<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 FISCAL YEAR ENDED DECEMBER 31, 2002

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

    FOR THE TRANSITION PERIOD FROM ___________________ TO ___________________

                        COMMISSION FILE NUMBER: 000-27031

                          FULLNET COMMUNICATIONS, INC.

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                     OKLAHOMA                           73-1473361
         -------------------------------           -------------------

         (STATE OR OTHER JURISDICTION OF            (I.R.S. EMPLOYER
         INCORPORATION OR ORGANIZATION)            IDENTIFICATION NO.)

                      201 ROBERT S. KERR AVENUE, SUITE 210
                          OKLAHOMA CITY, OKLAHOMA 73102

                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                                 (405) 236-8200

                         (REGISTRANT'S TELEPHONE NUMBER)

    SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT: NONE

      SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:

                              Title of each class
                              -------------------

                        Common Stock, $0.00001 Par Value

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if there is no disclosure contained herein of delinquent
filers in response to Item 405 of Regulation S-B, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes     No X
                                      ---    ---

The Registrant's revenues for its most recent fiscal year were $2,425,016

The aggregate market value of the registrant's common stock, $0.00001 par value,
held by non-affiliates of the Registrant as of June 28, 2002 was $551,396 based
on the closing price of $.10 per share on that date as reported by the NASD
Electronic Bulletin Board. As of March 25, 2003, 6,663,135 shares of the
registrant's common stock, $0.00001 par value, were outstanding.

Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]



<PAGE>

                          FULLNET COMMUNICATIONS, INC.
                                   FORM 10-KSB
                   For the Fiscal Year Ended December 31, 2002


                                TABLE OF CONTENTS


<Table>
<S>                                                                                                                              <C>
                                                               PART I.

ITEM 1.  DESCRIPTION OF BUSINESS..................................................................................................4
ITEM 2.  DESCRIPTION OF PROPERTY.................................................................................................13
ITEM 3.  LEGAL PROCEEDINGS.......................................................................................................14
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................................................14

                                                              PART II.

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................................................................15
ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...............................................................17
ITEM 7.  FINANCIAL STATEMENTS....................................................................................................20
ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE....................................21

                                                              PART III.

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.........21
ITEM 10. EXECUTIVE COMPENSATION..................................................................................................23
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..........................................................24
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................................................................26
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K........................................................................................26
ITEM 14. CONTROLS AND PROCEDURES.................................................................................................30

SIGNATURES.......................................................................................................................31
</Table>



                                       2
<PAGE>

           CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

         This Annual Report on Form 10-KSB and the information incorporated by
reference may include "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). In particular, we direct your attention to Item 1. Description of
Business, Item 2. Description of Property, Item 3. Legal Proceedings, Item 6.
Management's Discussion and Analysis or Plan of Operation, and Item 7. Financial
Statements and Supplementary Data. We intend the forward-looking statements to
be covered by the safe harbor provisions for forward-looking statements in these
sections. All statements regarding our expected financial position and operating
results, our business strategy, our financing plans and the outcome of any
contingencies are forward-looking statements. These statements can sometimes be
identified by our use of forward-looking words such as "may," "believe," "plan,"
"will," "anticipate," "estimate," "expect," "intend" and other phrases of
similar meaning. Known and unknown risks, uncertainties and other factors could
cause the actual results to differ materially from those contemplated by the
statements. The forward-looking information is based on various factors and was
derived using numerous assumptions.

         Although we believe that our expectations that are expressed in these
forward-looking statements are reasonable, we cannot promise that our
expectations will turn out to be correct. Our actual results could be materially
different from our expectations, including the following:

-        We may lose subscribers or fail to grow our subscriber base;

-        We may not successfully integrate new subscribers or assets obtained
         through acquisitions;

-        We may fail to compete with existing and new competitors;

-        We may not be able to sustain our current growth;

-        We may not adequately respond to technological developments impacting
         the Internet;

-        We may experience a major system failure;

-        We may not be able to find needed financing.

         This list is intended to identify some of the principal factors that
could cause actual results to differ materially from those described in the
forward-looking statements included elsewhere in this report. These factors are
not intended to represent a complete list of all risks and uncertainties
inherent in our business, and should be read in conjunction with the more
detailed cautionary statements included in this Report under the caption "Item
1. Description of Business- Additional Factors to Consider," our other
Securities and Exchange Commission filings and our press releases.



                                       3
<PAGE>

                                     PART I


ITEM 1. DESCRIPTION OF BUSINESS

General

         We are an integrated communications provider offering integrated
communications and Internet connectivity to individuals, businesses,
organizations, educational institutions and government agencies. Through our
subsidiaries, we provide high quality, reliable and scalable Internet access,
web hosting, and equipment co-location. Our overall strategy is to become the
dominant integrated communications provider for residents and small to
medium-sized businesses in Oklahoma.

         References to us in this Report include our subsidiaries: FullNet, Inc.
("FullNet"), FullTel, Inc. ("FullTel"), and FullWeb, Inc. ("FullWeb"). Our
principal executive offices are located at 201 Robert S. Kerr Avenue, Suite 210,
Oklahoma City, Oklahoma 73102, and our telephone number is (405) 236-8200. We
also maintain an Internet site on the World Wide Web ("WWW") at www.fullnet.net.
Information contained on our Web site is not, and should not be deemed to be, a
part of this Report.

Company History

         We were founded in 1995 as CEN-COM of Oklahoma, Inc., an Oklahoma
corporation, to bring dial-up Internet access and education to rural locations
in Oklahoma that did not have dial-up Internet access. We changed our name to
FullNet Communications, Inc. in December 1995, and shifted our focus from
offering dial-up services to providing wholesale and private label network
connectivity and related services to other Internet service providers. During
1995 and 1996, we furnished wholesale and private label network connectivity
services to Internet service providers in Bartlesville, Cushing, Durant, Perry,
Tahlequah, and Tulsa. During 1996, we sold our Internet service provider
operations in Enid, Oklahoma and began Internet service provider operations in
Ponca City, Oklahoma.

         In 1997 we continued our focus on being a backbone provider by
upgrading and acquiring more equipment. We also started offering our own
Internet service provider brand access and services to our wholesale customers.
As of December 31, 2002, there was one Internet service provider in Oklahoma
that used the FullNet brand name for whom we provide the backbone to the
Internet. There was also one Internet service provider that used a private label
brand name, for whom we are its access backbone and provide on an outsource
basis technical support, systems management and operations. Additionally, we
provide high-speed broadband connectivity, website hosting, network management
and consulting solutions to over 100 businesses in Oklahoma.

         In 1998 our gross revenues exceeded $1,000,000 and we made the Metro
Oklahoma City Top 50 Fastest Growing Companies list. In 1998 we commenced the
process of organizing a competitive local exchange carrier ("CLEC") through
FullTel, and acquired Animus Communications, Inc. ("Animus"), a wholesale
Web-service company, which enabled us to become a total solutions provider to
individuals and companies seeking a "one-stop shop" in Oklahoma. Animus was
renamed FullWeb in January 2000.

         With the incorporation of FullTel and the acquisition of FullWeb, our
current business strategy is to become the dominant integrated communications
provider in Oklahoma, focusing on rural areas. We expect to grow through the
acquisition of additional customers for our carrier-neutral co-location space,
the acquisition of Internet service providers, as well as through a FullNet
brand marketing campaign. During the years ended 2000 and 2001, we completed
eight separate acquisitions of Internet service provider companies, with
customers in the Oklahoma cities of Tahlequah, Bartlesville, Enid, Nowata,
Lawton, Oklahoma City, Adair, Jay, Pryor, Wyandotte, Leach, Colcord and Moseley.

         During the month of February 2000, our common stock began trading on
the NASD Electronic Bulletin Board under the symbol FULO. While our common stock
trades on the NASD Electronic Bulletin Board, it is very thinly traded, and
there can be no assurance that shareholders will be able to sell their shares
should they desire. Any market for the common stock that may develop, in all
likelihood, will be a limited one, and if such a market does develop, the market
price may be volatile.

         On June 20, 2000, we began providing co-location services to KMC
Telecom V, Inc. ("KMC"), a facilities-based competitive local exchange carrier
pursuant to an agreement that ends on December 31, 2005. Under the terms of this
agreement, we receive $42,275 per month to provide co-location and support
services for KMC's telecommunications equipment at our network operations center
in Oklahoma City, Oklahoma. We completed our network operations center during
the first quarter of 2001. KMC moved into our network operations center and
began making payments during the third quarter of 2000. We plan to market
additional carrier neutral co-location solutions in our network operations
center to other competitive local exchange carriers, Internet service providers
and web-hosting companies.



                                       4
<PAGE>

         Our co-location facility is carrier neutral, allowing customers to
choose among competitive offerings rather than being restricted to one carrier.
Our network operations center is Telco-grade and provides customers a high level
of operative reliability and security. We offer flexible space arrangements for
customers, 24-hour onsite support with both battery and generator backup.

Mergers and Acquisitions

         Our acquisition strategy is designed to leverage our existing network
backbone and internal operations to enable us to enter new markets in Oklahoma,
as well as to expand our presence in existing markets, and to benefit from
economies of scale. We acquired four Internet service provider businesses in
Oklahoma during 2001.

         On February 28, 2001, we purchased substantially all of the assets of
LawtonNet Communications (LAWTONNET), a sole proprietorship, including
approximately 700 individual and business Internet access customer accounts.
Pursuant to the purchase, we issued LAWTONNET 35,000 shares of our common stock.
In addition, we agreed to pay LAWTONNET an amount based upon the future
collected revenues received from all active LAWTONNET customers transferred at
the time of closing of the purchase until the customers become inactive. During
the 30 days following the closing of this purchase, advance payments of $30,000
were made on future collected revenues received. Total amounts due to the seller
pursuant to this provision of the purchase agreement were $27,182 and $4,611 for
2001 and 2002, respectively.

         On February 28, 2001, we purchased substantially all of the assets of
Computer Concepts & Research, Inc., doing business as SONET Communications
(SONET), including approximately 900 individual and business Internet access
customer accounts. Pursuant to this purchase, we agreed to issue 30,000 shares
of our common stock to SONET. In addition, we agreed to pay SONET an amount
based upon the future collected revenues received from all active SONET
customers transferred at the time of closing until the customers become
inactive. Total amounts due to the seller pursuant to this provision of the
purchase agreement were $38,404 and $10,995 for 2001 and 2002, respectively.

         On June 15, 2001, we purchased substantially all of the assets of
IPDatacom, a division of Higganbotham.com, LLC (IPDatacom), including
approximately 400 individual and business Internet access customer accounts.
Pursuant to this purchase, we issued IPDatacom 135,000 shares of our common
stock, notes payable in the aggregate principal amount of $58,500 and paid
$1,500.

         On November 19, 2001, we purchased from Northeast Rural Services, a
subsidiary of Northeast Oklahoma Electric Cooperative, Inc. (RECTEC) its
Internet access customers, including approximately 1,400 individual and business
Internet access accounts, and the associated equipment in the Oklahoma cities of
Adair, Jay, Pryor, Wyandotte, Leach, Colcord and Moseley. We paid RECTEC an
aggregate amount of $92,394, comprised of $37,394 in cash and two notes payable
in the aggregate principal amount of $55,000.

These acquisitions were accounted for as purchases. The aggregate purchase price
has been allocated to the underlying net assets purchased or net liabilities
assumed, including intangible assets which consist primarily of acquired
customer bases and covenants not to compete, based on their estimated fair
values at the respective acquisition dates. Intangible assets acquired totaled
approximately $245,397, which are being amortized based on decreases of acquired
customer base

Our Business Strategy

         As an integrated communications provider, we intend to increase
shareholder value by continuing to build scale through both acquisitions and
internal growth and then leveraging increased revenues over our fixed costs
base. Our strategy is to meet the customer service requirements of retail,
business, educational and government Internet users in our target markets, while
benefiting from the scale advantages obtained through being a fully integrated
backbone and broadband provider. The key elements of our overall strategy with
respect to our principal business operations are as follows:

Target Strategic Acquisitions

         The goal of our acquisition strategy is to accelerate market
penetration by acquiring Internet service providers in Oklahoma communities with
populations of 5,000 or more and to acquire strategic Internet service providers
in Oklahoma City and Tulsa. Additionally, we will continue to build upon our
core competencies and expand our technical, customer service staff and sales
force in Oklahoma communities. We evaluate acquisition candidates based on their
compatibility with our overall business plan of penetrating rural and outlying
markets as well as Oklahoma City and Tulsa. When a candidate is acquired, we
will integrate our existing Internet, network connectivity and value-added
services with the services offered by the acquired company and use either the
local sales force or install our own dealer sales force to continue to increase
market share. The types of acquisitions targeted by us include Internet service
providers located in markets into which we want to expand or to which we may
already provide "private-label" Internet connectivity. Other types of targeted
acquisitions include local business-only Internet service providers in markets
where we have established points of presence and would benefit from the acquired
company's local



                                       5
<PAGE>

sale and network solutions sales and technical staff and installed customer base
through the potential increase in our network utilization. When assessing an
acquisition candidate, we focus on the following criteria:

         o Potential revenue and subscriber growth;

         o Low subscriber turnover or churn rates;

         o Density in the market as defined by a high ratio of subscribers to
points of presence ("POPs");

         o Favorable competitive environment;

         o Low density network platforms that can be integrated readily into our
backbone network; and

         o Favorable consolidation savings.

Generate Internal Sales Growth

         We intend to expand our customer base by increasing our independent
re-seller network as well as our marketing efforts. At December 31, 2002, our
direct sales force consisted of one individual in our Oklahoma City office
coordinating all our business-to-business solutions sales. We currently have one
individual responsible statewide to manage the consumer Internet service
provider market, with independent re-sellers responsible for their individual
markets. Our sales force is supported in its efforts by technical engineers and,
in some instances, our senior management. We intend to increase the size of our
independent re-seller network to establish an effective selling presence in all
major communities in Oklahoma. In addition, we are exploring other strategies to
increase our sales, including developing an inside sales center and other
marketing partners such as electric cooperatives. We currently have one of the
20 local Oklahoma electric cooperatives as a marketing partner.

Develop the Dominant Regional Brand

         We seek to support internal growth by converting each local acquired
Internet service provider to its regional FullNet brand supported by community
based marketing programs. This strategy includes two components:

         o Regional branding. Change strong local brands to a regional FullNet
brand. We intend to change these brands on a market-by-market basis as we
implement enhancements to improve customer satisfaction.

         o Community based marketing. We intend to continue to build goodwill
through community involvement, such as providing free services to libraries and
educational institutions, sponsoring local sports teams and other community
organizations and furthering relationships with local retailers to promote our
products and services in their stores.

Develop Strategic Relationships

         We intend to develop strategic relationships with advertisers and
content providers, capitalizing on opportunities to sell value-added products
and services to our local subscribers.

Grow Subscriber Base

         We intend to grow our subscriber base through a combination of internal
and acquisition driven growth. We anticipate that this growth will increase the
density of our subscriber base within a service area utilizing our available
network operations, customer support, back office functions and management
overhead without further cost increase or with minimal cost increase. We expect
our local markets to generate internal subscriber growth primarily by enhancing
subscribers' online experience, providing a sense of a national presence while
maintaining local community content and developing a consumer recognized
regional FullNet brand.

Increase Rural Area Market Share

         We believe that the rural areas of Oklahoma are underserved by Internet
service providers, and that significant profitable growth can be achieved in
serving these markets by providing reliable Internet connectivity at a
reasonable cost to the residents and businesses located in these areas. We
believe we can obtain a significant Internet service provider and
business-to-business market share in Oklahoma. To that end, we, through our
wholly-owned subsidiary, FullTel, became a licensed competitive local exchange
carrier in Oklahoma. As a competitive local exchange carrier, FullTel is now
able to provide local telephone numbers for Internet access since the purchase
and installation of a telephone switch in March 2003.

Cross-Sell Value Added Services

         We intend to capitalize on our existing customer base and future
customers by aggressively cross selling our value-added services through a
referral system that has every local retail Internet service provider sales
representative referring business-to-business customers. We are committed to
offering our customers reliable value-added network services necessary to
address their



                                       6
<PAGE>

Internet, communications and network management requirements. Based on our
existing network infrastructure and expertise, we are able to offer these
services continuously, reliably and on a cost-effective basis.

Enhance Subscribers' Online Experience

         We intend to maximize our subscriber retention and add new subscribers
by enhancing our services in the following ways:

         o Ease of Use - During the first quarter of 2001, we implemented a
common, easy to use CD ROM based software package that automatically configures
all of the individual Internet access programs after a one time entry by the
user of a few required fields of information such as, name, user name and
password.

         o Local Content - During the first quarter of 2001, we began sourcing
local, customized, community specific content, such as weather, traffic, crop
reports, business club meetings and high school and college sports information,
through national providers of local content or partnerships with businesses and
organizations in the subscribers' local communities.

         o New Products and Services - Offer subscribers new products and
services, such as audio and visual streaming, as the technologies supporting
these products and services become standardized, stable and profitable.

         o Co-marketing Opportunities - Develop affinity based marketing
programs to offer products and services, such as calling cards and long distance
telephone service, to our subscribers in exchange for fee based revenues.

Internet Access Services

         Our core business is the sale of Internet access services to individual
and small business subscribers located in Oklahoma. Through FullNet, we provide
our customers with a variety of dial-up and dedicated connectivity, as well as
direct access to a wide range of Internet applications and resources, including
electronic mail. FullNet's full range of services include:

         o Private label retail and business direct dial-up connectivity to the
Internet and

         o Secure private networks through our backbone network

         Our branded and private label Internet access services are provided
through a statewide network with points-of -presence in 18 communities
throughout Oklahoma. Points-of-presence are local telephone numbers through
which subscribers can access the Internet. Our business services consist of
high-speed Internet access services and other services that enable wholesale
customers to outsource their Internet and electronic commerce activities. We had
approximately 3,600 subscribers at December 31, 2002. Additionally, FullNet
sells Internet access to other Internet service providers, who then resell
Internet access to their own customers under their private label or under the
"FullNet" brand name.

         We intend to expand our subscriber base through a marketing campaign
and through acquisitions. We are focusing our acquisition efforts on companies
with forward-looking sales and marketing, high-quality customer service and a
solid local market dominance. See "Item 1. Description of Business - Mergers and
Acquisitions." Additionally, we are expanding our independent re-seller network
in an effort to increase our subscriber base in the markets in which we
currently operate.

         Currently, we offer the following two types of Internet connections:

         o Dial-Up Connections

         The simplest connection to the Internet is the dial-up account. This
method of service connects the user to the Internet through the use of a modem
and standard telephone line. Currently, FullNet users can connect via dial-up at
speeds up to 56 Kbps. We support these users through the use of sophisticated
modem banks at the point-of-presence that send data through a router and out to
the Internet. We support the higher speed 56K, V.92 and Integrated Services
Digital Network connections with state-of-the-art digital modems. With a dial-up
connection, a user can gain access to the Internet for e-mail, the World Wide
Web, file transfer protocol, news groups, and a variety of other useful
applications.

         o Leased Line Connections

         Many businesses and some individuals have a need for more bandwidth to
the Internet to support a network of users or a busy Web site. We have the
capacity to sell a leased line connection to users. This method of connection
gives the user a full-time high-speed (up to 1.5 mbps) connection to the
Internet through our point-of-presence. The leased line solution comes at
greater expense to the user, who must lease a dedicated line from its location
to our point-of-presence. These lines are leased through the telephone companies
at a high installation and monthly fee.



                                       7
<PAGE>

         We believe that our Internet access services provide customers with the
following benefits:

         Fast and Reliable Internet Access-We have implemented a network
architecture providing exceptional quality and consistency in Internet services,
making us the recognized backbone leader in the Oklahoma Internet service
provider industry. We offer unlimited, unrestricted and reliable Internet access
at a low monthly price. A user-to-modem ratio of approximately 7:1 assures
access with minimal busy signals. Dial-up access is available for the following
modem speeds: 14.4K, 28.8K, 33.6K, K56Flex, 56K V.90, ISDN 64K and ISDN 128K.
Our dial-up access supports all major platforms and operating systems, including
MS Windows, UNIX(R), Mac OS, OS/2 and LINUX. This allows simplified access to
all Internet applications, including the World Wide Web, email, news and file
transfer protocol.

         Cost-Effective Access-We offer high quality Internet connectivity and
enhanced business services at price points that are generally lower than those
charged by other Internet service providers with national coverage.
Additionally, we offer pre-bundled access services packages under monthly or
prepaid plans.

         Superior Customer Support-We provide superior customer service and
support, with customer care and technical personnel available by telephone and
on-line.

CLEC Operations

         Through FullTel, our wholly owned subsidiary, we are a fully licensed
competitive local exchange carrier or CLEC in Oklahoma. CLECs are new phone
companies born out of the Telecommunications Act of 1996 (Telecommunications
Act), which requires the incumbent local exchange carriers or ILECs, such as the
regional Bell companies, to provide CLECs access to their local facilities, and
to compensate CLECs for traffic originated by ILECs and terminated on the CLECs
network. By adding our own telephone switch and infrastructure to the existing
telephone network in March 2003, we are now able to offer local services in most
of Oklahoma, including local dial-up and digital subscriber line for the
Internet access services provided by us. As a CLEC, we may subscribe to and
resell all forms of local telephone service in Oklahoma. We intend to build our
own network infrastructure, which we believe will reduce our current reliance
upon the infrastructures of the ILECs. We believe that our CLEC status, combined
with the efficiencies inherent in operating our own network, should result in
lower overhead costs and a more predictable infrastructure, both of which should
be to the benefit of our customers.

         While Internet access is the core focus of growth for us, we plan to
also provide traditional telephone service throughout Oklahoma.

         A core piece of our marketing strategy is the "cross pollination"
between our Internet activities and FullTel's local dial-up service. By
organizing and funding FullTel, we expect to gain local dial-up Internet access
to approximately 80% of Oklahoma. In return, FullTel will gain immediate access
to our entire Internet service provider customer base.

         The FullTel data center telephone switching equipment was installed in
March 2003. Therefore, FullTel will begin extending local access telephone
numbers to every city in which we will market, sell and operate our retail
FullNet Internet service provider brand and our business-to-business network
design, connectivity, domain and Web hosting businesses. It is anticipated that
initially, FullTel will provide us with local telephone access in 35-40 targeted
cities where we will either already have Internet service customers or have
commenced sales and marketing. However, our ability to fully take advantage of
these opportunities will be dependent upon the availability of additional
capital.

Sales and Marketing

         Although we expect that the bulk of our new subscribers will come
through acquisition of Internet service providers, our expanded local sales
system is also an integral part of our growth plan. We believe local sales and
marketing will develop further recognition of our name brand that will lead to
increased subscriber revenues.

         The 15 largest metropolitan areas in the United States comprise only
38% of the U.S. population, leaving the majority of the country's population in
hundreds of smaller markets as potential subscribers. More specifically,
predominantly smaller metropolitan and rural markets may have penetration rates
of 22% and lower, versus larger markets with penetration rates of around 40%. In
addition, in many cases national providers are a long distance phone call in our
markets. Finally, since there is not as much competition in the smaller
metropolitan and rural markets, monthly churn rates are lower and word-of-mouth
referrals are a significant generator of new subscribers. We believe that we
have significant opportunities for acquisition and internal sales growth in
these market areas.

         We focus on marketing our services to two distinct market segments:
enterprises (primarily small and medium size businesses) and consumers. By
attracting enterprise customers who use the network primarily during the
daytime, and consumer customers who use the network primarily at night, we are
able to utilize our network infrastructure more cost effectively.



                                       8
<PAGE>

Competition

         The market for Internet connectivity and related services is extremely
competitive. We anticipate that competition will continue to intensify as the
use of the Internet grows. The tremendous growth and potential market size of
the Internet access market has attracted many new start-ups as well as existing
businesses from a variety of industries. We believe that a reliable network,
knowledgeable salespeople and the quality of technical support currently are the
primary competitive factors in our targeted market and that price is usually
secondary to these factors.

         Our current and prospective competitors include, in addition to other
national, regional and local Internet service providers, long distance and local
exchange telecommunications companies, cable television, direct broadcast
satellite, wireless communications providers and online service providers. While
we believe that our network, products and customer service distinguish us from
these competitors, most of these competitors have significantly greater market
presence, brand recognition, financial, technical and personnel resources than
us.

Internet Service Providers

         Our current primary competitors include other Internet service
providers with a significant national presence that focus on business customers,
such as MCI WorldCom, Cox Communications and SBC. These competitors have greater
market share, brand recognition, financial, technical and personnel resources
than us. We also compete with regional and local Internet service providers in
our targeted markets.

Telecommunications Carriers

         The major long distance companies, also known as interexchange
carriers, including AT&T, MCI WorldCom, Cable & Wireless/IMCI and Sprint, offer
Internet access services and compete with us. Reforms in the federal regulation
of the telecommunications industry have created greater opportunities for ILECs,
including the Regional Bell Operating Companies or RBOCs, and other competitive
local exchange carriers, to enter the Internet connectivity market. In order to
address the Internet connectivity requirements of the business customers of long
distance and local carriers, we believe that there is a move toward horizontal
integration by ILECs and CLECs through acquisitions or joint ventures with, and
the wholesale purchase of, connectivity from Internet service providers. The
MCI/WorldCom merger (and the prior WorldCom/MFS/UUNet consolidation), GTE's
acquisition of BBN, the acquisition by ICG Communications, Inc. of Netcom,
Global Crossing's acquisition of Frontier Corp. (and Frontier's prior
acquisition of Global Center) and AT&T's recent purchase of IBM's global
communications network are indicative of this trend. Accordingly, we expect that
we will experience increased competition from the traditional telecommunications
carriers. These telecommunication carriers, in addition to their greater network
coverage, market presence, financial, technical and personnel resources also
have large existing commercial customer bases.

Cable Companies, Direct Broadcast Satellite and Wireless Communications
Companies

         Many of the major cable companies are offering Internet connectivity,
relying on the viability of cable modems and economical upgrades to their
networks, including Media One and Time Warner Cablevision, Inc., Cox
Communications and Tele-Communications, Inc. ("TCI").

         The companies that own these broadband networks could prevent us from
delivering Internet access through the wire and cable connections that they own.
Cable television companies are not currently required to allow Internet service
providers to access their broadband facilities and the availability and terms of
Internet service provider access to broadband local telephone company networks
are under regulatory review. Our ability to compete with telephone and cable
television companies that are able to support broadband transmissions, and to
provide better Internet services and products, may depend on future regulation
to guarantee open access to the broadband networks. However, in January 1999,
the Federal Communications Commission declined to take any action to mandate or
otherwise regulate access by Internet service providers to broadband cable
facilities at this time. It is unclear whether and to what extent local and
state regulatory agencies will take any initiatives to implement this type of
regulation, and whether they will be successful in establishing their authority
to do so. Similarly, the Federal Communications Commission is considering
proposals that could limit the right of Internet service providers to connect
with their customers over broadband local telephone lines. In addition to
competing directly in the Internet service provider market, both cable and
television facilities operators are also aligning themselves with certain
Internet service providers who would receive preferential or exclusive use of
broadband local connections to end users. If high-speed, broadband facilities
increasingly become the preferred mode by which customers access the Internet
and we are unable to gain access to these facilities on reasonable terms, our
business, financial condition and results of operations could be materially
adversely affected.



                                       9
<PAGE>

Online Service Providers

         The dominant online service providers, including Microsoft Network,
America Online, Incorporated and Prodigy, Inc., have all entered the Internet
access business by engineering their current proprietary networks to include
Internet access capabilities. We compete to a lesser extent with these service
providers, which currently are primarily focused on the consumer marketplace and
offer their own content, including chat rooms, news updates, searchable
reference databases, special interest groups and shopping.

         However, America Online's merger with Time-Warner, its acquisition of
Netscape Communications Corporation and related strategic alliance with Sun
Microsystems enable it to offer a broader array of Internet -based services and
products that could significantly enhance its ability to appeal to the business
marketplace and, as a result, compete more directly with Internet service
providers like us. CompuServe has also announced that it will target Internet
connectivity for the small to medium sized business market.

         We believe that our ability to attract business customers and to market
value-added services is a key to our future success. However, there can be no
assurance that our competitors will not introduce comparable services or
products at similar or more attractive prices in the future or that we will not
be required to reduce our prices to match competition. Recently, many
competitive ISPs have shifted their focus from individual customers to business
customers.

         Moreover, there can be no assurance that more of our competitors will
not shift their focus to attracting business customers, resulting in even more
competition for us. There can be no assurance that we will be able to offset the
effects of any such competition or resulting price reductions. Increased
competition could result in erosion of our market share and could have a
material adverse effect on our business, financial condition and results of
operations.

Government Regulations

         The following summary of regulatory developments and legislation is not
complete. It does not describe all present and proposed federal, state, and
local regulation and legislation affecting the Internet service provider and
telecommunications industries. Existing federal and state regulations are
currently subject to judicial proceedings, legislative hearings, and
administrative proposals that could change, in varying degrees, the manner in
which our businesses operate. We cannot predict the outcome of these proceedings
or their impact upon the Internet service provider and telecommunications
industries or upon our business.

         Both the provision of Internet access service and the provision of
underlying telecommunications services are affected by federal, state, local and
foreign regulation. The Federal Communications Commission or FCC exercises
jurisdiction over all facilities of, and services offered by, telecommunications
carriers to the extent that they involve the provision, origination or
termination of jurisdictionally interstate or international communications. The
state regulatory commissions retain jurisdiction over the same facilities and
services to the extent they involve origination or termination of
jurisdictionally intrastate communications. In addition, as a result of the
passage of the Telecommunications Act, state and federal regulators share
responsibility for implementing and enforcing the domestic pro-competitive
policies of the Telecommunications Act. In particular, state regulatory
commissions have substantial oversight over the provision of interconnection and
non-discriminatory network access by ILECs. Municipal authorities generally have
some jurisdiction over access to rights of way, franchises, zoning and other
matters of local concern.

         Our Internet operations are not currently subject to direct regulation
by the FCC or any other U.S. governmental agency, other than regulations
applicable to businesses generally. However, the FCC continues to review its
regulatory position on the usage of the basic network and communications
facilities by Internet service providers. Although in an April 1998 Report, the
FCC determined that Internet service providers should not be treated as
telecommunications carriers and therefore should not be regulated, it is
expected that future Internet service provider regulatory status will continue
to be uncertain. Indeed, in that report, the FCC concluded that certain services
offered over the Internet, such as phone-to-phone Internet telephony, may be
functionally indistinguishable from traditional telecommunications service
offerings, and their non-regulated status may have to be re-examined.

         Changes in the regulatory structure and environment affecting the
Internet access market, including regulatory changes that directly or indirectly
affect telecommunications costs or increase the likelihood of competition from
RBOCs or other telecommunications companies, could have an adverse effect on our
business. Although the FCC has decided not to allow local telephone companies to
impose per-minute access charges on Internet service providers, and the
reviewing court has upheld that decision, further regulatory and legislative
consideration of this issue is likely. In addition, some telephone companies are
seeking relief through state regulatory agencies. The imposition of access
charges would affect our costs of serving dial-up customers and could have a
material adverse effect on our business, financial condition and results of
operations.



                                       10
<PAGE>

         In addition to our Internet service provider operations, we have
recently focused attention on acquiring telecommunications assets and
facilities, which is a regulated activity. Fulltel, our wholly owned subsidiary,
has received competitive local exchange carrier or CLEC certification in
Oklahoma, and an important part of our growth strategy is obtaining CLEC
certification in certain other states. The Telecommunications Act requires CLECs
not to prohibit or unduly restrict resale of their services; to provide dialing
parity, number portability, and nondiscriminatory access to telephone numbers,
operator services, directory assistance, and directory listings; to afford
access to poles, ducts, conduits, and rights-of-way; and to establish reciprocal
compensation arrangements for the transport and termination of
telecommunications traffic. In addition to federal regulation of CLECs, the
states also impose regulatory obligations upon CLECs. While these obligations
vary from state to state, most states require CLECs to file a tariff for their
services and charges; require CLECs to charge just and reasonable rates for
their services, and not to discriminate among similarly-situated customers; to
file periodic reports and pay certain fees; and to comply with certain services
standards and consumer protection laws. As a provider of domestic basic
telecommunications services, particularly competitive local exchange services,
we could become subject to further regulation by the FCC and/or another
regulatory agency, including state and local entities.

         The Telecommunications Act has caused fundamental changes in the
markets for local exchange services. In particular, the Telecommunications Act
and the FCC rules issued pursuant to it mandate competition in local markets and
require that ILECs interconnect with CLECs. Under the provisions of the
Telecommunications Act, the FCC and state public utility commissions share
jurisdiction over the implementation of local competition: the FCC was required
to promulgate general rules and the state commissions were required to arbitrate
and approve individual interconnection agreements. The courts have generally
upheld the FCC in its promulgation of rules, including a January 25, 1999 U.S.
Supreme Court ruling which determined that the FCC has jurisdiction to
promulgate national rules in pricing for interconnection.

         An important issue for CLECs is the right to receive reciprocal
compensation for the transport and termination of Internet traffic. We believe
that, under the Telecommunications Act, CLECs are entitled to receive reciprocal
compensation from ILECs. However, some ILECs have disputed payment of reciprocal
compensation for Internet traffic, arguing that Internet service provider
traffic is not local traffic. Most states have required ILECs to pay CLECs
reciprocal compensation. However, in October 1998, the FCC determined that
dedicated digital subscriber line service is an interstate service and properly
tariffed at the interstate level. In February 1999, the FCC concluded that at
least a substantial portion of dial-up Internet service provider traffic is
jurisdictionally interstate. The FCC also concluded that its jurisdictional
decision does not alter the exemption from access charges currently enjoyed by
Internet service providers. The FCC established a proceeding to consider an
appropriate compensation mechanism for interstate Internet traffic. Pending the
adoption of that mechanism, the FCC saw no reason to interfere with existing
interconnection agreements and reciprocal compensation arrangements. The FCC
order has been appealed. In addition, there is a risk that state public utility
commissions that have previously considered this issue and ordered the payment
of reciprocal compensation by the ILECs to the CLECs may be asked by the ILECs
to revisit their determinations, or may revisit their determinations on their
own motion. To date, at least one ILEC has filed suit seeking a refund from a
carrier of reciprocal compensation that the ILEC had paid to that carrier. There
can be no assurance that any future court, state regulatory or FCC decision on
this matter will favor our position. An unfavorable result may have an adverse
impact on our potential future revenues as a CLEC.

         As we become a competitor in local exchange markets, we will become
subject to state requirements regarding provision of intrastate services. This
may include the filing of tariffs containing rates and conditions. As a new
entrant, without market power, we expect to face a relatively flexible
regulatory environment. Nevertheless, it is possible that some states could
require us to obtain the approval of the public utilities commission for the
issuance of debt or equity or other transactions which would result in a lien on
our property used to provide intrastate services.

Additional Factors to Consider

         This Report includes "forward looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Although
we believe that our plans, intentions and expectations reflected in such forward
looking statements are reasonable, we can give no assurance that such plans,
intentions or expectations will be achieved. Important factors that could cause
actual results to differ materially from our forward looking statements are set
forth below and elsewhere in this Annual Report. All forward looking statements
attributable to us or persons acting on our behalf are expressly qualified in
their entirety by the cautionary statements set forth below.

         Limited Operating History. We have a relatively limited operating
history upon which an evaluation of our prospects can be made. Consequently, the
likelihood of our success must be considered in view of all of the risks,
expenses and delays inherent in the establishment and growth of a new business
including, but not limited to, expenses, complications and delays which cannot
be foreseen when a business is commenced, initiation of marketing activities,
the uncertainty of market acceptance of new services, intense competition from
larger more established competitors and other factors. Our ability to achieve
profitability and growth will depend on successful development and
commercialization of our current and proposed services. No assurance can be
given that we will be able to introduce our proposed services or market our
services on a commercially successful basis.



                                       11
<PAGE>

         Necessity of Additional Financing. In order for us to have any
opportunity for significant commercial success and profitability, we must
successfully obtain additional financing, either through borrowings, additional
private placements or an initial public offering, or some combination thereof.
Although we are actively pursuing a variety of funding sources, there can be no
assurance that we will be successful in such pursuit.

         Limited Marketing Experience. We have limited experience in developing
and commercializing new services based on innovative technologies, and there is
limited information available concerning the potential performance of our
hardware or market acceptance of our proposed services. There can be no
assurance that unanticipated expenses, problems or technical difficulties will
not occur which would result in material delays in product commercialization or
that our efforts will result in successful product commercialization.

         Uncertainty of Products/Services Development. Although considerable
time and financial resources were expended in the development of our services
and products, there can be absolutely no assurance that problems will not
develop which would have a material adverse effect on us. We will be required to
commit considerable time, effort and resources to finalize such development and
adapt our products/services to satisfy specific requirements of potential
customers. Continued system refinement, enhancement and development efforts are
subject to all of the risks inherent in the development of new products/services
and technologies, including unanticipated delays, expenses, technical problems
or difficulties, as well as the possible insufficiency of funds to
satisfactorily complete development, which could result in abandonment or
substantial change in commercialization. There can be no assurance that
development efforts will be successfully completed on a timely basis, or at all,
that we will be able to successfully adapt our hardware and/or software to
satisfy specific requirements of potential customers, or that unanticipated
events will not occur which would result in increased costs or material delays
in development or commercialization. In addition, technologies as complex as
those planned to be incorporated into our products/services may contain errors
which become apparent subsequent to commercial use. Remedying such errors could
delay our plans and cause us to incur substantial additional costs.

         New Concept; Uncertainty of Market Acceptance and Commercialization
Strategy. As is typical in the case of a new business concept, demand and market
acceptance for a newly introduced product/service is subject to a high level of
uncertainty. Achieving market acceptance for this new concept will require
significant efforts and expenditures by us to create awareness and demand by
consumers. Our marketing strategy and preliminary and future marketing plans may
be unsuccessful and are subject to change as a result of a number of factors,
including progress or delays in our marketing efforts, changes in market
conditions (including the emergence of potentially significant related market
segments for applications of our technology), the nature of possible license and
distribution arrangements which may or may not become available to us in the
future and economic, regulatory and competitive factors. There can be no
assurance that our strategy will result in successful product commercialization
or that our efforts will result in initial or continued market acceptance for
our proposed products.

         Competition; Technological Obsolescence. The markets that we intend to
enter are characterized by intense competition and an increasing number of
potential new market entrants who have developed or are developing potentially
competitive products and/or services. We will face competition from numerous
sources, certain of which may have substantially greater financial, technical,
marketing, distribution, personnel and other resources than us, permitting such
companies to implement extensive marketing campaigns, both generally and in
response to efforts by additional competitors to enter into new markets and
market new products and services. In addition, the markets for our proposed
products/services are characterized by rapidly changing technology and evolving
industry standards that could result in product obsolescence or short product
life cycles. Accordingly, our ability to compete will be dependent upon our
ability to complete the development of our products and to introduce our
products and/or services into the marketplace in a timely manner, to continually
enhance and improve our software and to successfully develop and market new
products. There can be no assurance that we will be able to compete
successfully, that competitors will not develop technologies or products that
render our products and/or services obsolete or less marketable or that we will
be able to successfully enhance our products or develop new products and/or
services.

         Risks Relating to the Internet. Businesses reliant on the Internet may
be at risk due to inadequate development of the necessary infrastructure, such
as reliable network backbones, or complementary services, such as high-speed
modems and security procedures. The Internet has experienced, and is expected to
continue to experience, significant growth in the number of users and amount of
traffic. There can be no assurance that the Internet infrastructure will
continue to be able to support the demands placed on it by sustained growth. In
addition, there may be delays in the development and adoption of new standards
and protocols, the inability to handle increased levels of Internet activity or
due to increased government regulation. If the necessary Internet infrastructure
or complementary services are not developed to effectively support growth that
may occur, our business, results of operations and financial condition would be
materially adversely affected.

         Potential Government Regulations. We are subject to state commission,
Federal Communications Commission and court decisions as they relate to the
interpretation and implementation of the Telecommunications Act, the
interpretation of Competitive Local Exchange Carrier interconnection agreements
in general and our interconnection agreements in particular. In some cases, we
may become bound by the results of ongoing proceedings of these bodies or the
legal outcomes of other contested



                                       12
<PAGE>

interconnection agreements that are similar to agreements to which we are a
party. The results of any of these proceedings could have a material adverse
effect on our business, prospects, financial condition and results of
operations.

         Dependence on Key Personnel. Our success depends in large part upon the
continued successful performance of our current executive officers and key
employees, Messrs. Timothy J. Kilkenny, Roger P. Baresel and Jason Ayers, for
our continued research, development, marketing and operation. Although we have
employed, and will employ in the future, additional qualified employees as well
as retaining consultants having significant experience, if Messrs. Kilkenny,
Baresel or Ayers fail to perform any of their duties for any reason whatsoever,
our ability to market, operate and support our products/services will be
adversely affected. While we are located in areas where the available pool of
people is substantial, there is also significant competition for qualified
personnel.

         Limited Public Market. During February 2000, our common stock began
trading on the NASD Electronic Bulletin Board under the symbol FULO. While our
common stock continues to trade on the Electronic Bulletin Board, there can be
no assurance that stockholders will be able to sell their shares should they
desire to do so. Any market for the common stock that may develop, in all
likelihood, will be a limited one, and if such a market does develop, the price
may be volatile.

         No Payment of Dividends on Common Stock. We have not paid any dividends
on our common stock. For the foreseeable future, we anticipate that all
earnings, if any, which may be generated from our operations will be used to
finance our growth and that cash dividends will not be paid to holders of the
common stock.

         Penny Stock Regulation. Broker-dealer practices in connection with
transactions in "penny stocks" are regulated by certain penny stock rules
adopted by the SEC. Penny stocks generally are equity securities with a price of
less than $5.00 (other than securities registered on certain national securities
exchanges or quoted on the NASDAQ system). The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
the rules, to deliver a standardized risk disclosure document that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer
and its salesperson in the transaction, and, if the broker dealer is the sole
market-maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market, and monthly account statements showing the
market value of each penny stock held in the customer's account. In addition,
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally, those persons with assets in
excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together
with their spouse), must make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. Consequently, these requirements may have
the effect of reducing the level of trading activity, if any, in the secondary
market for a security that is or becomes subject to the penny stock rules. Our
common stock is subject to the penny stock rules at the present time, and
consequently our stockholders will find it more difficult to sell their shares.

Customers

         In 2002 and 2001, we had one customer that represented 27% and 26%,
respectively, of our gross revenues. In June 2000, pursuant to an agreement that
ends on December 31,2005, we began providing co-location services to KMC Telecom
V, Inc. ("KMC"), a facilities-based competitive local exchange carrier. Under
the terms of this agreement, we receive $42,275 per month to provide co-location
and support services for KMC's telecommunications equipment at our network
operations center in Oklahoma City, Oklahoma. KMC moved into our network
operations center and began making payments during the third quarter of 2000.

Employees

         As of December 31, 2002, we had 19 employees employed in engineering,
sales, marketing, customer support and related activities and general and
administrative functions. None of our employees are represented by a labor
union, and we consider our relations with our employees to be good. We also
engage consultants from time to time with respect to various aspects of our
business.

ITEM 2. DESCRIPTION OF PROPERTY

         We maintain our executive office in approximately 13,000 square feet at
201 Robert S. Kerr Avenue, suite 210 in Oklahoma City, at an effective annual
rental rate of $10.20 per square foot. These premises are occupied pursuant to a
ten-year lease that expires December 31, 2009.

         We also lease space in a number of private facilities in which our
equipment is housed. The monthly lease payments for such private facilities are
approximately $1,300.



                                       13
<PAGE>

ITEM 3. LEGAL PROCEEDINGS

         We are not currently engaged in any material legal proceedings. We are,
however, subject to state commission, FCC and court decisions as they relate to
the interpretation and implementation of the Telecommunications Act, the
interpretation of CLEC interconnection agreements in general and our
interconnection agreements in particular. In some cases, we may be bound by the
results of ongoing proceedings of these bodies or the legal outcomes of other
contested interconnection agreements that are similar to agreements to which we
are a party. The results of any of these proceedings could have a material
adverse effect on our business, prospects, financial condition and results of
operations.


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

         No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this Report.



                                       14
<PAGE>

                                     PART II


ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Our common stock is traded in the over-the-counter market and is quoted
on the NASD Electronic Bulletin Board under the symbol FULO. Prior to February
9, 2000, there was no public trading market for our common stock. The closing
sale prices reflect inter-dealer prices without adjustment for retail markups,
markdowns or commissions and may not reflect actual transactions. The following
table sets forth the high and low closing sale prices of our common stock during
the calendar quarters presented as reported by the NASD Electronic Bulletin
Board.

<Table>
<Caption>
                                                                Common Stock
                                                             Closing Sale Prices
                                                             -------------------
                                                              High          Low
                                                             ------        -----
<S>                                                          <C>           <C>
2002 -Calendar Quarter Ended:
March 31                                                     $  .06        $ .05
June 30                                                         .10          .10
September 30                                                    .06          .06
December 31                                                     .05          .05
2001 -Calendar Quarter Ended:
March 31                                                     $ 1.03        $ .69
June 30                                                        1.01          .60
September 30                                                    .70          .43
December 31                                                     .45          .11
</Table>

Number of stockholders

         The number of beneficial holders of record of our common stock as of
the close of business on March 25, 2003 was approximately 112.

Dividend Policy

         To date, we have declared no cash dividends on our common stock, and do
not expect to pay cash dividends in the near term. We intend to retain future
earnings, if any, to provide funds for operations and the continued expansion of
our business.

Recent Sales of Unregistered Securities

         In February, March, June and September 2000, we obtained interim loans
totaling $505,000 through the issuance of promissory notes bearing interest at
14% per annum to 14 accredited investors. This offering was pursuant to Rule 506
of Regulation D of the Securities Act. Net proceeds were approximately $478,500,
after payment of placement fees and commissions totaling $26,500 and other
offering expenses. The terms of the financing additionally provided for the
issuance of five-year warrants exercisable for the purchase of 250,000 shares of
our common stock at $0.01 per share and provided for certain registration
rights. The promissory notes required monthly interest payments, matured in six
months and were extendible for two 90-day periods upon issuance of additional
warrants exercisable for the purchase of 250,000 shares at $0.01 per share for
each extension. In August 2000, we extended the terms of ten of the interim
loans for an additional 90 days and in connection therewith, issued warrants
exercisable for the purchase of 137,500 shares of common stock. As of December
31, 2002, we had issued 287,500 shares of common stock pursuant to exercise of
these warrant for proceeds of $2,875.

         In March 2000, we obtained interim loans totaling $500,000 through the
issuance of promissory notes bearing interest at 14% per annum to two accredited
investors. This offering was pursuant to Rule 506 of Regulation D of the
Securities Act. Net proceeds were approximately $460,000, after payment of
placement fees and commissions totaling $40,000 and other offering expenses. The
terms of the financing additionally provided for the issuance of five-year
warrants to purchase 100,000 shares of our common stock at $0.01 per share, and
provided for certain registration rights. The promissory notes required
quarterly interest payments, matured in six months and initially were extendible
for two 90-day periods upon issuance of additional warrants exercisable for the
purchase of 10,000 shares of common stock at $0.01 per share for each extension.
In October 2000, the terms of the two interim loans were amended to provide
that, in the event of a second 90-day extension, we would issue warrants



                                       15
<PAGE>

exercisable for the purchase of 160,000 shares of common stock. On March 8,
2000, the interim loan investors exercised their warrants and we issued 100,000
shares of our common stock for net proceeds of $1,000. In August 2000, we
extended the terms of the two interim loans for an additional 90 days, and, in
connection therewith, issued warrants exercisable for the purchase of 10,000
shares, and as of December 31, 2002, we had issued 5,000 shares of common stock
pursuant to exercise for net proceeds of $50.

         In August 2000, we obtained a short-term loan of $100,000 from Timothy
J. Kilkenny, Chairman of the Board and Chief Executive Officer bearing interest
at 9% per annum. In connection with this loan, we issued to Mr. Kilkenny
five-year warrants exercisable for the purchase of 50,000 shares of our common
stock at $0.01 per share, and provided for certain registration rights. This
offering was pursuant to Rule 506 of Regulation D of the Securities Act. This
loan requires monthly interest payments, matures on the earlier of (i) the date
that is within five days of receipt of funds by us of any offering raising gross
proceeds to us of at least $1,000,000 or (ii) May 2, 2001. These warrants were
exercised on April 2, 2001.

         On September 29, 2000, we began offering through a private placement a
minimum of $700,000 and a maximum of $2.0 million in the form of three-year term
convertible promissory notes bearing interest at 11% per annum (the "Notes"),
which can be increased to $2.5 million at the election of the placement agent.
The initial closing of $700,000 occurred on November 9, 2000. The second closing
of $62,500 occurred on December 1, 2000. Net proceeds were approximately
$667,500, after payment of placement fees and commissions totaling $95,000 and
other offering expenses. Each of the Notes is convertible into our common stock
at the election of the holder thereof, at a conversion rate of $1.00 per share
of our common stock, subject to adjustment under certain circumstances. The
Notes are accompanied by warrants exercisable for the purchase of the number of
shares of our common stock equal to the number obtained by dividing 25% of the
face amount of the Notes purchased by $1.00 and provide for certain registration
rights. These warrants may be exercised at any time after the date of grant for
five years at a price of $0.01 per share. Additionally, $1,005,000 of interim
loans, as discussed above, was converted to the Notes on November 9, 2000. As of
December 31, 2000, 267,500 shares of our common stock have been issued pursuant
to warrant exercise for net proceeds of $2,675. Because we failed to timely file
a registration statement covering the common stock underlying the Notes and the
warrants the interest rate of the Notes increased to 12.5% per annum and at
December 31, 2002, the conversion price was reduced to $.63 per share in
accordance with the terms of the Notes. This offering was pursuant to Rule 506
of Regulation D of the Securities Act.

         On January 5, 2001, we obtained an interim loan for $250,000 from an
unrelated third party. In connection with this loan, we issued warrants
exercisable for the purchase of 125,000 shares of our common stock at $.01 per
share. This loan bears interest at 10% per annum and requires payments equal to
50% of the net proceeds received from our private placement of convertible notes
payable. On March 31, 2001, this loan was increased to $320,000 and the due date
for the unpaid principal and interest was extended to July 31, 2001, which was
subsequently extended to December 31, 2001. Through December 31, 2002, we had
made payments of principal and interest aggregating $35,834 and the past due
principal and accrued interest was $376,110 at December 31, 2002. These warrants
were exercised on January 22, 2001. This offering was pursuant to Rule 506 of
Regulation D of the Securities Act.

          Pursuant to two separate acquisitions of assets on February 28, 2001,
we agreed to issue 30,000 shares of our common stock to Sonet Communications and
issued 35,000 shares of our common stock to LawtonNet Communications. These
offerings were pursuant to Rule 506 of Regulation D of the Securities Act.

          On May 31, 2001, we exchanged 2,064,528 shares of our common stock and
warrants (exercisable for the purchase of 436,748 shares of common stock at
$2.00 per share) for convertible notes in the principal amount of $1,746,988
(recorded at $1,283,893) plus accrued interest of $123,414. These warrants
expire on May 31, 2006. At December 31, 2002, the remaining outstanding
principal and interest of the convertible notes payable was $541,922.

          On April 23, 2001 we issued 1,500 shares of our common stock in
exchange for professional services performed. This offering was pursuant to Rule
506 of Regulation D of the Securities Act.

          Pursuant to the acquisition of certain assets on June 15, 2001, we
issued 135,000 shares of our common stock to IPDatacom. This offering was
pursuant to Rule 506 of Regulation D of the Securities Act.

          On July 1, 2001 and October 1, 2001, we agreed to issue 3,853 and
11,815 shares of common stock, respectively, in payment of $15,668 accrued
interest on a portion of our convertible debt. This offering was pursuant to
Rule 506 of Regulation D of the Securities Act.

          Pursuant to the provisions of the private placement of our convertible
notes payable, as of December 31, 2002, warrants to purchase an aggregate
506,575 shares of common stock have been exercised at an aggregate exercise
price of $5,066.

          On January 1, 2002, we agreed to issue 11,815 shares of common stock
in payment of $11,815 accrued interest on a portion of our convertible debt.
This offering was pursuant to Rule 506 of Regulation D of the Securities Act.



                                       16
<PAGE>

          During September 2002, we received $5,000 from the issuance of a
five-year 8% convertible note payable. This note is convertible into our common
stock at the election of the holder, at a conversion rate of $.15 per share,
subject to adjustment under certain circumstances. This offering was pursuant to
Rule 506 of Regulation D of the Securities Act.

          During December 2002, we agreed to issue 1,500 shares of common stock
in settlement of a note payable. This offering was pursuant to Rule 506 of
Regulation D of the Securities Act.

          With respect to each of the foregoing common stock and warrant sale
transactions, we relied on Sections 4(2) and 3(b) of the Securities Act of 1933
and applicable registration exemptions of Rules 504 and 506 of Regulation D and
applicable state securities laws.

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

         The following discussion should be read in conjunction with our
Consolidated Financial Statements and notes thereto included in Part II, Item 7
of this Report. The results shown herein are not necessarily indicative of the
results to be expected in any future periods. This discussion contains
forward-looking statements based on current expectations that involve risks and
uncertainties. Actual results and the timing of events could differ materially
from the forward-looking statements as a result of a number of factors. For a
discussion of the factors that could cause actual results to differ materially
from the forward-looking statements, see "Item 1. Description of Business --
Additional Factors to Consider" and our other periodic reports and documents
filed with the Securities and Exchange Commission.

         The following table sets forth certain statement of operations data as
a percentage of revenues for the years ended December 31, 2002 and 2001:

<Table>
<Caption>
                                                        FOR THE YEARS ENDED DECEMBER 31,
                                               ---------------------------------------------------
                                                        2002                        2001
                                               -----------------------     -----------------------
                                                  AMOUNT       PERCENT        AMOUNT       PERCENT
                                               ------------    -------     ------------    -------
<S>                                            <C>             <C>         <C>             <C>
Revenues:
Access service revenues                        $  1,421,699       58.6%    $  1,392,711       60.5%
Co-location and other revenues                    1,003,317       41.4          908,301       39.5
                                               ------------    -------     ------------    -------
Total revenues                                    2,425,016      100.0        2,301,012      100.0
Cost of access service revenues                     834,338       34.4          833,766       36.2
Cost of co-location and other revenues               98,371        4.1          112,876        4.9
Selling, general and administrative expenses      1,315,827       54.3        2,136,295       92.8
Loss (gain) on sale of assets                       (33,827)      (1.4)           8,166         .4
Depreciation and amortization                       660,870       27.2          855,973       37.2
Impairment expense                                       --         --          741,295       32.2
                                               ------------    -------     ------------    -------
Total operating costs and expenses                2,875,579      118.6        4,688,371      203.7
                                               ------------    -------     ------------    -------
Loss from operations                               (450,563)     (18.6)      (2,387,359)    (103.7)
Interest expense                                   (372,417)     (15.3)        (558,998)     (24.3)
Debt conversion expense                                  --         --         (370,308)     (16.1)
Other expense                                            --         --           (8,165)       (.4)
                                               ------------    -------     ------------    -------
Net loss                                       $   (822,980)     (33.9)%   $ (3,324,830)    (144.5)%
                                               ============    =======     ============    =======
</Table>

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

Revenues

         Access service revenues increased $28,988 or 2.1% to $1,421,699 for the
year ended December 31, 2002 from $1,392,711 for the year 2001. This increase
was the result of the acquisition of two Internet service providers during
2001 resulting in a full year of revenue in 2002 compared to a partial year in
2001.

         Co-location and other revenues increased $95,016 or 10.5% to $1,003,317
for the year ended December 31, 2002 from $908,301 for the year 2001. This
increase was primarily attributable to selling additional services to existing
customers.



                                       17
<PAGE>

Operating Costs and Expenses

         Cost of access service revenues remained essentially unchanged at
$834,338 for the year ended December 31, 2002 compared to $833,766 for the year
2001.

         Cost of co-location other revenues decreased $14,505 or 12.9% to
$98,371 for the year ended December 31, 2002 from $112,876 for the year 2001, as
a result of a reduction in certain non-recurring services that we provided to
certain co-location customers.

         Selling, general and administrative expenses decreased $820,468 or
38.4% to $1,315,827 for the year ended December 31,2002 from $2,136,295 for the
year 2001. This decrease was primarily due to decreases in professional fees and
employee costs. Professional fees decreased $540,765 during the year ended
December 31, 2002 compared to the year 2001 primarily due to non-recurring fees
associated with the private placement offering of convertible notes payable in
2001. Professional fees include legal, accounting, investment banking and
consulting fees. Approximately $3,937 and $408,338 of the $47,827 and $588,598
professional fees for the years ended December 31, 2002 and 2001, respectively,
were attributable to noncash expenses relating to the fair value of common
stock, options and warrants issued in payment of professional services. Employee
costs decreased $224,317 for the year ended December 31, 2002 from the prior
year primarily due to a decrease in the number of employees to 23 during the
first quarter of 2002, 17 during the second quarter of 2002, 17 during the third
quarter of 2002 and an increase to 19 during the fourth quarter of 2002 as
compared to 28, 26, 23 and 18, respectively during the same periods of 2001.
Advertising, rent and bad debt expense decreased $20,384, $23,940 and $26,736,
respectively, for the year ended December 31, 2002 from the prior year. These
decreases were offset primarily by an increase in insurance expense of $14,673
for the year ended December 31, 2002 over the prior year. Selling, general and
administrative expenses as a percentage of total revenues decreased to 54.3%
during 2002 from 92.8% during 2001.

         During the year ended December 31, 2002, we recorded a gain on sale of
assets of $33,827. This gain was primarily attributable to the sale of customer
bases in certain cities based upon our determination that it was no longer cost
effective for us to provide access services.

         Depreciation and amortization expense decreased $195,103or 22.8% to
$660,870 for the year ended December 31, 2002 from $855,973 for the prior year.
In January 2002, upon initially applying SFAS 142 we reassessed useful lives of
our acquired customer bases and we began amortizing these intangible assets over
their estimated useful lives and in direct relation to any decreases in the
acquired customer bases. Amortization expense for the years ended December 31,
2002 and 2001 relating to intangible assets was $448,579 and $706,249,
respectively.

         During December 2001, due to a decline in customer base we assessed
recoverability of intangible assets relating to the Harvest merger. The effect
of this assessment for the year ended December 31, 2001 was to record impairment
expense of $741,295. The impairment expense increased basic and diluted loss per
share by $.13.

Interest Expense

         Interest expense decreased $186,581 or 33.4% to $372,417 for the year
ended December 31, 2002 from $558,998 for the year 2001. This decrease was
primarily attributable to the elimination of $463,095 of the loan discount
associated with our interim financing issued with warrants and the future
amortization of this discount. The elimination of the loan discount occurred in
May 2001 as a result of the exchange of our common stock and warrants for our
interim financing debt in the recorded amount of $1,283,893 (face amount of
$1,746,988).

Debt Conversion Expense

         In the second quarter of 2001, we exchanged 2,064,528 shares of common
stock and 436,748 common stock purchase warrants for convertible notes payable
with a face value of $1,746,988 and a carrying value of $1,283,893 plus accrued
interest of $123,414. This exchange was accounted for as an induced debt
conversion and we recorded a debt conversion expense of $370,308.

Liquidity and Capital Resources

         At December 31, 2002, we had a deficit working capital of $1,929,308,
while at December 31, 2001 we had a deficit working capital of $1,521,090. We do
not have a line of credit or credit facility to serve as an additional source of
liquidity. Historically we have relied on shareholder loans as an additional
source of funds.

         Cash provided by operations was $57,761 for the year ended December 31,
2002. This was an increase from cash used in operations of $12,889 during the
prior year. As of December 31, 2002, we had $26,955 in cash and $2,114,969 in
current liabilities, including $401,552 of deferred revenues that will not
require settlement in cash.



                                       18
<PAGE>

         Net cash provided by investing activities was $84,726 for the year
ended December 31, 2002. The cash provided during 2002 was primarily related to
the sale of excess equipment and the sale of customer bases in certain cities
based upon our determination that it was no longer cost effective for us to
provide access services. Cash used in investing activities was $307,790 for the
year ended December 31, 2001. The cash used during 2001 was primarily related to
leasehold improvements for our new office space and construction on our network
operations center, which was completed during the first quarter 2001 and capital
expenditures related to business acquisitions.

         Net cash used by financing activities consisting primarily of principal
payments on notes payable and capital lease obligations was $172,107 for the
year ended December 31, 2002. Net cash provided by financing activities was
$364,104 for the year ended December 31, 2001. The cash provided in 2001 was due
primarily to the issuance of interim notes payable and the sale of convertible
promissory notes payable.

         The planned expansion of our business will require significant capital
to fund capital expenditures, working capital needs, debt service and the cash
flow deficits generated by operating losses. In June 2002, the Company issued a
purchase order for the purchase and installation of a telephone switch that will
enable the Company to broaden its product line. This switch was delivered in
February 2003. A down payment of $14,950 was paid upon delivery of the switch
and the supplier financed the remaining balance of $202,000 at 10% interest to
be paid in 18 monthly payments beginning in March 2003. As additional
consideration we issued the supplier a warrant exercisable for the purchase
50,000 shares of our common stock for $.01 per share on or before February 7,
2008.

         Our additional principal capital expenditure requirements will include:

         o mergers and acquisitions and

         o further development of operations support systems and other automated
back office systems.

         As our cost of developing new networks and services, funding other
strategic initiatives and operating our business will depend on a variety of
factors (including, among other things, the number of subscribers and the
service for which they subscribe, the nature and penetration of services that
may be offered by us, regulatory changes, and actions taken by competitors in
response to our strategic initiatives), it is almost certain that actual costs
and revenues will materially vary from expected amounts and these variations are
likely to increase our future capital requirements. Our cash balances as of
March 28, 2003 will not be sufficient to fund our current business plan beyond a
few months. As a consequence, we are currently focusing on revenue enhancement
and cost cutting opportunities as well as working to sell non core assets and to
extend vendor payment terms. We continue to seek additional convertible debt or
equity financing as well as the placement of a credit facility to fund our
liquidity needs. There is no assurance that we will be able to obtain additional
capital on satisfactory terms or at all.

         In the event that we are unable to obtain additional capital or to
obtain it on acceptable terms or in sufficient amounts, we will be required to
delay the development of our network or take other actions. This could have a
material adverse effect on our business, operating results and financial
condition and our ability to achieve sufficient cash flow to service debt
requirements.

         Our ability to fund the capital expenditures and other costs
contemplated by our business plan and to make scheduled payments with respect to
bank borrowings will depend upon, among other things, our ability to seek and
obtain additional financing during 2003. Capital will be needed in order to
implement our business plan, deploy our network, expand our operations and
obtain and retain a significant number of customers in our target markets. Each
of these factors is, to a large extent, subject to economic, financial,
competitive, political, and regulatory and other factors, many of which are
beyond our control.

         There is no assurance that we will be successful in developing and
maintaining a level of cash flows from operations sufficient to permit payment
of our outstanding indebtedness. If we are unable to generate sufficient cash
flows from operations to service our indebtedness, we will be required to modify
our growth plans, limit our capital expenditures, restructure or refinance our
indebtedness or seek additional capital or liquidate our assets. There is no
assurance that (i) any of these strategies could be effectuated on satisfactory
terms, if at all, or on a timely basis or (ii) any of these strategies will
yield sufficient proceeds to service our debt or otherwise adequately fund
operations.

Critical Accounting Policies and Estimates

         The preparation of our financial statements in conformity with
accounting principles generally accepted in the United States of America
requires us to make estimates and assumptions that affect certain reported
amounts and disclosures. In applying our accounting principles, we must often
make individual estimates and assumptions regarding expected outcomes or
uncertainties. As you might expect, the actual results or outcomes are generally
different than the estimated or assumed amounts. These differences are usually
minor and are included in our consolidated financial statements as soon as they
are known. Our



                                       19
<PAGE>

estimates, judgments and assumptions are continually evaluated based on
available information and experience. Because of the use of estimates inherent
in the financial reporting process, actual results could differ from those
estimates.

         We periodically review the carrying value of our intangible assets when
events and circumstances warrant such a review. One of the methods used for this
review is performed using estimates of future cash flows. If the carrying value
of our intangible assets is considered impaired, an impairment charge is
recorded for the amount by which the carrying value of the intangible assets
exceeds its fair value. We believe that the estimates of future cash flows and
fair value are reasonable. Changes in estimates of such cash flows and fair
value, however, could affect the calculation and result in additional impairment
charges in future periods.

Certain Accounting Matters

         In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 requires entities to record the fair value
of a liability for an asset retirement obligation in the period in which it is
incurred and a corresponding increase in the carrying amount of the related
long-lived asset. Subsequently, the asset retirement cost should be allocated to
expense using a systematic and rational method. SFAS No. 143 is effective for
fiscal years beginning after June 15, 2002. We do not expect SFAS No. 143 to
have a material effect on our financial position or results of operations.

         In June 2002, FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issues No. 94-3 Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring). The Statement is
effective for exit or disposal activities initiated after December 31, 2002 with
early application encouraged. We estimate that the new standard will not have a
material effect on our financial statements.

         In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation-Transition and Disclosure-an amendment of SFAS No. 123
(SFAS 148). This statement amends Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation, to provide alternative methods
of transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation and amends the disclosure requirements of SFAS
No. 123 to require prominent disclosure in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. The transition and annual
disclosure provisions of SFAS 148 will be effective for us in the first quarter
of 2003. We estimate that the new standard will not have a material effect on
our financial statements but are still in the evaluation process.

         In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 requires certain
guarantees to be recorded at fair value, which is different from current
practice, which is generally to record a liability only when a loss is probable
and reasonably estimable. Fin 45 also requires a guarantor to make significant
new disclosures, even when the likelihood of making any payments under the
guarantee is remote. The disclosure provisions of FIN 45 were effective
immediately in 2002. We are required to adopt the recognition and measurement
provisions of FIN 45 on a prospective basis with respect to guarantees issued or
modified after December 31, 2002. We do not believe the adoption of the
recognition and measurement provisions of FIN 45 will have a material effect on
our consolidated financial statements.

         In January 2003, the FASB issued Interpretation No. 46, Consolidation
of Variable Interest Entities (FIN 46). Subject to certain criteria defined in
the Interpretation, FIN 46 will require consolidation by business enterprises of
variable interest entities if the enterprise has a variable interest that will
absorb the majority of the entity's expected residual losses on returns if they
occur, or both. The Interpretation will be effective for us in the third quarter
of 2003. Management has not yet determined the effect, if any, of FIN 46, on our
financial position or results of operations. Certain disclosures concerning
variable interest entities are required in financial statements initially issued
after January 31, 2003. We are evaluating the effect of FIN 46 on our financial
statements.

ITEM 7. FINANCIAL STATEMENTS

         Our financial statements, prepared in accordance with Regulation S-B,
are set forth in this Report beginning on page F-1.



                                       20
<PAGE>

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

         On January 30, 2003, we engaged BUXTON & CLOUD, P.C. as our new
independent accountants, commencing with the audit for the fiscal year ended
December 31, 2002, and thereby dismissed Grant Thornton LLP. The decision to
change independent accountants was approved by our Board of Directors.

The reports of Grant Thornton LLP on our financial statements for the past two
years ended December 31, 2001 and December 31, 2000 contained no adverse opinion
or disclaimer of opinion and were not qualified or modified as to audit scope or
accounting principle. The reports of Grant Thornton LLP on our financial
statements for the past two years ended December 31,2001 and December 31, 2000
did however contain explanatory paragraphs describing an uncertainty about our
ability to continue as a going concern.

In connection with the audits for the fiscal years ended December 31, 2001 and
December 31, 2000 and all interim periods preceding the dismissal, there have
been no disagreements with Grant Thornton LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Grant
Thornton LLP, would have caused them to make reference thereto in their report
on the financial statements for such years.

During the fiscal years ended December 31, 2001 and December 31, 2000 and all
subsequent interim periods and to January 30, 2003, the date of dismissal, there
have been no reportable events (as defined in Regulation S-B Item 304(a)(1)(v)).

During the fiscal years ended December 31, 2001 and December 31, 2000 and to
January 30, 2003, we did not consult with BUXTON & CLOUD, P.C. on any items
concerning the application of accounting principles to a specified transaction,
the type of audit opinion that might be rendered on our financial statements, or
the subject matter of a disagreement or reportable event with the former auditor
(as described in Regulation S-B Item 304(a)(2)).


                           PART III.

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

         The following information is furnished as of March 25, 2003 for each
person who serves on our Board of Directors or serves as one of our executive
officers. Our Board of Directors currently consists of two members, although we
intend to increase the size of the Board in the future. The directors serve
one-year terms until their successors are elected. Our executive officers are
elected annually by our Board. The executive officers serve terms of one year or
until their death, resignation or removal by our Board. There are no family
relationships between our directors and executive officers. In addition, there
was no arrangement or understanding between any executive officer and any other
person pursuant to which any person was selected as an executive officer.

<Table>
<Caption>
         Name                    Age                         Position
         ----                    ---                         --------
<S>                              <C>      <C>
Timothy J. Kilkenny               44      Chairman of the Board of Directors, President and CEO
Roger P. Baresel                  47      Director, Chief Financial Officer and Secretary
Jason C. Ayers                    28      Vice President of Operations
Patricia R. Shurley               46      Vice President of Finance
</Table>

         Timothy J. Kilkenny has served as our Chief Executive Officer,
President and Chairman of the Board of Directors since our inception in May
1995. Prior to that time, he spent 14 years in the financial planning business
as a manager for both MetLife and Prudential. Mr. Kilkenny is a graduate of
Central Bible College in Springfield, Missouri.

         Roger P. Baresel became one of our directors and our Chief Financial
Officer on November 9, 2000. Mr. Baresel is an accomplished senior executive and
consultant who has served at a variety of companies. While serving as President
and CFO of Advantage Marketing Systems, Inc., a publicly-held company engaged in
the multi-level marketing of healthcare and dietary supplements, from June 1995
to May 2000, annual sales increased from $2.5 million to in excess of $22.4
million and annual earnings increased from $80,000 to more than $l.2 million.
Also, during this period Advantage successfully completed two public offerings,
four major acquisitions and its stock moved from the over the counter bulletin
board to the American Stock Exchange. Mr. Baresel has the following degrees from
Central State University in Edmond, Oklahoma: BA Psychology, BS Accounting and
MBA Finance, in which he graduated Summa Cum Laude. Mr. Baresel is also a
certified public accountant.

         Jason C. Ayers has been our Vice President of Operations since December
8, 2000 and prior to that served as President of Animus, a privately-held web
hosting company. Mr. Ayers received a BS degree from Southern Nazarene
University in Bethany, Oklahoma in May 1996 with a triple major in Computer
Science, Math and Physics. Upon graduating, he was a co-founder of Animus. On
April 1, 1998, we acquired Animus and Mr. Ayers assumed the role of President of
our wholly owned subsidiary, renamed FullWeb.



                                       21
<PAGE>

         Patricia R. Shurley has been our Vice President of Finance since May
2001. Prior to that she served for three years as the Controller for Advantage
Marketing Systems, Inc., a publicly-held company engaged in the multi-level
marketing of healthcare and dietary supplements. And prior to that she was
self-employed and had an accounting practice. She graduated from the University
of Central Oklahoma in Edmond, Oklahoma with a BS degree in Accounting and is a
certified public accountant.

Key Employees

         Michael D Tomas, 30, has been Information Systems Manager since June
1999 and our employee since July 1996. Mr. Tomas currently is completing his
studies at the University of Oklahoma for a degree in Management Information
Systems. Mr. Tomas has formal training with Cisco, Win 3.1, Win95/98, and
Windows NT 4.0 as well as LAN/WAN setup, including experience with wireless
networking and is Lucent certified.

Audit Committee Financial Expert

         Because our board of directors only consists of two directors, each of
whom does not qualify as an independent director, our board performs the
functions of an audit committee. Our board of directors has determined that
Roger P. Baresel, our Chief Financial Officer qualifies as a "financial expert."
This determination was based upon Mr. Baresel's

o understanding of generally accepted accounting principles and financial
statements;

o ability to assess the general application of generally accepted accounting
principles in connection with the accounting for estimates, accruals and
reserves;

o experience preparing, auditing, analyzing or evaluating financial statements
that present the breadth and level of complexity of accounting issues that are
generally comparable to the breadth and complexity of issues that can reasonably
be expected to be raised by our financial statements, or experience actively
supervising one or more persons engaged in such activities;

o understanding of internal controls and procedures for financial reporting; and

o understanding of audit committee functions.

         Mr. Baresel's experience and qualification as a financial expert were
acquired through the active supervision of a principal financial officer,
principal accounting officer, controller, public accountant, auditor or person
performing similar functions and overseeing or assessing the performance of
companies or public accountants with respect to the preparation, auditing or
evaluation of financial statements.

         Mr. Baresel is not an independent director. We have been unable to
attract a person to serve as one of our directors and that would qualify both as
an independent director and as a financial expert because of inability to
compensate our directors and provide liability insurance protection. Compliance
with Section 16(a) of the Exchange Act, Beneficial Ownership Reporting
Requirements

         Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires our directors and executive officers and any persons who own more than
10% of a registered class of our equity securities to file with the Securities
and Exchange Commission ("SEC") and each exchange on which our securities are
listed, reports of ownership and subsequent changes in ownership of our common
stock and our other securities. Officers, directors and greater than 10%
stockholders are required by SEC regulation to furnish us with copies of all
Section 16(a) forms they file. Based solely on review of the copies of such
reports furnished to us or written representations that no other reports were
required, we believe that during 2002 all filing requirements applicable to our
officers, directors and greater than 10% beneficial owners were met, except for
the late filing of Form 4 for Jason C. Ayers and Patricia R. Shurley.

Code of Ethics

         On March 25, 2003, our board of directors adopted our code of ethics
that applies to all of our employees and directors, including our principal
executive officer, principal financial officer, principal accounting officer or
controller, and persons performing similar functions. A copy of the portion of
this code of ethics that applies to our principal executive officer, principal
financial officer, principal accounting officer or controller, and persons
performing similar functions may be obtained by written request addressed to Mr.
Roger P. Baresel, Corporate Secretary, Fullnet Communications, Inc., 201 Robert
S. Kerr, Suite 210, Oklahoma City, Oklahoma 73102.



                                       22
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

         The following table sets forth, for the last three fiscal years, the
cash compensation paid by us to our Chairman and Chief Executive Officer (the
"Named Executive Officer"). None of our executive officers earned annual
compensation in excess of $100,000 during fiscal 2002.

<Table>
<Caption>
                                                                             Long-Term
                                                 Annual Compensation        Compensation
                                            -----------------------------   ------------
                                                                              Securities
                                                                              Underlying
                                                                             Options and
                              Fiscal                            Other          Warrants
Name and Principal Position    Year           Salary         Compensation       (#)(1)
---------------------------   ------        ----------       ------------    -----------
<S>                           <C>           <C>              <C>             <C>
Timothy J. Kilkenny            2002         $75,000(2)        $ 12,614(3)       80,000
Chairman, President and CEO    2001          75,000(2)           7,748(4)      132,000
                               2000          75,000(2)          12,480(5)      100,000
</Table>

(1)      Options are granted with an exercise price equal to the fair market
         value of our common stock on the date of the grant.

(2)      Includes $25,000 of deferred compensation.

(3)      Represents $6,331 of expense reimbursement for business use of Mr.
         Kilkenny's automobile and $6,283 of insurance premiums paid by us for
         the benefit of Mr. Kilkenny. We also provide use of an automobile to
         Mr. Kilkenny, the value of which is not greater than $5,000 annually.

(4)      Represents $360 of expense reimbursement for business use of Mr.
         Kilkenny's automobile and $7,388 of insurance premiums paid by us for
         the benefit of Mr. Kilkenny. We also provide use of an automobile to
         Mr. Kilkenny, the value of which is not greater than $5,000 annually.

(5)      Represents $1,200 of expense reimbursement for business use of Mr.
         Kilkenny's automobile and $11,280 of insurance premiums paid by us for
         the benefit of Mr. Kilkenny. We also provide use of an automobile to
         Mr. Kilkenny, the value of which is not greater than $5,000 annually.

Stock Options Granted

         We do not have a written stock option plan. However, the Board of
Directors granted to our employees stock options exercisable for the purchase of
488,830 shares of our common stock during 2002. The following table shows stock
options granted to Mr. Kilkenny during 2002.


<Table>
<Caption>
                                                                    Individual Grants
                                     -----------------------------------------------------------------------------
                                        Number of              % of Total
                                       Securities            Options Granted          Exercise or
                                       Underlying            To Employees in          Base price        Expiration
Name                                 Options Granted           Fiscal Year              ($/sh)             Date
----                                 ---------------         ---------------          -----------       ----------
<S>                                  <C>                     <C>                      <C>               <C>
Timothy J. Kilkenny                     80,000(1)               16.4%(2)                 $.05            03/18/12
Chairman, President and CEO
</Table>

(1)      Options were granted pursuant to an individual stock option agreement.
         These options are subject to a three year vesting schedule, subject to
         certain exceptions, with one-third became or will become exercisable on
         March 18 of each of 2002, 2003 and 2004. The options expire on March
         18, 2012 and have an exercise price of $.05 per share, which was the
         fair value per share price of our common stock on the grant date.

(2)      All options granted during 2002 are nonqualified stock options. During
         2002, an aggregate of 488,830 options were granted outside of a formal
         plan to employees. Options granted generally become exercisable in part
         after one year from the date of grant and generally have a term of ten
         years following the date of grant, unless sooner terminated in
         accordance with the terms of the stock option agreement.

2002 Year End Option Values

         The following table sets forth information related to the exercise of
stock options during 2002 and the number and value of options held by the
following Named Executive Officer at December 31, 2002. During 2002, the Named
Executive Officer did not exercise any options, nor did we reprice any
outstanding options. For the purposes of this table, the "value" of an option is
the difference between the estimated fair market value at December 31, 2002 of
the shares of common stock subject to the option and the aggregate exercise
price of such option.



                                       23
<PAGE>

<Table>
<Caption>
                                            Number of Unexercised                 Value of Unexercised In-the-
                                                  Options at                            Money Options at
                                              December 31, 2002                       December 31, 2002(1)
                                      ---------------------------------        ---------------------------------

              Name                    Exercisable         Unexercisable        Exercisable         Unexercisable
              ----                    -----------         -------------        -----------         -------------
<S>                                   <C>                 <C>                  <C>                 <C>
Timothy J. Kilkenny                     180,667              81,333                $ --                $ --
Chairman, President and CEO
</Table>

(1)      Based on the December 31, 2002 estimated fair value of our common stock
         of $.05 per share.

Director Compensation

         During the fiscal year ended December 31, 2002, our directors did not
receive any compensation for serving in such capacities.

Employment Agreements and Lack of Keyman Insurance

         On July 31, 2002, we entered into employment agreements with Timothy J.
Kilkenny and Roger P. Baresel. Each agreement is effective January 1, 2002, and
has a term of two years; however, the term is automatically extended for
additional one-year terms, unless we or the employee gives six-month advance
notice of termination. These agreements provide, among other things, (i) an
annual base salary of at least $75,000 for Mr. Kilkenny (of which he has
voluntarily agreed to defer $25,000) and $65,000 for Mr. Baresel (of which he
has voluntarily agreed to defer $15,000), (ii) bonuses at the discretion of the
Board of Directors, (iii) entitlement to fringe benefits including medical and
insurance benefits as may be provided to our other senior officers; and (iv)
eligibility to participate in our incentive, bonus, benefit or similar plans.
These agreements require the employee to devote the required time and attention
to our business and affairs necessary to carry out his responsibilities and
duties. These agreements may be terminated under certain circumstances and upon
termination provide for (i) the employee to be released from personal liability
for our debts and obligations, and (ii) the payment of any amounts we owe the
employee.

         We do not maintain any keyman insurance covering the death or
disability of our executive officers.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership

         The following table sets forth information as of March 25, 2003,
concerning the beneficial ownership of our Common Stock by each person (other
than our directors and executive officers) who is known by us to own more than
5% of the outstanding shares of our Common Stock. The information is based on
Schedules 13D or 13G filed by the applicable beneficial owner with the
Securities and Exchange Commission or other information provided to us by the
beneficial owner or our stock transfer agent.

<Table>
<Caption>
                                                                Common Stock
                                                       ------------------------------
                                                       Number of           Percent of
Beneficial Owner(1)                                     Shares             Class(1)
---------------------                                  ---------           ----------
<S>                                                    <C>                 <C>
Generation Capital Associates(2)                        695,007                9.9%
Rupinder Sidu(3)                                        628,685                9.1%
Alexander M. Eaton Trust(4)                             610,851                9.1%
Peter Rettman(5)                                        490,296                7.1%
Laura L. Kilkenny(6)                                    465,000                7.0%
</Table>

(1)      Percent of class for any stockholder listed is calculated without
         regard to shares of common stock issuable to others upon exercise of
         outstanding stock options. Any shares a stockholder is deemed to own by
         having the right to acquire by exercise of an option or warrant are
         considered to be outstanding solely for the purpose of calculating that
         stockholder's ownership percentage. We computed the percentage
         ownership amounts in accordance with the provisions of Rule 13d-3(d),
         which includes as beneficially owned all shares of common stock which
         the person or group has the right to acquire within the next 60 days,
         based upon 6,663,135 outstanding shares of common stock as of March 25,
         2003.

(2)      Generation Capital Associates' address is 333 Sandy Springs Circle,
         Suite 230 Atlanta, GA 30328. Generation Capital Associates holds
         267,608 shares of our common stock. The number of shares includes
         427,399 shares of our common stock that are subject to currently
         exercisable common stock purchase warrants. Amounts shown do not
         include 162,601 shares of our common stock that are subject to common
         stock purchase warrants that are not currently exercisable because they
         contain a provision prohibiting their exercise to the extent that they
         would increase Generation Capital Associates' percentage ownership
         beyond 9.9% of our outstanding shares of common stock.



                                       24
<PAGE>

(3)      Rupinder Sidu's address is 10229 Tavistock Road, Orlando, FL 32827. Mr.
         Sidu holds 344,018 shares of our common stock. The number of shares
         includes 284,667 shares of our common stock that are subject to
         currently exercisable common stock purchase warrants.

(4)      The Alexander M. Eaton Trust's address is 4102 Evans Avenue, Fort
         Meyers, FL 33901. The Trust holds 503,018 shares of our common stock.
         The number of shares includes 107,833 shares of our common stock that
         are subject to currently exercisable common stock purchase warrants.

(5)      Peter Rettman's address is 1001 Fourth Avenue, Seattle, WA 98154. Mr.
         Rettman holds 163,078 shares of our common stock. The number of shares
         includes 206,250 shares of our common stock that are subject to
         currently exercisable common stock purchase warrants and 120,968 shares
         of our common stock that are subject to a currently convertible
         promissory note.

(6)      Laura L. Kilkenny's address is 12720 Southwest 58th Street, Mustang, OK
         73064. Ms. Kilkenny is the ex-wife of Timothy J. Kilkenny, our Chairman
         of the Board and Chief Executive Officer. Ms. Kilkenny holds 415,000
         shares of our common stock. The number of shares includes 50,000 shares
         of our common stock that are subject to currently exercisable common
         stock purchase options.

         The following table sets forth information as of March 25, 2003,
concerning the beneficial ownership of our Common Stock by each of our
directors, each executive officer named in the table under the heading "Item 9.
Directors and Executive Officers, Promoters and Control Persons" and all of our
directors and executive officers as a group. There are no family relationships
amongst our executive officers and directors. Unless otherwise indicated, the
beneficial owner has sole voting and investment power with respect to such
stock.

<Table>
<Caption>
                                                 Common Stock
                                              Beneficially Owned
                                            -----------------------
                                             Number of   Percent of
Beneficial Owner(1)                           Shares      Class(1)
-------------------                         ----------   ----------
<S>                                         <C>               <C>
Timothy J. Kilkenny*(2)(3)                   1,195,667         17.5%
Roger P. Baresel*(2)(4)                        281,184          4.2%
Jason C. Ayers(2)(5)                           112,529          1.7%
Patricia R. Shurley(2)(6)                       93,834          1.4%
                                            ----------   ----------
All executive officers and directors as a
group (6 persons)                            1,683,214         23.4%
</Table>

*        Director

(1)      Percent of class for any stockholder listed is calculated without
         regard to shares of common stock issuable to others upon exercise of
         outstanding stock options. Any shares a stockholder is deemed to own by
         having the right to acquire by exercise of an option or warrant are
         considered to be outstanding solely for the purpose of calculating that
         stockholder's ownership percentage. We computed the percentage
         ownership amounts in accordance with the provisions of Rule 13d-3(d),
         which includes as beneficially owned all shares of common stock which
         the person or group has the right to acquire within the next 60 days,
         based upon 6,663,135 shares being outstanding at March 25, 2003.

(2)      Address is c/o 201 Robert S. Kerr Avenue, Suite 210, Oklahoma City,
         Oklahoma 73102.

(3)      Timothy J. Kilkenny holds 1,015,000 shares of our common stock. The
         number of shares includes 180,667 shares of our common stock that are
         subject to currently exercisable stock options held by Mr. Kilkenny.
         Amounts shown do not include options, held by Mr. Kilkenny, to purchase
         33,334 shares of our common stock exercisable at $1.00 per share
         beginning December 8, 2003, 21,333 shares of our common stock
         exercisable at $.11 per share beginning November 16, 2003, and 26,666
         shares of our common stock exercisable at $.05 per share beginning
         March 18, 2004.

(4)      Roger P. Baresel and Judith A. Baresel, husband and wife, each hold
         34,408 and 42,659 shares of our common stock, respectively. They hold
         31,250 shares of our common stock as joint tenants. The number of
         shares includes 107,915 shares of our common stock subject to currently
         exercisable stock options held by Mr. Baresel, 52,452 shares of our
         common stock subject to currently exercisable stock options held by
         Mrs. Baresel, and 12,500 currently exercisable common stock purchase
         warrants held jointly. Amounts shown do not include options, held by
         Mr. Baresel, to purchase 15,830 shares of our common stock exercisable
         at $.11 per share beginning November 16, 2003, and options held by Mrs.
         Baresel, to purchase 40,000 shares of our common stock exercisable at
         $.05 per share beginning June 3, 2003.

(5)      Jason C. Ayers holds 25,865 shares of our common stock. The number of
         shares includes 86,664 shares of our common stock that are subject to
         currently exercisable common stock options held by Mr. Ayers. Amounts
         shown do not include options, held by Mr. Ayers, to purchase 9,000
         shares exercisable at $.08 per share beginning June 4, 2003, 5,000
         shares of our common stock exercisable at $.11 per share beginning
         November 16, 2003, 15,000 shares exercisable at $1.00 per share
         beginning December 8, 2003 and 6,666 shares exercisable at $.05 per
         share beginning March 18, 2004.

(6)      The number of shares includes 93,834 shares of our common stock that
         are subject to currently exercisable common stock purchase options held
         by Ms. Shurley. Amounts shown do not include options to purchase 5,000
         shares of our common stock exercisable at $.11 per share beginning
         November 16, 2003, 6,666 shares exercisable at $.05 per share beginning
         March 18, 2004 and 25,000 shares exercisable at $1.00 per share
         beginning May 16, 2004.



                                       25
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         On August 2, 2000, we obtained a short-term loan of $100,000 from
Timothy J. Kilkenny, our Chairman of the Board and Chief Executive Officer,
through the issuance of a 14% promissory note. The terms of the financing
additionally provided for the issuance of five-year warrants to purchase 50,000
shares of our common stock at $.01 per share, and provided for certain
registration rights. The promissory note required monthly interest payments,
matured on the earlier of (i) the date which is within five days of receipt of
funds by us of any offering raising gross proceeds to us of at least $1,000,000
or (ii) in three months, and was extendible for two 90-day periods upon issuance
of additional warrants exercisable for the purchase of 50,000 shares of our
common stock for $.01 per share for each extension. In the fourth quarter of
2000, our founder and CEO agreed to reduce the interest rate on the promissory
note to 9% and waive the warrant provisions relating to extensions of the loan.
We repaid $50,000 on this note and the note was due in May 2001. In May 2001 Mr.
Kilkenny agreed to a replacement note with an interest rate of 8.5% with monthly
principal and interest payments and the note will become due in May 2006.

         In connection with his employment, during March 2002, we granted stock
options exercisable for the purchase of 80,000 shares of our common stock to
Timothy J. Kilkenny, our Chairman of the Board and Chief Executive Officer,
which were one-third vested and exercisable immediately and will vest and become
exercisable one-third on each annual anniversary of the issue. The options have
an exercise price of $.05 per share and expire during March 2012.

         In April 2001, Timothy J. Kilkenny, our Chairman of the Board and Chief
Executive Officer, exercised warrants for the purchase of 50,000 shares of our
common stock for an aggregate purchase price of $500.

         In connection with his employment, during July 2001, we granted stock
options exercisable for the purchase of 100,000 shares of our common stock to
Timothy J. Kilkenny, our Chairman of the Board and Chief Executive Officer,
which were fully vested and exercisable. The options have an exercise price of
$.70 per share and expire during July 2011.

         In connection with his employment, during November 2001, we granted
stock options exercisable for the purchase of 32,000 shares of our common stock
to Timothy J. Kilkenny, our Chairman of the Board and Chief Executive Officer,
which will vest and become exercisable one-third on each annual anniversary of
the issue. The options have an exercise price of $.11 per share and expire
during November 2011.

         In connection with the employment of Roger P. Baresel, during March
2002, we granted stock options exercisable for the purchase of 60,000 shares of
our common stock to Mr. Baresel that were one-third vested and exercisable
immediately and will vest and become exercisable one-third on each annual
anniversary of the issue. These options have an exercise price of $.05 per share
and expire during March 2012.

         During April 2001, Roger P. Baresel and his wife purchased $25,000 of
the 11% convertible promissory notes and related warrants sold in our private
placement. In addition, Mr. Baresel exercised 56,250 stock purchase warrants for
the purchase of 56,250 shares of common stock at an aggregate exercise price of
$563.

         During May 2001, Roger P. Baresel exchanged convertible notes in the
principal amount of $50,000 plus interest for 57,617 shares of common stock and
12,500 warrants (exercisable for the purchase of 12,500 shares of common stock
at $2.00 per share). These warrants expire May 31, 2006.

         During August 2001, Roger P. Baresel purchased 5,000 shares of our
common stock at $.55 per share.

         In connection with the employment of Roger P. Baresel, during October
2001, we granted stock options for exercisable for the purchase of 137,452
shares of our common stock to Mr. Baresel that will vest and become exercisable
on a quarterly basis over a one-year period. These options have an exercise
price of $.50 per share and expire during October 2011.

         In connection with the employment of Roger P. Baresel, during November
2001, we granted stock options exercisable for the purchase of 23,745 shares of
our common stock to Mr. Baresel that will vest and become exercisable one-third
on each annual anniversary of the issue. The options have an exercise price of
$.11 per share and expire during November 2011.

         In March 2001, the former shareholders of Harvest exchanged a note and
the accrued interest thereon approximating $188,000 for a three-year convertible
promissory note bearing interest at 11% and a five-year warrant exercisable for
the purchase of 46,963 shares of our common stock for $.01 per share (the same
instrument we offered in our private placement on September 29,2000).

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) The following exhibits are filed as part of this Report:



                                       26
<PAGE>


<Table>
<Caption>
  Exhibit
  Number                                     Exhibit
  -------                                    -------
<S>          <C>                                                                       <C>

    3.1       Certificate of Incorporation, as amended (filed as Exhibit 2.1 to
              Registrant's Registration Statement on Form 10-SB, file number
              000-27031 and incorporated herein
              by reference).                                                            #

    3.2       Bylaws (filed as Exhibit 2.2 to Registrant's Registration
              Statement on Form 10-SB, file number 000-27031 and incorporated
              herein by reference).                                                     #

    4.1       Specimen Certificate of Registrant's Common Stock (filed as
              Exhibit 4.1 to the Company's Form 10-KSB for the fiscal year ended
              December 31, 1999, and incorporated herein by reference).                 #

    4.2       Certificate of Correction to the Amended Certificate of
              Incorporation and the Ninth Section of the Certificate of
              Incorporation (filed as Exhibit 2.1 to Registrant's Registration
              Statement on form 10-SB, file number 000-27031 and incorporated by
              reference).                                                               #

    4.3       Certificate of Correction to Articles II and V of Registrant's
              Bylaws (filed as Exhibit 2.1 to Registrant's Registration
              Statement on Form 10-SB, file number 000-27031 and incorporated
              herein by reference).                                                     #

    4.4       Form of Warrant Agreement for Interim Financing in the amount of
              $505,000 (filed as Exhibit 4.1 to Registrant's Quarterly Report on
              Form 10-QSB for the Quarter ended March 31, 2000 and incorporated
              herein by reference).                                                     #

    4.5       Form of Warrant Certificate for Florida Investors for Interim
              Financing in the amount of $505,000 (filed as Exhibit 4.2 to
              Registrant's Quarterly Report on Form 10-QSB for the Quarter ended
              March 31, 2000 and incorporated herein by reference).                     #

    4.6       Form of Promissory Note for Florida Investors for Interim
              Financing in the amount of $505,000 (filed as Exhibit 4.3 to
              Registrant's Quarterly Report on Form 10-QSB for the Quarter ended
              March 31, 2000 and incorporated herein by reference).                     #

    4.7       Form of Warrant Certificate for Georgia Investors for Interim
              Financing in the amount of $505,000 (filed as Exhibit 4.4 to
              Registrant's Quarterly Report on Form 10-QSB for the Quarter ended
              March 31, 2000 and incorporated herein by reference).                     #

    4.8       Form of Promissory Note for Georgia Investors for Interim
              Financing in the amount of $505,000 (filed as Exhibit 4.5 to
              Registrant's Quarterly Report on Form 10-QSB for the Quarter ended
              March 31, 2000 and incorporated herein by reference).                     #

    4.9       Form of Warrant Certificate for Illinois Investors for Interim
              Financing in the amount of $505,000 (filed as Exhibit 4.6 to
              Registrant's Quarterly Report on Form 10-QSB for the Quarter ended
              March 31, 2000 and incorporated herein by reference).                     #

    4.10      Form of Promissory Note for Illinois Investors for Interim
              Financing in the amount of $505,000 (filed as Exhibit 4.7 to
              Registrant's Quarterly Report on Form 10-QSB for the Quarter ended
              March 31, 2000 and incorporated herein by reference).                     #

    4.11      Form of Warrant Agreement for Interim Financing in the amount of
              $500,000 (filed as Exhibit 4.8 to Registrant's Quarterly Report on
              Form 10-QSB for the Quarter ended March 31, 2000 and incorporated
              herein by reference).                                                     #

    4.12      Form of Warrant Certificate for Interim Financing in the amount of
              $500,000 (filed as Exhibit 4.9 to Registrant's Quarterly Report on
              Form 10-QSB for the Quarter ended March 31, 2000 and incorporated
              herein by reference).                                                     #

    4.13      Form of Promissory Note for Interim Financing in the amount of
              $500,000 (filed as Exhibit 4.10 to Registrant's Quarterly Report
              on Form 10-QSB for the Quarter ended March 31, 2000 and
              incorporated herein by reference).                                        #
</Table>



                                       27
<PAGE>


<Table>
<S>          <C>                                                                      <C>
    4.14      Form of Convertible Promissory Note for September 29, 2000,
              private placement (filed as Exhibit 4.13 to Registrant's Form
              10-KSB for the fiscal year ended December 31, 2000 and
              incorporated herein by reference).                                       #

    4.15      Form of Warrant Agreement for September 29, 2000, private
              placement (filed as Exhibit 4.13 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000 and incorporated herein by
              reference).                                                              #

    4.16      Form of 2001 Exchange Warrant Agreement (filed as Exhibit 4.16 to
              Registrant's Form 10-QSB for the quarter ended June 30, 2001 and
              incorporated herein by reference)                                        #

    4.17      Form of 2001 Exchange Warrant Certificate (filed as Exhibit 4.17
              to Registrant's Form 10-QSB for the quarter ended June 30, 2001
              and incorporated herein by reference)                                    #

    10.1      Financial Advisory Services Agreement between the Company and
              National Securities Corporation, dated September 17, 1999 (filed
              as Exhibit 10.1 to Registrant's Form 10-KSB for the fiscal year
              ended December 31, 1999, and incorporated herein by reference).          #

    10.2      Lease Agreement between the Company and BOK Plaza Associates, LLC,
              dated December 2, 1999 (filed as Exhibit 10.2 to Registrant's Form
              10-KSB for the fiscal year ended December 31, 1999, and
              incorporated herein by reference).                                       #

    10.3      Interconnection agreement between Registrant and Southwestern Bell
              dated March 19, 1999 (filed as Exhibit 6.1 to Registrant's
              Registration Statement on Form 10-SB, file number 000-27031 and
              incorporated herein by reference).                                       #

    10.4      Stock Purchase Agreement between the Company and Animus
              Communications, Inc. (filed as Exhibit 6.2 to Registrant's
              Registration Statement on Form 10-SB, file number 000-27031 and
              incorporated herein by reference).                                       #

    10.5      Registrar Accreditation Agreement effective February 8, 2000, by
              and between Internet Corporation for Assigned Names and Numbers
              and FullWeb, Inc. d/b/a FullNic f/k/a Animus Communications, Inc.
              (filed as Exhibit 10.1 to Registrant's Quarterly Report on Form
              10-QSB for the Quarter ended March 31, 2000 and incorporated
              herein by reference).                                                    #

    10.6      Master License Agreement For KMC Telecom V, Inc., dated June 20,
              2000, by and between FullNet Communications, Inc. and KMC Telecom
              V, Inc. (filed as Exhibit 10.1 to the Registrant's Quarterly
              Report on Form 10-QSB for the Quarter ended June 30, 2000 and
              incorporated herein by reference).                                       #

    10.7      Domain Registrar Project Completion Agreement, dated May 10, 2000,
              by and between FullNet Communications, Inc., FullWeb, Inc. d/b/a
              FullNic and Think Capital (filed as Exhibit 10.2 to Registrant's
              Quarterly Report on Form 10-QSB for the Quarter ended June 30,
              2000 and incorporated herein by reference).                              #

    10.8      Amendment to Financial Advisory Services Agreement between
              Registrant and National Securities Corporation, dated April 21,
              2000 (filed as Exhibit 10.3 to Registrant's Quarterly Report on
              Form 10-QSB for the Quarter ended June 30, 2000 and incorporated
              herein by reference).                                                    #

    10.9      Asset Purchase Agreement dated June 2, 2000, by and between
              FullNet of Nowata and FullNet Communications, Inc. (filed as
              Exhibit 99.1 to Registrant's Form 8-K filed on June 20, 2000 and
              incorporated herein by reference).                                       #

    10.10     Asset Purchase Agreement dated February 4, 2000, by and between
              FullNet of Bartlesville and FullNet Communications, Inc. (filed as
              Exhibit 2.1 to Registrant's Form 8-K filed on February 18, 2000
              and incorporated herein by reference).                                   #

    10.11     Agreement and Plan of Merger Among FullNet Communications, Inc.,
              FullNet, Inc. and Harvest Communications, Inc. dated February 29,
              2000 (filed as Exhibit 2.1 to Registrant's Form 8-K filed on March
              10, 2000 and incorporated herein by reference).                          #

    10.12     Asset Purchase Agreement dated January 25, 2000, by and between
              FullNet of Tahlequah, and FullNet Communications, Inc. (filed as
              Exhibit 2.1 to Registrant's Form 8-K filed on February 9, 2000 and
              incorporated herein by reference).                                       #
</Table>



                                       28
<PAGE>


<Table>
<S>          <C>                                                                      <C>
    10.13     Promissory Note dated August 2, 2000, issued to Timothy J.
              Kilkenny (filed as Exhibit 10.13 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000).                                #

    10.14     Warrant Agreement dated August 2, 2000, issued to Timothy J.
              Kilkenny (filed as Exhibit 10.14 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000).                                #

    10.15     Warrant Certificate dated August 2, 2000 issued to Timothy J.
              Kilkenny (filed as Exhibit 10.15 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000).                                #

    10.16     Stock Option Agreement dated December 8, 2000, issued to Timothy
              J. Kilkenny (filed as Exhibit 10.16 to Registrant's Form 10-KSB
              for the fiscal year ended December 31, 2000).                            #

    10.17     Warrant Agreement dated November 9, 2000, issued to Roger P.
              Baresel (filed as Exhibit 10.17 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000).                                #

    10.18     Warrant Agreement dated December 29, 2000, issued to Roger P.
              Baresel (filed as Exhibit 10.18 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000).                                #

    10.19     Stock Option Agreement dated February 29, 2000, issued to Wallace
              L Walcher (filed as Exhibit 10.19 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000).                                #

    10.20     Stock Option Agreement dated February 17, 1999, issued to Timothy
              J. Kilkenny (filed as Exhibit 3.1 to Registrant's Registration
              Statement on Form 10-SB, file number 000-27031 and incorporated
              herein by reference).                                                    #

    10.21     Stock Option Agreement dated October 19, 1999, issued to Wesdon C.
              Peacock (filed as Exhibit 10.21 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000).                                #

    10.22     Stock Option Agreement dated April 14, 2000, issued to Jason C.
              Ayers (filed as Exhibit 10.22 to Registrant's Form 10-KSB for the
              fiscal year ended December 31, 2000).                                    #

    10.23     Stock Option Agreement dated May 1, 2000, issued to B. Don Turner
              (filed as Exhibit 10.23 to Registrant's Form 10-KSB for the fiscal
              year ended December 31, 2000).                                           #

    10.24     Form of Stock Option Agreement dated December 8, 2000, issued to
              Jason C. Ayers, Wesdon C. Peacock, B. Don Turner and Wallace L.
              Walcher (filed as Exhibit 10.24 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000).                                #

    10.25     Warrant Certificate Dated November 9, 2000, issued to Roger P.
              Baresel (filed as Exhibit 10.25 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000).                                #

    10.26     Warrant Certificate Dated November 9, 2000, issued to Roger P.
              Baresel (filed as Exhibit 10.26 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000).                                #

    10.27     Warrant Certificate Dated December 29, 2000, issued to Roger P.
              Baresel (filed as Exhibit 10.27 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000).                                #

    10.28     Stock Option Agreement dated October 13, 2000, issued to Roger P.
              Baresel (filed as Exhibit 10.28 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000).                                #

    10.29     Stock Option Agreement dated October 12, 1999, issued to Travis
              Lane (filed as Exhibit 10.29 to Registrant's Form 10-KSB for the
              fiscal year ended December 31, 2000).                                    #

    10.30     Promissory Note dated January 5, 2001, issued to Generation
              Capital Associates (filed as Exhibit 10.30 to Registrant's Form
              10-KSB for the fiscal year ended December 31, 2000).                     #

    10.31     Placement Agency Agreement dated November 8, 2000 between FullNet
              Communications, Inc. and National Securities Corporation (filed as
              Exhibit 10.31 to Registrant's Form 10-KSB for the fiscal year
              ended December 31, 2000).                                                #

    10.32     Promissory Note dated January 25, 2000, issued to Fullnet of
              Tahlequah, Inc.                                                          #
</Table>



                                       29
<PAGE>


<Table>
<S>          <C>                                                                      <C>
    10.33     Promissory Note dated February 7, 2000, issued to David Looper           #

    10.34     Promissory Note dated February 29, 2000, issued to Wallace L.
              Walcher                                                                  #

    10.35     Promissory Note dated June 2, 2000, issued to Lary Smith                 #

    10.36     Promissory Note dated June 15, 2001, issued to higganbotham.com
              L.L.C.                                                                   #

    10.37     Promissory Note dated November 19, 2001, issued to Northeast Rural
              Services                                                                 #

    10.38     Promissory Note dated November 19, 2001, issued to Northeast Rural
              Services                                                                 #

    10.39     Form of Convertible Promissory Note dated September 6, 2002              #

    10.40     Employment Agreement with Timothy J. Kilkenny dated July 31, 2002        *

    10.41     Employment Agreement with Roger P. Baresel dated July 31, 2002           *

    10.42     Letter from Grant Thornton LLP to the Securities and Exchange
              Commission dated January 30, 2003                                        #

    22.1      Subsidiaries of the Registrant                                           #

    99.1      Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
              Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by
              Timothy J. Kilkenny                                                      *

    99.2      Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
              Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Roger
              P. Baresel                                                               *
</Table>

----------

         #  Incorporated by reference.

         *  Filed herewith.

(b) Reports on Form 8-K

         Form 8-K dated January 30, 2003 reporting change in certifying
         accountant to Buxton & Cloud, P.C. commencing with the audit for the
         fiscal year ended December 31, 2002.

ITEM 14. CONTROLS AND PROCEDURES

         Our Chief Executive Officer and Chief Financial Officer are responsible
for establishing and maintaining disclosure controls and procedures and have
designed these controls and procedures to ensure that material information,
financial or otherwise, relating to us and our consolidated subsidiaries are
made known to them in their capacity as executive officers, particularly during
the period that this Report was prepared. These executive officers have
evaluated the effectiveness of our disclosure controls and procedures within the
preceding 90 days of this Report, having concluded that our disclosure controls
and procedures were fully effective as of the date of this report and have
reported this conclusion to our auditors and board of directors. There have been
significant changes in internal controls and in other factors that could
significantly affect our internal controls subsequent to the date of their
evaluation.



                                       30
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of the Exchange Act, the Registrant caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                   REGISTRANT:
                          FULLNET COMMUNICATIONS, INC.


Date: March 28, 2003    By: /s/ TIMOTHY J. KILKENNY
                            -----------------------

                            Timothy J. Kilkenny
                            President and Chief Executive Officer



Date: March 28, 2003    By: /s/ ROGER P. BARESEL
                            --------------------

                            Roger P. Baresel
                            Chief Financial and Accounting Officer

         Pursuant to the requirements of the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.



Date: March 28, 2003    By: /s/ TIMOTHY J. KILKENNY
                            -----------------------

                            Timothy J. Kilkenny,
                            Chairman of the Board and Director



Date: March 28, 2003    By: /s/ ROGER P. BARESEL
                            --------------------

                            Roger P. Baresel, Director



                                       31
<PAGE>

                                 CERTIFICATIONS


I, Timothy J. Kilkenny, President and Chief Executive Officer, certify that:

1. I have reviewed this annual report on Form 10-KSB of FullNet Communications,
Inc. (the "registrant");

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 year covered by this annual
report;

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 years 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 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 year 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
functions):

         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.


                                       FULLNET COMMUNICATIONS, INC.


     Date: March 28, 2003              By: /s/ TIMOTHY J. KILKENNY
                                           -----------------------
                                           Timothy J. Kilkenny
                                           President and Chief Executive Officer



                                       32
<PAGE>

I, Roger P. Baresel, Chief Financial and Accounting Officer, certify that:

1. I have reviewed this annual report on Form 10-KSB of FullNet Communications,
Inc. (the "registrant");

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 year covered by this annual
report;

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 years 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 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 year 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
functions):

         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.


                                      FULLNET COMMUNICATIONS, INC.


     Date: March 28, 2003             By: /s/ ROGER P. BARESEL
                                          --------------------
                                          Roger P. Baresel
                                          Chief Financial and Accounting Officer



                                       33
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
FullNet Communications, Inc.

We have audited the accompanying consolidated balance sheet of FullNet
Communications, Inc. (an Oklahoma corporation) and Subsidiaries, as of December
31, 2002 and the related consolidated statements of operations, stockholders'
(deficit) equity, and cash flows for the year 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 audit.

We conducted our audit 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 audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above presents
fairly, in all material respects, the financial position of FullNet
Communications, Inc. and Subsidiaries, as of December 31, 2002 and the results
of their operations and their cash flows for the year then ended in conformity
with accounting principles generally accepted in the United States of America.

The accompanying 2002 financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $822,980 for the year ended December 31, 2002
and, as of that date, the Company's current liabilities exceeded its current
assets by $1,929,308. These factors, among others, as discussed in Note A to the
financial statements, raise substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note A. The 2002 financial statements do not include any
adjustments that might result from the outcome of this uncertainty.






BUXTON & CLOUD, P.C.

Oklahoma City, Oklahoma
March 14, 2003



                                      F-1
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
FullNet Communications, Inc.

We have audited the accompanying consolidated balance sheet of FullNet
Communications, Inc. (an Oklahoma corporation) and Subsidiaries, as of December
31, 2001, and the related consolidated statements of operations, stockholders'
(deficit) equity, and cash flows for the year 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 audit.

We conducted our audit 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 audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FullNet
Communications, Inc. and Subsidiaries, as of December 31, 2001, and the results
of their operations and their cash flows for the year then ended in conformity
with accounting principles generally accepted in the United States of America.

The accompanying 2001 financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $3,324,830 for the year ended December 31,
2001 and, as of that date, the Company's current liabilities exceeded its
current assets by $1,521,090. These factors, among others, as discussed in Note
A to the financial statements, raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note A. The 2001 financial statements do not
include any adjustments that might result from the outcome of this uncertainty.






GRANT THORNTON LLP

Oklahoma City, Oklahoma
February 9, 2002



                                      F-2
<PAGE>

                  FULLNET COMMUNICATIONS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                  December 31,

<Table>
<Caption>
                                  ASSETS                                              2002            2001
                                                                                  ------------    ------------
<S>                                                                               <C>             <C>
CURRENT ASSETS
     Cash                                                                         $     26,955    $     56,575
     Accounts receivable, net                                                          122,569         189,369
     Prepaid expenses and other current assets                                          36,137          90,286
                                                                                  ------------    ------------

                    Total current assets                                               185,661         336,230

PROPERTY AND EQUIPMENT, net                                                            978,249       1,152,565

INTANGIBLE ASSETS, net                                                                 506,273         954,852

OTHER ASSETS                                                                            28,323          42,875
                                                                                  ------------    ------------

TOTAL                                                                             $  1,698,506    $  2,486,522
                                                                                  ============    ============

  LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
     Accounts payable - trade                                                     $    413,037    $    518,306
     Accrued and other current liabilities                                             382,677         265,613
     Notes payable, current portion                                                    865,057         549,219
     Capital lease obligations, current portion                                         52,646          55,537
     Deferred revenue                                                                  401,552         468,645
                                                                                  ------------    ------------

                    Total current liabilities                                        2,114,969       1,857,320

NOTES PAYABLE, less current portion                                                    435,386         866,366

CAPITAL LEASE OBLIGATIONS, less current portion                                         47,949          30,693

OTHER                                                                                  142,808         126,786

STOCKHOLDERS' DEFICIT
     Commonstock - $.00001 par value; authorized, 10,000,000 shares; issued and
           outstanding, 6,592,878 shares in 2002
           and 2001                                                                         66              66
     Common stock issuable, 70,257 shares in 2002 and 56,942
           shares in 2001                                                               57,596          45,781
     Additional paid-in capital                                                      8,127,293       7,964,091
     Accumulated deficit                                                            (9,227,561)     (8,404,581)
                                                                                  ------------    ------------

                    Total stockholders' deficit                                     (1,042,606)       (394,643)
                                                                                  ------------    ------------

TOTAL                                                                             $  1,698,506    $  2,486,522
                                                                                  ============    ============
</Table>

See accompanying notes to financial statements.



                                      F-3
<PAGE>

                  FULLNET COMMUNICATIONS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                             Year ended December 31,

<Table>
<Caption>
                                                           2002            2001
                                                       ------------    ------------
<S>                                                    <C>             <C>
REVENUES
        Access service revenues                        $  1,421,699    $  1,392,711
        Co-location and other revenues                    1,003,317         908,301
                                                       ------------    ------------

                 Total revenues                           2,425,016       2,301,012


OPERATING COSTS AND EXPENSES
        Cost of access service revenues                     834,338         833,766
        Cost of co-location and other revenues               98,371         112,876
        Selling, general and administrative expenses      1,315,827       2,136,295
        Loss (gain) on sale of assets                       (33,827)          8,166
        Depreciation and amortization                       660,870         855,973
        Impairment expense                                       --         741,295
                                                       ------------    ------------

                 Total operating costs and expenses       2,875,579       4,688,371
                                                       ------------    ------------


LOSS FROM OPERATIONS                                       (450,563)     (2,387,359)

INTEREST EXPENSE                                           (372,417)       (558,998)
DEBT CONVERSION EXPENSE                                          --        (370,308)
OTHER EXPENSE                                                    --          (8,165)
                                                       ------------    ------------

NET LOSS                                               $   (822,980)   $ (3,324,830)
                                                       ============    ============

Net loss per common share
     Basic and diluted                                 $       (.12)   $       (.59)
                                                       ============    ============

Weighted average number of common shares outstanding
     Basic and diluted                                    6,661,205       5,680,424
                                                       ============    ============
</Table>

See accompanying notes to financial statements.



                                      F-4
<PAGE>

                  FULLNET COMMUNICATIONS, INC. AND SUBSIDIARIES

            CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY

                     Years ended December 31, 2002 and 2001


<Table>
<Caption>
                                                           Common stock         Common    Additional
                                                       ---------------------    stock      paid-in     Accumulated
                                                         Shares      Amount    issuable    capital       deficit         Total
                                                       ----------   --------   --------   ----------   -----------    -----------
<S>                                                    <C>          <C>        <C>        <C>          <C>            <C>
Balance at January 1, 2001                              3,942,775         39         --    5,250,026    (5,079,751)       170,314
Issuance of common stock in conjunction with
   Acquisitions                                           170,000          2     30,000      129,498            --        159,500
Warrant exercise                                          414,075          4        113        4,137            --          4,254
Intrinsic value of beneficial conversion feature
   on debt                                                     --         --         --      363,386            --        363,386
Warrants issued related to financing                           --         --         --      188,336            --        188,336
Common stock and warrants issued in exchange
   for services                                             1,500         --         --      396,538            --        396,538
Common stock issuable in payment of accrued interest           --         --     15,668           --            --         15,668
Conversion of debt to equity                            2,064,528         21         --    1,632,170            --      1,632,191
Net loss                                                       --         --         --           --    (3,324,830)    (3,324,830)
                                                       ----------   --------   --------   ----------   -----------    -----------
Balance at December 31, 2001                            6,592,878   $     66   $ 45,781   $7,964,091   $(8,404,581)   $  (394,643)
                                                       ==========   ========   ========   ==========   ===========    ===========
Intrinsic value of beneficial conversion feature
   on debt                                                     --         --         --      157,564            --        157,564
Common stock issuable in exchange for debt                     --         --         --          105            --            105
Common stock issuable in payment of accrued interest           --         --     11,815           --            --         11,815
Options and warrants issued in exchange
   for compensation and services                               --         --         --        5,533            --          5,533
Net loss                                                       --         --         --           --      (822,980)      (822,980)
                                                       ----------   --------   --------   ----------   -----------    -----------
Balance at December 31, 2002                            6,592,878   $     66   $ 57,596   $8,127,293   $(9,227,561)   $(1,042,606)
                                                       ==========   ========   ========   ==========   ===========    ===========
</Table>

See accompanying notes to financial statements.



                                      F-5
<PAGE>

                  FULLNET COMMUNICATIONS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             Year ended December 31,

<Table>
<Caption>
                                                                                                    2002            2001
                                                                                                ------------    ------------
<S>                                                                                             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
     Net loss                                                                                   $   (822,980)   $ (3,324,830)
     Adjustments to reconcile net loss to net cash provided by (used in) operating activities
          Depreciation and amortization                                                              660,870         855,973
          Stock issued for services                                                                       --           1,125
          Options and warrants issued for compensation and services                                    5,533         385,720
          Amortization of discount and costs relating to financing                                   178,568         261,170
          Debt conversion expense                                                                         --         370,308
          Impairment expense                                                                              --         741,295
          Accrued interest converted to equity                                                        11,815         172,851
          Loss (gain) on sale of assets                                                              (33,827)          8,166
          Provision for uncollectible accounts receivable                                               (812)        (19,130)
          Net (increase) decrease in
               Accounts receivable                                                                    67,612         (28,527)
               Prepaid expenses and other current assets                                              51,839         (55,071)
               Other assets                                                                           (2,645)         25,828
          Net increase (decrease) in
               Accounts payable - trade                                                             (105,269)         82,498
               Accrued and other liabilities                                                         128,690         194,588
               Deposits                                                                              (14,540)         25,000
               Deferred revenue                                                                      (67,093)        290,147
                                                                                                ------------    ------------

                    Net cash provided by (used in) operating activities                               57,761         (12,889)

CASH FLOWS FROM INVESTING ACTIVITIES
     Purchases of property and equipment                                                              (8,288)       (244,709)
     Proceeds from sale of assets, net of closing costs                                               93,014           4,944
     Acquisitions of businesses, net of cash acquired                                                     --         (68,025)
                                                                                                ------------    ------------

                    Net cash provided by (used in) investing activities                               84,726        (307,790)

CASH FLOWS FROM FINANCING ACTIVITIES
     Principal payments on borrowings under notes payable                                            (94,579)       (133,739)
     Principal payments on note payable to related party                                              (8,888)         (4,684)
     Principal payments on capital lease obligations                                                 (73,640)        (39,501)
     Proceeds from issuance of interim financing and warrants, net of offering costs                      --         350,000
     Proceeds from exercise of warrants                                                                   --           4,254
     Proceeds from issuance of notes payable                                                              --          54,235
     Proceeds from issuance of convertible notes payable                                               5,000         162,500
     Convertible debt issue costs                                                                         --         (28,961)
                                                                                                ------------    ------------

                    Net cash (used in) provided by financing activities                             (172,107)        364,104
                                                                                                ------------    ------------

NET (DECREASE) INCREASE IN CASH                                                                      (29,620)         43,425
Cash at beginning of year                                                                             56,575          13,150
                                                                                                ------------    ------------
Cash at end of year                                                                             $     26,955    $     56,575
                                                                                                ============    ============
</Table>

                                                                     (continued)



                                      F-6
<PAGE>

                  FULLNET COMMUNICATIONS, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                             Year ended December 31,


<Table>
<Caption>
                                                        2002           2001
                                                    ------------   ------------
<S>                                                 <C>            <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Cash paid for interest                              $     67,574   $    102,814

NONCASH INVESTING AND FINANCING ACTIVITIES
Conversion of notes payable to equity                         --      1,138,468
Assets acquired through issuance of capital lease         88,005         81,491

LawtonNet Asset Purchase
     Fair value of common stock issued              $         --   $     35,000
     Fair value of intangible assets                          --        (65,000)
                                                    ------------   ------------
     Cash paid to purchase LawtonNet assets         $         --   $    (30,000)
                                                    ============   ============

Sonet Asset Purchase
     Fair value of assets acquired                                 $    (23,978)
     Fair value of common stock issuable                      --         30,000
     Fair value of intangible assets                          --        (42,547)
                                                    ------------   ------------
     Cash paid to purchase Sonet assets             $         --   $    (36,525)
                                                    ============   ============

IPDatacom Asset Purchase
     Fair value of net assets acquired              $         --   $    (11,650)
     Fair value of common stock issued                        --         94,500
     Fair value of intangible assets                          --       (142,850)
     Note payable issued                                      --         58,500
                                                    ------------   ------------
     Cash paid to purchase IPDatacom assets         $         --   $     (1,500)
                                                    ============   ============
</Table>

                                                                     (concluded)

See accompanying notes to financial statements.



                                      F-7
<PAGE>

                  FULLNET COMMUNICATIONS, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 2002 and 2001

NOTE A - ORGANIZATION AND NATURE OF OPERATIONS

FullNet Communications, Inc. and Subsidiaries (the Company) is an integrated
communications provider (ICP) offering communications, connectivity and data
storage to individuals, businesses, organizations and educational institutions,
as well as governmental agencies. Through its subsidiaries, FullNet, Inc.,
FullTel, Inc. and FullWeb, Inc., the Company provides Internet solutions
designed to meet customer needs. Services offered include:

         o Dial-up and direct high-speed connectivity to the Internet through
the FullNet brand name;

         o Backbone services to private label Internet services providers (ISPs)
and businesses;

         o Carrier-neutral telecommunications premise co-location; and

         o Web page hosting and server co-location.

The Company operates and grants credit, on an uncollateralized basis, to
customers in Oklahoma and surrounding states. Concentrations of credit risk with
respect to accounts receivable are limited due to the large number of customers
comprising the Company's customer base and their dispersion across different
industries. However, the Company has one primary customer for its
carrier-neutral telecommunications premise co-location services.

The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, the Company has sustained substantial net
losses in 2002 and 2001. In addition, at December 31, 2002 current liabilities
exceed current assets by $1,929,308.

In view of the matters described in the preceding paragraph, the ability of the
Company to continue as a going concern is dependent upon continued operations of
the Company that in turn is dependent upon the Company's ability to meet its
financing requirements on a continuing basis, to maintain present financing, to
achieve the objectives of its business plan and to succeed in its future
operations. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue in existence.

The Company's business plan includes, among other things, expansion of its
Internet access services through mergers and acquisitions and the development of
its web hosting and co-location services. Execution of the Company's business
plan will require significant capital to fund capital expenditures, working
capital needs, debt service and the cash flow deficits generated by operating
losses. Current cash balances will not be sufficient to fund the Company's
current business plan beyond the next few months. As a consequence, the Company
is currently seeking additional convertible debt and/or equity financing as well
as the placement of a credit facility to fund the Company's liquidity. There can
be no assurance that the Company will be able to raise additional capital on
satisfactory terms or at all.

NOTE B - SUMMARY OF ACCOUNTING POLICIES

A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.



                                      F-8
<PAGE>

1. Consolidation

The consolidated financial statements include the accounts of FullNet
Communications, Inc. and its wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated.

2. Revenue Recognition

Access service revenues are recognized on a monthly basis over the life of each
contract as services are provided. Contract periods range from monthly to
yearly. Deferred revenues are calculated for those contracts that require
prepayment and continue subsequent to the current year-end. Carrier-neutral
telecommunications co-location revenues are recognized on a monthly basis over
the life of the contract as services are provided.

3. Accounts Receivable

Accounts receivable consist of the following as of December 31:

<Table>
<Caption>
                                               2002          2001
                                            ----------    ----------
<S>                                         <C>           <C>
Accounts receivable                         $  131,630    $  199,240
     Less allowance for doubtful accounts       (9,069)       (9,871)
                                            ----------    ----------
                                            $  122,569    $  189,369
                                            ==========    ==========
</Table>

4. Property and Equipment

Property and equipment are stated at cost. Depreciation is computed primarily
using the straight-line method over the estimated useful lives of the related
assets as follows:

<Table>
<S>                                   <C>
Software                              3 years
Computers and equipment               5 years
Furniture and fixtures                7 years
Leasehold improvements                Shorter of estimated life of improvement or the lease term
</Table>

5. Intangible Assets

Intangible assets consist primarily of acquired customer bases and covenants not
to compete and are carried net of accumulated amortization. Upon initial
application of SFAS 142 as of January 1, 2002, the Company reassessed useful
lives and began amortizing these intangible assets over their estimated useful
lives and in direct relation to any decreases in the acquired customer bases to
which they relate. Management believes that such amortization reflects the
pattern in which the economic benefits of the intangible asset are consumed or
otherwise used up.

6. Long-Lived Assets

The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of
Long-lived Assets in determining impairment losses on long-term assets. All
long-lived assets held and used by the Company, including intangible assets, are
reviewed to determine whether any events or changes in circumstances indicate
that the carrying amount of the asset may not be recoverable. The Company bases
its evaluation on such impairment indicators as the nature of the assets, the
future economic benefit of the assets, any historical or future profitability
measurements, as well as other external market conditions or factors that may be
present. If such impairment indicators are present or other factors exist that
indicate that the carrying amount of the asset may not be recoverable the
Company determines whether an impairment has occurred through the use of an



                                      F-9
<PAGE>

undiscounted cash flows analysis of the asset. If an impairment has occurred,
the Company recognizes a loss for the difference between the carrying amount and
the estimated value of the asset.

7. Income Taxes

The Company follows the liability method of accounting for income taxes. Under
the liability method, deferred income taxes are provided on temporary
differences between the tax basis of an asset or liability and its reported
amount in the consolidated financial statements and carryforwards that will
result in taxable or deductible amounts in future years. Deferred income tax
assets or liabilities are determined by applying the presently enacted tax rates
and laws. Additionally, the Company provides a valuation allowance on deferred
tax assets if, based on the weight of available evidence, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.

8. Loss Per Common Share

Loss per common share is calculated based on the weighted average number of
shares outstanding during the year, including common shares issuable without
additional consideration. Basic and diluted loss per share were the same for the
years ended December 31, 2002 and 2001 because the following were not dilutive:

<Table>
<Caption>
                                                             2002         2001
                                                          ----------   ----------
<S>                                                       <C>          <C>
Common shares attributable to convertible notes payable      810,535      654,662
Employee common stock options                              1,589,252    1,437,196
Other common stock options and warrants                    2,151,681    2,099,681
                                                          ----------   ----------

                                                           4,551,468    4,191,539
                                                          ==========   ==========
</Table>

9. Stock Options and Warrants

The Company's employee stock options are accounted for under APB Opinion No. 25
and related interpretations. Had compensation cost for the Company's stock
options been determined based on the fair value at the grant dates consistent
with the method of Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, the Company's net loss and loss per
share in 2002 and 2001 would have been increased to the pro forma amounts
indicated below:

<Table>
<Caption>
                                       2002            2001
                                   ------------    ------------
<S>                                <C>             <C>
Net loss
          As reported              $   (822,980)   $ (3,324,830)
          Pro forma                $ (1,074,967)   $ (4,006,240)

Basic and diluted loss per share
          As reported              $       (.12)   $       (.59)
          Pro forma                $       (.16)   $       (.71)
</Table>

The fair value of each option grant prior to February 2000 was estimated on the
date of grant using the minimum value method because there was no public trading
market for the Company's securities. During February 2000, the Company's common
stock began trading on the NASD Electronic Bulletin Board under the symbol FULO.
The fair value of the options granted subsequent to February 2000 have been
estimated at the date of grant using the Black-Scholes option pricing model.

The following weighted average assumptions were used:



                                      F-10
<PAGE>

<Table>
<Caption>
                             2002      2001
                            ------    ------
<S>                         <C>       <C>
Risk free interest rate        5.1%      5.3%
Expected lives (in years)        5         5
Expected volatility          143.2%      134%
Dividend yield                   0%        0%
</Table>

For warrants issued with debt, a portion of the proceeds received is allocated
to the warrants based on the relative fair values of the warrants, determined
using the Black-Scholes valuation model, and the debt. The resulting discount on
the debt is amortized to interest expense over the life of the debt.

Other issuances of stock options and warrants are valued using the Black-Scholes
valuation model and accounted for based on the consideration received.

10. Advertising

The Company expenses advertising production costs as they are incurred and
advertising communication costs the first time the advertising takes place.
Advertising expense for the years ended December 31, 2002 and 2001 was $9,224
and $29,608, respectively.

11. Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures; accordingly, actual results
could differ from those estimates.

12. Recently Issued Accounting Standards

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 requires entities to record the fair value
of a liability for an asset retirement obligation in the period in which it is
incurred and a corresponding increase in the carrying amount of the related
long-lived asset. Subsequently, the asset retirement cost should be allocated to
expense using a systematic and rational method. SFAS No. 143 is effective for
fiscal years beginning after June 15, 2002. The Company does not expect SFAS No.
143 to have a material effect on its financial position or results of
operations.

In June 2002, FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. This Statement addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issues No. 94-3 Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). The Statement is
effective for exit or disposal activities initiated after December 31, 2002 with
early application encouraged. The Company estimates that the new standard will
not have a material effect on its financial statements.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation-Transition and Disclosure-an amendment of SFAS No. 123 (SFAS 148).
This statement amends Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, to provide alternative methods of
transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation and amends the disclosure requirements of SFAS
No. 123 to require prominent disclosure in both annual and interim financial
statements about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. The transition and annual
disclosure provisions of SFAS 148 will be effective for the Company in the first
quarter of 2003. The Company estimates that the new standard will not have a
material effect on its financial statements but is still in the evaluation
process.



                                      F-11
<PAGE>

In November 2002, the FASB issued Interpretation No. 45 (FIN 45), Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 requires certain guarantees to be
recorded at fair value, which is different from current practice, which is
generally to record a liability only when a loss is probable and reasonably
estimable. Fin 45 also requires a guarantor to make significant new disclosures,
even when the likelihood of making any payments under the guarantee is remote.
The disclosure provisions of FIN 45 were effective immediately in 2002. The
Company is required to adopt the recognition and measurement provisions of FIN
45 on a prospective basis with respect to guarantees issued or modified after
December 31, 2002. The Company does not believe the adoption of the recognition
and measurement provisions of FIN 45 will have a material effect on its
consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46). Subject to certain criteria defined in the
Interpretation, FIN 46 will require consolidation by business enterprises of
variable interest entities if the enterprise has a variable interest that will
absorb the majority of the entity's expected residual losses on returns if they
occur, or both. The Interpretation will be effective for the Company in the
third quarter of 2003. Management has not yet determined the effect, if any, of
FIN 46, on the Company's financial position or results of operations. Certain
disclosures concerning variable interest entities are required in financial
statements initially issued after January 31, 2003. The Company estimates that
FIN 46 will have no material effect on its financial statements.

13. Reclassifications

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

NOTE C - PROPERTY AND EQUIPMENT

Property and equipment consist of the following
at December 31:

<Table>
<Caption>
                                         2002            2001
                                     ------------    ------------
<S>                                  <C>             <C>
Computers and equipment              $    752,584    $    752,966
Leasehold improvements                    921,827         921,827
Software                                   50,187          75,427
Furniture and fixtures                     19,153          17,506
                                     ------------    ------------
                                        1,743,751       1,767,726
     Less accumulated depreciation       (765,502)       (615,161)
                                     ------------    ------------
                                     $    978,249    $  1,152,565
                                     ============    ============
</Table>

Depreciation expense for the years ended December 31, 2002 and 2001 was $212,291
and $149,724, respectively.

NOTE D - INTANGIBLE ASSETS

Intangible assets consist primarily of acquired customer bases and covenants not
to compete and relate to the 2001 purchases of certain business operations in
Lawton, Oklahoma (the LawtonNet Communications (LAWTONNET) acquisition), Lawton,
Oklahoma (the SONET Communications (SONET) acquisition) and Oklahoma City,
Oklahoma (the IPDatacom acquisition), the 2000 purchases of certain business
operations in Tahlequah, Oklahoma (the FullNet of Tahlequah, Inc. (FOT)
acquisition), Bartlesville, Oklahoma (the FullNet of Bartlesville (FOB)
acquisition), Nowata, Oklahoma (the FullNet of Nowata (FON) acquisition), the
2000 merger with Harvest Communications, Inc. (the Harvest merger), the 1998
purchase of Animus (the Animus acquisition) and the 1997 purchase of certain
business operations in Tulsa, Oklahoma (the Tulsa acquisition) as follows:



                                      F-12
<PAGE>

<Table>
<Caption>
                                             December 31,
                                     ----------------------------
                                         2002            2001
                                     ------------    ------------
<S>                                  <C>             <C>
LAWTONNET acquisition                $     65,000    $     65,000
SONET acquisition                          42,547          42,547
IPDatacom acquisition                     137,849         137,849
FOT acquisition                            93,649          93,649
FOB acquisition                           194,780         194,780
FON acquisition                           139,650         139,650
Harvest merger                          2,009,858       2,009,858
Animus acquisition                        318,597         318,597
Tulsa acquisition                          70,000          70,000
                                     ------------    ------------
                                        3,071,930       3,071,930
     Less accumulated amortization     (2,565,657)     (2,117,078)
                                     ------------    ------------
                                     $    506,273    $    954,852
                                     ============    ============
</Table>

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) 141, Business Combinations, and SFAS
142, Goodwill and Intangible Assets. SFAS 141 is effective for all business
combinations completed after June 30, 2001. SFAS 142 is effective for fiscal
years beginning after December 15, 2001; however, certain provisions of this
Statement apply to goodwill and other intangible assets acquired between July 1,
2001 and the effective date of SFAS 142. The provisions of 142 provide that
goodwill, as well as intangible assets with indefinite lives, acquired after
June 30, 2001, not be amortized and, effective January 1, 2002, all previously
recognized goodwill and intangible assets with indefinite lives will no longer
be subject to amortization. The statement also provides that upon initial
application the useful lives of previously recognized intangible assets be
reassessed and remaining amortization periods adjusted accordingly.

The Company's previously recognized intangible assets consist primarily of
customer bases and covenants not to compete relating to those customer bases.
Upon initial application of SFAS 142 as of January 1, 2002, the Company
reassessed useful lives and began amortizing these intangible assets over their
estimated useful lives and in direct relation to any decreases in the acquired
customer bases to which they relate. Management believes that such amortization
reflects the pattern in which the economic benefits of the intangible asset are
consumed or otherwise used up.

The following information presents net loss as adjusted to reflect adjustments
for changes in amortization periods for the Company's intangible assets pursuant
to SFAS 142 for the years ended December 31, 2002 and 2001:

<Table>
<Caption>
                                              2002            2001
                                          ------------    ------------
<S>                                       <C>             <C>
Reported net loss                         $   (822,980)   $ (3,324,830)
Adjust: intangible amortization
                                                    --        (201,503)
                                          ------------    ------------
   Adjusted net loss                      $   (822,980)   $ (3,526,333)
                                          ============    ============

Basic and diluted loss per common share
Reported net loss                         $       (.12)   $       (.59)
Intangible amortization
                                                    --            (.03)
                                          ------------    ------------
   Adjusted net loss                      $       (.12)   $       (.62)
                                          ============    ============
</Table>

Amortization expense for the years ended December 31, 2002 and 2001 relating to
intangible assets was $448,579 and $706,249, respectively.



                                      F-13
<PAGE>

During December 2001, due to a decline in customer base the Company assessed
recoverability of intangible assets relating to the Harvest merger. The effect
of this assessment for the year ended December 31, 2001 was to record impairment
expense of $741,295.

NOTE E - NOTES PAYABLE

On January 5, 2001, the Company obtained a $250,000 interim loan. This loan
bears interest at 10% per annum and requires payments equal to 50% of the net
proceeds received by the Company from its private placement of convertible notes
payable. On March 31, 2001, the principal balance of the note was increased to
$320,000 and the due date was extended to July 31, 2001. Subsequently, the due
date was extended until December 31, 2001. Through December 31, 2002, the
Company had made aggregate payments of principal and interest of $35,834 on this
loan. At December 31, 2002, the past due principal and accrued interest totaled
$376,110. Pursuant to the terms of this loan the balance was due on December 31,
2001 and the Company has not made payment or negotiated an extension of the note
and the lender has not made any demands.

During February and April 2001, the Company received $100,000 and $62,500,
respectively, of subscriptions to the Company's private placement offering of
convertible notes payable. These notes bear interest at an annual rate of 12.5%,
as adjusted, and become due three years following issuance. These notes are
convertible into the Company's common stock at the rate of one share of common
stock for each $1.00, subject to adjustment under certain circumstances, of
principal and accrued unpaid interest at the option of the holders.
Subsequently, these notes were exchanged for common stock on May 31, 2001,which
is discussed below.

During February 2001, the Company converted accounts payable of $94,680 to a
note with terms substantially equivalent to the terms of the Company's
convertible notes payable. Subsequently, this note was exchanged for common
stock on May 31, 2001,which is discussed below.

Effective February 1, 2001, the holders exchanged their non-interest bearing
acquisition note payable for a note bearing interest at 10% per annum commencing
January 1, 2001, and a six-month deferral of payments of principal and interest
from April 2001 to September 2001. Payments of principal and interest resumed in
October 2001, and this note matures in June 2002.

During March 2001, the Company converted acquisition notes payable of $232,944
to notes with terms substantially equivalent to the Company's convertible notes
payable. Subsequently, these notes were exchanged for common stock on May 31,
2001,which is discussed below.

On May 31, 2001, the Company exchanged 2,064,528 shares of its common stock and
warrants (exercisable for the purchase of 436,748 shares of common stock at
$2.00 per share) for convertible notes in the principal amount of $1,746,988
(recorded at $1,283,893) plus accrued interest of $123,414. The warrants expire
on May 31, 2006. This exchange was accounted for as an induced debt conversion
and a debt conversion expense of $370,308 was recorded.

Pursuant to the provisions of the November and December 2000 convertible notes
payable, the conversion price was reduced from $1.00 per share on January 15,
2001 to $.63 per share on December 15, 2002 for failure to register under the
Securities Act of 1933, as amended, the common stock underlying the convertible
notes payable and underlying warrants on December 15, 2001. Reductions in
conversion price are recognized at the date of reduction by an increase to
additional paid-in capital and an increase in the discount on the convertible
notes payable. Furthermore, the interest rate was increased to 12.5% per annum
from 11% per annum because the registration statement was not filed before March
1, 2001. At December 31, 2002, the outstanding principal and interest of the
convertible notes payable was $577,367.

On July 1 and October 1, 2001, the Company recorded 3,853 and 11,815 shares of
common stock issuable, respectively, in payment of $15,668 accrued interest on a
portion of the Company's convertible notes payable.



                                      F-14
<PAGE>

Notes payable consist of the following at December 31:


<Table>
<Caption>
                                                                  2002         2001

<S>                                                            <C>          <C>
Three notes payable to a bank, payable in monthly
installments aggregating $10,010, including interest ranging
from 9.5% to 11.5%, maturing September 2008; collateralized
by property and equipment, accounts receivable and Company
common stock owned by the founder and CEO of the Company;
guaranteed by the founder and CEO of the Company; partially
guaranteed by the Small Business Administration                $  474,523   $  526,886

Interim loan, interest at 10%, requires payments equal to
50% of the net proceeds received by the Company from its
private placement of convertible notes payable, matured
December 2001; unsecured                                          320,000      320,000

Convertible notes payable; interest at 12.5% of face amount,
payable quarterly; these notes are unsecured and $505,000
and $5,636 mature in 2003 and 2004, respectively; $510,636
face amount less unamortized discount of $196,271 ($199,799
for 2001); effective rate of 20% (convertible into
approximately 810,535 and 654,662 shares at December 31,
2002 and 2001, respectively)                                      314,365      310,837

Note payable to a bank, payable in monthly installments of
$1,277 until paid in full, including interest at a variable
rate (prime plus 2.25%; 7.0% at December 31, 2002), matures
September 2014; collateralized by substantially all assets
acquired in conjunction with the acquisition of Harvest
Communications, Inc. A former officer of the Company who was
the sole stockholder of Harvest Communications, Inc. is a
co-maker on this note and it is partially guaranteed by the
Small Business Administration                                      37,060       49,278

Note payable to the Company's founder and CEO, payable in
monthly installments of $1,034 including interest at 8.5%,
maturing May 2006; unsecured                                       36,492       45,380

Other notes payable(1)                                            118,003      163,204
                                                               ----------   ----------
                                                                1,300,443    1,415,585
      Less current portion                                        865,057      549,219
                                                               ----------   ----------
                                                               $  435,386   $  866,366
                                                               ==========   ==========
</Table>

(1) Includes three notes with past due principal and accrued interest totaling
$51,229 at December 31, 2002. The Company has not made payment or negotiated an
extension of the notes and the lenders have not made any demands.



                                      F-15
<PAGE>

Aggregate future maturities of notes payable at December 31, 2002 are as
follows:

<Table>
<Caption>
Year ending December 31
<S>                         <C>
    2003                    $ 1,059,147
    2004                        106,823
    2005                        105,774
    2006                        106,486
    2007                        109,117
    Thereafter                    9,367
                            -----------
                              1,496,714
Less unamortized discount      (196,271)
                            -----------
                            $ 1,300,443
                            ===========
</Table>

NOTE F - LEASE AGREEMENTS

Capital Leases

The Company has various capital leases for equipment. The lease terms range from
24 to 36 months. Additionally, annual lease rental payments for each lease range
from $1,387 to $23,236 per year.

The property and equipment accounts include $186,436 and $98,431 for leases that
have been capitalized at December 31, 2002 and 2001, respectively. Related
accumulated amortization amounted to $46,550 and $16,353 at December 31, 2002
and 2001, respectively.

The schedule of future minimum lease payments below reflects all payments under
capital leases in effect at December 31, 2002.

<Table>
<Caption>
Year ending December 31
<S>                                           <C>
     2003                                     $ 66,089
     2004                                       36,431
     2005                                       17,313
                                              --------
Total minimum lease payments                  $119,833
Less amount representing interest               19,238
                                              --------
Present value of net minimum lease payments   $100,595
Less current portion                            52,646
                                              --------
Long-term capital lease obligations           $ 47,949
                                              ========
</Table>

Operating Leases

The Company leases certain office facilities used in its operations under
noncancellable operating leases expiring at various dates through 2009. Future
minimum lease payments required at December 31,2002 under noncancellable
operating leases that have initial lease terms exceeding one year are presented
in the following table:

<Table>
<Caption>
Year ending December 31
<S>                       <C>
     2003                 $  163,749
     2004                    163,761
     2005                    170,284
     2006                    176,807
     2007                    183,330
     Thereafter              386,229
                          ----------
                          $1,244,160
                          ==========
</Table>



                                      F-16
<PAGE>

Rental expense for all operating leases for the years ended December 31, 2002
and 2001 was approximately $306,759 and $408,000, respectively.

Certain of the Company's long-term noncancellable operating leases include
scheduled base rental increases over the term of the lease. The total amount of
the base rental payments is charged to expense on the straight-line method over
the term of the lease. The Company has recorded a deferred credit of $72,956 and
$57,286 at December 31, 2002 and 2001, respectively, which is reflected in Other
Long-term Liabilities on the Balance Sheet to reflect the net excess of rental
expense over cash payments since inception of the leases.

NOTE G - INCOME TAXES

Due to net losses, no provision for income taxes was necessary for 2002 or 2001.

The Company's effective income tax rate on net loss differed from the federal
statutory rate of 34% as follows at December 31:

<Table>
<Caption>
                                                 2002            2001
                                             ------------    ------------
<S>                                          <C>             <C>
Income taxes at federal statutory rate       $   (280,000)   $ (1,130,000)
Change in valuation allowance                     159,000         443,000
Nondeductible expenses                            169,000         733,000
State income taxes, net of federal benefit        (46,000)       (125,000)
Other                                              (2,000)         79,000
                                             ------------    ------------
                  Total tax expense          $         --    $         --
                                             ============    ============
</Table>

The components of deferred income tax assets were as follows at December 31:

<Table>
<Caption>
                                                      2002            2001
                                                  ------------    ------------
<S>                                               <C>             <C>
Deferred income tax assets
         Basis difference in intangible assets    $    165,000    $    107,500
         Deferred revenue                              157,000         177,000
         Net operating loss                          1,014,000         939,000
             Other                                      94,000          65,000
         Valuation allowance                        (1,430,000)     (1,271,000)
                                                  ------------    ------------

                  Net deferred income tax asset   $         --    $     17,500
                                                  ============    ============

Increase in valuation allowance                   $    159,000    $    474,000
                                                  ============    ============
</Table>

A valuation allowance is provided for deferred tax assets when it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. At December 31, 2002, the Company has a net operating loss
carryforward of approximately $2,700,000 that will expire at various dates
through 2021. As such carryforward can only be used to offset future taxable
income of the Company, management has provided a valuation allowance until it is
more likely than not that taxable income will be generated.

NOTE H - STOCKHOLDERS' (DEFICIT) EQUITY

COMMON STOCK - During January 2002, the Company agreed to issue 11,815 shares
valued at $11,815 in payment of accrued interest on a portion of the Company's
convertible debt. At December 31, 2002 these shares are shown as Common Stock
Issuable.



                                      F-17
<PAGE>

During December 2002, the Company agreed to issue 1,500 shares valued at $105 in
settlement of a note payable. At December 31, 2002 these shares are shown as

Common Stock Issuable. During 2001, the Company issued 170,000 shares valued at
$129,500 in conjunction with the completion of two acquisitions and has an
obligation to issue 30,000 shares valued at $30,000 in conjunction with a third
acquisition.

Warrants exercisable for the purchase of 425,349 shares of stock were exercised
during 2001 for an aggregate price of $4,254. Of these shares, 414,075 of these
shares were issued and 11,274 shares are issuable at December 31, 2002.

During April 2001, 1,500 shares were issued as partial compensation for
consulting services performed. Consulting services expense of $1,125 was
recorded based on an estimated fair value of $.75 per share.

COMMON STOCK OPTIONS - The following table summarizes the Company's employee
stock option activity for the years ended December 31, 2002 and 2001:

<Table>
<Caption>
                                                          Weighted                       Weighted
                                                          Average                        Average
                                            2002       Exercise Price      2001       Exercise Price
                                         ----------    --------------   ----------    --------------
<S>                                      <C>           <C>              <C>           <C>
Options outstanding, beginning of year    1,437,196    $         1.08    1,041,034    $         1.40
Options granted during the year             488,830               .07      800,063               .79
Options exercised during the year                --                --           --                --
Options cancelled during the year          (336,774)              .81     (403,901)             1.33
                                         ----------    --------------   ----------    --------------
Options outstanding, end of year          1,589,252    $          .80    1,437,196    $         1.08
                                         ==========    ==============   ==========    ==============
Options exercisable at end of year        1,106,090    $          .97      871,368    $         1.06
                                         ==========    ==============   ==========    ==============
Weighted average fair value of
options granted during the year                        $          .06                 $          .45
                                                       ==============                 ==============
</Table>

The following table summarizes information about employee stock options
outstanding at December 31, 2002:

<Table>
<Caption>
                                   Options outstanding                                 Options exercisable
                    --------------------------------------------------        ------------------------------------
                                     Weighted-
                                      average
                      Number         remaining           Weighted-                Number             Weighted-
Range of exercise   outstanding     contractual       average exercise        exercisable at      average exercise
      prices        at 12/31/02        life                price                 12/31/02              price
-----------------   -----------     -----------       ----------------        --------------      ----------------
<S>                 <C>             <C>               <C>                     <C>                 <C>
  $0.01 - $0.70         790,829      9.04 years             $0.27                  450,001               $0.41
  $1.00 - $1.50         674,290      7.86 years             $1.07                  543,956               $1.09
  $1.81 - $3.00         124,133      7.32 years             $2.62                  112,133               $2.66
                      ---------                                                  ---------
                      1,589,252      8.32 years             $1.08                1,106,090               $ .97
                      =========                                                  =========
</Table>

The Company's employee stock options are accounted for under APB Opinion No. 25
and related interpretations. Had compensation cost for the Company's stock
options been determined based on the fair value at the grant dates consistent
with the method of Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, the Company's net loss and loss per
share in 2002 and 2001 would have been increased to the pro forma amounts
indicated below:



                                      F-18
<PAGE>

<Table>
<Caption>
                                       2002            2001
                                   ------------    ------------
<S>                                <C>             <C>
Net loss
          As reported              $   (822,980)   $ (3,324,830)
          Pro forma                $ (1,074,967)   $ (4,006,240)

Basic and diluted loss per share
          As reported              $       (.12)   $       (.59)
          Pro forma                $       (.16)   $       (.71)
</Table>

The fair value of each option grant prior to February 2000 was estimated on the
date of grant using the minimum value method because there was no public trading
market for the Company's securities. During February 2000, the Company's common
stock began trading on the NASD Electronic Bulletin Board under the symbol FULO.
The fair value of the options granted subsequent to February 2000 have been
estimated at the date of grant using the Black-Scholes option pricing model.

The following weighted average assumptions were used:

<Table>
<Caption>
                             2002      2001
                            ------    ------
<S>                         <C>       <C>
Risk free interest rate        5.1%      5.3%
Expected lives (in years)        5         5
Expected volatility          143.2%      134%
Dividend yield                   0%        0%
</Table>

COMMON STOCK WARRANTS AND CERTAIN STOCK OPTIONS - A summary of common stock
purchase warrant and certain stock option activity for the years ended December
31, 2002 and 2001 follows:

<Table>
<Caption>
                                                                                         Number of
                                                                                          shares
                                                                                         ---------
<S>                                                                                      <C>
Issued during 2002
          For professional services (weighted average exercise price $.08 per share)        52,000
                                                                                         ---------

                                   Total issued during 2002                                 52,000
                                                                                         =========

Issued during 2001
          In connection with interim financing (weighted average exercise price
               $.51 per share)                                                             250,000
          For professional services (weighted average exercise price $.28 per share)       739,000
          In connection with the issuance of convertible notes payable (exercise price
               $.01 per share)                                                             122,532
          In connection with the exchange of convertible notes (exercise price
               $2.00 per share)                                                            436,748
                                                                                         ---------

                         Total issued during 2001                                        1,548,280
                                                                                         =========
</Table>

Outstanding common stock purchase warrants and certain stock options outstanding
at December 31, 2002 are as follows:



                                      F-19
<PAGE>

<Table>
<Caption>
                 Number     Exercise   Expiration
                of shares    price        year
                ---------   --------   ----------
<S>                         <C>        <C>
                   57,375   $   1.25         2002
                   25,000       2.77         2003
                   10,000       2.55         2005
                   70,000       1.00         2005
                  560,000        .01         2005
                  436,748       2.00         2006
                  311,000       1.00         2006
                   73,500        .13         2006
                  100,000        .11         2006
                  456,058        .01         2006
                    6,000        .12         2007
                   14,000        .10         2007
                   12,000        .08         2007
                   20,000        .05         2007
                ---------
                2,151,681
                =========
</Table>

The following table summarizes the Company's common stock purchase warrant and
certain stock option activity for the years ended December 31, 2002 and 2001:

<Table>
<Caption>
                                                                                  Weighted                   Weighted
                                                                                  Average                    Average
                                                                                  Exercise                   Exercise
                                                                       2002        Price         2001         Price
                                                                    ----------   ----------   ----------    ----------
<S>                                                                 <C>          <C>          <C>           <C>
Warrants and certain stock options outstanding, beginning of year    2,099,681   $      .69    1,076,750    $      .32
Warrants and certain stock options issued during the year               52,000          .08    1,548,280          1.46
Warrants and certain stock options exercised during the year                --           --     (425,349)          .01
Warrants and certain stock options cancelled during the year                --           --     (100,000)         1.00
                                                                    ----------   ----------   ----------    ----------
Warrants and certain stock options outstanding, end of year          2,151,681   $      .68    2,099,681    $      .69
                                                                    ==========   ==========   ==========    ==========
</Table>

NOTE I - RELATED PARTY TRANSACTIONS

In connection with his employment, during March 2002, the Company issued stock
options exercisable for the purchase of 80,000 shares of common stock to the
founder and CEO of the Company that were one-third vested and exercisable
immediately and will vest and become exercisable one-third on each annual
anniversary of the issue. These options have an exercise price of $.05 per share
and expire during March 2012.

In April 2001, the Company's founder and CEO purchased 50,000 shares of common
stock pursuant to exercise of warrants for an aggregate exercise price of $500.

In connection with his employment, during July 2001, the Company issued stock
options exercisable for the purchase of 100,000 shares of the Company's common
stock to the founder and CEO of the Company that were fully vested and
exercisable. These options have an exercise price of $.70 per share and expire
during July 2011.

In connection with his employment, during November 2001, the Company issued
stock options exercisable for the purchase of 32,000 shares of common stock to
the founder and CEO of the Company that will vest and become exercisable
one-third on each annual anniversary of the issue. These options have an
exercise price of $.11 per share and expire during November 2011.



                                      F-20
<PAGE>

In connection with his employment, during March 2002, the Company issued stock
options exercisable for the purchase of 60,000 shares of common stock to one of
its officers and directors that were one-third vested and exercisable
immediately and will vest and become exercisable one-third on each annual
anniversary of the issue. These options have an exercise price of $.05 per share
and expire during March 2012.

During April 2001, this officer and his wife purchased $25,000 of the 11%
convertible promissory notes and attached warrants sold in the Company's private
placement. In addition, this officer exercised warrants for the purchase of
56,250 shares of common stock for an aggregate purchase price of $563.

During May 2001, this officer exchanged convertible notes in the principal
amount of $50,000 plus interest for 57,617 shares of common stock and 12,500
warrants (exercisable for the purchase of 12,500 shares of common stock at $2.00
per share). These warrants expire May 31, 2006.

During August 2001, this officer purchased 5,000 shares of the Company's common
stock at $.55 per share.

In connection with his employment, during October 2001, the Company granted
stock options exercisable for the purchase of 137,452 shares of common stock to
this officer that will vest and become exercisable on a quarterly basis over a
one-year period. These options have an exercise price of $.50 per share and
expire during October 2011.

In connection with his employment, during November 2001, the Company granted
stock options exercisable for the purchase of 23,745 shares of common stock to
this officer that will vest and become exercisable one-third on each annual
anniversary of the grant date. These options have an exercise price of $.11 per
share and expire during November 2011.

On August 2, 2000, the Company obtained a short-term loan of $100,000 from its
founder and CEO through the issuance of a 14% promissory note. The terms of the
financing additionally provided for the issuance of five-year warrants
exercisable for the purchase of 50,000 shares of the Company's common stock at
$.01 per share, and provided for certain registration rights. The promissory
note required monthly interest payments, matured on the earlier of (i) the date
which is within five days of receipt of funds by the Company of any offering
raising gross proceeds to the Company of at least $1,000,000 or (ii) in three
months, and was extendible for two 90-day periods upon issuance of additional
warrants exercisable for the purchase of 50,000 shares of the Company's common
stock exercisable at $.01 per share for each extension. In the fourth quarter of
2000, the Company's founder and CEO agreed to reduce the interest rate on the
promissory note to 9% and waive the warrant provisions relating to extensions of
the loan. The Company repaid $50,000 on this note during 2000 and the note was
due in May 2001. In May 2001 the Company's founder and CEO agreed to a
replacement note with an interest rate of 8.5% with monthly principal and
interest payments and the note is due in May 2006.

NOTE J - ACQUISITIONS

On February 28, 2001, the Company purchased substantially all of the assets of
LawtonNet Communications (LAWTONNET), a sole proprietorship, including
approximately 700 individual and business Internet access customer accounts.
Pursuant to the purchase, the Company issued LAWTONNET 35,000 shares of its
common stock. In addition, the Company agreed to pay LAWTONNET an amount based
upon the future collected revenues received from all active LAWTONNET customers
transferred at the time of closing of the purchase until the customers become
inactive. During the 30 days following the closing of this purchase, advance
payments of $30,000 were made on the future collected revenues received. Total
amounts due to the seller pursuant to this provision of the purchase agreement
were $27,182 and $4,611 for the years ended December 31, 2001 and 2002,
respectively.

On February 28, 2001, the Company purchased substantially all of the assets of
Computer Concepts & Research, Inc., doing business as SONET Communications
(SONET), including approximately 900 individual and business Internet access
customer accounts. Pursuant to this purchase, the Company agreed to issue 30,000
shares of its common stock to SONET. In addition, the Company agreed to pay
SONET an amount based upon the future collected revenues



                                      F-21
<PAGE>

received from all active SONET customers transferred at the time of closing of
this purchase until the customers become inactive. Total amounts due to the
seller pursuant to this provision of the purchase agreement were $38,404 and
$10,995 for the years ended December 31, 2001 and 2002, respectively.

On June 15, 2001, the Company purchased substantially all of the assets of
IPDatacom, a division of Higanbotham.com, LLC (IPDatacom), including
approximately 400 individual and business Internet access customer accounts.
Pursuant to this purchase, the Company issued IPDatacom 135,000 shares of the
Company's common stock, notes payable in the aggregate principal amount of
$58,500 and paid $1,500.

On November 19, 2001, the Company purchased the assets of Northeast Rural
Services, a subsidiary of Northeast Oklahoma Electric Cooperative, Inc.
(Rectec), a cooperative corporation, including the Internet access customers
consisting approximately of 1,400 individual and business Internet access
accounts, and the associated equipment in the Oklahoma cities of Adair, Jay,
Pryor, Wyandotte, Leach, Colcord and Moseley. The Company paid RECTEC an
aggregate amount of $92,394 of which $37,394 was paid in cash and the balance by
delivery of two notes in the aggregate principal amount of $55,000.

These acquisitions were accounted for as purchases. The aggregate purchase price
has been allocated to the underlying net assets purchased or net liabilities
assumed, including intangible assets, which consist primarily of acquired
customer bases and covenants not to compete, based on their estimated fair
values at the respective acquisition dates. Intangible assets acquired totaled
approximately $245,397, which are being amortized based on decreases of acquired
customer base.

The unaudited pro forma combined historical results, as if the entities listed
above had been acquired at the beginning of the period presented, are included
in the table below.

<Table>
<Caption>
                                       2001
                                   ------------
<S>                                <C>
Revenue                            $  2,511,000
Net loss                           $ (3,323,000)
Basic and diluted loss per share   $       (.58)
</Table>

The pro forma results above include amortization of intangible assets acquired
and interest expense on debt assumed or issued to finance the acquisitions. The
pro forma results are not necessarily indicative of what actually would have
occurred if the acquisitions had been completed as of the beginning of the
period presented, nor are they necessarily indicative of future consolidated
results.

NOTE K - COMMITMENTS AND CONTINGENCIES

In June 2002, the Company issued a purchase order for the purchase and
installation of a telephone switch that will enable the Company to broaden its
product line. This switch was delivered in February 2003. A down payment of
$14,950 was paid upon delivery of the switch and the remaining balance of
$202,200 was financed by the supplier at 10% interest to be paid in 18 monthly
payments beginning in March 2003. As additional consideration the Company issued
the supplier a warrant on February 7, 2003 to purchase 50,000 shares of its
common stock for $.01 per share for a period of five years from the date of
issuance.

NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments are held for purposes other than trading.
The estimated fair value of notes payable is the discounted amount of future
cash flows using the estimated current rate for similar borrowings.



                                      F-22
<PAGE>

<Table>
<Caption>
                                  2002                      2001
                        -----------------------   -----------------------
                         Carrying       Fair       Carrying       Fair
                          amount       value        amount       value
                        ----------   ----------   ----------   ----------
<S>                     <C>          <C>          <C>          <C>
Financial liabilities
    Notes payable       $1,300,000   $  811,000   $1,416,000   $1,246,000
</Table>

NOTE M - SIGNIFICANT CUSTOMER

During the years ended December 31, 2002 and 2001, the Company had one customer
that comprised approximately 27% and 26%, respectively, of total revenues.



                                      F-23
<PAGE>

                                Index of Exhibits

<Table>
<S>           <C>                                                                     <C>
    3.1       Certificate of Incorporation, as amended (filed as Exhibit 2.1 to
              Registrant's Registration Statement on Form 10-SB, file number
              000-27031 and incorporated herein by reference).                         #

    3.2       Bylaws (filed as Exhibit 2.2 to Registrant's Registration
              Statement on Form 10-SB, file number 000-27031 and incorporated
              herein by reference)                                                     #

    4.1       Specimen Certificate of Registrant's Common Stock (filed as
              Exhibit 4.1 to the Company's Form 10-KSB for the fiscal year ended
              December 31, 1999, and incorporated herein by reference).                #

    4.2       Certificate of Correction to the Amended Certificate of
              Incorporation and the Ninth Section of the Certificate of
              Incorporation (filed as Exhibit 2.1 to Registrant's Registration
              Statement on form 10-SB, file number 000-27031 and incorporated by
              reference).                                                              #

    4.3       Certificate of Correction to Articles II and V of Registrant's
              Bylaws (filed as Exhibit 2.1 to Registrant's Registration
              Statement on Form 10-SB, file number 000-27031 and incorporated
              herein by reference).                                                    #

    4.4       Form of Warrant Agreement for Interim Financing in the amount of
              $505,000 (filed as Exhibit 4.1 to Registrant's Quarterly Report on
              Form 10-QSB for the Quarter ended March 31, 2000 and incorporated
              herein by reference).                                                    #

    4.5       Form of Warrant Certificate for Florida Investors for Interim
              Financing in the amount of $505,000 (filed as Exhibit 4.2 to
              Registrant's Quarterly Report on Form 10-QSB for the Quarter ended
              March 31, 2000 and incorporated herein by reference).                    #

    4.6       Form of Promissory Note for Florida Investors for Interim
              Financing in the amount of $505,000 (filed as Exhibit 4.3 to
              Registrant's Quarterly Report on Form 10-QSB for the Quarter ended
              March 31, 2000 and incorporated herein by reference).                    #

    4.7       Form of Warrant Certificate for Georgia Investors for Interim
              Financing in the amount of $505,000 (filed as Exhibit 4.4 to
              Registrant's Quarterly Report on Form 10-QSB for the Quarter ended
              March 31, 2000 and incorporated herein by reference).                    #

    4.8       Form of Promissory Note for Georgia Investors for Interim
              Financing in the amount of $505,000 (filed as Exhibit 4.5 to
              Registrant's Quarterly Report on Form 10-QSB for the Quarter ended
              March 31, 2000 and incorporated herein by reference).                    #

    4.9       Form of Warrant Certificate for Illinois Investors for Interim
              Financing in the amount of $505,000 (filed as Exhibit 4.6 to
              Registrant's Quarterly Report on Form 10-QSB for the Quarter ended
              March 31, 2000 and incorporated herein by reference).                    #

    4.10      Form of Promissory Note for Illinois Investors for Interim
              Financing in the amount of $505,000 (filed as Exhibit 4.7 to
              Registrant's Quarterly Report on Form 10-QSB for the Quarter ended
              March 31, 2000 and incorporated herein by reference).                    #

    4.11      Form of Warrant Agreement for Interim Financing in the amount of
              $500,000 (filed as Exhibit 4.8 to Registrant's Quarterly Report on
              Form 10-QSB for the Quarter ended March 31, 2000 and incorporated
              herein by reference).                                                    #

    4.12      Form of Warrant Certificate for Interim Financing in the amount of
              $500,000 (filed as Exhibit 4.9 to Registrant's Quarterly Report on
              Form 10-QSB for the Quarter ended March 31, 2000 and incorporated
              herein by reference).                                                    #

    4.13      Form of Promissory Note for Interim Financing in the amount of
              $500,000 (filed as Exhibit 4.10 to Registrant's Quarterly Report
              on Form 10-QSB for the Quarter ended March 31, 2000 and
              incorporated herein by reference).                                       #

    4.14      Form of Convertible Promissory Note for September 29, 2000,
              private placement (filed as Exhibit 4.13 to Registrant's Form
              10-KSB for the fiscal year ended December 31, 2000 and
              incorporated herein by reference).                                       #
</Table>



                                       34
<PAGE>


<Table>
<S>          <C>                                                                      <C>
    4.15      Form of Warrant Agreement for September 29, 2000, private
              placement (filed as Exhibit 4.13 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000 and incorporated herein by
              reference).                                                              #

    4.16      Form of 2001 Exchange Warrant Agreement (filed as Exhibit 4.16 to
              Registrant's Form 10-QSB for the quarter ended June 30, 2001 and
              incorporated herein by reference).                                       #

    4.17       Form of 2001 Exchange Warrant Certificate (filed as Exhibit 4.17
               to Registrant's Form 10-QSB for the quarter ended June 30, 2001
               and incorporated herein by reference).                                  #

    10.1      Financial Advisory Services Agreement between the Company and
              National Securities Corporation, dated September 17, 1999 (filed
              as Exhibit 10.1 to Registrant's Form 10-KSB for the fiscal year
              ended December 31, 1999, and incorporated herein by reference).          #

    10.2      Lease Agreement between the Company and BOK Plaza Associates, LLC,
              dated December 2, 1999 (filed as Exhibit 10.2 to Registrant's Form
              10-KSB for the fiscal year ended December 31, 1999, and
              incorporated herein by reference).                                       #

    10.3      Interconnection agreement between Registrant and Southwestern Bell
              dated March 19, 1999 (filed as Exhibit 6.1 to Registrant's
              Registration Statement on Form 10-SB, file number 000-27031 and
              incorporated herein by reference).                                       #

    10.4      Stock Purchase Agreement between the Company and Animus
              Communications, Inc. (filed as Exhibit 6.2 to Registrant's
              Registration Statement on Form 10-SB, file number 000-27031 and
              incorporated herein by reference).                                       #

    10.5      Registrar Accreditation Agreement effective February 8, 2000, by
              and between Internet Corporation for Assigned Names and Numbers
              and FullWeb, Inc. d/b/a FullNic f/k/a Animus Communications, Inc.
              (filed as Exhibit 10.1 to Registrant's Quarterly Report on Form
              10-QSB for the Quarter ended March 31, 2000 and incorporated
              herein by reference).                                                    #

    10.6      Master License Agreement For KMC Telecom V, Inc., dated June 20,
              2000, by and between FullNet Communications, Inc. and KMC Telecom
              V, Inc. (filed as Exhibit 10.1 to the Registrant's Quarterly
              Report on Form 10-QSB for the Quarter ended June 30, 2000 and
              incorporated herein by reference).                                       #

    10.7      Domain Registrar Project Completion Agreement dated May 10, 2000,
              by and between FullNet Communications, Inc., FullWeb, Inc. d/b/a
              FullNic and Think Capital (filed as Exhibit 10.2 to Registrant's
              Quarterly Report on Form 10-QSB for the Quarter ended June 30,
              2000 and incorporated herein by reference).                              #

    10.8      Amendment to Financial Advisory Services Agreement between
              Registrant and National Securities Corporation, dated April 21,
              2000 (filed as Exhibit 10.3 to Registrant's Quarterly Report on
              Form 10-QSB for the Quarter ended June 30, 2000 and incorporated
              herein by reference).                                                    #

    10.9      Asset Purchase Agreement dated June 2, 2000, by and between
              FullNet of Nowata and FullNet Communications, Inc. (filed as
              Exhibit 99.1 to Registrant's Form 8-K filed on June 20, 2000 and
              incorporated herein by reference).                                       #

    10.10     Asset Purchase Agreement dated February 4, 2000, by and between
              FullNet of Bartlesville and FullNet Communications, Inc. (filed as
              Exhibit 2.1 to Registrant's Form 8-K filed on February 18, 2000
              and incorporated herein by reference).                                   #

    10.11     Agreement and Plan of Merger Among FullNet Communications, Inc.,
              FullNet, Inc. and Harvest Communications, Inc. dated February 29,
              2000 (filed as Exhibit 2.1 to Registrant's Form 8-K filed on March
              10, 2000 and incorporated herein by reference).                          #

    10.12     Asset Purchase Agreement dated January 25, 2000, by and between
              FullNet of Tahlequah, and FullNet Communications, Inc. (filed as
              Exhibit 2.1 to Registrant's Form 8-K filed on February 9, 2000 and
              incorporated herein by reference).                                       #

    10.13     Promissory Note dated August 2, 2000, issued to Timothy J.
              Kilkenny (filed as Exhibit 10.13 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000).                                #
</Table>



                                       35
<PAGE>

<Table>
<S>           <C>                                                                     <C>
    10.14     Warrant Agreement dated August 2, 2000, issued to Timothy J.
              Kilkenny (filed as Exhibit 10.14 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000).                                #

    10.15     Warrant Certificate dated August 2, 2000 issued to Timothy J.
              Kilkenny (filed as Exhibit 10.15 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000).                                #

    10.16     Stock Option Agreement dated December 8, 2000, issued to Timothy
              J. Kilkenny (filed as Exhibit 10.16 to Registrant's Form 10-KSB
              for the fiscal year ended December 31, 2000).                            #

    10.17     Warrant Agreement dated November 9, 2000, issued to Roger P.
              Baresel (filed as Exhibit 10.17 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000).                                #

    10.18     Warrant Agreement dated December 29, 2000, issued to Roger P.
              Baresel (filed as Exhibit 10.18 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000).                                #

    10.19     Stock Option Agreement dated February 29, 2000, issued to Wallace
              L Walcher (filed as Exhibit 10.19 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000).                                #

    10.20     Stock Option Agreement dated February 17, 1999, issued to Timothy
              J. Kilkenny (filed as Exhibit 3.1 to Registrant's Registration
              Statement on Form 10-SB, file number 000-27031 and incorporated
              herein by reference).                                                    #

    10.21     Stock Option Agreement dated October 19, 1999, issued to Wesdon C.
              Peacock (filed as Exhibit 10.21 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000).                                #

    10.22     Stock Option Agreement dated April 14, 2000, issued to Jason C.
              Ayers (filed as Exhibit 10.22 to Registrant's Form 10-KSB for the
              fiscal year ended December 31, 2000).                                    #

    10.23     Stock Option Agreement dated May 1, 2000, issued to B. Don Turner
              (filed as Exhibit 10.23 to Registrant's Form 10-KSB for the fiscal
              year ended December 31, 2000).                                           #

    10.24     Form of Stock Option Agreement dated December 8, 2000, issued to
              Jason C. Ayers, Wesdon C. Peacock, B. Don Turner and Wallace L.
              Walcher (filed as Exhibit 10.24 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000).                                #

    10.25     Warrant Certificate Dated November 9, 2000, issued to Roger P.
              Baresel (filed as Exhibit 10.25 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000).                                #

    10.26     Warrant Certificate Dated November 9, 2000, issued to Roger P.
              Baresel (filed as Exhibit 10.26 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000).                                #

    10.27     Warrant Certificate Dated December 29, 2000, issued to Roger P.
              Baresel (filed as Exhibit 10.27 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000).                                #

    10.28     Stock Option Agreement dated October 13, 2000, issued to Roger P.
              Baresel (filed as Exhibit 10.28 to Registrant's Form 10-KSB for
              the fiscal year ended December 31, 2000).                                #

    10.29     Stock Option Agreement dated October 12, 1999, issued to Travis
              Lane (filed as Exhibit 10.29 to Registrant's Form 10-KSB for the
              fiscal year ended December 31, 2000).                                    #

    10.30     Promissory Note dated January 5, 2001, issued to Generation
              Capital Associates (filed as Exhibit 10.30 to Registrant's Form
              10-KSB for the fiscal year ended December 31, 2000).                     #

    10.31     Placement Agency Agreement dated November 8, 2000 between FullNet
              Communications, Inc. and National Securities Corporation (filed as
              Exhibit 10.31 to Registrant's Form 10-KSB for the fiscal year
              ended December 31, 2000).                                                #

    10.32     Promissory Note dated January 25, 2000, issued to Fullnet of
              Tahlequah, Inc.                                                          #

    10.33     Promissory Note dated February 7, 2000, issued to David Looper           #

    10.34     Promissory Note dated February 29, 2000, issued to Wallace L.
              Walcher                                                                  #
</Table>



                                       36
<PAGE>

<Table>
<S>           <C>                                                                     <C>
    10.35     Promissory Note dated June 2, 2000, issued to Lary Smith                 #

    10.36     Promissory Note dated June 15, 2001, issued to higganbotham.com
              L.L.C.                                                                   #

    10.37     Promissory Note dated November 19, 2001, issued to Northeast Rural
              Services                                                                 #

    10.38     Promissory Note dated November 19, 2001, issued to Northeast Rural
              Services                                                                 #

    10.39     Form of Convertible Promissory Note dated September 6, 2002              #

    10.40     Employment Agreement with Timothy J. Kilkenny dated July 31, 2002        *

    10.41     Employment Agreement with Roger P. Baresel dated July 31, 2002           *

    10.42     Letter from Grant Thornton LLP to the Securities and Exchange
              Commission dated January 30, 2003                                        #

    22.1      Subsidiaries of the Registrant                                           #

    99.1      Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
              Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by
              Timothy J. Kilkenny                                                      *

    99.2      Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
              Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Roger
              P. Baresel                                                               *
</Table>

----------

# Incorporated by reference

* Filed herewith



                                       37