.com, Inc. (known as
Cash2India), we also provide a web service that enables customers to send money
and a personalized message from the United States, Canada and the United Kingdom
to friends, family, or others in India, Sri Lanka, Russia and the Philippines
over our Web and telephony network.

         All of our calls are made from phone-to-phone over our networks. The
voice quality of our Internet carried calls is virtually the same as an
international telephone call carried over a traditional telephone line. We
believe consumers are more familiar and comfortable using telephones to make
calls, as opposed to computers which have historically been used for Internet
telephony.

         We focus on the international long distance market, with particular
emphasis on the calling patterns between the United States and various
countries. Our virtual calling cards and the WebOrganizer may be used to call
from the United States to other countries, to call from other countries to the
United States, or to call between countries outside the United States. A
substantial portion of our revenues is derived from the sale of virtual prepaid
phone cards to customers calling from the United States to India.

         During September 2002 we began selling a new multi-purpose stored-value
card through a pilot program in Dallas, Texas. The new product, the WorldQuest
CashCard, can be used to withdraw money or check balances at ATM's worldwide and
to pay for merchandise at any location associated with the Plus(R), Pulse(R) or
Star(R) Networks. The WorldQuest CashCard is currently available at grocery and
convenience stores, as well as kiosks in Dallas area malls. The new stored-value
card also serves as a prepaid long-distance calling card. WorldQuest CashCard
holders can add money to their card via the direct deposit of their paychecks,
by cashing their paychecks, by ACH transfer and by using cash, credit cards, or
electronic checks.

         As of December 31, 2002, Eagle Venture Capital, LLC owned approximately
2.6 million, 41%, of our outstanding shares of common stock. Eagle Venture
Capital, LLC is primarily owned by our founder and Chairman of the Board.

INDUSTRY BACKGROUND

         Emergence of Internet Telephony. Internet telephony or Voice over
Internet protocol (VOIP) has emerged as a low cost alternative to traditional
long distance telephony. With VOIP, voice calls are instantly transformed from
analog to a digital signal and transmitted via the Internet to any telephone in
the world. Once a call reaches its destination, the data is transformed back
into analog voice format and forwarded to the recipient via the public switched
telephone network. Routing calls over the Internet is more cost-effective than
routing calls over




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traditional circuit-switched networks, because the packet-switching technology
that enables Internet telephony is more efficient than traditional
circuit-switched voice technology. Packet-based networks, unlike circuit-based
networks, do not require a fixed amount of bandwidth to be reserved for each
call. This allows voice and data calls to be pooled, which means that packet
networks can carry more calls with the same amount of bandwidth. This greater
efficiency creates network cost savings that can be passed on to the consumer in
the form of lower long distance rates. Also, the use of the Internet bypasses a
significant portion of international long distance networks and the relevant
tariffs.

         Emergence of Prepaid Calling Card Industry. International Data
Corporation estimates the total number of United States households using prepaid
calling cards will grow from 29.8 million to 49.3 million in 2005. Furthermore,
it estimates that the market for prepaid calling cards will expand from $3.4
billion to $5.3 billion at the end of 2005. This growth is attributed to three
trends according to industry sources. First, the larger telecommunications
companies have come to understand the strategic and financial benefits of
prepaid calling cards. Second, consumers are becoming more aware of various
advantages of prepaid cards. Third, businesses are beginning to purchase prepaid
cards as a means of controlling telephony costs and simplifying record keeping.
We believe that the affordable pricing, convenience and enhanced features of
prepaid calling cards has attracted price sensitive customers, business
travelers, international callers and other users of long distance service. Also,
while prepaid calling cards are relatively new in the United States, they have
been a widely used and accepted method of making telephone calls in Europe and
Asia since the 1970s.

OUR TELEPHONY SERVICE PRODUCTS

         Virtual Prepaid Calling Cards. We sell virtual prepaid calling cards
over the Internet. They are virtual because we do not issue a physical card. Our
virtual calling cards give us the flexibility of promptly changing the rates and
features to respond to changing consumer demand, rather than having an inventory
of physical cards with set features that cannot be changed until all are
recalled or used. This also allows us to offer and test several different types
of virtual calling cards with varying pricing features, thus providing a greater
selection to our customers.

         Our system functions as follows: A potential customer accesses our Web
site, follows the prompts to enter their credit card information to purchase the
virtual calling card, we verify the credit card within seconds, and we
electronically issue a personal identification number, or PIN, and a toll free
number to the customer when the electronic purchase transaction is completed.
Once sold, the virtual calling card can be used immediately to make
international and domestic long distance calls. The customer uses a touch-tone
telephone to dial the toll free number and enters the PIN and the telephone
number the customer seeks to reach. Our enhanced services platform determines
whether the virtual calling card is valid and the number of call minutes
remaining on it, based on the rate for the country being called. The platform
completes the call and reduces the available credit balance on the virtual
calling card at the conclusion of the call. Historically, substantially all of
the minutes purchased on our virtual calling cards have been used within 45 days
of purchase. We believe this rapid use and the convenience of our Web site and
our "buy it now, use it now" capability fosters repeat purchases and repeat
customers.

         Our Web site is accessible 24 hours per day, seven days a week, so we
are not constrained by the hours a retail store would be open for business. Our
Web site may also be reached from the customer's home or office. The customer is
not required to physically travel to another location to make a purchase and
receive delivery. Our online purchasing and delivery also allows us to deliver a
broad selection of products to customers worldwide in rural or other locations
that do not have convenient access to physical stores.

         In the third quarter of 2002, we introduced our Automatic Number
Identification (ANI) product. After the product is initially purchased from our
Web site, the customer dials our toll-free number and enters the telephone
number they seek to reach; they do not have to enter a PIN. Our system reads the
incoming telephone number, looks up a database of numbers, searches and
retrieves a customer's database file, authorizes the customer to use our network
and delivers the call. This product eliminates the exchange and entering of the
PIN thereby saving 20 to 30 seconds per call. The product also enables customers
to "recharge" their prepaid balance without having to return to our Web site.
When their balance runs low, our Interactive Voice Response (IVR) system prompts
the




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customer to add more calling time which is then processed from the customer's
credit card on record. The customer can also "recharge" prior to the IVR prompt
at anytime. We estimate that as of December 31, 2002, our ANI product accounts
for approximately 25% of our total virtual calling card sales and that we have
retained over 95% of all customers who have purchased the product.

         Access. Our U.S. Access virtual calling cards provide access to our
network for calls from the United States to more than 241 countries and
territories. When using the U.S. Access virtual calling card for a call from the
United States to another country, the customer uses a touch tone telephone to
dial a toll free number and enters the PIN and the telephone number the customer
seeks to reach. When using the World Access virtual calling card for a call from
another country to the United States or from country to country outside the
United States, the customer initiates the call through the Internet by accessing
our Web site and going to the world access page on their WebOrganizer. On the
world access page, a virtual card is displayed and the customer enters the
telephone number where he or she is, the telephone number he or she wants to
call and his or her PIN and then "clicks" on the call button. This information
is transmitted over the Internet to our platform. The platform determines the
virtual calling card is valid and has a sufficient balance and then routes a
call to the customer at the number where he or she is. When the customer
answers, the platform completes the call by connecting to the number the
customer wanted to call. From their WebOrganizer, these features allow customers
to make calls from anywhere in the world at our international United States long
distance rates using the virtual calling card and Internet access to our Web
site and platform.

         WebOrganizer(TM). The WebOrganizer is an intelligent electronic address
book and calendar which is maintained by us on our secure Web site. This service
is interactive so the customer can add and delete names, numbers and events. The
WebOrganizer enables an approved customer to make an international long distance
call from any country to any other country at our international United States
long distance rates, or domestic calls within the United States. The customer
simply accesses our Web site and follows the prompts to the page for his or her
WebOrganizer, selects the number where the customer is located and then "clicks"
the name and number of the person to be called or to whom the facsimile
transmission is to be sent.

         Resale of Virtual Calling Cards. We also buy virtual calling cards
processed through other companies' platforms including prepaid Internet,
wireless and roadside assistance. We buy them at a discount and sell them to our
customers on our Web site as our virtual cards. We sell these virtual cards for
calls from the United States to other countries where we have not established
our own Internet network and where our negotiated rates with our international
long distance carriers are not as favorable and to offer other telecom products
and services not available on our platform. We estimate that approximately 34%
and 66%, respectively, of our revenues for the fiscal years ended December 31,
2002 and 2001 were generated from these virtual calling cards processed through
other companies' platforms. As we increase our infrastructure and negotiate
better rates with international carriers, it is expected that the resale of
these virtual calling cards will become a less significant part of our total
business.

         Resale of Network Capacity. From time to time we sell our excess
network capacity to other long distance carriers. For the years ended December
31, 2002 and 2001, approximately 0% and 18%, respectively, of our total revenues
were generated from selling our excess network capacity.

OUR INTERNATIONAL TELEPHONY NETWORKS

         Our Enhanced Services Platform. Our enhanced services platform is a
specialized telephone switch. It is connected to our Web site and database and
to our network of outgoing and incoming telephone lines and Internet lines. It
sets up all customer account and PIN information when a virtual calling card is
purchased and immediately activates the virtual calling card so it can be used
at the time of purchase. The platform also accepts and evaluates all calls from
virtual calling card holders over the toll free number and over the Internet and
confirms the validity of the virtual calling card and remaining balance. We have
also programmed into the platform a lowest cost routing matrix. This matrix
automatically routes each call over the route most economical to us. This means
it will select our international carrier with the lowest rate or the Internet if
we have a gateway in the call destination country. Focusing on the international
market, the use of our platform is spread throughout the day as a result of the
different world time zones.


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         We plan to develop and offer new products and services, which may
require modifications and enhancements to our platform. For any modification or
enhancement, we will either contract with the manufacturer to develop new
software, develop the software ourselves, or a combination of both. In the past,
we have experienced delays when we have tried to upgrade our platform. If the
software cannot be developed cost effectively, or there will be significant
delays, we may elect to abandon a potential product or service in favor of one
that can be timely developed on a cost effective basis. There can be no
assurance that we can successfully develop the software to enable us to offer
new products or services.

         Our Internet Gateway Network. As of December 31, 2002, we had
international gateways operational in India, Sri Lanka, and a domestic gateway
operational in Dallas, Texas. Our Internet gateways enable us to route voice
quality calls through our enhanced services platform to and from the country via
the public Internet or private intranet networks such as a frame relay network.
The cost of these calls is based on the local telephone rates for the country
where the gateway is located. The cost is not based on international or local
long distance rates. Before we place a gateway in another country, we enter into
contractual relationships with local persons or entities to operate them. We
typically own or lease the gateway or have the right to purchase it and the
local person or entity is responsible for procuring local Internet provider
connection and local telephone lines and complying with local law. We pay the
local person or entity a negotiated rate per minute for terminating or
originating calls through the gateway.

         The historical poor sound quality of Internet voice transmission is due
to the Internet not being created for simultaneous voice traffic. Unlike
conventional voice communication circuits, in which the entire circuit is
reserved for a call, Internet telephony uses packet switching technology, in
which voice data is divided into discrete packets that are transmitted over the
Internet. These packets must travel through several routers in order to reach
their destination, which may cause misrouting and delays in transmission and
reception. The software in our gateways connect the packet switched data
transmitted over the Internet to circuit switched public telephone networks in
such a manner that virtually eliminates the delay in transmission normally
involved in Internet voice transmission and the resulting pause and echo effect.
We also select Internet service providers with Internet connections that permit
us to limit the delay between their Internet connections and ours to less than
200 to 400 milliseconds. This also improves the voice quality of our
transmissions over the Internet.

         Our Leased Lines Network. We also lease international telephone lines
to transmit calls. Our lease agreements obligate the carriers to terminate calls
routed by us to them at different rates for different countries and territories.
With these agreements, we have access to more than 241 countries and
territories. Leased capacity is typically obtained on a per-minute basis. Our
agreements are typically one-year agreements with 30-day cancellation rights by
either party. Rates are adjusted approximately every 30 days, are based on
volume and generally decline as volume increases. We are dependent on these
carriers to terminate our calls, and the loss of one or more of them as a source
for terminating calls could have a material adverse affect on us. However, we
believe there are numerous international long distance carriers that transport
calls to the countries we desire to target and we believe we could replace any
of the carriers we lost. If the rates of any replacement carrier are higher, or
our existing carriers raise their rates, our profit margins would decrease. We
also sell to other long distance carriers any excess line capacity we have.
Excess line capacity is the remaining capacity on our telephone lines not used
by us to terminate our own calls during any given month.

         Our Third Party Contracts. Our success depends, in part, on our ability
to continue to lease long distance telephone capacity from third parties at
cost-effective rates to serve the foreign countries we target. It also depends,
in part, on our ability to maintain our contractual relationships with local
terminating parties in those countries where we have Internet gateways. If we
lose our leases or contracts or if these parties are unable to provide these
services, we believe we could replace them. However, it would cause a disruption
of our business until they are replaced. Also, any replacement leases or
contracts may not be at rates or on terms as favorable to us.

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OUR TELEPHONY TECHNOLOGY

         We use a combination of our own proprietary software applications and
commercially available licensed technology to conduct our Internet and telephone
routing operations.

         Proprietary Technology. We have developed proprietary customer software
which permits a customer to purchase a virtual calling card on our Web site
using a credit card and to have the virtual calling card delivered while on our
Web site. We have also developed proprietary customer software to allow our
world access virtual calling cards and phone collect PINs to initiate calls
through regular telephone lines using our Web site and enhanced services
platform, and we have developed various proprietary credit and fraud management
applications which aid us in checking credit and limiting fraudulent
transactions.

         Our engineering staff consists of software development engineers and
consultants. We historically have developed and expect to continue to develop
proprietary software internally. Our engineering strategy focuses on the
development of our Web site, which includes the enhancement of features and
functionality of our existing software components, the development of additional
new software components, and the integration of off-the-shelf components into
our systems.

         Commercially Available Licensed Technology. Our strategy has also been
to license commercially available technology whenever possible rather than seek
a custom-made or internally developed solution. We believe that this strategy
enables us to reduce our operating costs and to respond to changing demands due
to growth and technological shifts. This strategy also allows us to focus our
development efforts on creating and enhancing the specialized, proprietary
software applications that are unique to our business. Listed below are some of
our key architectural components:

         -        High speed links to the Internet through Tier 1 carrier
                  backbones;

         -        Dell clustered Servers for Web and data base applications
                  running Windows NT, Windows 2000 and Microsoft SQL Server
                  2000;

         -        Microsoft Internet Information Server 4.0 has been chosen for
                  its ability to secure sensitive customer information through
                  SSL encryption; and

         -        Microsoft SQL Server 2000 is a relational database within
                  which all customer names and addresses, PINs, number of
                  purchases and call records are stored.

         We depend on Internet service providers to provide Internet access to
us and our customers. As of December 31, 2002, we had two Internet service
providers in Dallas. Our local terminating parties in foreign countries also
rely on local Internet service providers for access to the Internet in their
countries. If we lost our connection with both of our Dallas Internet service
providers, we could not sell our virtual calling cards through our Web site, and
Web initiated calls could not be made by our customers, until the connection was
reestablished. If a local terminating party in a foreign country loses its
Internet connection, we could not route calls over the Internet to that
destination until the connection was reestablished. These failures could cause
us to lose customers and our ability to sell virtual calling cards and telephone
services would be affected.

OUR CASH2INDIA SERVICES

         On December 6, 2001, we acquired all of the issued and outstanding
common stock of buyindiaonline.com, Inc., (known as Cash2India) for
approximately $275,000 in cash plus liabilities assumed of $34,000 and
acquisition costs of $84,000. Cash2India is a web-based company that enables
consumers to send money and a personalized message from the United States,
Canada and the United Kingdom to friends, family or others in India, Sri Lanka,
Russia and the Philippines.

         Cash2India has a strategic relationship with The Punjab National Bank,
the second largest bank in India with more than 2,000 branches, approval from
the Reserve Bank of India, a sophisticated on-line customer sales process, and a
streamlined, efficient local delivery system that allows delivery of funds from
the United States to someone in India within 48 hours.

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         To transfer funds, customer accesses Cash2India's web site, enters the
recipient's name and a personalized message along with a designated major credit
card or electronic check for payment of funds. Upon credit card and electronic
check authorization, funds are wired to India and delivered by local courier to
the designated recipient using the Indian bank's network. With every transfer,
customers also receive a free 10-minute calling card which works on our telecom
network. Customers can transfer up to $2,500 per transaction and are allowed
twelve transactions per year to India to the same recipient and unlimited
elsewhere. Cash2India receives revenue as a percentage of the funds transferred.
Cash2India has approximately 15,000 customers and approximately $1.3 million was
transferred In December 2002 using the Cash2India service.

         Cash2India's services are aimed primarily at over 3 million people of
Indian origin who live or work in the United States but maintain strong cultural
and financial relationships with friends and families in India. According to the
Reserve Bank of India, more than 40% of the $12 billion remitted to India during
the year 2000 came from North America.

OUR WORLDQUEST CASHCARD PRODUCT

         During the fourth quarter of 2002, we began selling a new multi-purpose
stored value card through a pilot program in Dallas, Texas. The new product, the
WorldQuest CashCard, is a reloadable PIN ATM/Debit card which can be used to
withdraw money or check balances at ATMs worldwide and to pay for merchandise at
any location associated with the Plus(R), Pulse(R) or Star(R) networks. The
CashCard is being tested at grocery and convenience stores as well as at kiosks
in Dallas area shopping malls. CashCard holders can add money to their card via
the direct deposit of their paychecks, by cashing their paychecks, by ACH
transfer and by using cash, credit cards or electronic checks. CashCard holders
can also check their balances and transfer money from one CashCard to another
through our automated voice response unit, the secure CashCard website, or by
calling customer service. The CashCard also serves as a prepaid long-distance
calling card which operates using our telecom network and infrastructure.

         Target customers include "unbanked" consumers, money transfer consumers
who want a less expensive way to send money, travelers who want to avoid
carrying cash but still have access to their funds and parents who want to give
their children access to a pre-set amount of money without having their children
carry cash or credit cards. The card compliments our telecom and money transfer
businesses by leveraging the infrastructure and networks of these businesses.

         In the first three full months of the program, we have issued
approximately 2,000 CashCards and have loaded more than $350,000 on the cards.
During 2003 we will be evaluating an expanded program to add more features. By
selling the CashCard through traditional brick and mortar locations, we gain
access to a retail distribution channel that has the potential to expand our
core Internet-based calling card and money transfer business.

CREDIT CARD PROCESSING ARRANGEMENTS

         All sales of our virtual calling cards and PIN based products are made
over the Internet through credit card purchases. Cash2India money transfers are
made over the Internet through credit cards purchases and e-checks or ACH
drafts. We use processing companies to verify credit cards and e-checks. These
companies are connected to our platform and database and verification or denial
is usually accomplished within seconds. We pay these processing companies a
percentage of sales as their fee for credit card transactions and a fixed fee
per transaction for e-checks.

SALES AND MARKETING

         We have developed a marketing strategy focused on increasing customer
traffic to our Web site.

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         Internet Advertising. We have taken a selective approach in our
advertising strategy. We attempt to maximize the return from promotional
expenditures by choosing advertising media based on the cost relative to the
likely audience and ability to generate increased traffic for our Web sites. We
generally identify a country and customer group to whom we desire to market our
telecom, money transfer and other products and services. We place advertisements
on various Web sites and Internet portals frequently visited by this customer
group in the United States and abroad. These advertisements usually take the
form of banner ads that encourage readers to click through directly to our Web
sites. We believe banner advertising on these Web sites and portals
significantly increase our targeted exposure to prospective customers.

         Customer Electronic Mail Broadcasts. We actively market to our base of
customers through e-mail broadcasts. All new virtual calling card, money
transfer and other purchasers are automatically added to our electronic mailing
list, which consists of over 350,000 prior purchasers as of December 31, 2002.
We e-mail messages on a periodic basis to our customers announcing new rates,
new countries, new products and new features. Our customer database allows us to
introduce new products and services, such as our Cash2India service, to a
targeted audience without the significant customer acquisition costs normally
associated with introducing new products or services.

         Electronic Mail to Select Mailing Lists. We also deliver e-mail
broadcasts to certain select mailing lists from time to time announcing
pertinent information, including the addition of a new country, new products and
rates.

         Other Methods. During 2002, we placed advertisements in certain Indian
foreign national based periodicals and cable television channels to market our
Cash2India service and our telecom products. We will continue to use these
methods during 2003, as we deem necessary. We will continually review other
potential cost-effective methods of advertising and marketing our products and
services through the Internet and other channels. Such methods may include the
use of an affiliate program, chat rooms, video e-mail, ethnic movie houses,
ethnic cable television and other methods.

CUSTOMER SUPPORT AND SERVICE

         We believe our ability to establish and maintain long-term
relationships with our customers and encourage repeat purchases is dependent, in
part, on the strength of our customer support and service operations and staff.
Our customer support function is available through the Internet and a toll-free
telephone number 24 hours a day, seven-days a week. Our primary customer support
team in Dallas, Texas provides email and telephone customer support and are
available from 7:00 a.m. to 11:00 p.m. Central time, Monday through Friday, and
from 8:00 a.m. to 3:00 p.m. Central time on Saturday and Sunday. Also our
outsourced New Delhi, India customer service team answers emails during the off
hours. We estimate we resolve 90% of all email inquiries within 24 hours and
that on average, we respond to customer calls within 45 seconds.

         Our Web site has been designed around industry standard architectures
to reduce downtime in the event of outages or catastrophic occurrences. Our Web
site provides 24 hours a day, seven-days week availability. Our Web site
operations staff consists of systems administrators who manage, monitor and
operate our Web site. The continued uninterrupted operation of our Web site is
essential to our business, and it is the job of the site operations staff to
ensure, to the greatest extent possible, the reliability of our Web site. Our
network is built around a redundant, high availability backbone. In order to
achieve maximum redundancy, our network has several connections to the Internet.
We believe these telecommunications and Internet service facilities are
essential to our operation and we anticipate upgrading these facilities as
volume and demand for our services grow.

GOVERNMENT REGULATION

        Regulation of the Internet. The United States Congress and the Federal
courts have adopted legislation that regulates certain aspects of the Internet,
including online content, user privacy, taxation, liability for third-party
activities, and jurisdiction. In addition, a number of initiatives pending in
Congress and state legislatures



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would prohibit or restrict advertising of or sale of certain products and
services on the Internet, which may have the effect of raising the cost of doing
business generally on the Internet. The European Union has also enacted several
directives relating to the Internet, one of which addresses online commerce. In
addition, federal, state, local and foreign governmental organizations are
considering other legislative and regulatory proposals that would regulate the
Internet. Increased regulation of the Internet may decrease growth, which may
negatively impact the cost of doing business via the Internet or otherwise
materially adversely affect our business, financial condition, and results of
operation.

        Potential Regulation of Internet Telephony. To our knowledge, there are
currently no domestic and few international laws or regulations that prohibit
the transmission of voice communications over the Internet. If Congress, the
FCC, state regulatory agencies or governments of other countries impose
substantial regulations relating to Internet telephony, the growth of our
business could be adversely affected. In the United States, several efforts have
been made to enact federal legislation that would either regulate or exempt from
regulation telecommunication services provided over the Internet. State public
utility commissions may also attempt to regulate the provision of intrastate
Internet telephony services. However, the FCC has issued two decisions that
suggest that all transmissions over the Internet may be jurisdictionally
interstate, and these decisions may restrict the ability of state public utility
commissions to regulate Internet telephony. Recently, however, a Colorado court
ruled that Internet telephony companies would be subject to payment of
originating and terminating access charges to the incumbent provider. Imposition
of such charges on our services would increase our costs. Internationally, a
number of countries that currently prohibit competition in the provision of
voice telephony have also prohibited Internet telephony. Other countries permit
but regulate Internet telephony.

        On April 10, 1998, the FCC issued a Report to Congress concerning its
implementation of the universal service provisions of the Telecommunications
Act. In the Report, the FCC indicated that it would examine the question of
whether any forms of "phone-to-phone" Internet Protocol telephony are
information services, which are unregulated, or telecommunications services,
which are fully regulated. The Report noted that the FCC did not have, as of the
date of the Report, an adequate record on which to make any definitive
pronouncements. The FCC did, however, note that the record before it suggested
that some forms of phone-to-phone Internet telephony appear to have the same
functionality as non-Internet Protocol telecommunications services.

        While the FCC found that it needed a more complete record to establish
new rules, it tentatively concluded that providers of phone-to-phone Internet
telephony services should be treated like other providers of telephone service.
This means they should be required to make payments into Federal universal
service subsidy programs. To date, the FCC has taken no further action, and has
not imposed this obligation on Internet telephony providers. It may do so at
some time in the future, however, and such a decision could have a material
adverse effect on our business, increasing our costs, and the price at which we
can offer our Internet telephony services.

        Regulation of Leased Lines and Carriers. When we lease long distance
telephone capacity from third-party carriers, we rely on them to comply with
local laws and regulations. We have no control over the manner in which these
companies operate in these countries. Foreign regulatory, judicial, legislative
or political entities may raise issues regarding the compliance of these
companies with local laws or regulations, or limit their ability to carry our
calls.

        State Laws. Several states have also proposed legislation that would
limit the uses of personal user information gathered online or require online
services to establish privacy policies. Changes to existing laws or the passage
of new laws intended to address these issues could reduce demand for our
services or increase the cost of doing business. In addition, because our
services are accessible worldwide, and we facilitate the sale of goods to users
worldwide, other jurisdictions may claim that we are required to comply with
their laws. We are qualified to do business in Delaware and Texas only, and
failure by us to qualify as a foreign corporation in a jurisdiction where we are
required to do so could subject us to taxes and penalties for the failure to
qualify and could result in our inability to enforce contracts in such
jurisdictions. Any such new legislation or regulation, or the application of
laws or regulations from jurisdictions whose laws do not currently apply to our
business, could have a material adverse effect on our business, financial
condition and operating results.


                                       10
<PAGE>
         Sales Taxes. We do not currently collect sales or other similar taxes
for virtual calling cards or other services sold through our Web site, other
than for virtual calling cards sold to Texas residents. However, one or more
states may seek to impose sales tax or similar collection obligations on
out-of-state companies, such as ours, which engage in Internet commerce. A
number of proposals have been made at the state and local level that would
impose additional taxes on the sale of goods and services through the Internet.
Such proposals, if adopted, could substantially impair the growth of online
commerce, and could adversely affect our opportunity to derive financial benefit
from such activities. Moreover, a successful assertion by one or more states or
any foreign country that we should collect sales or other taxes on the sale of
virtual calling cards or services on our system could have a material adverse
effect on our operations.

         Money Transmitter Laws. More than 40 states in the U.S. regulate bill
payers, money transmitters, check sellers, issuers of payment instruments or
similar non-bank payment businesses, which we refer to collectively as "money
services businesses." The states enacted most of these statutes before the
Internet emerged as a commercial forum, and the application of these statutes to
online payment service providers has not been interpreted by courts or
regulatory authorities. Based on the specific provisions of many of these state
statutes, we believe that money services regulations cover our business only in
a limited number of states. In other states, we believe the nature of our
services or our fee structure exclude us from the statutes' licensing
requirements and money services regulation. Our analysis is subject to
uncertainty, however, and we cannot assure you that state regulators and courts
will agree with our interpretations. We have contacted regulatory authorities to
describe our Cash2India service and have received written interpretation that
our Cash2India service, as we described it to them, does not require a license
from their state. We have not to date been notified by any state or federal
authority that we are not in compliance with money transmitter laws.

         Bank Regulation. Because we are not licensed as a bank, we are not
permitted to engage in a banking business. Our Cash2India business does not
allow customers to keep funds in our system in order to use our service.
Although the definition of a "banking business" varies among state laws, and is
not limited to entities that take deposits, we may be deemed to be keeping money
on account for customers or otherwise accepting deposits. We believe the nature
of our Cash2India service excludes us from the banking business as we do not
allow customers to keep money on account with us for future transfers, and all
money remitted is transferred directly to the recipient, we cannot loan out
these funds or use for any other purposes. If we were found to be subject to and
in violation of any banking laws or regulations in any state, we could be
subject to liability, which could include fines for non-compliance or forced to
cease the Cash2India business.

         International Regulation. We currently have permission from the Reserve
Bank of India (the "RBI") to provide our Cash2India service in India. Under this
permission, we are required to provide to the RBI on a monthly basis a list of
all recipients and the amount of funds received by the recipients. If we were to
lose our permission from the RBI we could be forced to change our business
practices or to cease the Cash2India service.

         Under the International Money Laundering Abatement and Financial
Anti-Terrorism Act of 2001, or IML Act, we may be required to obtain additional
information, maintain records and file reports regarding any business we conduct
with residents of jurisdictions that are identified by the Secretary of the
Treasury as being of primary money laundering concern.

COMPETITION

         With respect to prepaid calling cards, we compete with many of the
largest telecommunications providers, including AT&T, MCI WorldCom and Sprint.
These companies are substantially larger and have greater financial, technical,
engineering, personnel and marketing resources, longer operating histories,
greater name recognition and larger customer bases than we do. We also compete
with smaller, emerging carriers in the prepaid calling card market, including
IDT Corp., 9272 Communications and ValuCom and with various smaller companies
who resell virtual calling cards provided by other carriers through their web
sites. We may also compete with large operators in other countries. These
companies may have larger, more established customer bases and other competitive
advantages. Deregulation in other countries could also result in significant
rate reductions. We believe that additional competitors will be attracted to the
prepaid card market. These competitors include Internet-based




                                       11
<PAGE>

service providers and other telecommunications companies. Competition from
existing or new competitors could substantially reduce our revenues from the
sale of these cards. A general decrease in telecommunication rates charged by
international long distance carriers could also have a negative effect on our
operations.

        An increasing number of large, well-capitalized companies are entering
the market for Internet telephony products and services. As a result, we may not
be able to compete effectively with our competitors in this market, or to
increase our customer base. Various major long distance providers, including
AT&T, Verizon and Deutsche Telekom AG, as well as other major companies,
including Motorola, Inc., Intel Corporation and AOL-Time Warner, Inc., have all
entered or plan to enter the Internet telephony market, in some cases by
investing in companies engaged in the development of Internet telephony
products. Our competitors also include a number of companies that have
introduced services that make Internet telephony solutions available to
businesses and consumers. Net2Phone, Delta Three, ITXC Corp., iBasis, Inc. and
MCI WorldCom provide a range of Internet telephony services to consumers and
businesses that are similar to the ones we offer. Several other companies,
including AT&T, Sprint and Qwest Communications, have announced their intention
to offer these services on a wider basis in both the United States and
internationally.

        In addition, we compete in the market for Internet telephony services
with companies that produce software and other computer equipment that may be
installed on a user's computer to permit voice communications over the Internet.
Also, a number of large companies, including Cisco Systems, Inc., Lucent
Technologies, Inc., Northern Telecom Limited, Nuera Communications, Clarent
Corporation and Dialogic Corp. offer or plan to offer server-based Internet
telephony products. These products are expected to allow communications over the
Internet between parties using a multimedia PC and a telephone and between two
parties using telephones.

        With respect to our Cash2India business, we compete with Western Union,
Moneygram and various regional and local money transmitters. We also compete
with Web based money transmitters such as Remit2India and with banking
institutions such as Citibank and others which offer money transfer and wire
services.

        We cannot be certain we will be able to compete successfully against
current and future competitors. As a strategic response to changes in the
competitive environment, we may, from time to time, make pricing, service or
marketing decisions that could have a material adverse effect on our business,
financial condition and operating results.

        New technologies and the expansion of existing technologies may increase
competitive pressures by enabling our competitors to offer lower-cost services.
Certain Web-based applications that direct Internet traffic to other Web sites
may channel users to services which compete with us. In addition, companies that
control access to transactions through network access or Web browsers could
promote our competitors or charge us substantial fees for inclusion. The
occurrence of any of these events could have a material adverse effect on our
business, financial condition and operating results.

INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS

        Our success depends in part upon our ability to protect our proprietary
technology and other intellectual property rights. We rely on a combination of
copyright, trademark, service mark and trade secret laws and contractual
restrictions to establish and protect our proprietary rights in our products and
services. We protect our proprietary software through United States copyright
laws, and the source code for our proprietary software is protected under trade
secret laws. Effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which our services are made
available online, and thus, the steps that we take may be inadequate to protect
our rights. We cannot assure you that we will be issued any of these trademarks
and may find that such marks are unavailable.

        We currently hold various Internet domain names relating to our
operations, including "wqn.com," "creditcardphone.com," "Clicks2India.com",
"buyindiaonline.com", "Cash2India.com", "click2call.net," "phone-2-phone.com,"
"click-n-dial.com," and "phonecollect.com." Governmental agencies and their
designees are responsible for regulating the acquisition and maintenance of
domain names. The regulation of domain names in the United States and other
countries may change in the near future. Such changes in the United States are


                                       12
<PAGE>

expected to include a transition from the current system to a system that is
controlled by a non-profit corporation and the creation of additional top-level
domains. Governing bodies may establish additional top-level domain name
registrars or modify the requirements for holding domain names. As a result, we
may be unable to acquire or maintain relevant domain names in countries in which
we conduct business. Furthermore, the relationship between regulations governing
domain names and laws protecting trademarks and similar proprietary rights is
unclear. Therefore, we may be unable to prevent third parties from acquiring
domain names that are similar to, infringe upon or otherwise decrease the value
of our trademarks and other proprietary rights.

        We have entered into confidentiality and assignment agreements with our
employees and contractors, and nondisclosure agreements with parties with whom
we conduct business. We do this in order to limit access to and disclosure of
our proprietary information. These agreements are designed to make it clear that
we own any technology developed by our employees and contractors during their
engagement by us and to protect us against unauthorized disclosure of our
proprietary information. We cannot assure you that these contractual
arrangements or the other steps taken by us to protect our intellectual property
will prove sufficient. To date, we have not actively policed unauthorized use of
our technology. This is because the global nature of the Internet makes it
difficult to control the ultimate destination or security of software or other
data transmitted.

        In the future, we may license certain of our proprietary rights to third
parties. While we will attempt to ensure the quality of the WorldQuest Networks'
brand is maintained by such licensees, we cannot assure you that such licensees
will not take actions that might materially adversely affect the value of our
proprietary rights or reputation, and have a material adverse effect on our
business, financial condition and operating results. We also rely on certain
technologies that we license from third parties. These may include suppliers of
key database technology, enhanced services platforms, gateway server platforms,
operating systems and specific hardware components for our service. We cannot
assure you that these third-party technology licenses will continue to be
available to us on commercially reasonable terms. The loss of such technology
could require us to obtain substitute technology of lower quality or performance
standards or at greater cost, which could materially adversely affect our
business, financial condition and operating results.

RESEARCH AND DEVELOPMENT

        We consider the amounts spent by us for research and development during
2002 and 2001 to be immaterial.

ENVIRONMENTAL MATTERS

        Environmental contingencies are not expected to have a material adverse
effect on our results of operations or financial condition.

EMPLOYEES

        As of December 31, 2002, we had 28 full-time employees. None of our
employees are represented by a labor union. We have not experienced any work
stoppages and consider our employee relations to be good.

ITEM 2. DESCRIPTION OF PROPERTY

        Our executive offices are located in Dallas, Texas, where we lease
approximately 6,200 square feet under a lease at a monthly rental of
approximately $7,800 which expires August 31, 2003. We also have a network hub
in Dallas, Texas under a co-location arrangement at a monthly rental of
approximately $7,300. We believe our space is adequate for our current needs. As
we expand, we expect that suitable additional space will be available on
commercially reasonable terms, although no assurance can be made in this regard.
We also believe our property is adequately covered by insurance.

ITEM 3. LEGAL PROCEEDINGS

        In December 1996, we applied to the United States Patent and Trademark
Office to register the trademarks: "WorldQuest" and "WorldQuest Networks." We
received a registration for the trademark "WorldQuest" from the



                                       13
<PAGE>

U.S. Patent and Trademark Office on November 23, 1999. In October 1997, the
Patent and Trademark Office issued a notice of publication regarding our
application to register "WorldQuest Networks" as a trademark. In response to
that notice, Qwest Communications filed a notice of opposition in September
1998, which is currently pending before the Patent and Trademark Office. In July
2000, Qwest Communications instituted a cancellation proceeding in the Patent
and Trademark Office for the registered trademark "WorldQuest." In December
2001, a judgment was made in the Company's favor whereby Qwest's motion to
cancel our "WorldQuest" trademark was dismissed, however, Qwest filed a motion
appealing the judgment. In December 2002, Qwest filed a separate complaint
stating that the Company's prepaid cashcard product infringes on the Qwest
trademark. In February 2003, the companies settled all outstanding claims
whereby WorldQuest will receive a cash payment and services from Qwest and Qwest
shall retain all right to the trademarks in question. WorldQuest will have 18
months to cease using the name "WorldQuest". We are currently evaluating
potential corporate names and anticipate that a decision will be made within the
next 12 months.

        The Company is a defendant from time to time in lawsuits and disputes
arising in the ordinary course of business. We are not involved in any other
material legal proceedings at this time.




                                       14
<PAGE>


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters were submitted to a vote of security holders of the Company
during the fourth quarter ended December 31, 2002.



                                       15
<PAGE>

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        WorldQuest's Common Stock trades on the NASDAQ National Market under the
symbol "WQNI". The following table sets forth the per share range of high and
low sales prices of our Common Stock for the periods indicated:

<Table>
<Caption>

                                   HIGH          LOW
                                   ----          ---
<S>                              <C>          <C>
YEAR ENDED DECEMBER 31, 2002
First Quarter ................   $   2.70     $   2.15
Second Quarter ...............   $   3.00     $   2.00
Third Quarter ................   $   2.39     $   1.65
Fourth Quarter ...............   $   2.17     $   1.33
</Table>

        As of February 28, 2003, there were approximately 34 stockholders of
record of our Common Stock and approximately 2,000 additional beneficial owners
of our Common Stock.

DIVIDEND POLICY

        We have never paid cash dividends on our Common Stock and anticipate
that we will continue to retain our earnings, if any, to finance the growth of
our business.

USE OF PROCEEDS OF INITIAL PUBLIC OFFERING

        The effective date of our first registration statement, filed on Form
SB-2 under the Securities Act of 1933 (no. 333-93019) relating to our initial
public offering of our Common Stock, was February 4, 2000. A total of 3,162,500
shares of our Common Stock were sold at a price of $13.00 per share. Net
proceeds to WorldQuest were $36.3 million. From the time of receipt through
December 31, 2002 the net proceeds were applied toward:

         -        repayment of indebtedness, $4,498,000;

         -        equipment purchases including additional back-up systems,
                  $4,293,000;

         -        software development, $558,000; and

         -        general corporate purposes, including payment of outstanding
                  payables, payoffs of capital leases, liability insurance
                  premiums, development of strategic relationships and research
                  and development of new products, $6,719,000.

        The remaining proceeds are being used as working capital or are being
held in high quality, short-term investment instruments such as short-term
corporate investment grade or United States Government interest-bearing
securities.

        Of the $4,498,000 paid for repayment of indebtedness, $1,440,000 was
paid to Eagle Venture Capital, LLC, which owns approximately 41% of our Common
Stock and is controlled by B. Michael Adler, our Chairman of the Board.


                                       16
<PAGE>

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

         The following discussion of the financial condition and results of
operations of WorldQuest Networks, Inc. should be read in conjunction with the
Management's Discussion and Analysis or Plan of Operation (including Risk
Factors That May Affect Results of Operations and Financial Condition) and the
Consolidated Financial Statements and the Notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2002.

FORWARD-LOOKING STATEMENTS

         Certain statements in this report, including statements of WorldQuest's
and management's expectations, intentions, plans and beliefs, including those
contained in or implied by "Management's Discussion and Analysis or Plan of
Operation" and the Notes to Condensed Consolidated Financial Statements, are
"forward-looking statements", within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are
subject to certain events, risks and uncertainties that may be outside
WorldQuest's control. These forward-looking statements include statements of
management's plans and objectives for WorldQuest's future operations and
statements of future economic performance, information regarding our expansion
and possible results from expansion, our expected growth, our capital budget and
future capital requirements, the availability of funds and our ability to meet
future capital needs, the realization of our deferred tax assets, and the
assumptions described in this report underlying such forward-looking statements.
Actual results and developments could differ materially from those expressed in
or implied by such statements due to a number of factors, including, without
limitation, those described in the context of such forward-looking statements,
our expansion and acquisition strategy, our ability to achieve operating
efficiencies, our dependence on network infrastructure, capacity,
telecommunications carriers and other suppliers, industry pricing and technology
trends, evolving industry standards, domestic and international regulatory
matters, general economic and business conditions, the strength and financial
resources of our competitors, our ability to find and retain skilled personnel,
the political and economic climate in which we conduct operations and the risk
factors described from time to time in our other documents and reports filed
with the Securities and Exchange Commission (the "Commission").

OVERVIEW

         We are an international Internet telephony and money transfer company.
Our customers utilize our networks of Internet gateways and other traditional
networks to place long-distance calls online at discounted rates. We also sell
virtual calling cards processed through other companies' platforms including
prepaid wireless and prepaid Internet and from time to time we sell our excess
capacity to other long distance carriers. We market our WebOrganizer, an
intelligent address book and calendar that enables customers to make domestic
and international phone calls from anywhere in the world. Through our
wholly-owned subsidiary, buyindiaonline.com (known as Cash2India), we also
provide a web service that enables customers to send money and a personalized
message from the United States, Canada and the United Kingdom to friends,
family, or others in India, Sri Lanka, Mexico and the Philippines over our Web,
telephony and other networks.

         During September 2002 we began selling a new multi-purpose stored-value
card through a pilot program in Dallas, Texas. The new product, the WorldQuest
CashCard, can be used to withdraw money or check balances at ATM's worldwide and
to pay for merchandise at any location associated with the Plus(R), Pulse(R) or
Star(R) Networks. The WorldQuest CashCard is currently available at grocery and
convenience stores, as well as at kiosks in Dallas area malls. The new
stored-value card also serves as a prepaid long-distance calling card.
WorldQuest CashCard holders can add money to their card via the direct deposit
of their paychecks, by cashing their paychecks, by ACH transfer and by using
cash, credit cards or electronic checks.

         As of December 31, 2002, Eagle Venture Capital, LLC ("Eagle Venture")
owned approximately 2.6 million, 41%, of our outstanding shares of common stock.
Eagle Venture is primarily owned by our founder and Chairman of the Board.


                                       17
<PAGE>

         Our primary source of revenue is the fees that we receive from our
retail customers for completing calls over our network and contain a variable
expense component, which varies proportionately with the volume of traffic
carried over our network. This revenue is dependent on the volume of voice
traffic carried over the network, which is measured in terms of minutes of voice
traffic and the fees per minute of traffic we charge our customers. We recognize
this revenue in the period the call is completed. We bill our retail customers
on a prepaid basis through credit cards.

         Cost of revenue consists primarily of data communication and
telecommunication expenses to terminate long distance traffic over our networks
and are largely proportional to the traffic carried over our network. These
costs include Internet related expenses to send voice traffic over the Internet,
primarily fees we pay to terminate calls, fees we pay to utilize the traditional
telephone network to terminate our calls and expenses incurred to connect our
customers to our network.

         Selling, general and administrative expenses consist of advertising and
promotional expenditures, payroll and related expenses for executive and
administrative personnel, facilities expenses, professional services expenses,
travel and other general corporate expenses. We expect selling, general and
administrative expenses to increase in absolute dollars but decrease as a
percentage of revenue as our sales volume increases.

CRITICAL ACCOUNTING POLICIES

         Financial Reporting Release No. 60, which was recently published by the
SEC, recommends that all companies include a discussion of critical accounting
policies used in the preparation of their financial statements. The Company's
significant accounting policies are summarized in Note 2 of its consolidated
financial statements included in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 2002. While all these significant accounting
policies impact its financial condition and results of operations, the Company
views certain of these policies as critical. Policies determined to be critical
are those policies that have the most significant impact on the Company's
financial statements and require management to use a greater degree of judgment
and/or estimates. Actual results may differ from those estimates. The Company
believes that given current facts and circumstances, it is unlikely that
applying any other reasonable judgments or estimate methodologies would cause a
material effect on the Company's consolidated results of operations, financial
position or liquidity for the periods presented in this report. The accounting
policies identified as critical are as follows:

REVENUE RECOGNITION

         The Company recognizes revenues in accordance with generally accepted
accounting principles as outlined in Staff Accounting Bulletin No. 101 ("Revenue
Recognition in Financial Statements") which requires that four basic criteria be
met before revenue can be recognized: (1) persuasive evidence of an arrangement
exists, (2) product delivery, including customer acceptance, has occurred or
services have been rendered, (3) the price is fixed or determinable and (4)
collectibility is reasonably assured. The Company believes that its revenue
recognition policy is critical because much of our revenue is received in cash
before it is earned. We bill our retail calling card customers on a prepaid
basis through credit cards and recognize the revenue in the period in which the
call is completed. A substantial portion of the Company's revenue is derived
from the sale of prepaid phone cards that are used for calls to India.

PROPERTY AND EQUIPMENT

         Property and equipment are depreciated over their useful lives. Useful
lives are based on management's estimates of the period that the assets will
generate revenue. Any change in conditions that would cause management to change
its estimate as to the useful lives of a group or class of assets may
significantly impact the Company's depreciation expense on a prospective basis.
The Company evaluates long-lived assets for impairment whenever events or
changes in circumstances indicate the carrying amount of an asset may not be
recoverable and the undiscounted cash flows to be generated from those assets
are less than the carrying amount of those assets.


                                       18
<PAGE>

INCOME TAXES

         As of December 31, 2002, we had approximately $21,857,000 of net
operating loss carry forwards for federal income tax purposes, which expire
beginning in 2011. We have not recognized an income tax benefit for our losses
because of uncertainty regarding future realizability and we have provided a
full valuation allowance on our deferred tax assets.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

REVENUE

     Revenue decreased approximately 6% to $11,470,000 for the year ended
December 31, 2002 from $12,176,000 for the year ended December 31, 2001. This
$706,000 decrease is a result of a $2,235,000 decrease in wholesale revenues
offset by a $1,088,000 increase in retail revenues and a $441,000 increase in
money transfer revenue. The decrease in wholesale revenues and the increase in
retail revenues is due to the Company's decision in the second quarter of 2001
to focus on higher-margin retail sales and away from lower-margin, higher risk
wholesale carrier sales. One customer accounted for $898,000 or 40% of our total
wholesale revenues for the year ended December 31, 2001. The increase in money
transfer revenue is due to the acquisition of Cash2India in December 2001. We
expect revenues in future periods to be comprised primarily of retail revenues,
however, we may supplement our revenue with wholesale traffic as we see
financially beneficial opportunities.

COST OF SALES

     Cost of sales decreased approximately 16% to $8,773,000 for the year ended
December 31, 2002 from $10,383,000 for the year ended December 31, 2001. This
$1,610,000 decrease is primarily attributable to the absence of lower margin
wholesale revenue, the improvement in our gross margin of our retail prepaid
calling card revenue and the inclusion of higher margin money transfer revenue.
Gross margin percentage for the year 2002 was approximately 24% compared to
approximately 15% in 2001. The increase in gross margin percentage is primarily
attributable to a shift in revenue mix whereby higher margin retail revenues
comprised 100% of total revenues in 2002 compared to 82% in 2001. The increase
in gross margin percentage of our retail prepaid calling card revenue is
primarily attributable to favorable rate improvements in our lease agreements
with carriers to terminate calls and to favorable rates obtained from our
suppliers of virtual calling cards that we resell. We expect cost of sales to
increase in absolute dollars in future periods but decrease as a percentage of
revenue as our retail revenues increase as a percentage of our total revenues.

SELLING, GENERAL AND ADMINISTRATIVE

     Selling, general and administrative expenses decreased approximately 25% to
$4,866,000 for the year ended December 31, 2002 from $6,451,000 for the year
ended December 31, 2001. Selling, general and administrative expenses for the
2001-year include bad debt expense of $749,000 attributable to one wholesale
customer while the 2002-year includes a $323,000 benefit from cash payments of
$121,000 and the receipt of a note receivable for $202,000 from the same
wholesale customer. Also, selling, general and administrative expenses for the
2001-year include severance and other people costs in connection with the
addition of key management and other personnel and higher legal fees in
connection with the Qwest litigation which took place in the third and fourth
quarter of 2001. We expect selling, general and administrative expenses to
increase in absolute dollars, but decrease as a percentage of revenue, as we
continue to pursue advertising and marketing efforts, expand our network
termination locations worldwide, expand our staff and incur additional costs
related to the growth of our business.

IMPAIRMENT CHARGES AND OTHER WRITE-OFFS

      During the quarter ended March 31, 2001, the Company wrote-off
approximately $301,000 of foreign termination equipment no longer in operation
and owned by one of the Company's majority owned joint venture operations to
install and operate Internet gateways in foreign locations. During the second
quarter of 2001, the joint venture ceased terminating traffic due to the loss of
available circuits resulting in the cessation of the joint



                                       19
<PAGE>

venture's operations. Accordingly, the Company wrote-off its investment in the
joint venture resulting in a loss of $1,300,000.

         During the quarter ended September 30, 2001, another one of the
Company's majority-owned joint venture operations to install and operate
Internet gateways in foreign locations ceased terminating traffic due to the
loss of available circuits resulting in the cessation of the joint venture
operations. Accordingly, the Company wrote-off its investment in the joint
venture resulting in a loss of $375,000.

         In 1999, the Company formed a joint venture with BDC, LLC, a company
owned by a director of the Company. BDC contributed $50,000 to the joint venture
and the Company agreed to obtain Internet gateways and to install and operate
the gateways. The Company owned 60% of the joint venture and in April 2000
purchased the remaining 40% interest for $600,000, which was recorded as
goodwill to be amortized over five years. In 2001, the joint venture ceased
operations due to the loss of available economic circuits to terminate traffic.
Accordingly, the Company wrote-off the remaining goodwill of $434,000 in June
2001, which is included as an impairment charge in the statement of operations.

         During the second quarter of 2001, the Company wrote-off certain
deposits and other assets incurred to terminate traffic in foreign locations due
to the unavailability of those circuits. The write-off totaling approximately
$140,000 is included as a component of impairment charges.

DEPRECIATION AND AMORTIZATION

        Depreciation and amortization decreased approximately 18% to $1,100,000
for the year ended December 31, 2002 from $1,334,000 for the year ended December
31, 2001. The decrease in depreciation and amortization is primarily
attributable to a lower depreciable base in property and equipment and other
assets during the 2002 year due to the impairment charges in the 2001 year. We
expect depreciation and amortization expense to increase during 2003 due to
asset additions in 2002.

MINORITY INTEREST

         There was no minority interest in the 2002-year due to the cessation of
the joint ventures in which the Company had a majority interest during 2001.
Minority interest for the year ended December 31, 2001 was a benefit of
$353,000.

INTEREST INCOME, NET

         Interest income, net consists of interest earned on cash and cash
equivalents less interest expense on borrowings under a credit facility with our
principal stockholder, Eagle Venture Capital. Interest earned on cash and cash
equivalents decreased to $401,000 for the year ended December 31, 2002 from
$1,087,000 for the year ended December 31, 2001. This decline is predominantly
due to an overall decrease in short-term interest rates in the United States
financial markets and to a decrease in the average cash balance invested.
Interest expense for the 2002-year totaled $49,000 compared to $84,000 in 2001.
The decrease in interest expense is primarily due to the repayment of our term
loan with Eagle Venture Capital in the third quarter of 2002.

NET LOSS

         We incurred a net loss of $2,887,000 for the year ended December 31,
2002 compared to a net loss of $7,186,000 for the year ended December 31, 2001.
The decrease of $4,299,000 in net loss in the 2002 year is primarily
attributable to the 50% improvement in gross profit and the 25% decrease in
selling, general and administrative expenses. The 2001-year includes impairment
charges of $2,548,000 and higher selling, general and administrative expenses
due to bad debt expense associated with one wholesale carrier, higher expenses
in connection with the Qwest trademark matter and severance and other costs in
connection with the addition of key management and other personnel in 2001.


                                       20
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

        As of December 31, 2002, we had approximately $20,721,000 of cash and
cash equivalents and working capital of approximately $19,767,000. We generated
negative cash flow from operating activities of approximately $2,450,000 for the
year ended December 31, 2002, compared with negative cash flow from operating
activities of approximately $3,224,000 during the year ended December 31, 2001.
Net cash used in operating activities for the 2002 and 2001 periods primarily
consisted of net operating losses as well as changes in working capital.

        Net cash used in investing activities consists of additions to property
and equipment, including computer equipment and Internet gateways for voice over
the Internet transmission. Net cash used in investing activities was $948,000
for the year ended December 31, 2002 and $874,000 for the year ended December
31, 2001.

        Net cash used by financing activities for the year ended December 31,
2002 was $920,000 due primarily to the $925,000 principal payment on our term
loan with Eagle Venture Capital, a significant stockholder of the Company, which
is controlled by the Company's Chairman. Net cash provided by financing
activities for the year ended December 31, 2002 was $125,000 due to the $300,000
promissory note borrowing described below offset by the $175,000 principal
payment on our term loan from Eagle Venture Capital.

        For the years ended December 31, 2002 and 2001, we paid outstanding
interest of $47,000 and $397,000, respectively, on the term loan from Eagle
Venture Capital. The remaining principal balance of $925,000 on the term loan
with Eagle Venture Capital was paid in 2002, thereby satisfying in full the
Company's obligation on the term loan. In 2001, we made a principal payment of
$175,000 on the term loan. We also had a $1,400,000 line of credit with Eagle
Venture Capital, none of which was ever utilized and which expired in May 2002.

        In 2001, we borrowed $300,000 from a financial institution under a term
promissory note agreement (the "Note"). The Note bears interest at the financial
institution's prime rate as adjusted from time to time (4.25% at December 31,
2002) less 2.25% per annum with the $300,000 principal balance due on October
16, 2003. The Note is collateralized by a $300,000 certificate of deposit
maturing bearing interest of 1.1% per annum.

        In November 2002, we adopted a discretionary stock repurchase program.
The program will expire in November 2003 and we can use up to $1,000,000 to
repurchase our common stock. As of December 31, 2002, no stock repurchases had
been made.

        We believe our existing cash resources will be sufficient to meet our
anticipated needs for working capital and capital expenditure requirements
through at least the next 18 months. We may need to raise additional funds prior
to the expiration of such period if, for example, we pursue business or
technology acquisitions or experience operating losses that exceed our current
expectations. If we raise additional funds through the issuance of equity,
equity-related or debt securities, such securities may have rights, preferences
or privileges senior to those of the rights of our common stock and our
stockholders may experience additional dilution. We cannot be certain that
additional financing will be available to us on favorable terms or at all.

INCOME TAXES

        As of December 31, 2002, we had approximately $21,857,000 of net
operating loss carry-forwards for federal income tax purposes, which expire
beginning in 2011. We have not recognized an income tax benefit for our losses
because of uncertainty regarding future profitability; therefore, at December
31, 2002 we have provided a full valuation allowance on our deferred tax assets
of approximately $8,250,000. Limitations on the utilization of these
carry-forwards may result if we experience a change of control, as defined in
the Internal Revenue Code of 1986, as amended, as a result of changes in the
ownership or our common stock.

RECENT ACCOUNTING PRONOUNCEMENTS

        In December 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB


                                       21
<PAGE>

Statement No. 123" which provides alternative methods of transition for an
entity that voluntarily changes to the fair value based method of accounting for
stock-based employee compensation and amends the disclosure provisions of FASB
Statement No. 123, "Accounting for Stock-Based Compensation." The Company has
adopted the disclosure provisions of this statement but does not expect it will
adopt fair valued based method.

RISK FACTORS THAT MAY EFFECT RESULTS OF OPERATIONS AND FINANCIAL CONDITION

        You should carefully consider the risks and uncertainties described
below and the other information in this Form 10-KSB. Additional risks and
uncertainties not presently known to us or those we currently deem immaterial
may also impair our business, financial condition and operating results.

        We have a limited operating history with which to judge our performance.

        We were incorporated in October 1996. We began selling prepaid virtual
calling cards on our Web site in May 1998. We began routing calls over our
enhanced services platform in August 1998. Accordingly, we have a limited
operating history. We may also encounter risks and difficulties frequently
encountered by early stage companies in new and rapidly evolving markets. We
cannot assure stockholders that our business strategy will be successful or that
we will successfully address these risks. Our failure to do so could materially
adversely affect our business, financial condition and operating results.

        We have a history of losses and we anticipate future losses and negative
cash flow.

        Since inception, we have incurred operating losses, and as of December
31, 2002, we had an accumulated deficit of $20,663,000. We incurred net losses
of $2,887,000 and $7,186,000 for the years ended December 31, 2002 and 2001,
respectively.

        Our revenues may not continue to grow or even continue at their current
level. We will need to increase our revenues significantly to become profitable,
however, if our revenues do not increase as much as we expect or if our expenses
increase at a greater pace then revenues, we may not achieve profitability or,
if we became profitable, we may not be able to sustain or increase profitability
on a quarterly or annual basis. We expect to incur additional costs and expenses
in 2003 related to:

         -        marketing and advertising related to traffic generation and
                  brand development;

         -        purchases of equipment for our operations and network
                  infrastructure;

         -        the continued development of our Web site transaction
                  processing and network infrastructure;

         -        development and improvement of additional products and
                  services;

         -        the hiring of additional personnel; and

         -        evaluating and completing potential acquisitions of other
                  companies.

        Our financial results could suffer if we are unable to maintain or grow
sales levels of virtual prepaid phone cards to customers calling from the United
States to India.

        We depend on the sale of virtual prepaid phone cards to customers
calling from the United States to India for a significant percentage of our
sales volume. For the years ended December 31, 2002 and 2001, 95% and 92%
respectively of our total virtual prepaid phone card sales were to customers
calling from the United States to India. A decrease in the number of our
customers calling from the United States to India, or a decrease in the price
per minute charged to these customers could materially adversely offset our
business, financial condition and operating results.



                                       22
<PAGE>

        Our quarterly operating results are subject to significant fluctuations
and our future operating results are unpredictable.

        Our operating results are unpredictable and have fluctuated
significantly on a quarterly basis. We expect to continue to experience
significant fluctuations in our quarterly results of operations due to a variety
of factors, many of which are outside of our control. As a result,
period-to-period comparisons of our results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.

        Because of our limited operating history, we cannot accurately forecast
our net sales. We rely upon limited historical financial data to predict our
future operating results. Sales and operating results are difficult to forecast
because they generally depend on the volume of traffic on our network and the
volume and timing of sales of our virtual calling cards. Because of these
factors, we may be unable to adjust our spending in a timely manner to adjust
for any unexpected revenue shortfall.

        If we do not increase the number of Web sites and portals upon which we
advertise we may not be able to grow our business.

        We market our virtual calling cards and services on third-party Web
sites and portals using banner ads. The banner ads connect directly to our Web
site when "clicked" by the customer. If we cannot continue to cost effectively
market our virtual calling cards and services, our ability to expand our
customer base would be adversely affected.

        The telecommunications and Internet telephony markets are highly
competitive and our failure to compete effectively could adversely affect us.

        With respect to prepaid calling cards, we compete with the largest
telecommunications providers in the United States, as well as smaller, emerging
carriers. We may also compete with large operators in other countries. An
increasing number of large, well-capitalized companies are entering the market
for Internet telephony products and services. These competitors include a number
of companies that have introduced services that make Internet telephony
solutions available to businesses and consumers, and that permit voice
communications over the Internet. Many of our competitors are substantially
larger and have greater financial, technical, engineering, personnel and
marketing resources, longer operating histories, greater name recognition and
larger customer bases than we do. Competition from existing or new competitors
could reduce our revenues from the sale of our virtual prepaid calling cards and
other services. A general decrease in telecommunication rates charged by
international long distance carriers could also have a negative effect on our
operations. Our ability to compete also depends on our ability to anticipate and
adapt to rapid technological and other changes occurring in the
telecommunications industry.

        We may not be able to compete with providers that can bundle long
distance services with other offerings.

        Our competitors may be able to bundle services and products that we do
not offer together with long distance or Internet telephony services. These
services could include wireless communications, voice and data services,
Internet access and cable television. This form of bundling would put us at a
competitive disadvantage if these providers can combine a variety of service
offerings at a single attractive price. In addition, some of the
telecommunications and other companies that compete with us may be able to
provide customers with lower communications costs or other incentives with their
services reducing the overall cost of their communications packages, and
significantly increasing pricing pressures on our services. This form of
competition could significantly reduce our revenues.

        We may be vulnerable to technical malfunctions which could adversely
affect our operations.

        We depend upon our software systems, communications hardware and
enhanced services platform to conduct our virtual calling card sales and
telephone routing, manage our network, track virtual calling card



                                       23
<PAGE>

balances and perform other vital functions. If we experience substantial
technical difficulties with our hardware or software, we may not succeed in
routing traffic effectively, or in tracking virtual calling card balances
accurately, which could adversely affect our operations. We have experienced
periodic system interruptions, which we believe will continue to occur from
time-to-time. Since our operations depend on our ability to successfully expand
our network and to integrate new technologies and equipment into our network,
there is an increased risk of system failure as well as a natural strain on the
system.

        Our systems may not accommodate significant growth in the number of
users which could have a negative effect on our operations.

        Our success depends on our ability to handle a large number of
simultaneous calls. We expect that the volume of simultaneous calls will
increase significantly as we expand our operations. If this occurs, additional
stress will be placed upon the network hardware and software that manages our
traffic. We cannot assure stockholders of our ability to efficiently manage a
large number of simultaneous calls. If we are not able to maintain an
appropriate level of operating performance, or if our service is disrupted, then
we may develop a negative reputation and our business, results of operations and
financial condition would be materially adversely affected.

        If the Internet telephony and prepaid calling card markets do not gain
market acceptance by potential customers, our business will be adversely
affected.

        We cannot be certain that Internet telephone service will gain market
acceptance or prove to be a viable alternative to traditional telephone service.
If the Internet telephony market fails to develop or develops more slowly than
we expect, then our future revenues would be adversely affected.

        The market for prepaid calling cards is an emerging business with a
large number of market entrants. Therefore, it is difficult to accurately
determine what the demand will be for our products and services in this area.
Substantial markets may not continue to develop for prepaid calling cards, and
we may not be able to sustain or increase our sales of these products and
services.

        If the e-commerce market does not continue to develop and gain market
acceptance, our revenues may be negatively affected.

        We anticipate that e-commerce will continue to account for substantially
all of our future revenues. Our business will suffer if e-commerce does not grow
or grows more slowly than expected. A number of factors could prevent acceptance
of e-commerce, including:

         -        e-commerce is at an early stage and buyers may be unwilling to
                  shift their purchasing from traditional vendors to online
                  vendors;

         -        increased government regulation or taxation may limit the
                  growth of e-commerce; and

         -        adverse publicity and consumer concern about the security of
                  e-commerce transactions may discourage its acceptance and
                  growth.

        These factors could impair our ability to generate revenues from our
online sales of virtual calling cards, online transmission of telephone calls
and other e-commerce activities.

        If the Internet and Internet infrastructure do not continue to develop
as anticipated, our operations will be negatively affected.



                                       24
<PAGE>

        For the Internet to be commercially viable in the long-term, the size of
the network infrastructure, enabling technologies, necessary performance
improvements and user security will need to be continually addressed. To the
extent that the Internet continues to experience an increased number of users,
frequency of use or increased bandwidth requirements, we cannot assure
stockholders that the performance or reliability of the Internet will not be
adversely affected. Furthermore, the Internet has experienced a variety of
outages and other delays as a result of damage to portions of its
infrastructure, and could face such outages and delays in the future. These
outages and delays could adversely affect the level of Internet usage and affect
the level of traffic, the processing of orders and the transmission of calls on
our Web site.

        We cannot assure stockholders that the infrastructure or complementary
products or services necessary to make the Internet a viable commercial
marketplace for the long term will be developed. Even if these products and
services are developed, we cannot assure stockholders that the Internet will
become a viable commercial marketplace for our virtual calling cards and
services. If not, our business, financial condition and operating results will
be materially adversely affected. Also, we may be required to incur substantial
expenditures in order to adapt our products and services to changing Internet
technologies, which could have a material adverse effect on our business,
financial condition and operating results.

        The failure to manage our growth in operations and hire additional
qualified employees could have a material adverse effect on us.

        The expected growth of our operations places a significant strain on our
current management resources. To manage this expected growth, we will need to
improve our:

         -        transaction processing methods;

         -        operations and financial systems;

         -        procedures and controls; and

         -        training and management of our employees.

        Competition for personnel is intense, and we cannot assure stockholders
that we will be able to successfully attract, integrate or retain sufficiently
qualified personnel. Our failure to attract and retain the necessary personnel
or to effectively manage our employee and operations growth could have a
material adverse effect on our business, financial condition and operating
results.

        Our potential customers may have concerns about Internet commerce
security which could inhibit our growth and we may incur losses resulting from
credit card fraud.

        Consumer concerns over the security of transactions conducted on the
Internet or the privacy of users may inhibit the growth of the Internet and
online commerce. To securely transmit confidential information, such as customer
credit card numbers, we rely on encryption and authentication technology that we
license from third parties. We cannot predict whether events or developments
will compromise or breach the technology that protects our customer transaction
data. If our security measures do not prevent security breaches, this could have
a material adverse effect on our business, financial condition and operating
results.

        To date, we have suffered minimal losses as a result of orders placed
with fraudulent credit card data even though the associated financial
institution approved payment of the orders. Under current credit card practices,
a merchant is liable for fraudulent credit card transactions where the merchant
does not obtain a cardholder's signature. We do not obtain the signature of the
cardholder when we process orders. Although we have implemented mechanisms to
try to detect credit card fraud, we cannot assure you that our efforts will be
successful. Our inability to adequately detect credit card fraud could
materially adversely affect our business, financial condition and operating
results.

        To the extent that our activities involve the storage and transmission
of proprietary information, such as credit card numbers, security breaches could
expose us to a risk of loss or litigation and possible liability. We do not
presently carry insurance policies to reimburse us for losses caused by security
breaches. We cannot assure stockholders that our security measures will prevent
security breaches. Our failure to prevent security breaches could have a
material adverse effect on our business, financial condition and operating
results.



                                       25
<PAGE>

        The market price for our common stock may be volatile, which could cause
stockholders to lose substantial portions of their investment.

        The market prices of the securities of Internet-related and online
commerce companies have been especially volatile. The trading prices of many
Internet companies' stocks fell dramatically during 2000 any may still reflect
valuations substantially above historical levels. We cannot assure stockholders
that these trading prices will not continue to be volatile or that valuations
will be sustained. Broad market and industry factors may materially and
adversely affect the market price of our common stock, regardless of our
operating performance.

        Our business may be adversely affected if we are not able to protect our
intellectual property and other proprietary rights from infringement.

        Our success depends in part upon our ability to protect our proprietary
technology and other intellectual property rights. We rely on a combination of
copyright, trademark, service mark and trade secret laws and contractual
restrictions to establish and protect our proprietary rights. Effective
trademark, service mark, copyright and trade secret protection may not be
available in every country in which our services are made available online.
Therefore, the steps that we take may be inadequate to protect our rights.

        The Internet industry may become subject to increased government
regulation which could have a negative effect on our operations.

        Various actions have been taken by the United States Congress and the
Federal courts that, in some cases impose some forms of regulation on the
Internet, and in other cases protect the Internet from regulation. Domestic and
international authorities regularly consider proposed legislation that could
result in new regulations on the Internet. It is impossible to say at this time
whether and to what extent the Internet may ultimately be regulated domestically
or internationally. Increased regulation of the Internet may decrease its
growth, which may negatively impact the cost of doing business via the Internet
or otherwise materially adversely affect our business, results of operations and
financial condition.

        In addition, because our services are accessible worldwide, and we
facilitate the sale of goods to users worldwide, other jurisdictions may claim
that we are required to comply with their laws. We are qualified to do business
in Delaware and Texas only, and failure by us to qualify as a foreign
corporation in a jurisdiction where we are required to do so could subject us to
taxes and penalties for the failure to qualify.

        Sales tax collection by states may adversely affect our growth.

        We do not currently collect sales or other similar taxes for calling
cards or services sold through our Web site, other than for calling cards sold
to Texas residents. However, one or more states may seek to impose sales tax or
similar collection obligations on out-of-state companies, such as ours, which
engage in Internet commerce. A successful assertion by one or more states or any
other country that we should collect sales or other taxes on the sale of cards
or services on our system could have a material adverse effect on our
operations.

         The loss of key personnel could adversely affect our business.

         We believe that our success will depend on the continued services of
our senior management team, especially B. Michael Adler and R. Stephen Polley.
We carry key person life insurance on the lives of B. Michael Adler and R.
Stephen Polley. The loss of the services of any of our senior management team or
other key employees could adversely affect our business, financial condition and
operating results.

         We may not be able to raise needed additional capital in the future.

        We require substantial working capital to fund our business. Our working
capital requirements and cash flow provided by operating activities can vary
from quarter to quarter depending on revenues, operating expenses, capital
expenditures and other factors. We anticipate that the net proceeds of our
initial public offering will be sufficient to meet our anticipated needs through
at least the next 18 months. Thereafter, we may need to raise additional funds.

        We may also need to raise additional funds sooner than anticipated to:

         -        fund more rapid expansion;


                                       26
<PAGE>

         -        develop new or enhanced services or products; and

         -        respond to competitive pressures.

        If additional funds are raised through the issuance of equity or
convertible debt securities the rights and ownership in our company by existing
stockholders may be reduced.

        We cannot assure stockholders that additional financing will be
available on terms favorable to us or at all. If adequate funds are not
available, or are not available on acceptable terms, we may not be able to fund
planned expansion, take advantage of available opportunities, develop or enhance
services or products or respond to competitive pressures. Such inabilities could
have a material adverse effect on our business, financial condition and
operating results.

         Compliance with present or future state, federal and international
financial services regulation could be costly, expose us to substantial
liability, force us to change our business practices or force us to cease
offering our current product.

         We operate in an industry subject to government regulation. Our
Cash2India business is subject to some states' money transmitter regulations, to
federal regulations and to federal electronic fund transfer and money laundering
regulations and to international regulations. We have approval from the Reserve
Bank of India to provide our Cash2India services in India. If we were to lose
this approval, we may be forced to change our business practices or cease
offering this service. In the future, we might be subjected to:

         -        state or federal banking regulations;

         -        additional states' money transmitter regulations and federal
                  money laundering regulations;

         -        international banking or financial services regulations or
                  laws governing other regulated industries; or

         -        U.S. and international regulation of Internet transactions.

         If we were found subject to or in violation of any laws or regulations
governing banking, we could be subject to liability and forced to change our
business practices.

         We believe the licensing requirements of the Office of the Comptroller
of the Currency, the Federal Reserve Board and other federal or state agencies
that regulate banks, bank holding companies or other types of providers of
electronic commerce services do not apply to us. One or more states may conclude
that, under its or their statutes, we are engaged in an unauthorized banking
business. We have received written communications from certain regulatory
authorities. If we are found to be engaged in an unauthorized banking business
in one or more states, we might be subject to monetary penalties and adverse
publicity and might be required to cease doing business with residents of those
states. The need to comply with state laws prohibiting unauthorized banking
activities could also limit our ability to enhance our services in the future.

         We are subject to laws and regulations on money laundering and
reporting of suspicious activities that could have a material adverse impact on
our business and could subject us to civil and criminal liability.

         We are subject to money laundering laws and regulations that prohibit,
among other things, our involvement in transferring the proceeds of criminal
activities. These laws and regulations require us to operate an anti-money
laundering program that contains at least the following elements: written
policies and procedures (including those relating to customer identification),
training for employees, designation of a compliance officer, and regular
independent review of the program. Such a program was required to be in place by
July 24, 2002. We have adopted a program to comply with these regulations, but
any errors or failure to implement the program properly could lead to a lawsuit,
administrative action, fine and/or prosecution by the government. We are also
subject to regulations that require us to report suspicious activities involving
transactions of $2,000 or more. The interpretation of suspicious activities in
this context is uncertain. Future regulations under the International Money
Laundering Abatement and Financial Anti-Terrorism Act of 2001, or the USA
Patriot Act, may require us to revise the procedures we take to verify the
identity of our customers and to monitor more closely international
transactions. These regulations could impose significant costs on us or make it
more difficult for new customers to join our network. We could be required to
learn more about our customers before sending money to obtain additional
verification of international customers, or to monitor our customers' activities
more closely. These requirements could raise our costs significantly and




                                       27
<PAGE>

reduce the attractiveness of our product. Failure to comply with federal and
state money laundering laws could result in significant criminal and civil
lawsuits, penalties and forfeiture of significant assets.

ITEM 7. FINANCIAL STATEMENTS

         The financial statements required by this item begin at Page F-1
hereof.




                                       28
<PAGE>



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

        On June 18, 2001, the Company accepted the resignation of Ernst & Young
LLP as the Company's independent accountants. Neither of the reports of Ernst &
Young LLP on the Company's financial statements for the Company's fiscal years
ended December 31, 2000 and 1999 contained an adverse opinion or disclaimer of
opinion, or was modified as to uncertainty, audit scope, or accounting
principles. There were no disagreements with Ernst & Young LLP on any matters of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which, if not resolved to its satisfaction, would have
caused it to make reference to such disagreement in connection with its report.

        On August 1, 2001, the Company engaged Grant Thornton LLP as the
Company's certified public accountants to audit the Company's financial
statements for the fiscal year ending December 31, 2001.



                                       29
<PAGE>


                                    PART III


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

        The information regarding the directors and executive officers of
WorldQuest in the Proxy Statement relating to WorldQuest's 2003 Annual Meeting,
which will be filed with the Commission within 120 days after December 31, 2002,
is incorporated herein by reference.

ITEM 10. EXECUTIVE COMPENSATION

        The information regarding executive compensation in the Proxy Statement
relating to WorldQuest's 2003 Annual Meeting, which will be filed with the
Commission within 120 days after December 31, 2002, is incorporated herein by
reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The information regarding the security ownership of certain beneficial
owners and management in the Proxy Statement relating to WorldQuest's 2003
Annual Meeting, which will be filed with the Commission within 120 days after
December 31, 2002, is incorporated herein by reference.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The information regarding certain relationships and related transactions
in the Proxy Statement relating to WorldQuest's 2003 Annual Meeting, which will
be filed with the Commission within 120 days after December 31, 2002, is
incorporated herein by reference.



                                       30
<PAGE>



ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

         (a)      The following documents are filed as part of this Annual
                  Report on Form 10-KSB:

                  1.       Financial Statements: The financial statements filed
                           as part of this report are listed in the "Index to
                           Financial Statements" on Page F-1 hereof.

                  2.       Exhibits required to be filed by Item 601 of
                           Regulation S-B:

<Table>
<Caption>

Exhibit
Number            Description of Exhibits
------            -----------------------
<S>               <C>
2.1               buyindiaonline.com Inc. Stock Purchase Agreement

3.1               Certificate of Incorporation of WorldQuest, filed as Exhibit 3.1 to WorldQuest's Form SB-2 Registration Statement,
                  File No. 333-82721 (the "Prior Registration Statement"), and incorporated herein by this reference.

3.2               Bylaws of WorldQuest, filed as Exhibit 3.2 to the Prior Registration Statement, and incorporated herein by this
                  reference.

4.1               Specimen common stock certificate, filed as Exhibit 4.1 to the Prior Registration Statement, and incorporated
                  herein by this reference.

4.2               Amended and Restated Note dated May 5, 1999 payable to WorldQuest Networks, LLC (now known as Eagle Venture
                  Capital, LLC), filed as Exhibit 4.2 to the Prior Registration Statement, and incorporated herein by this
                  reference.

4.3.1             Representatives' Warrant dated February 4, 2000 granted to John G. Kinnard and Company Incorporated for 68,750
                  shares of common stock, filed as Exhibit 4.3.1 to WorldQuest's Annual Report on Form 10-KSB for the fiscal year
                  ended December 31, 1999, and incorporated herein by this reference.

4.3.2             Representatives' Warrant dated February 4, 2000 granted to Kaufman Bros., L.P. for 178,750 shares of common
                  stock, filed as Exhibit 4.3.2 to WorldQuest's Annual Report on Form 10-KSB for the fiscal year ended December 31,
                  1999, and incorporated herein by this reference.

4.3.3             Representatives' Warrant dated February 4, 2000 granted to WestPark Capital, Inc. for 27,500 shares of common
                  stock, filed as Exhibit 4.3.3 to WorldQuest's Annual Report on Form 10-KSB for the fiscal year ended December 31,
                  1999, and incorporated herein by this reference.

4.4               Amended and Restated Note date August 15, 1999 payable to Eagle Capital Venture, LLC, which replaces the Amended
                  and Restated Note filed as Exhibit 4.2, filed as Exhibit 4.4 to the Prior Registration Statement, and
                  incorporated herein by this reference.

4.5               Form of Unsecured Subordinated Convertible Promissory Note issued in the private placement closed in December 1999
                  (the "Private Placement"), filed as Exhibit 4.5 to WorldQuest's Form SB-2 Registration Statement, file no.
                  333-93019 (the "Second Registration Statement"), and incorporated herein by this reference.

4.6               Form of Warrant issued in the Private Placement, filed as Exhibit 4.6 to the Second Registration Statement, and
                  incorporated herein by this reference.

4.7               Warrant to Purchase 50,000 shares of common stock granted to Advanced Multimedia Group, Inc. on March 16, 2000.

4.8               Warrant to Purchase 50,000 shares of common stock granted to Advanced Multimedia Group, Inc. on April 26, 2000.

10.1              Joint Venture Agreement dated April 9, 1999 between WorldQuest and BDC LLC, filed as Exhibit 10.1 to the Prior
                  Registration Statement, and incorporated herein by this reference.

10.2              Amended 1997 Stock Option Plan, filed as Exhibit 10.2 to the Prior Registration Statement, and incorporated
                  herein by this reference.

10.3              Stock Option Agreement dated December 7, 1998 granted to Michael R. Lanham by WorldQuest, filed as Exhibit 10.3
                  to the Prior Registration Statement, and incorporated herein by this reference.

10.4              Stock Transfer Agreement dated December 7, 1998 between WorldQuest Communications, Inc., WorldQuest Networks, LLC
                  and WorldQuest, filed as Exhibit 10.4 to the Prior Registration Statement, and incorporated herein by this
                  reference.

10.5              Amendment and Clarification Agreement dated September 27, 1999 between WorldQuest Communications, Inc., WorldQuest
                  and Eagle Venture Capital, LLC amending and clarifying the Stock Transfer Agreement filed as Exhibit 10.4, filed
                  as Exhibit 10.7 to the Prior Registration Statement, and incorporated herein by this reference.

10.6              Form of Registration Rights Agreement executed in connection with the Private Placement, filed as Exhibit 10.6 to
                  the Second Registration Statement, and incorporated herein by this reference.

10.7              Purchase Agreement dated April 17, 2000 between WorldQuest and BDC LLC, filed as Exhibit 10.1 to WorldQuest's
                  Quarterly Report on Form 10-QSB for the fiscal quarter ended March 31, 2000, and incorporated herein by this
                  reference.
</Table>



                                       31
<PAGE>

<Table>
<S>               <C>
10.8              2001 Stock Option Plan, filed as Exhibit 4.8 to WorldQuest's Form S-8 Registration Statement, File No. 333-54498,
                  and incorporated herein by this reference.

10.9              Employment agreement by and between WorldQuest Networks, Inc. and R. Stephen Polley effective as of May 14, 2001,
                  filed as Exhibit 10.1 to WorldQuest's Quarterly Report as Form 10-QSB for the quarter ended June 30, 2001.

*21.1             List of Subsidiaries.

*23.1             Consent of Grant Thornton LLP.

*99.1             Certification of the Company's Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                  Section 906 of the Sarbanes-Oxley Act of 2002.

*99.2             Certification of the Company's Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                  Section 906 of the Sarbanes-Oxley Act of 2002.
</Table>

----------

* Filed herewith.

         (b)      Reports on Form 8-K
                  No reports or Form 8-K were filed during the fourth quarter
                  ended December 31, 2002.


ITEM 14. CONTROLS AND PROCEDURES

         Based on their evaluation, as of a date within ninety days of the
filing of this Report on Form 10-KSB, the Company's Chief Executive Officer and
Chief Financial Officer have concluded that the Company's disclosure controls
and procedures (as defined in Rules 13a-14 and 15d-14 under the Securities
Exchange Act of 1934) are effective. There have been no significant changes in
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.


                                       32
<PAGE>


SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                         WORLDQUEST NETWORKS, INC.



March 6, 2003                            /s/ R. Stephen Polley
                                         ---------------------------------
                                         R. Stephen Polley, President and
                                         Chief Executive Officer
                                         (Principal Executive Officer)


March 6, 2003                            /s/ Victor E. Grijalva
                                         ---------------------------------
                                         VICTOR E. GRIJALVA
                                         Vice President,
                                         Chief Financial Officer,
                                         Secretary and Treasurer
                                         (Principal Financial and
                                         Accounting Officer)


In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Company and in the
capacities and on the dates indicated.

March 6, 2003                            /s/ B. Michael Adler
                                         ---------------------------------
                                         B. MICHAEL ADLER
                                         Director (Chairman of the Board)

March 6, 2003                            /s/ R. Stephen Polley
                                         ---------------------------------
                                         R. STEPHEN POLLEY
                                         Director

March 6, 2003                            /s/ E. Denton Jones
                                         ---------------------------------
                                         E. DENTON JONES
                                         Director

March 6, 2003                            /s/ Elizabeth H. Buchler
                                         ---------------------------------
                                         ELIZABETH H. BUCHLER
                                         Director

March 6, 2003                            /s/ Gary W. Fiedler
                                         ---------------------------------
                                         GARY W. FIEDLER
                                         Director

March 6, 2003                            /s/ Robert A. Farmer
                                         ---------------------------------
                                         ROBERT A. FARMER
                                         Director


                                       33
<PAGE>


                                 CERTIFICATIONS


         I, R. Stephen Polley, President and Chief Executive Officer of
WorldQuest Networks, Inc. certify that:

         1.       I have reviewed this Annual Report on Form 10-KSB of
                  WorldQuest Networks, Inc.;

         2.       Based on my knowledge, this Annual Report does not contain any
                  untrue statement of a material fact or omit to state a
                  material fact necessary to make the statements made, in light
                  of the circumstances under which such statements were made,
                  not misleading with respect to the period covered by this
                  Annual Report; and

         3.       Based on my knowledge, the financial statements, and other
                  financial information included in this Annual Report, fairly
                  present in all material respects the financial condition,
                  results of operations and cash flows of the registrant as of,
                  and for, the periods presented in this Annual Report.

         4.       The registrant's other certifying officers and I are
                  responsible for establishing and maintaining disclosure
                  controls and procedures (as defined in Exchange Act Rules
                  13a-14 and 15d-14) for the registrant and we have:

                  a.       designed such disclosure controls and procedures to
                           ensure that material information relating to the
                           registrant, including its consolidated subsidiaries,
                           is made known to us by others within those entities,
                           particularly during the period in which this
                           quarterly report is being prepared;

                  b.       evaluated the effectiveness of the registrant's
                           disclosure controls and procedures as of a date
                           within 90 days prior to the filing date of this
                           quarterly report (the "Evaluation Date"); and

                  c.       presented in this Annual Report our conclusions about
                           the effectiveness of the disclosure controls and
                           procedures based on our evaluation as of the
                           Evaluation Date;

         5.       The registrant's other certifying officers and I have
                  disclosed, based on our most recent evaluation, to the
                  registrant's auditors and the audit committee of registrant's
                  board of directors (or persons performing the equivalent
                  function):

                  a.       all significant deficiencies in the design or
                           operation of internal controls which could adversely
                           affect the registrant's ability to record, process,
                           summarize and report financial data and have
                           identified for the registrant's auditors any material
                           weaknesses in internal controls; and

                  b.       any fraud, whether or not material, that involves
                           management or other employees who have a significant
                           role in the registrant's internal controls; and

         6.       The registrant's other certifying officers and I have
                  indicated in this Annual Report whether or not there were
                  significant changes in internal controls or in other factors
                  that could significantly affect internal controls subsequent
                  to the date of our most recent evaluation, including any
                  corrective actions with regard to significant deficiencies and
                  material weaknesses.


                                        Date: March 6, 2003


                                        By: /s/ R. Stephen Polley
                                            ---------------------------------
                                        R. Stephen Polley
                                        President and Chief Executive Officer
                                        (Principal Executive Officer)


                                       34
<PAGE>


         I, Victor E. Grijalva, Vice President and Chief Financial Officer of
WorldQuest Networks, Inc. certify that:

         1.       I have reviewed this Annual Report on Form 10-KSB of
                  WorldQuest Networks, Inc.;

         2.       Based on my knowledge, this Annual Report does not contain any
                  untrue statement of a material fact or omit to state a
                  material fact necessary to make the statements made, in light
                  of the circumstances under which such statements were made,
                  not misleading with respect to the period covered by this
                  Annual Report; and

         3.       Based on my knowledge, the financial statements, and other
                  financial information included in this Annual Report, fairly
                  present in all material respects the financial condition,
                  results of operations and cash flows of the registrant as of,
                  and for, the periods presented in this Annual Report.

         4.       The registrant's other certifying officers and I are
                  responsible for establishing and maintaining disclosure
                  controls and procedures (as defined in Exchange Act Rules
                  13a-14 and 15d-14) for the registrant and we have:

                  a.       designed such disclosure controls and procedures to
                           ensure that material information relating to the
                           registrant, including its consolidated subsidiaries,
                           is made known to us by others within those entities,
                           particularly during the period in which this Annual
                           Report is being prepared;

                  b.       evaluated the effectiveness of the registrant's
                           disclosure controls and procedures as of a date
                           within 90 days prior to the filing date of this
                           Annual Report (the "Evaluation Date"); and

                  c.       presented in this Annual Report our conclusions about
                           the effectiveness of the disclosure controls and
                           procedures based on our evaluation as of the
                           Evaluation Date;

         5.       The registrant's other certifying officers and I have
                  disclosed, based on our most recent evaluation, to the
                  registrant's auditors and the audit committee of registrant's
                  board of directors (or persons performing the equivalent
                  function):

                  a.       all significant deficiencies in the design or
                           operation of internal controls which could adversely
                           affect the registrant's ability to record, process,
                           summarize and report financial data and have
                           identified for the registrant's auditors any material
                           weaknesses in internal controls; and

                  b.       any fraud, whether or not material, that involves
                           management or other employees who have a significant
                           role in the registrant's internal controls; and

         6.       The registrant's other certifying officers and I have
                  indicated in this Annual Report whether or not there were
                  significant changes in internal controls or in other factors
                  that could significantly affect internal controls subsequent
                  to the date of our most recent evaluation, including any
                  corrective actions with regard to significant deficiencies and
                  material weaknesses.



                                        Date: March 6, 2003


                                        By: /s/ Victor E. Grijalva
                                            -----------------------------------
                                        Victor E. Grijalva
                                        Vice President, Chief Financial Officer,
                                        Secretary and Treasurer
                                        (Principal Financial and
                                        Accounting Officer)



                                       35
<PAGE>

                   WORLDQUEST NETWORKS, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                    CONTENTS

<Table>
<Caption>
<S>                                                                                                            <C>
Report of Independent Certified Public Accountants .........................................................   F-2
Consolidated Balance Sheets as of December 31, 2002 and 2001 ...............................................   F-3
Consolidated Statements of Operations for the years ended December 31, 2002 and 2001 .......................   F-4
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2002 and 2001 ..   F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2002 and 2001 .......................   F-6
Notes to Consolidated Financial Statements .................................................................   F-7
</Table>



                                      F-1
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS



Board of Directors
WorldQuest Networks, Inc. and Subsidiaries

     We have audited the accompanying consolidated balance sheets of WorldQuest
Networks, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2002
and 2001, and the related consolidated statements of operations, changes in
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 financial statements based on
our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
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
WorldQuest Networks, Inc. and subsidiaries as of December 31, 2002 and 2001, and
the consolidated results of its operations and cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.


/s/ Grant Thornton LLP
----------------------

February 12, 2003
Dallas, Texas





                                      F-2
<PAGE>


                   WORLDQUEST NETWORKS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS


<Table>
<Caption>

                                                                                              DECEMBER 31,
                                                                                    --------------------------------
                                                                                          2002             2001
                                                                                    --------------    --------------
                                       ASSETS

<S>                                                                                 <C>               <C>
Current assets:
   Cash and cash equivalents ....................................................   $   20,721,207    $   25,039,398
   Accounts receivable, net .....................................................          355,111           174,098
   Note receivable ..............................................................          202,383                --
   Prepaid expenses and other current assets ....................................          370,325           277,023
                                                                                    --------------    --------------
Total current assets ............................................................       21,649,026        25,490,519

Property and equipment, net .....................................................        1,627,507         2,036,378
                                                                                    --------------    --------------
Total assets ....................................................................   $   23,276,533    $   27,526,897
                                                                                    ==============    ==============

                        LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Accounts payable .............................................................   $    1,195,738    $    1,455,422
   Accrued expenses .............................................................          146,863           354,226
   Deferred revenue .............................................................          238,936           215,116
   Promissory note ..............................................................          300,000                --
   Current portion of term loan and accrued interest ............................               --           925,000
                                                                                    --------------    --------------
Total current liabilities .......................................................        1,881,537         2,949,764

Promissory note .................................................................               --           300,000
Commitments and contingencies ...................................................               --               300

Stockholders' equity:
   Preferred stock, par value $0.01 per share:
   Authorized shares--10,000,000; none issued and outstanding
     at December 31, 2002 and 2001 ..............................................               --                --
   Common stock, par value $.01 per share:
   Authorized shares--50,000,000; issued and outstanding shares -- 6,386,199
     at December 31, 2002 and 6,381,199 at December 31, 2001 ....................           63,862            63,812
   Additional capital ...........................................................       41,994,594        41,989,644
   Accumulated deficit ..........................................................      (20,663,460)      (17,776,323)
                                                                                    --------------    --------------
Total stockholders' equity ......................................................       21,394,996        24,277,133
                                                                                    --------------    --------------
Total liabilities and stockholders' equity ......................................   $   23,276,533    $   27,526,897
                                                                                    ==============    ==============

</Table>



         The accompany notes are an integral part of these consolidated
                             financial statements.


                                      F-3
<PAGE>


                   WORLDQUEST NETWORKS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

<Table>
<Caption>

                                                                       YEAR ENDED DECEMBER 31,
                                                                     ----------------------------
                                                                         2002            2001
                                                                     ------------    ------------

<S>                                                                  <C>             <C>
Retail prepaid calling card revenue ..............................   $ 11,019,491    $  9,931,072
Wholesale revenue ................................................             --       2,235,138
Money transfer and other revenue .................................        450,792           9,998
                                                                     ------------    ------------
          Total revenue ..........................................     11,470,283      12,176,208
Cost of sales ....................................................      8,772,585      10,383,454
                                                                     ------------    ------------
Gross margin .....................................................      2,697,698       1,792,754
Operating expenses:
    Selling, general and administrative ..........................      4,866,332       6,451,238
    Depreciation and amortization ................................      1,100,209       1,334,462
    Impairment charges and other write-offs ......................        (30,000)      2,547,920
    Minority interest ............................................             --        (352,569)
                                                                     ------------    ------------
          Total operating expenses ...............................      5,936,541       9,981,051
                                                                     ------------    ------------
Operating loss ...................................................     (3,238,843)     (8,188,297)
Interest income, net .............................................        351,706       1,002,617
                                                                     ------------    ------------
Net loss .........................................................   $ (2,887,137)   $ (7,185,680)
                                                                     ============    ============

Net loss per share--basic and diluted ............................   $      (0.45)   $      (1.13)
                                                                     ============    ============
Weighted-average common shares outstanding--basic and diluted ....      6,385,829       6,381,199
                                                                     ============    ============
</Table>


         The accompany notes are an integral part of these consolidated
                             financial statements.



                                      F-4
<PAGE>


                   WORLDQUEST NETWORKS, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<Table>
<Caption>
                                                         COMMON STOCK
                                                -------------------------------    ADDITIONAL       ACCUMULATED       STOCKHOLDERS'
                                                   SHARES            AMOUNT          CAPITAL          DEFICIT            EQUITY
                                                --------------   --------------   --------------   --------------    --------------
<S>                                             <C>              <C>              <C>              <C>               <C>
Balance at December 31, 2000 ................        6,381,199   $       63,812   $   41,989,644   $  (10,590,643)   $   31,462,813
   Net loss .................................               --               --               --       (7,185,680)       (7,185,680)
                                                --------------   --------------   --------------   --------------    --------------
Balance at December 31, 2001 ................        6,381,199   $       63,812   $   41,989,644   $  (17,776,323)   $   24,277,133
   Exercise of employee stock options .......            5,000               50            4,950               --             5,000
   Net loss .................................               --               --               --       (2,887,137)       (2,887,137)
                                                --------------   --------------   --------------   --------------    --------------
Balance at December 31, 2002 ................        6,386,199   $       63,862   $   41,994,594   $  (20,663,460)   $   21,394,996
                                                ==============   ==============   ==============   ==============    ==============
</Table>



         The accompany notes are an integral part of these consolidated
                             financial statements.


                                      F-5
<PAGE>

                   WORLDQUEST NETWORKS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                                      YEAR ENDED DECEMBER 31,
                                                                                   ----------------------------
                                                                                       2002            2001
                                                                                   ------------    ------------
<S>                                                                                <C>             <C>
OPERATING ACTIVITIES
Net loss .......................................................................   $ (2,887,137)   $ (7,185,680)
Adjustments to reconcile net loss to net cash
   used in operating activities:
            Depreciation and amortization ......................................      1,100,209       1,334,462
            Impairment charges .................................................             --       2,547,920
Changes in operating assets and liabilities, net of effects of acquisition:
            Accounts receivable and notes receivable ...........................       (383,396)      1,088,295
            Accrued interest ...................................................             --        (320,436)
            Accounts payable and accrued expenses ..............................       (210,067)       (338,954)
            Deferred revenue ...................................................         23,820        (100,957)
            Other assets .......................................................        (93,302)       (248,575)
                                                                                   ------------    ------------
Net cash used in operating activities ..........................................     (2,449,873)     (3,223,925)

INVESTING ACTIVITIES
Additions to property and equipment ............................................       (948,318)       (873,873)

FINANCING ACTIVITIES
Payment on term loan ...........................................................       (925,000)       (175,000)
Borrowings on promissory note ..................................................             --         300,000
Proceeds from exercise of stock options ........................................          5,000              --
                                                                                   ------------    ------------
Net cash (used in) provided by financing activities ............................       (920,000)        125,000

Decrease in cash and cash equivalents ..........................................     (4,318,191)     (3,972,798)
Cash and cash equivalents at beginning of year .................................     25,039,398      29,012,196
                                                                                   ------------    ------------
Cash and cash equivalents at end of year .......................................   $ 20,721,207    $ 25,039,398
                                                                                   ============    ============

Supplemental Disclosure of Cash Flow Information
Interest paid ..................................................................   $     49,219    $    397,058
                                                                                   ============    ============
</Table>


         The accompany notes are an integral part of these consolidated
                             financial statements.


                                      F-6
<PAGE>

                   WORLDQUEST NETWORKS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2002 AND 2001

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

         WorldQuest Networks, Inc. ("WorldQuest" or the "Company") was
incorporated as a Texas corporation effective October 14, 1996, and
reincorporated as a Delaware corporation effective October 28, 1999. WorldQuest
is an international Internet telephony and money transfer company. WorldQuest
sells virtual prepaid calling cards through its Internet website and transmits
long distance calls at discounted rates through its Internet and traditional
networks. WorldQuest also sells virtual calling cards processed through other
companies' platforms including prepaid Internet, prepaid wireless or mobile, and
prepaid roadside assistance and from time to time sells its excess capacity to
other long distance carriers. The Company markets an intelligent address book
and calendar that enables customers to make domestic and international phone
calls from anywhere in the world through its website. The Company also provides
a web service that enables customers to send money and a personalized message
from the United States, Canada and the United Kingdom to friends, family or
others in India, Sri Lanka, the Philippines and Russia.

         In September 2002, WorldQuest began selling a new multi-purpose
stored-value card through a pilot program in Dallas, Texas. The new product, the
WorldQuest CashCard, can be used to withdraw money or check balances at ATM's
worldwide and to pay for merchandise at any location associated with the
Plus(R), Pulse(R), or Star(R) Networks. The WorldQuest CashCard is currently
available at nine grocery and convenience stores, as well as at a kiosk in a
Dallas area mall. The new stored-value card also serves as a prepaid
long-distance calling card. WorldQuest CashCard holders can add money to their
card via the direct deposit of their paychecks, by cashing their paychecks, by
ACH transfer and by using cash, credit cards or electronic checks.

         As of December 31, 2002, Eagle Venture Capital, LLC ("Eagle Venture
Capital") owned approximately 2.6 million, 41% of our outstanding shares of
common stock. Eagle Venture Capital is primarily owned by our founder and
Chairman of the Board.

2. SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

         The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.

PRINCIPLES OF CONSOLIDATION

         The consolidated financial statements include the accounts of the
Company, its subsidiaries and joint ventures in which the Company owns a
controlling interest. All significant intercompany balances and transactions
have been eliminated in consolidation.

CASH EQUIVALENTS

         Cash equivalents include money market mutual funds and other highly
liquid investments purchased with maturities of three months or less.



                                      F-7
<PAGE>

                   WORLDQUEST NETWORKS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

DEPRECIATION AND AMORTIZATION

         Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Amortization
of capital leases and leasehold improvements is provided on a straight line
basis over the lives of the related assets or the life of the lease, whichever
is shorter, and is included with depreciation expense.

         Depreciation expense totaled $1,100,000 and $1,274,000 for 2002 and
2001, respectively. Amortization expense totaled $0 for 2002 and $60,000 for
2001 respectively.

IMPAIRMENT OF LONG-LIVED ASSETS

         The Company evaluates long-lived assets, including goodwill, for
impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be recoverable and the undiscounted cash flows to be
generated by these assets are less than the carrying amounts of these assets.

WEBSITE DEVELOPMENT COSTS

         Costs related to the planning and post implementation phases of our
website development efforts are expensed. Direct costs incurred in the
development phase are capitalized and amortized over the product's estimated
useful life of one to three years and are included in depreciation expense.
Costs associated with minor enhancements and maintenance for the website are
expensed. Website development costs capitalized for the years ended December 31,
2002 and 2001 were $207,000 and $0, respectively.

INCOME TAXES

         Income taxes are determined using the liability method, which gives
consideration to the future tax consequences associated with differences between
the financial accounting and tax basis of assets and liabilities. This method
also gives immediate effect to changes in income tax laws.

REVENUE RECOGNITION

         Retail prepaid phone card revenue is recorded net of estimated returns
and allowances and is recognized as calling services are used or upon expiration
of the calling card. Wholesale traffic revenue is recognized as calls are
processed. Money transfer fees are recognized upon transfer of funds to the
recipient. CashCard revenues are recognized upon usage of the CashCard.

ADVERTISING COSTS

         The Company expenses advertising costs as incurred. Advertising expense
for the years ended December 31, 2002 and 2001 was $807,000 and $463,000,
respectively.

STOCK-BASED COMPENSATION

         The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," in the primary financial
statements and has provided supplemental disclosures required by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" and by Statement of Financial Accounting Standards No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure an
amendment of FASB Statement No. 123."



                                      F-8
<PAGE>

                   WORLDQUEST NETWORKS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

         Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation," ("SFAS 123") requires the disclosure of pro forma net
loss and loss per share computed as if the Company had accounted for its
employee stock options under the fair value method set forth in SFAS 123. The
Company's reported and pro forma net loss for the years ending December 31, 2002
and 2001 are as follows:


<Table>
<Caption>
                                                                              2002                    2001
                                                                       ------------------      ------------------
<S>                                                                    <C>                     <C>
Net loss:
     As reported                                                       $       (2,887,137)     $       (7,185,680)
                                                                       ==================      ==================
     Pro forma                                                         $       (3,164,859)     $       (8,042,285)
                                                                       ==================      ==================
Net loss per share:
     As reported -- basic and diluted                                  $            (0.45)     $            (1.13)
                                                                       ==================      ==================
     Pro forma -- basic and diluted                                    $            (0.50)     $            (1.26)
                                                                       ==================      ==================
Stock based employee compensation costs included
  in net loss:
     As reported                                                       $               --      $               --
                                                                       ==================      ==================

     Pro forma                                                         $          277,722      $          856,605
                                                                       ==================      ==================

</Table>

         The fair value of options granted was estimated at the date of grant
using the Black-Scholes option pricing model. The following weighted average
assumptions used in the December 31, 2002 calculation were as follows: risk free
interest rate of 3%, dividend yield of zero, volatility factor of .9, and
average expected life of 4 years. The weighted average assumptions used in the
December 31, 2001 calculation were as follows: risk free interest rate of 4%,
dividend yield of zero, volatility of .8 and average expected life of 4 years.
The options granted during 2002, and 2001 had a weighted average fair value of
$1.30 and $1.37 per share, respectively.

NET LOSS PER SHARE

         Basic and diluted net loss per share is computed using the Company's
net loss for each period presented divided by the average common shares
outstanding during the period. Stock options and warrants convertible into
1,835,947 and 1,892,469 shares of the Company's common stock for the years ended
December 31, 2002 and 2001, respectively, were not considered in the calculation
of average common shares outstanding as the effect would be anti-dilutive due to
the Company's net loss for the periods presented.

COMPREHENSIVE INCOME

         Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. For the years ended December 31, 2002 and 2001, the
Company had no transactions other than those reported in its statement of
operations.

FAIR VALUE OF FINANCIAL INSTRUMENTS

         The Company's financial instruments consist primarily of cash
equivalents, accounts receivable, notes receivable, accounts payable and
long-term debt. At December 31, 2002 and 2001, the carrying amount of the
Company's financial instruments approximates their fair values. Management
believes the Company's debt approximates fair value due to its short maturity
and its variable interest rate.



                                      F-9
<PAGE>

                   WORLDQUEST NETWORKS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)


CONCENTRATION OF CREDIT AND BUSINESS RISKS

         Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash equivalents, accounts
receivable and notes receivable. Accounts receivable consist of amounts owed by
credit card processing companies relating to prepaid phone card sales and money
transfer services.

         Customers purchase the Company's prepaid calling cards primarily using
major credit cards, which are reimbursed by credit card processing companies.
The Company does not routinely perform on-going credit evaluations of its
prepaid calling card customers but does evaluate its credit card processors. The
Company performs credit evaluations and establishes credit limits for its
wholesale traffic customers, including requiring deposits when applicable.

         A substantial portion of the Company's revenues is derived from the
sale of prepaid phone cards that are used for calls to India.

         At December 31, 2002, three credit card processing companies accounted
for 52%, 38% and 9%, respectively, of total accounts receivable. At December 31,
2001, one credit card processing company accounted for 100% of total accounts
receivable. For the year ended December 31, 2002 and 2001, no customer accounted
for more than 10% of total sales. At December 31, 2002 and 2001, accounts
receivable are stated net of an allowance for doubtful accounts of $2,000 and
$852,000, respectively.

NEW ACCOUNTING PRONOUNCEMENTS

         In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141, "Business Combinations" which
requires the purchase method of accounting for business combination transactions
initiated after June 30, 2001. In July 2001, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 142 "Goodwill and
Other Intangible Assets." The statement requires that goodwill recorded on
acquisitions completed prior to July 1, 2001 be amortized through December 31,
2001. Effective January 1, 2002, goodwill will no longer be amortized but will
be tested for impairment as set forth in the statement. The adoption of these
standards did not have a significant effect on results of operations or
financial position.

         In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment of Disposal of Long-Lived Assets" which supercedes Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." The provisions of this statement are
effective for financial statements issued for fiscal years beginning after
December 15, 2001. The adoption of this pronouncement did not have a material
effect on its results of operations or financial position.

         In December 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure an amendment of FASB Statement No. 123"
which provides alternative methods of transition for an entity that voluntarily
changes to the fair value based method of accounting for stock-based employee
compensation and amends the disclosure provisions of FASB Statement No. 123,
"Accounting for Stock-Based Compensation." The Company has adopted the
disclosure provisions of the statement.



                                      F-10
<PAGE>

RECLASSIFICATIONS

         Certain reclassifications have been made to the 2001 financial
statements to conform to the 2002 presentation.

                   WORLDQUEST NETWORKS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

3. ACQUISITION

         Effective December 6, 2001, a wholly-owned subsidiary of the Company
acquired all of the issued and outstanding common stock of buyindiaonline.com,
Inc., (known as Clicks2India.com) for approximately $275,000 in cash plus
liabilities assumed of $34,000 and accrued acquisition costs of $84,000 which
was unpaid at December 31, 2001, and subsequently paid during 2002.
Clicks2India.com is a web-based company that enables consumers to send money and
a personalized message from the United States to friends, family or others in
India. The acquisition has been accounted for as a purchase and the total
acquisition cost has been allocated to the assets acquired and liabilities
assumed based on estimates of their respective fair values. Assets acquired
totaled $393,000 (of which $108,000 was cash) and liabilities assumed were
$34,000. No goodwill was recorded in connection with the transaction. The
Company's consolidated results of operations have incorporated
buyindiaonline.com's activity since December 6, 2001. Clicks2India.com's
revenues for the year ended December 31, 2001 were $127,000. Pro forma financial
information assuming the acquisition had occurred on January 1, 2001 would not
be significantly different from the actual reported consolidated net loss and
net loss per share of the Company for the year ended December 31, 2001.

4. NOTE RECEIVABLE

         In 2001, the Company recorded an allowance for doubtful accounts
receivable of approximately $749,000 relating to amounts owed by a wholesale
traffic customer who ceased terminating traffic through the Company's network.
In 2002, the Company received a cash payment of $100,000 and an interest bearing
note receivable of $200,000 in satisfaction for the receivable outstanding from
this wholesale customer. The note receivable was fully reserved. During 2002,
the Company received approximately $21,000 in payments related to the note
receivable. In January 2003, the Company received certain assets of the
wholesale customer's prepaid telecom business including fixed assets, card
inventory, customer lists, patents, trademarks and other assets in satisfaction
of the note receivable. The company believes the value of the assets received
approximates the value of the remaining balance due under the terms of the note
receivable. Accordingly, the Company has released the reserve of approximately
$202,000 on the note receivable and related accrued interest at December 31,
2002, the benefit of which as been included as a reduction in selling, general
and administrative expenses.

5. PROPERTY AND EQUIPMENT

         Property and equipment consists of the following as of December 31:

<Table>
<Caption>


                                                       ESTIMATED
                                                      USEFUL LIFE
                                                        (YEARS)                2002              2001
                                                      -----------        --------------      --------------
<S>                                                   <C>                <C>                 <C>
Leasehold improvements                                   2 to 5          $       78,134      $       39,320
Switches and other network equipment                     2 to 3               3,656,435           3,327,449
Furniture and fixtures                                     5                     84,737              64,160
Purchased software and website development costs         1 to 5               1,105,994             803,033
                                                                         --------------      --------------
    Total                                                                     4,925,300           4,233,962
Less: accumulated depreciation and amortization                              (3,297,793)         (2,197,584)
                                                                         --------------      --------------
    Net property and equipment                                           $    1,627,507      $    2,036,378
                                                                         ==============      ==============
</Table>



                                      F-11
<PAGE>

                   WORLDQUEST NETWORKS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

6. PREPAID EXPENSES AND OTHER CURRENT ASSETS

         Prepaid expenses and other current assets consist of the following as
of December 31:

<Table>
<Caption>

                            2002         2001
                          --------     --------
<S>                       <C>          <C>
Prepaid calling cards     $  7,799     $ 60,741
Deposits                   242,577      111,724
Prepaid expenses           119,949      104,558
                          --------     --------
                          $370,325     $277,023
                          ========     ========
</Table>


7. IMPAIRMENT CHARGES

         During 2000, the Company entered into two joint ventures to install and
operate Internet gateways in foreign locations. During 2001, the joint ventures
ceased terminating traffic due to the loss of available economic circuits
resulting in the cessation of the joint ventures operations. Accordingly, the
Company wrote-off its investments in each joint venture resulting in a loss of
$1,974,000, which is included as an impairment charge in the statement of
operations for the year ended December 31, 2001. During 2002, the Company
recovered $30,000 in assets written off in connection with the 2001 impairment
charges.

         In 1999, the Company formed a joint venture with BDC, LLC, a company
owned by a director of the Company. BDC contributed $50,000 to the joint venture
and the Company agreed to obtain Internet gateways and to install and operate
the gateways. The Company owned 60% of the joint venture and in April 2000
purchased the remaining 40% interest for $600,000, which was recorded as
goodwill to be amortized over five years. In 2001, the joint venture ceased
operations due to the loss of available economic circuits to terminate traffic.
Accordingly, the Company wrote-off the remaining goodwill of $434,000 in June
2001, which is included as an impairment charge in the statement of operations
for the year ended December 31, 2001.

         During 2001, the Company wrote-off certain deposits and other assets
incurred to terminate traffic in foreign locations due to the unavailability of
those circuits. The write-off totaling approximately $140,000 is included as a
component of impairment charges.

8. ACCRUED EXPENSES

         Accrued expenses consist of the following as of December 31:

<Table>
<Caption>
                               2002         2001
                             --------     --------
<S>                          <C>          <C>
Sales tax payable            $  2,557     $  3,650
Accrued payroll expenses       42,040      190,822
Other                         102,266      159,754
                             --------     --------
                             $146,863     $354,226
                             ========     ========

</Table>

                                      F-12
<PAGE>


                   WORLDQUEST NETWORKS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

9. DEBT

         Long-term debt consists of the following as of December 31:

<Table>
<Caption>
                                             2002            2001
                                          ---------      -----------
<S>                                       <C>            <C>
Term loan and accrued interest            $      --      $   925,000
Promissory note                             300,000          300,000
                                          ---------      -----------
Total                                     $ 300,000      $ 1,225,000
Less current portion                       (300,000)        (925,000)
                                          ---------      -----------
Long term debt net of current portion     $      --      $   300,000
                                          =========      ===========
</Table>

         For the years ended December 31, 2002 and 2001, the Company paid
outstanding interest of $47,000 and $397,000, on the term loan from Eagle
Venture Capital, a significant stockholder of the Company, which is controlled
by the Company's Chairman. The principal balance of $925,000 or the term loan
from Eagle Venture Capital due May 5, 2002 was paid on July 24, 2002, thereby
satisfying in full the Company's obligation on the term loan. In 2001, the
Company made a principal payment of $175,000 on the term loan. The Company also
had a $1,400,000 line of credit with Eagle Venture Capital, none of which was
ever utilized and which expired on May 5, 2002.

         In 2001, the Company borrowed $300,000 from a financial institution
under a term promissory note agreement (the "Note"). The Note bears interest at
the financial institution's prime rate as adjusted from time to time (4.25% at
December 31, 2002) less 2.25% per annum with the $300,000 principal balance due
in October 2003. The Note is collateralized by a $300,000 certificate of deposit
bearing interest of 1.1 % per annum.

10. RELATED PARTY TRANSACTIONS

         The Company's founder and Chairman of the Board holds a controlling
interest in Eagle Venture Capital, which owns approximately 2.7 million
outstanding shares of the common stock of the Company as of December 31, 2002
and 2001. Eagle Venture Capital has provided the Company with a term loan and a
line of credit, which expired May 2002. The term loan and line of credit are
described in Note 9.

         During 2000, the Company granted warrants to acquire 100,000 shares of
the Company's common stock as compensation for the execution of two Internet
portal agreements arranged by a consulting company. The consulting company is
managed by one of the Company's directors, who became a Director of the Company
subsequent to the grant of the warrants. The fair value of these warrants,
approximately $1.9 million, was expensed as selling, general and administrative
costs during 2000.

        In 1999, the Company formed a joint venture with BDC, LLC, a company
owned by a director of the Company. The joint venture is described in Note 7.



                                      F-13
<PAGE>

                   WORLDQUEST NETWORKS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

11. INCOME TAXES

         Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of deferred tax assets and liabilities are as follows as of December
31:

<Table>
<Caption>
                                            2002             2001
                                        -----------      -----------
<S>                                     <C>              <C>
Deferred tax assets/(liability):
Property and equipment                  $   (36,502)     $   276,128
Accounts receivable                             739          314,969
Capital loss carryforward                   195,941               --
Other                                         9,709           74,229
Net operating loss carry forwards         8,080,161        6,340,863
                                        -----------      -----------
Total deferred tax assets                 8,250,048      $ 7,006,189
            Valuation allowance          (8,250,048)      (7,006,189)
                                        -----------      -----------
            Net deferred tax assets     $        --      $        --
                                        ===========      ===========
</Table>

         The Company has U.S. net operating loss carry forwards of approximately
$21,857,000 as of December 31, 2002. The Company has not recognized a deferred
tax asset in the accompanying balance sheet due to the uncertainty of future
realization. Accordingly, no tax benefit has been recognized in the accompanying
consolidated statements of operations. No other significant reconciling items
exist between the actual effective tax rate and the expected effective tax rate.
During 2002 and 2001, the valuation allowance increased by approximately
$1,244,000 and $3,135,000, respectively. If unused, accumulated net operating
losses expire as follows: 2011 - $214,000; 2012 - $1,531,000; 2018 - $1,447,000;
2019 - $1,999,000; 2020 - $4,628,000; 2021 - $8,210,000; 2022 - $3,828,000.

12. STOCKHOLDERS' EQUITY

COMMON AND PREFERRED STOCK

         The Company's authorized share capital consists of 50,000,000 shares of
common stock with par value of $0.01 per share, and 10,000,000 shares of
preferred stock with par value of $0.01 per share.

         In February 2000, the Company completed its initial public offering,
selling a total of 3,162,500 shares of common stock at a price of $13 per share.
The offering commenced on February 4, 2000, with the closing of 2,750,000 shares
February 9, 2000 and the sale of an additional 412,000 shares, representing the
over-allotment option, closing on February 22, 2000. The initial public offering
resulted in net proceeds of approximately $36.2 million to the Company.

         In November 2002, the Company adopted a discretionary stock repurchase
program. The program will expire in November 2003 and the Company can use up to
$1,000,000 to repurchase its common stock.

WARRANTS

         At December 31, 2002 and 2001, the Company had outstanding warrants to
purchase 782,000 shares of its common stock. These warrants expire April 2003
through April 2005 and have a weighted average exercise price of $15.91 per
share. At December 31, 2002, all of the warrants were exercisable. The warrants
outstanding include warrants granted to a consulting company managed by one of
the Company's directors to acquire 100,000 shares of common stock (see Note 10),
warrants granted to representatives of the Company's underwriters in connection
with the Company's initial public offering to acquire 275,000 shares of common
stock, warrants for 306,000 common shares granted in connection with the
Company's December 1999 private placement of promissory notes (see Note 9); and
warrants granted prior to 2001 to various service providers



                                      F-14
<PAGE>

                   WORLDQUEST NETWORKS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED

and others to acquire 101,000 shares of common stock.

         Included in the warrants to acquire 101,000 shares of common stock are
warrants the Company granted a joint venture partner to acquire 50,000 shares of
common stock, with exercise prices of $4.56 to $8.50, for the completion of ten
new Internet circuit installations by the joint venture partner. The fair value
of these options, approximately $238,000, was recorded as an additional cost of
installation of the circuits, capitalized as property and equipment and
subsequently, written off in 2001 upon cessation of the joint venture's
operations as discussed in Note 7.

STOCK OPTIONS

         The Company has stock option plans (the "Plans") under which the
Company may grant Directors and key employees options to purchase up to
1,750,000 shares of the Company's common stock at an amount at least equal to
the fair value of the Company's common stock on the date of grant. The exercise
and vesting period of each option is determined by the Company's Board of
Directors, but no option shall have a term longer than 10 years. Options granted
under the Plans are non-qualified stock options. The following table summarizes
the employee stock option transactions for the years ended December 31, 2002 and
2001 under the Plans:


<Table>
<Caption>
                                                       Weighted
                                      Number of         Average
                                        Shares       Exercise Price
                                      -----------    --------------
<S>                                   <C>            <C>
Outstanding at December 31, 2000         490,700      $      6.71
Granted                                  641,782             2.21
Exercised                                     --               --
Cancelled                               (189,880)           11.63
                                     -----------
Outstanding at December 31, 2001         942,602             7.20

Granted                                   70,000             2.36
Exercised                                 (5,000)            1.00
Cancelled                               (121,522)            3.99
                                     -----------
Outstanding at December 31, 2002         886,080      $      4.05
                                     ===========


Options exercisable:
December 31, 2001                        409,028      $      6.09
                                     ===========      ===========
December 31, 2002                        659,732      $      4.57
                                     ===========      ===========

</Table>


                                      F-15
<PAGE>

                   WORLDQUEST NETWORKS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

         A summary of stock options under the Plans outstanding as of December
31, 2002 are as follows:

<Table>
<Caption>
                              Options Outstanding           Options Exercisable
                       ----------------------------------  ---------------------
                                  Weighted-     Weighted-              Weighted-
         Range of                 Average       Average                Average
         Exercise                Remaining      Exercise               Exercise
          Prices       Shares   Life (years)     Price      Shares       Price
     ----------------  -------  -----------  ------------  -------     ---------
<S>                    <C>      <C>          <C>           <C>         <C>
     $  1.00 - $ 1.99   89,500      4.33          $1.37     77,000     $ 1.36
        2.00 -   2.99  617,980      7.62           2.22    406,830       2.16
        3.00 -   3.99   50,500      2.93           3.33     50,500       3.33
        5.00 -  11.00   25,000      4.60           5.75     25,000       5.75
       13.00 -  14.00   35,000      3.90          13.00     35,000      13.00
       19.00 -  20.00   60,000      4.24          19.13     60,000      19.13
       21.00 -  22.00    8,100      4.22          21.63      5,402      21.63
                       -------                             -------

Total                  886,080      6.53          $4.05    659,732      $4.57
                       =======                             =======
</Table>


         In December 1998, the Company issued options outside of the option
plans to purchase 167,867 shares of its common stock to a former officer of the
Company at an exercise price of $3.33 with a seven-year term. At December 31,
2002, all of these options were vested and outstanding.

13. BENEFIT PLAN

         The Company adopted a 401(k) benefit plan in 2001. The plan provides
for voluntary employee contributions and the Company matches 15% of employee
contributions to a maximum of 8% contributed by the employee. Employees become
100% vested in employment contributions after 2 years of service accruing 50%
per year of service. For the years ended December 31, 2002 and 2001, the
Company's plan contributions were $7,000 and $11,000, respectively.

14. COMMITMENTS

         The Company has operating leases relating principally to office
facilities which expire in 2003 and have future minimum lease commitments of
$63,000 at December 2002.

         Rental expense under operating leases was approximately $114,000 and
$78,000 for the years ended December 31, 2002 and 2001, respectively.

15. CONTINGENCIES

         In October 1997, the Patent and Trademark Office issued a notice of
publication regarding our application to register "WorldQuest Networks" as a
trademark. In September 1998, Qwest Communications ("Qwest") filed a notice of
opposition, which is currently pending before the Patent and Trademark Office.
In July 2000, Qwest instituted a cancellation proceeding for the Company's
registered trademark "WorldQuest." In December 2001, a judgment was made in the
Company's favor whereby Qwest's motion to cancel the



                                      F-16
<PAGE>


                   WORLDQUEST NETWORKS, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

"WorldQuest" trademark was dismissed. Qwest has filed a motion appealing the
judgment which is currently pending. In December 2002, Qwest filed a separate
complaint stating that the Company's prepaid cashcard product infringes on the
Qwest trademark. In February 2003, the companies settled all outstanding claims
whereby WorldQuest will receive a cash payment and services from Qwest and Qwest
shall retain all right to the trademarks in question. WorldQuest will have 18
months to cease using the name "WorldQuest".

         The Company is a defendant from time to time in lawsuits and disputes
arising in the ordinary course of business. The Company believes that resolution
of all known contingencies is uncertain, and there can be no assurance that
future costs related to such litigation would not be material to the Company's
financial position or results of operations.

16. INTEREST INCOME, NET

         Interest income for the years ended December 31, 2002 and 2001 was
$401,000 and $1,087,000, respectively. Interest expense for the years ended
December 31, 2002 and 2001 was $49,000 and $84,000 respectively.



                                      F-17
<PAGE>
<Table>
<Caption>

Exhibit
Number            Description of Exhibits
------            -----------------------

<S>               <C>
2.1               buyindiaonline.com Inc. Stock Purchase Agreement

3.1               Certificate of Incorporation of WorldQuest, filed as Exhibit 3.1 to WorldQuest's Form SB-2 Registration Statement,
                  File No. 333-82721 (the "Prior Registration Statement"), and incorporated herein by this reference.

3.2               Bylaws of WorldQuest, filed as Exhibit 3.2 to the Prior Registration Statement, and incorporated herein by this
                  reference.

4.1               Specimen common stock certificate, filed as Exhibit 4.1 to the Prior Registration Statement, and incorporated
                  herein by this reference.

4.2               Amended and Restated Note dated May 5, 1999 payable to WorldQuest Networks, LLC (now known as Eagle Venture
                  Capital, LLC), filed as Exhibit 4.2 to the Prior Registration Statement, and incorporated herein by this
                  reference.

4.3.1             Representatives' Warrant dated February 4, 2000 granted to John G. Kinnard and Company Incorporated for 68,750
                  shares of common stock, filed as Exhibit 4.3.1 to WorldQuest's Annual Report on Form 10-KSB for the fiscal year
                  ended December 31, 1999, and incorporated herein by this reference.

4.3.2             Representatives' Warrant dated February 4, 2000 granted to Kaufman Bros., L.P. for 178,750 shares of common
                  stock, filed as Exhibit 4.3.2 to WorldQuest's Annual Report on Form 10-KSB for the fiscal year ended December 31,
                  1999, and incorporated herein by this reference.

4.3.3             Representatives' Warrant dated February 4, 2000 granted to WestPark Capital, Inc. for 27,500 shares of common
                  stock, filed as Exhibit 4.3.3 to WorldQuest's Annual Report on Form 10-KSB for the fiscal year ended December 31,
                  1999, and incorporated herein by this reference.

4.4               Amended and Restated Note date August 15, 1999 payable to Eagle Capital Venture, LLC, which replaces the Amended
                  and Restated Note filed as Exhibit 4.2, filed as Exhibit 4.4 to the Prior Registration Statement, and
                  incorporated herein by this reference.

4.5               Form of Unsecured Subordinated Convertible Promissory Note issued in the private placement closed in December 1999
                  (the "Private Placement"), filed as Exhibit 4.5 to WorldQuest's Form SB-2 Registration Statement, file no.
                  333-93019 (the "Second Registration Statement"), and incorporated herein by this reference.

4.6               Form of Warrant issued in the Private Placement, filed as Exhibit 4.6 to the Second Registration Statement, and
                  incorporated herein by this reference.

4.7               Warrant to Purchase 50,000 shares of common stock granted to Advanced Multimedia Group, Inc. on March 16, 2000.

4.8               Warrant to Purchase 50,000 shares of common stock granted to Advanced Multimedia Group, Inc. on April 26, 2000.

10.1              Joint Venture Agreement dated April 9, 1999 between WorldQuest and BDC LLC, filed as Exhibit 10.1 to the Prior
                  Registration Statement, and incorporated herein by this reference.

10.2              Amended 1997 Stock Option Plan, filed as Exhibit 10.2 to the Prior Registration Statement, and incorporated
                  herein by this reference.

10.3              Stock Option Agreement dated December 7, 1998 granted to Michael R. Lanham by WorldQuest, filed as Exhibit 10.3
                  to the Prior Registration Statement, and incorporated herein by this reference.

10.4              Stock Transfer Agreement dated December 7, 1998 between WorldQuest Communications, Inc., WorldQuest Networks, LLC
                  and WorldQuest, filed as Exhibit 10.4 to the Prior Registration Statement, and incorporated herein by this
                  reference.

10.5              Amendment and Clarification Agreement dated September 27, 1999 between WorldQuest Communications, Inc., WorldQuest
                  and Eagle Venture Capital, LLC amending and clarifying the Stock Transfer Agreement filed as Exhibit 10.4, filed
                  as Exhibit 10.7 to the Prior Registration Statement, and incorporated herein by this reference.

10.6              Form of Registration Rights Agreement executed in connection with the Private Placement, filed as Exhibit 10.6 to
                  the Second Registration Statement, and incorporated herein by this reference.

10.7              Purchase Agreement dated April 17, 2000 between WorldQuest and BDC LLC, filed as Exhibit 10.1 to WorldQuest's
                  Quarterly Report on Form 10-QSB for the fiscal quarter ended March 31, 2000, and incorporated herein by this
                  reference.
</Table>


<PAGE>

<Table>
<S>               <C>
10.8              2001 Stock Option Plan, filed as Exhibit 4.8 to WorldQuest's Form S-8 Registration Statement, File No. 333-54498,
                  and incorporated herein by this reference.

10.9              Employment agreement by and between WorldQuest Networks, Inc. and R. Stephen Polley effective as of May 14, 2001,
                  filed as Exhibit 10.1 to WorldQuest's Quarterly Report as Form 10-QSB for the quarter ended June 30, 2001.

*21.1             List of Subsidiaries.

*23.1             Consent of Grant Thornton LLP.

*99.1             Certification of the Company's Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                  Section 906 of the Sarbanes-Oxley Act of 2002.

*99.2             Certification of the Company's Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
                  Section 906 of the Sarbanes-Oxley Act of 2002.
</Table>

----------

* Filed herewith.