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, 1999

[ ]              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.)

                          200 North Harvey, Suite 1704
                          Oklahoma City, Oklahoma 73102
                          -----------------------------
                    (Address of principal executive offices)

                                 (405) 232-0958
                                 --------------
                         (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                    Name of each exchange on which registered
-------------------                    -----------------------------------------

Common Stock, $0.00001 Par Value                     None

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. [ ]

The Registrant's revenues for its most recent fiscal year were $1,122,000.

The aggregate market value of the registrant's common stock, $0.00001 par value,
held by  non-affiliates  of the  Registrant as of March 24, 2000 was  $3,650,034
based on the  closing  bid price of $3.00 per share on that date as  reported by
the  OTC  Bulletin  Board.  As of  March  24,  2000,  3,134,578  shares  of  the
registrant's common stock, $0.00001 par value, were outstanding.

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

The  following  documents are  incorporated  by  reference:  Registrant's  Proxy
Statement  for the 2000  Annual  Meeting  of  Stockholders  is  incorporated  by
reference in Part III, Items 9 through 12, of this Form 10-KSB

<PAGE>

                          FULLNET COMMUNICATIONS, INC.
                                   FORM 10-KSB
                   For the Fiscal Year Ended December 31, 1999

                                TABLE OF CONTENTS

Part I.

Item 1.   Description of Business............................................. 2
Item 2.   Description of Property.............................................18
Item 3.   Legal Proceedings...................................................18
Item 4.   Submission of Matters to a Vote of Security Holders.................19

Part II.

Item 5.   Market for Common Equity and Related Stockholder Matters............19
Item 6.   Management's Discussion and Analysis or Plan of Operation...........20
Item 7.   Financial Statements................................................23
Item 8.   Changes In and Disagreements With Accountants on Accounting and
          Financial Disclosure................................................23

Part III.

Item 9.   Directors, Executive Officers, Promoters and Control Persons;
          Compliance With Section 16(a) of the Exchange Act...................23
Item 10.  Executive Compensation..............................................23
Item 11.  Security Ownership of Certain Beneficial Owners and Management......23
Item 12.  Certain Relationships and Related Transactions......................24
Item 13.  Exhibits and Reports on Form 8-K....................................24

Signatures  ..................................................................26











<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. Properties,  Item 3. Legal Proceedings,  Item 7. Management's
Discussion  and Analysis of Financial  Condition and Results of  Operation,  and
Item  8.   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 Annual  Report on Form 10-KSB
under the caption  "Item 1.  Description  of  Business-Risk  Factors," our other
Securities and Exchange Commission filings and our press releases.

                                       1

<PAGE>


                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

General

         FullNet  Communications  Inc. (the "Company") is a regional  integrated
communications  provider ("ICP") offering integrated  communications and network
solutions to individuals, businesses,  organizations,  educational institutions,
and government  agencies.  Through its  subsidiaries,  the Company provides high
quality,  reliable  and  scalable  Internet,  telephony,  and network  solutions
designed to meet its  customers'  needs.  The Company's  overall  strategy is to
become the dominant ICP,  Internet service provider  ("ISP"),  network solutions
and  broadband  backbone  provider  for  residents  and  small  to  medium-sized
businesses in Oklahoma and contiguous states.

         References to the Company in this Annual  Report  include the Company's
direct and indirect  subsidiaries:  FullNet,  Inc.  ("FullNet"),  FullTel,  Inc.
("FullTel"),   FullSolutions,   Inc.   ("FullSolutions")   and   FullWeb,   Inc.
("FullWeb").  The Company's principal executive offices are located at 200 North
Harvey Avenue,  Suite 1704,  Oklahoma City,  Oklahoma  73102,  and its telephone
number is (405)  232-0958.  We also  maintain an Internet site on the World Wide
Web ("WWW") at www.fullnet.net.  Information contained on the Company's Web site
is not,  and  should not be deemed to be, a part of this  Annual  Report on Form
10-KSB.

Company History

         The  Company  was  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.  The Company
changed its name to FullNet  Communications,  Inc. in December 1995, and shifted
its focus from  offering  dial-up  services to providing  wholesale  and private
label network  connectivity and related services to other ISPs.  During 1995 and
1996,  the Company  furnished  wholesale and private label network  connectivity
services to ISPs in Bartlesville,  Cushing, Durant, Perry, Tahlequah, and Tulsa.
During 1996, the Company sold its ISP operations in Enid, Oklahoma and began ISP
operations in Ponca City, Oklahoma.

         In 1997 the Company continued its focus on being a backbone provider by
upgrading and acquiring more  equipment.  The Company also started  offering its
own ISP brand access and services to its wholesale customers. As of December 31,
1999,  there were five ISPs in Oklahoma  that used the FullNet  brand name where
the Company is the backbone,  including two that were  subsequently  acquired by
the Company.  There are an additional  three ISPs that use a private label brand
name,  where the Company is their access  backbone and provides their  technical
support, managing and operating their systems on an outsource basis. In February
2000  the  Company  acquired  one  of the  private  label  ISPs.  See  "Item  1.
Description  of  Business-Recent  Events."  Additionally,  the Company  provides
high-speed  broadband  connectivity,  website  hosting,  network  management and
consulting solutions to over 50 businesses in Oklahoma.

         In 1998  the  Company's  gross  revenues  exceeded  $1,000,000  and the
Company made the Metro Oklahoma City Top 50 Fastest  Growing  Companies list. In
1998 the  Company  commenced  the  process of  organizing  a  competitive  local
exchange carrier ("CLEC") through FullTel,  and acquired Animus  Communications,
Inc. ("Animus"),  a wholesale Web-service company,  thereby enabling the Company
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,  the
Company's  current  business  strategy is to become the dominant ICP in Oklahoma
and surrounding  states.  The Company expects to grow through the acquisition of
ISPs and network solutions  providers,  as well as through a marketing campaign,
the design and  implementation of which is to be completed in the second quarter
2000.  Since  December  31,  1999,  the Company  has  completed  three  separate
acquisitions of ISP companies, operating in, respectively,  Tahlequah, Oklahoma,
Bartlesville, Oklahoma and Enid, Oklahoma.

                                       2

<PAGE>


Recent Events

Mergers and Acquisitions

         On  January  25,  2000,  the  Company  entered  into an Asset  Purchase
Agreement with FullNet of Tahlequah,  Inc., an Oklahoma  corporation ("FOT"), in
which  the  Company  purchased  substantially  all of  FOT's  assets,  including
approximately 400 individual and business Internet access accounts.  The Company
paid FOT an aggregate amount of $97,735, comprised of $35,890 in cash and a note
payable for $61,845.  The note is payable in eighteen  monthly  installments and
bears no interest.

         On  February  4,  2000,  the  Company  entered  into an Asset  Purchase
Agreement with David Looper, d/b/a FullNet of Bartlesville  ("FOB"), an Oklahoma
sole  proprietorship in which the Company  purchased  substantially all of FOB's
assets,  including  approximately  400 individual and business  Internet  access
accounts.  The Company  paid FOB an  aggregate  amount of  $178,400,  payable in
42,744  shares  of the  Company's  common  stock  (valued  for  purposes  of the
acquisition  at $3.00 per share) and a note payable for $50,168.  The note bears
an  interest  rate of 8% per annum,  with the  principal  and  interest  thereon
payable  on the  earlier  to  occur of (a) the  closing  of any  private  equity
placement in excess of $351,000, (b) the closing of any underwritten offering of
the Company's  common stock,  or (c) one year from the closing date of the Asset
Purchase Agreement.

         On February 29, 2000, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Harvest  Communications,  Inc., ("Harvest")
an Oklahoma corporation, pursuant to which Harvest merged with and into FullNet.
Harvest had approximately  2,500 individual and business dial up Internet access
accounts,  15 wireless  Internet  access  accounts and 35 Web hosting  accounts.
Pursuant to the terms of the Merger Agreement, the Company paid the shareholders
of Harvest an aggregate  amount of $1,912,500  payable in 537,500  shares of the
Company's common stock (valued for purposes of the merger at $3.00 per share), a
note payable for $175,000 and $125,000 in cash.  The note bears an interest rate
of 8% per annum,  with the principal and interest thereon payable on the earlier
to occur of (a) the  closing  of any  single  funding  (whether  debt or equity)
obtained by the Company  subsequent  to the date of the Merger  Agreement  in an
aggregate  amount of at least  $2,000,000,  (b) the closing of any  underwritten
offering of the Company's common stock, or (c) March 6, 2001.

         These  acquisitions  were  accounted  for as  purchases.  The aggregate
purchase  price will be allocated to the  underlying  assets  purchased on their
fair  market  values  at  the  respective   acquisition   date.   Prior  to  the
acquisitions,  each of FOT, FOB and Harvest was a customer of the  Company's ISP
access services.

Financing Activities

         In  February  2000,  the Company  obtained a bridge  loan for  $275,000
through the issuance of 14%  promissory  notes to 10 accredited  investors.  The
terms of the  financing  additionally  provided  for the issuance of warrants to
purchase an aggregate of 137,500  shares of the Company's  common stock at $0.01
per share, and provided for certain  registration  rights.  The promissory notes
each  bear an  interest  rate of 14% per  annum  and  require  monthly  interest
payments.  The loan term is for six  months,  and is  extendible  for two 90-day
periods upon issuance of an additional warrant for 137,500 shares exercisable at
$0.01 per share for each extension.

         In March 2000, the Company  obtained a bridge loan for $500,000 through
the issuance of 14% promissory notes to two accredited  investors.  The terms of
the  financing  additionally  provided  for the issuance of warrants to purchase
100,000  shares of the Company's  common stock at $0.01 per share,  and provided
for certain registration rights. The promissory notes each bear an interest rate
of 14% per annum and require quarterly interest  payments.  The loan term is for
six months, and is extendible for two 90 day periods upon issuance of additional
warrants for an aggregate 10,000 shares  exercisable at $0.01 per share for each
extension.  On March 8, 2000, both of the bridge loan investors  exercised their
warrants  and  purchased  100,000  shares of common  stock of the  Company at an
aggregate exercise price of $1,000.

         In  February  2000,  the  Company  raised an  aggregate  $135,600 in an
offering of its common  stock.  The offering  was made  pursuant to an exemption
from the registration requirements of the Securities Act pursuant to Rule 504 of
Regulation D of such act. Pursuant to the 504 offering,  45,200 shares of common
stock were issued.

                                       3

<PAGE>

         Proceeds  of the two bridge  loans and the 504  offering  were used for
acquisitions, working capital and general corporate purposes.

Industry Overview

The Internet Access and Services Market

         The Internet has emerged as a significant global communications medium,
enabling millions of people to communicate, publish and retrieve information and
conduct business  electronically.  Regardless of the hardware and software used,
Internet  Protocol or "IP" enables Internet  communication by providing a common
inter-networking  standard. Due to increased public awareness,  lower prices for
access devices,  increased  functionality and improving  content,  International
Data Corporation estimates that the number of users accessing the World Wide Web
will increase from  approximately 97 million at the end of 1998 to approximately
320  million by the end of 2002.  Total ISP  revenues  in the Untied  States are
projected to grow from $10.7 billion in 1998 to $37.4 billion in 2003.

         Internet  access  services  are the  means by which  ISPs  interconnect
either  businesses or  individual  consumers to the  Internet's  resources or to
corporate  intranets and extranets.  Access services  include dial-up access for
individuals  and small  businesses  and  high-speed  dedicated  access  designed
primarily for mid-sized and larger organizations.  Users currently accessing the
Internet do so  primarily by means of dial-up  services.  Access to the Internet
using  dial-up  services  requires the user to have access to a local  telephone
line, the use of a modem and an ISP account, such as a FullNet Internet account.
However,  new ways of  connecting  to the  Internet  are  becoming  more common,
particularly  those that take  advantage of higher  speed and broader  bandwidth
capacity.

         The rapid  development  and growth of the  Internet  has  resulted in a
highly  fragmented  industry of over 5,000  national  and local ISPs in the U.S.
ISPs vary widely in geographic  coverage,  customer focus and levels of Internet
access provided to subscribers. For example, access providers may concentrate on
certain types of  subscribers  (such as businesses or  individuals)  that differ
substantially  in the type of  service  and  support  required  by the  relevant
customer  constituency.  Often,  large  national  ISPs do not  offer  individual
customers  the level of support  desired and many smaller  regional  ISPs do not
have  the  resources  necessary  to offer  adequate  customer  support.  Because
user-friendly software and responsive customer service and technical support are
the foundation of the Company's business, the Company believes that it is poised
to  capitalize  on the  growth in the  Internet  access  and  Internet  services
segments of the telecommunications market.

         The number of  businesses  and  consumers  accessing  the  Internet  is
expected to increase  significantly  in the  foreseeable  future.  According  to
Forrester  Research,  the  market  for  providing  access  to the  Internet  for
businesses  and  consumers  in the United  States will grow from $5.8 billion in
1997 to $38.1 billion in 2002.  Additionally,  as  businesses  and consumers are
developing  greater  levels of comfort in the use of the Internet for electronic
commerce,  businesses are  increasingly  implementing  sophisticated  electronic
commerce  solutions that, in turn, require  significantly  greater bandwidth and
other business services.  In response,  an increasing number of Internet service
providers are attempting to augment their basic Internet  access services with a
wide range of  business  services,  such as Web hosting  and  Internet  security
services.  In addition,  as more businesses evolve from establishing an Internet
presence  to  utilizing  secure  connectivity  between  geographically-dispersed
locations, remote access to corporate networks and business-to-business commerce
solutions,  the demand for high quality  Internet  connectivity  and value-added
services is expected  to grow.  International  Data  Corporation  predicts  that
enhanced Internet services, such as Web hosting, security,  e-commerce,  virtual
private  networks and advanced  Internet  applications are expected to grow from
approximately $352 million in 1997 to over $7 billion in 2000.

         Internet  service  providers  that offer both Internet  access to broad
segments of the population and that offer a broad selection of business services
are  positioned  to attain  greater  economies of scale  through  lower  network
expansion and marketing costs on a  per-subscriber  basis.  The Company believes
that it is uniquely positioned,  among purely local or regional ISPs, to benefit
from this continued growth. Specifically,  the Company believes that a window of
opportunity   currently   exists  within  the  state  of  Oklahoma.   Currently,
competition from the national ISPs, such as America Online, Prodigy, CompuServe,
has had only minimal  impact on the Oklahoma ISP market due to the lack of local
dial-up  Internet  presence  in rural  Oklahoma  and too many busy  signals.  In
addition,  the local Oklahoma education ISP, OneNet, is also not a factor due to
the  limits  placed  on it by the  Oklahoma  legislature.  With the  demand  for
Internet access  consistently  exceeding all  projections,  the Company believes
that its target area, rural Oklahoma, is grossly underserviced. Accordingly, the
Company  believes  that a real  opportunity  exists  for  the  Company  and  its
subsidiaries to establish a stronghold on the Oklahoma  Internet  market,  given
the  local  infrastructure  that  it  already  has  in  place  as  well  as  its
multi-pronged marketing strategy.

                                       4

<PAGE>

Telecommunications Industry

         The  telephone  and data  transmission  segment  of the  communications
industry is currently undergoing  widespread changes brought about by three main
factors.  First were the decisions of federal and state  regulators  that opened
the monopoly of local telephone  markets to competition.  Second was the ensuing
transformation of the previously  monopolistic  communications market controlled
by heavily  regulated  incumbents  into a  consumer-driven  competitive  service
industry.  Third was the need for higher speed, higher capacity networks to meet
the increasing consumer demand for expanded communications  services,  including
broader  video  choices,  and  high  speed  data  and  Internet  services.   The
convergence  of  these  trends  has  created  opportunities  for  new  types  of
communications  companies capable of providing a wide range of voice,  video and
data services.  Hence, companies have developed  concentrations in various niche
segments of the industry involving (1) high-speed  wireless,  (2) DSL, (3) fiber
broadband,   (4)  long  distance  only,  (5)  local   telephone  only,  and  (6)
combinations of these services.

         The   passage   of   the    Telecommunications   Act   of   1996   (the
"Telecommunications  Act") codified the  pro-competitive  policies on a national
level,  requiring  both the FCC and the state  regulatory  commissions  to adopt
significant  changes in their  rules and  regulations  in  furtherance  of these
policies.  This act  obligates  regulators  to  remove  market  entry  barriers,
enabling  companies to become full service  providers of local and long distance
telephone service by, among other things, mandating the incumbent local exchange
carrier ("ILEC") to provide  interconnection  and  competitively  priced network
facilities to competitors.  In addition, the Telecommunications Act requires the
Regional Bell Operating  Companies  ("RBOCs") to offer wholesale access to their
switching and existing technology, thus permitting others to compete.

         The Company  intends to provide  traditional  long  distance  and local
telephone  service,  as well as  other  communications  services,  in  order  to
position  ourselves as a single source supplier for all the communication  needs
of the customer. In 1999 the Oklahoma Corporation Commission granted the request
of  FullTel,  the  Company's  wholly  owned  subsidiary,  to become a CLEC.  The
Company's  intention  is to provide IP telephony  services and CLEC  services to
subscribers in the State of Oklahoma.

The Company's Business Strategy

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

Internet Access Services

Target Strategic Acquisitions

         The goal of the Company's  acquisition strategy is to accelerate market
penetration by acquiring ISPs in Oklahoma communities with a population of 5,000
or more and to acquire strategic ISPs in Oklahoma City and Tulsa.  Additionally,
the Company  will  continue to build upon its core  competencies  and expand its
technical,  customer service staff and sales force in Oklahoma communities.  The
Company evaluates  acquisition  candidates based on their fit with the Company's
overall  business  plan of  penetrating  rural and  outlying  markets as well as
Oklahoma  City and  Tulsa.  When a  candidate  is  acquired,  the  Company  will
integrate its 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 its own dealer  sales  force to  continue  to  increase  market
share. The types of acquisitions targeted by the Company include ISPs located in
markets  into  which the  Company  wants to expand,  or to which it may  already
provide   "private-label"   Internet  connectivity.   Other  types  of  targeted
acquisitions  include local  business only ISPs in markets where the Company has
established  points of presence and would  benefit  from the acquired  company's
local  sale and  network  solutions  sales and  technical  staff  and  installed
customer  base  through  the  potential   increase  in  the  Company's   network
utilization.  When determining which ISPs to acquire, the Company focuses on the
following criteria:

                                       5

<PAGE>

     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 the
          Company's  backbone network
     o    Favorable consolidation savings

         Since  December  31, 1999,  the Company has  completed  three  separate
acquisitions of ISP companies, operating in, respectively,  Tahlequah, Oklahoma,
Bartlesville, Oklahoma and Enid, Oklahoma.

Generate Internal Sales Growth

         The  Company  intends  to expand  its  customer  base by  significantly
increasing  its  direct  and  indirect  regional  sales  forces  as  well as its
marketing  efforts.  As of December 31, 1999,  the Company's  direct sales force
consisted  of two persons in two  regional  sales  offices in Oklahoma  City and
Tulsa  coordinating  all  business to Business  ("B2B")  solutions  sales of the
Company.  The Company  currently has one  individual  responsible  state wide to
manage  the  consumer   ISP  market,   with   dealers  and   independent   sales
representatives  responsible for their individual  markets.  The Company's sales
force  is  supported  in their  efforts  by  technical  engineers  and,  in some
instances, senior management of the Company. The Company intends to increase the
number of its sales offices through expanding the size of its direct sales force
with the goal of having an effective  selling presence in all major  communities
in the state of Oklahoma. In addition, the Company is exploring other strategies
to grow its direct sales force,  including developing an inside sales center and
other marketing  partners such as electric  cooperatives.  The Company currently
has  two of  the  twenty  local  Oklahoma  electric  cooperatives  as  marketing
partners.

Develop the Dominant Regional Brand

         FullNet  seeks to  support  internal  growth by  converting  each local
acquired  ISP 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.  The  Company  intends  to change  these  brands on a market by
          market  basis  as  it  implements  enhancements  to  improve  customer
          satisfaction.

     o    Community  based  marketing.  The Company intends 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 the Company's'  products
          and services in their stores.

Develop Strategic Relationships

         The Company aims to develop  strategic  relationships  with advertisers
and  content  providers,  capitalizing  on  opportunities  to  sell  value-added
products and services to its local subscribers.

Grow Subscriber Base

         The Company  intends to grow its subscriber  base through a combination
of internal and acquisition driven growth. This growth will help to increase the
density of the subscriber base on a subscriber-per-POP basis, which should allow
the Company to leverage its cost structure,  particularly those costs associated
with network operations,  customer support, back office functions and management
overhead.  The Company expects its 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.

                                       6

<PAGE>

Increase Rural Area Market Share

         The  Company  believes  that rural areas of  Oklahoma  and  surrounding
states are underserved by ISPs, and that  significant,  profitable growth can be
achieved by entering such markets and providing  reliable Internet  connectivity
at a reasonable cost to the residents and businesses  located in such areas. The
Company  believes  it can  obtain  a  significant  ISP and B2B  market  share in
Oklahoma.  To that end,  the  Company,  through  its  wholly  owned  subsidiary,
FullTel,  became a licensed  CLEC in the state of Oklahoma and intends to pursue
such licensing in neighboring states. As a CLEC in any particular state, FullTel
will be able to offer local telephone numbers for Internet access.

Cross-Sell Value Added Services

         The Company  intends to  capitalize  on its existing  customer base and
future customers by aggressively cross selling its value-added  services through
a referral system that has every local retail ISP sales representative referring
B2B  customers  to the  FullSolutions  division.  The  Company is  committed  to
offering  its  customers  reliable  value-added  network  services  necessary to
address their  Internet,  communications  and network  management  requirements.
Based on the Company's existing network infrastructure and expertise, it is able
to offer these services continuously, reliably and on a cost-effective basis.

Enhance Subscribers' Online Experience

         FullNet intends to maintain its high subscriber retention rates and add
new subscribers by enhancing its services in the following ways:

     o    Ease of Use - The Company  intends to develop and  implement 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 - Source 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 Internet telephony or 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 the Company's  subscribers in exchange
          for fee based revenues.

Network Solutions

Provide a Broad Array of Network Solutions and Communications Services

         Based on the Company's  belief that a growing  number of businesses and
consumers  will  demand that one  company  provide  all of their  communications
needs,  the  Company  plans to  continue  to add  products  and  services to its
portfolio.

         The fragmentation among Internet, intranet/extranet and other corporate
internal  network  service  providers  has resulted in users often faced with an
overwhelming  array  of  providers  and  services  from  which to  choose.  Most
importantly, because of the pace of change, most companies already have inferior
non-integrated  services and small business is falling behind rapidly in keeping
pace  technologically.  For example,  it is typical for a user to purchase local
loop connectivity from a RBOC or a CLEC, to purchase Internet or other wide area
network connectivity from a separate Internet or other network service provider,
and to purchase network services,  like remote management,  systems  integration
and network security, from one or more other companies.

                                       7

<PAGE>

         The Company  believes a total B2B integrated  Internet,  intranet,  and
internal network service  provider model is evolving  towards  providers who are
capable of  providing a  comprehensive  solution  by bundling  several or all of
these  functions  efficiently,  reliably and on a cost effective  basis.  As the
Company  believes that it is the only ICP based in Oklahoma,  it hopes to become
the preferred provider of network solutions statewide.

Effect Geographical Expansion

         The  Company's  strategic  plan  for  its  network  solutions  business
includes the geographic  expansion of its integrated  communications and network
solutions to businesses, educational institutions,  non-profit organizations and
government throughout Oklahoma. This will be accomplished by having the internal
and  external ISP sales force refer B2B network and  broadband  solutions to the
regional sales manager in Oklahoma City or Tulsa so that the Company can provide
turnkey  solutions to that local  customer.  The Company  currently  has over 50
business network solution clients and believes this business will expand rapidly
in the  future as the  Company's  total  solutions  ability  is offered in every
community  where the  Company  has retail ISP  customers,  whether  through  its
dealers or its corporate sales  representative.  Management believes this market
is underserved in Oklahoma.

Business Units

         The Company has built a portfolio of products,  services and skill sets
to develop and deliver comprehensive Internet  communications  solutions to both
business and  residential  customers.  These products and services are organized
under two divisions:  Internet Access Services and Network  Solutions.  Internet
Access Services  includes local dial-up and dedicated  Internet  connectivity as
well as  Internet  telephony,  while  Network  Solutions  includes  the  design,
implementation  and  administration of enterprise  network  solutions,  Web page
design and  hosting,  server  co-location,  e-commerce  and, in the near future,
Internet domain name registration.

Internet Access Services

         The Company's core business is the sale of Internet  access services to
individual and small business subscribers located in Oklahoma.  Through FullNet,
the Company  provides  its  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 and Internet telephony. FullNet's full
range of services include:

     o    Private label retail and business  direct dial-up  connectivity to the
          Internet
     o    Secure  private  networks  through the  Company's  backbone  network
     o    Internet telephony services

         The Company's  branded and private label Internet  access  services are
provided through a statewide network with POPs in 23 communities  throughout the
state of Oklahoma.  POPs are local telephone  numbers through which  subscribers
can access the Internet.  The Company's  business services consist of high speed
Internet access services and other services that enable  wholesale  customers to
outsource  their Internet and electronic  commerce  activities.  The Company had
approximately  1,300  subscribers  at December 31, 1999.  Additionally,  FullNet
sells Internet access to other ISPs,  which then resell Internet access to their
own customers under their private label or under the "FullNet" brand name.

         The Company  intends to expand its subscriber  base through a marketing
campaign  and through  acquisitions.  The Company is  focusing  its  acquisition
efforts on companies  with  forward-looking  sales and  marketing,  high-quality
customer  service and a solid local market  dominance.  Since December 31, 1999,
the  Company  has  completed  three  separate  acquisitions  of  ISP  companies,
operating in,  respectively,  Tahlequah,  Oklahoma,  Bartlesville,  Oklahoma and
Enid,  Oklahoma.   See  Item  1.  Description  of  Business  -  Recent  Events".
Additionally,  the  Company is  expanding  its sales and  marketing  staff in an
effort to  increase  the  Company's  subscriber  base in the markets in which it
currently operates.

                                       8

<PAGE>

         Currently,  the Company  offers the  following  three 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. The Company  supports
          these users  through the use of  sophisticated  modem banks at the POP
          that send data through a router and out to the  Internet.  The Company
          supports   the   higher   speed   56K  and   ISDN   connections   with
          state-of-the-art digital modems. With a dial-up connection, a user can
          gain access to the Internet for e-mail,  WWW, file  transfer  protocol
          ("FTP"), news groups, and a variety of other useful applications.

     o    Dedicated Dial-Up Connections

               For  the  user  who  needs  to be  connected  immediately  to the
          Internet  100% of the  time,  the  Company  offers  dedicated  dial-up
          connections.  This service  basically sets aside one dial-up modem for
          the  customer,  guaranteeing  that  the  customer  can  always  get  a
          connection when needed.

     o    Leased Line Connections

               Many  businesses  and  some  individuals  have  a need  for  more
          bandwidth  to the  Internet  in order to support an entire  network of
          users or a busy Web  site.  The  Company  has 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 the POP. The leased line  solution  comes at greater
          expense to the user,  who must lease a specially  dedicated  line from
          its location to the POP.  These lines are leased through the telephone
          companies at a high  installation and monthly fee. It is the Company's
          preference to offer the customer a two-way wireless  connection,  thus
          capturing telephone company revenue and saving the customer money.

         Additionally,  the Company is in the process of implementing operations
as a CLEC, which will enable it to offer a variety of additional Internet access
services,  including  broadband  digital  subscriber line ("DSL") service,  with
speeds of 60 to 100 times faster than analog modems. See "Item 1. Description of
Business-Business Units-CLEC Operations." DSL is a new technology being deployed
by telephone  companies and CLECs that permits high speed  digital  transmission
over the existing copper wiring of regular telephone lines. Through FullTel, the
Company's  CLEC,  the  Company  plans to offer DSL  service in 2000,  as well as
offering local dial-up internet access in each of such communities so served.

         FullTel's  DSL  services  will be  targeted  to small to  medium  sized
businesses, telecommuter and consumer markets. The "dedicated access feature" of
DSL services combined with its high speed and low flat rate pricing are designed
to appeal to the large  installed base of integrated  services  digital  network
("ISDN") users. Pricing for the service is low relative to traditional dedicated
access services, making it attractive to small to medium sized businesses, while
at the same time broadening the market to reach small  businesses who previously
could not justify the expense of dedicated Internet service.

         Pricing  is based  on the  bandwidth  of the DSL  circuit,  and  varies
depending on the service speed. FullTel intends to provide complete installation
services, including all customer equipment necessary to provide the DSL service.

         The  Company  believes  that  its  business  model  offers   attractive
economics.   Through  the  use  of  current  DSL  technology,  the  Company  can
effectively leverage existing telephone network copper  infrastructure to deploy
service more quickly and at lower costs than technologies such as cable modems.

         In addition to offering DSL services,  the Company intends on deploying
wireless data networks for high speed Internet access in approximately 11 cities
in Oklahoma during 2000.

                                       9

<PAGE>

         The  Company   believes  that  its  Internet  access  services  provide
         customers with the following benefits:

         Fast and Reliable Internet Access-The Company has implemented a network
         architecture  providing exceptional quality and consistency in Internet
         services,  making the Company  the  recognized  backbone  leader in the
         Oklahoma ISP industry.  The Company offers unlimited,  unrestricted and
         reliable Internet access at a low monthly price. A user-to-modem  ratio
         of 8:1 assures access without 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. The Company's 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 WWW, email, news and FTP.

         Cost-Effective   Access-The   Company  offers  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,  the Company offers pre-bundled
         access services packages under monthly or prepaid plans.

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

CLEC Operations

         Through FullTel, the Company's wholly owned subsidiary,  the Company is
a fully  licensed CLEC in the State of Oklahoma.  CLECs are new phone  companies
born out the  Telecommunications  Act,  which  requires  the 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 CLEC's
network.  By adding its own telephone switch and  infrastructure to the existing
telephone  network,  the Company will be able to offer local services in most of
Oklahoma,  including  local  dial-up and DSL for the  Internet  access  services
provided by the Company.  As a CLEC, the Company may subscribe to and resell all
forms of local telephone  service in the State of Oklahoma.  The Company intends
to build its own network  infrastructure,  which it believes will  eliminate its
current  reliance upon the  infrastructures  of the ILECs.  The Company believes
that its CLEC status,  combined with the efficiencies  inherent in operating its
own  network,  should  result in lower  overhead  costs  and a more  predictable
infrastructure,  both  of  which  should  be to the  benefit  of  the  Company's
customers.

         While Internet access is the core focus of growth for the Company,  the
Company plans to also provide traditional  telephone service throughout Oklahoma
and contiguous states. The Company intends to seek approval to operate as a CLEC
in additional states as it expands into such areas.

         A core  piece  of  the  Company's  marketing  strategy  is  the  "cross
pollination"  between the Company's  Internet  activities  and  FullTel's  local
dial-up service. By organizing and funding FullTel,  the Company expects to gain
local dial-up Internet access to approximately 80% of the State of Oklahoma when
the  Company's  telephone  switch is installed  in its data  center.  In return,
FullTel will gain immediate access to the Company's entire ISP customer base.

         The  installation  of  the  FullTel  data  center  telephone  switching
equipment currently is anticipated to be completed in the third quarter of 2000.
Upon  completion,  FullTel will extend local access  telephone  numbers to every
city in which the Company will market,  sell and operate its retail  FullNet ISP
brand  and  its  B2B  network  design,  connectivity,  domain  and  Web  hosting
businesses. It is anticipated that initially,  FullTel will provide FullNet with
local  telephone  access in 35-40 targeted  cities where the Company will either
already own ISP  operations or have commenced  sales and marketing.  Also, it is
anticipated that by the end of 2000, the Company will have up to 11 cities where
it will have installed  high-speed bandwidth wireless or DSL delivery technology
for its FullNet and FullSolutions divisional sales systems. During 2000, FullTel
expects to conclude the planning and  development  for the delivery of local and
long  distance  telephone  service  for  Oklahoma.  It is  anticipated  that the
services will be launched in 2001.

                                       10

<PAGE>

Network Solutions

         Through  FullSolutions,  a wholly owned subsidiary of the Company,  the
Company assists clients with the design,  implementation  and  administration of
enterprise  network  solutions,  Web  hosting,  Web page design,  dedicated  B2B
Internet  connectivity and e-commerce  solutions.  FullSolutions  offers a broad
array of services to assist its  customers in operating  reliable  networks with
high integrity.  These services include design,  activation,  network management
and  optimization,  and ongoing support,  repair and maintenance.  FullSolutions
also offers a broad selection of enhanced  business services that are focused on
the practical needs of businesses to support their Internet operations. Finally,
FullSolutions offers technological  expertise in groupware,  e-mail,  networking
and database applications.

         FullSolutions provides tailored,  value-added IP based network services
for enterprises and consumers. To provide these services, FullSolutions utilizes
its low/fixed latency,  high throughput network,  employing its advanced network
architecture and the Internet.  FullSolutions' service offerings for enterprises
include virtual private networks ("VPNs"),  remote access and Web design.  These
services enable enterprises to take advantage of standard Internet tools such as
browsers and high performance servers for customized data communications  within
an  enterprise  and  between  an  enterprise  and its  suppliers,  partners  and
customers.  These  services  combine the cost  advantages,  national  access and
standard protocols of public networks with the customization,  high performance,
reliability and security of private networks.

         FullSolutions   provides   integrated  Intranet  and  Internet  network
solutions  for its clients.  Computer  networks are  continuing to be key to the
flow  of  information  within  corporations  and  are  mission  critical  to the
Company's customers. The Company is committed to providing the latest up to date
training and  certifications  for its personnel,  thus providing its subscribers
with  assurances  of top level  expertise.  The Company's  networking  engineers
specialize in the development of wide area networks ("WAN"),  metropolitan,  and
local area  networks  ("LAN"),  including  network  integration  of all computer
systems platforms.

         Corporate  experience  includes  in-depth working  knowledge of various
broadband technologies, including T-1 lines and wireless, as well as routing and
switching  technology,  including  Lucent  Technologies,  Cisco Systems,  Nortel
Networks and Hybrid  Networks.  Employees have skills in dealing with the design
and layout of LAN and WAN environments. In fact, FullSolutions has developed and
installed LAN/WAN environments  utilizing  large-scale  deployments of major LAN
network operating systems.

         Both  directly  and  through the  Company's  global  reseller  network,
FullSolutions  also offers  customers a broad  range of  affordable  Web hosting
service plans including Web page design, advanced E-commerce,  managed dedicated
server,  server co-location and dedicated network  connectivity  solutions.  Web
hosting is in  essence  the  rental of space on a server  that has a  continuous
connection to the Internet.  As part of the Company's Web hosting services,  the
Company assigns a virtual domain name  (www.yourcompany.com)  for its customers.
Once the domain name is registered,  the Company reserves a portion of hard disk
space on one of its servers,  to which the customer can upload the Web site. The
site has its own Web  address  and can be reached by anyone on the  Internet  at
anytime, or it may be password protected for access by selected persons. Virtual
hosting allows companies to assign e-mail addresses with their own domain name.

         FullSolutions  operates a  separate  subsidiary,  FullWeb,  which is an
accredited  Internet  domain  name  registrar.  On July 8,  1999,  the  Internet
Corporation  for Assigned  Names and Numbers  ("ICANN")  announced that FullWeb,
formerly Animus,  was one of only approximately 50 initial companies from around
the world which have been approved to act as registrars  for the .com,  .net and
 .org Internet  domains.  The assignment of Internet  domain names for a fee will
complement  the  current  services  offered  by  the  Company  and  give  it  an
opportunity for tremendous growth in a business that was previously conducted by
only one  company.  FullWeb  has not yet  received  its  registrar  license  and
agreement with Network  Solutions,  Inc., which will enable it to begin offering
registration  services.  FullWeb  expects  to  be  able  to  offer  domain  name
registrations during 2000.

                                       11

<PAGE>


Sales and Marketing

         Although the Company expects that the bulk of its new subscribers  will
come through  acquisition of ISPs, the Company's  expanded local sales system is
also an integral  part of the Company's  growth plan.  Local sales and marketing
will give the Company  brand name  recognition  that will lead to an increase in
Company sales.

         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 the
Company's  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.  The
Company  believes that it has  significant  opportunities  for  acquisition  and
internal sales growth in these market areas.

         The Company  focuses on marketing  its 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,  the  Company is able to utilize  its  network  infrastructure  more cost
effectively.

Competition

         The market for Internet  connectivity and related services is extremely
competitive. The Company anticipates 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  different  industries.  The Company  believes that a
reliable network, knowledgeable salespeople and the quality of technical support
currently are the primary  competitive  factors in its targeted  market and that
price is usually secondary to these factors.

         The Company's current and prospective  competitors include, in addition
to other  national,  regional and local ISPs,  long distance and local  exchange
telecommunications  companies,  cable  television,  direct broadcast  satellite,
wireless  communications  providers  and  online  service  providers.  While the
Company believes that its network,  products and customer service distinguish it
from these  competitors,  most of these competitors have  significantly  greater
market presence, brand recognition, financial, technical and personnel resources
than the Company.

ISPs

         According to industry sources, there were over 6,700 ISPs in the United
States and Canada in 1998, consisting of national, regional and local providers.
The Company's current primary  competitors include other ISPs with a significant
national presence which focus on business customers, such as UUNet Technologies,
Inc., GTE  Internetworking  (formerly BBN),  Concentric Network and DIGEX. While
the Company  believes that its level of customer  service and support and target
market  focus  distinguish  it from these  competitors,  such  competitors  have
greater  market share,  brand  recognition,  financial,  technical and personnel
resources than the Company. The Company also competes with unaffiliated regional
and local ISPs in its targeted geographic regions.

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 the Company.  Reforms in the federal
regulation of the telecommunications industry have created greater opportunities
for  ILECs,  including  the  RBOCs,  and  other  CLECs,  to enter  the  Internet
connectivity market. In order to address the Internet connectivity  requirements
of the business  customers  of long  distance  and local  carriers,  the Company
believes 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   ISPs.   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,  the Company expects that it will experience increased  competition
from  the  traditional  telecommunications  carriers.  These  telecommunications
carriers,  in addition  to their  greater  network  coverage,  market  presence,
financial, technical and personnel resources also have large existing commercial
customer bases.

                                       12

<PAGE>

Cable  Companies,   Direct  Broadcast  Satellite  and  Wireless   Communications
Companies

         Many  of the  major  cable  companies  have  announced  that  they  are
exploring the  possibility  of offering  Internet  connectivity,  relying on the
viability of cable modems and economical  upgrades to their networks.  Media One
and Time Warner Cablevision, Inc., Tele-Communications, Inc. ("TCI") and At Home
Corporation ("@Home") have announced trials to provide Internet cable service to
their residential customers in select areas. Cable companies, however, are faced
with large-scale  upgrades of their existing plant equipment and  infrastructure
in order to support  connections to the Internet  backbone via high-speed  cable
access devices. Additionally,  their current subscriber base and market focus is
residential, which requires that they partner with business focused providers or
undergo massive sales and marketing and network  development efforts in order to
target the business sector.  Several  announcements also recently have been made
by other  alternative  service companies  approaching the Internet  connectivity
market with various new fiber broadband  delivery to businesses in major cities,
wireless, DSL and satellite based service technologies.

         The  companies  that own these  broadband  networks  could  prevent the
Company from delivering  Internet access through the wire and cable  connections
that they own. Cable  television  companies are not currently  required to allow
ISPs to access their broadband  facilities and the availability and terms of ISP
access to  broadband  local  telephone  company  networks  are under  regulatory
review.  The Company's  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
FCC declined to take any action to mandate or otherwise  regulate access by ISPs
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  regulations,  and whether  they will be  successful  in
establishing  their  authority  to do so.  Similarly,  the  FCC  is  considering
proposals  that could  limit the right of ISPs to connect  with their  customers
over broadband local telephone  lines. In addition to competing  directly in the
ISP market,  both cable and  television  facilities  operators are also aligning
themselves with certain ISPs 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 the  Company  is unable to gain  access to these  facilities  on  reasonable
terms,  its business,  financial  condition  and results of operations  could be
materially adversely affected.

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

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

                                       13

<PAGE>

         Moreover,  there  can  be no  assurance  that  more  of  the  Company's
competitors  will not  shift  their  focus  to  attracting  business  customers,
resulting in even more  competition  for the Company.  There can be no assurance
that the Company will be able to offset the effects of any such  competition  or
resulting price reductions. Increased competition could result in erosion of the
Company's market share and could have a material adverse effect on its 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 ISP  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 the Company's  businesses
operate.  The Company cannot  predict the outcome of these  proceedings or their
impact  upon the ISP and  telecommunications  industries  or upon the  Company's
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 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.

         The Company's  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 ISPs.  Although in an April 1998 Report,  the FCC
determined  that ISPs should not be treated as  telecommunications  carriers and
therefore  should not be regulated,  it is expected  that future ISP  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  IP
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
RBOC's or other  telecommunications  companies,  could have an adverse effect on
the  Company's  business.  Although  the  FCC has  decided  not to  allow  local
telephone  companies  to impose  per-minute  access  charges  on ISPs,  and that
decision  has  been  upheld  by the  reviewing  court,  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 the Company's costs of serving dial-up  customers
and could have a material  adverse effect on the Company's  business,  financial
condition and results of operations.

         In addition to the Company's ISP  operations,  the Company has recently
focused attention on acquiring  telecommunications assets and facilities,  which
is a regulated  activity.  Fulltel,  the Company's wholly owned subsidiary,  has
received CLEC  certification in the State of Oklahoma,  and an important part of
the Company's  growth strategy is obtaining CLEC  certification in certain other
states.  The  Telecommunications  Act requires  CLEC's 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 CLEC's,  the
states also impose regulatory  obligations upon CLEC's.  While these obligations
vary from state to state,  most states require CLEC's to file a tariff for their
services and charges;  require  CLEC's 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,
the Company could become subject to further regulation by the FCC and/or another
regulatory agency, including state and local entities.

                                       14

<PAGE>

         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 ILEC's  interconnect  with  CLEC's.  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  CLEC's is the  right to  receive  reciprocal
compensation for the transport and termination of Internet traffic.  The Company
believes that, under the Telecommunications  Act, CLEC's are entitled to receive
reciprocal  compensation from ILEC's. However, some ILEC's have disputed payment
of reciprocal compensation for Internet traffic, arguing that ISP traffic is not
local  traffic.  Most  states  have  required  ILEC's to pay  CLEC's  reciprocal
compensation.  However,  in October 1998, the FCC determined  that dedicated DSL
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 ISP traffic is jurisdictionally  interstate. The FCC also concluded that
its  jurisdictional  decision does not alter the exemption  from access  charges
currently  enjoyed by ISPs.  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  ILEC's to the  CLEC's  may be asked by the
ILEC's 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 the Company's  position.  An  unfavorable
result may have an adverse impact on the Company's  potential future revenues as
a CLEC.

         As the Company becomes a competitor in local exchange markets,  it will
become subject to state requirements regarding provision of intrastate services.
This may include the filing of tarriffs  containing  rates and conditions.  As a
new entrant,  without  market  power,  the Company  expects to face a relatively
flexible regulatory environment.  Nevertheless,  it is possible that some states
could  require  the  Company 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 its property used to provide intrastate services.

Risk Factors

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

         Limited  Operating  History.  The  Company  has  a  relatively  limited
operating  history upon which an evaluation  of the  Company's  prospects can be
made. Consequently,  the likelihood of success of the Company 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.  The Company's ability to achieve  profitability and growth will depend
on  successful  development  and  commercialization  of its current and proposed
services.  No assurance  can be given that the Company will be able to introduce
its proposed services or market its services on a commercially successful basis.

                                       15

<PAGE>

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

         Limited  Marketing  Experience.  The Company has limited  experience in
developing and  commercializing  new services based on innovative  technologies,
and there is limited information  available concerning the potential performance
of its hardware or market acceptance of its 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 the Company's efforts will result in successful product commercialization.

         Uncertainty of  Products/Services  Development.  Although  considerable
time and financial  resources were expended in the  development of the Company's
services and products,  there can be absolutely no assurance  that problems will
not  develop  which would have a material  adverse  effect on the  Company.  The
Company will be required to commit  considerable  time,  effort and resources to
finalize such  development and adapt its  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 the  Company  will be able to  successfully  adapt  its
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 the
Company's  products/services may contain errors which become apparent subsequent
to commercial  use.  Remedying  such errors could delay the Company's  plans and
cause it to incur substantial additional costs.

         New Concept;  Uncertainty of Market  Acceptance  and  Commercialization
Strategy.  The  Company's  proposed  entry  into IP  telephony  represent  a new
business concept.  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 the Company to create awareness
and demand by consumers.  The Company's  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 the Company's marketing
efforts,  changes in market  conditions  (including the emergence of potentially
significant   related  market   segments  for   applications  of  the  Company's
technology),  the nature of possible license and distribution arrangements which
may or may not become available to it in the future and economic, regulatory and
competitive factors.  There can be no assurance that the Company's strategy will
result in successful  product  commercialization  or that the Company's  efforts
will result in initial or continued market acceptance for the Company's proposed
products.

         Competition;  Technological Obsolescence.  The markets that the Company
intends 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.  The  Company  will  face
competition  from  numerous  sources,  certain  of which may have  substantially
greater  financial,  technical,  marketing,  distribution,  personnel  and other
resources than the Company,  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  the  Company's  proposed   products/services  are
characterized by rapidly  changing  technology and evolving  industry  standards
which  could  result in  product  obsolescence  or short  product  life  cycles.
Accordingly,  the ability of the Company to compete will be  dependent  upon the
Company's  ability to complete  development  and  introduce  its product  and/or
services into the  marketplace  in a timely manner,  to continually  enhance and
improve its software and to successfully develop and market new products.  There
can be no assurance that the Company will be able to compete successfully,  that
competitors will not develop  technologies or products that render the Company's
products and/or services obsolete or less marketable or that the Company will be
able to  successfully  enhance  its  products  or develop  new  products  and/or
services.

                                       16

<PAGE>

         Risks Relating to the Internet.  Use of the Internet by consumers is in
a relatively early state, and market  acceptance of the Internet as a medium for
telephone service is subject to uncertainty. The rapid growth of global commerce
and the exchange of  information  on the  Internet and other online  networks is
relatively new and still  evolving,  making it difficult to predict  whether the
Internet will prove to be a viable commercial marketplace generally. The Company
believes  that its future  success  will depend on its ability to  significantly
increase  revenues,  which,  in  turn,  will be  materially  dependent  upon the
development  and widespread  acceptance of the Internet and online services as a
medium  for  telephone  service.  The  Internet  may not  prove  to be a  viable
commercial  marketplace  because  of  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, the viability of the Internet may prove uncertain
due to 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 use of the Internet  does not continue to
grow, or if the necessary Internet  infrastructure or complementary services are
not  developed  to  effectively  support  growth that may occur,  the  Company's
business,  results of  operations  and financial  condition  would be materially
adversely affected.

         Potential  Government  regulations.  The  Company  is  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  the  Company's   interconnection
agreements in particular.  In some cases,  the Company may be deemed to 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 the Company is a party. The results of any of these proceedings could have
a  material  adverse  effect on the  Company's  business,  prospects,  financial
condition and results of operations.

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

         Limited  Public Market.  During the month of February 2000,  trading of
the  Company's  common stock began  trading on the OTC Bulletin  Board under the
symbol  FULO.  When a stock  begins  to  trade  on the OTC  Bulletin  Board,  it
initially has a single market  maker.  Although many stocks have several  market
makers, while the Company's common stock trades on the OTC Bulletin Board, there
can be no assurance as to whether additional market makers will quote the common
stock.  Hence,  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.  The Company has not paid any
dividends  on  its  common  stock.  For  the  foreseeable  future,  the  Company
anticipates that all earnings,  if any, that may be generated from the Company's
operations  will be used to  finance  the  growth of the  Company  and that cash
dividends will not be paid to holders of the common stock.


                                       17

<PAGE>

         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.  If
the Company's  securities  are or become  subject to the penny stock rules,  the
Company's stockholders may find it more difficult to sell their shares.

Customers

         In 1999,  no  customer  represented  in excess of 10% of the  Company's
gross revenues.

Employees

         As of December  31,  1999,  the Company  had 15  employees  employed in
engineering,  sales,  marketing,  customer  support and related  activities  and
general  and  administrative  functions.  None  of the  Company's  employees  is
represented by a labor union,  and the Company  considers its relations with its
employees to be good.  The Company also  engages  consultants  from time to time
with respect to various aspects of its business.

Item 2.  Description of Property

         The Company  currently is  headquartered  in  facilities  consisting of
approximately  2,500  square  feet  in  Oklahoma  City  which  is  leased  on  a
month-to-month  basis. The Company has negotiated a ten year lease agreement for
approximately 13,600 square feet in another facility in Oklahoma City which will
become the  principal  executive  offices of the  Company.  The lease  agreement
provides  for  monthly  payments  starting  at  approximately  $3,300  per month
commencing in January 2000 and increasing to approximately  $14,200 per month in
the tenth year of the lease  agreement.  Completion of the new space is expected
by the end of the second quarter 2000.

         The Company  also  leases  space in a number of private  facilities  in
which the Company's  equipment is housed.  The monthly  lease  payments for such
private facilities are approximately $685.

Item 3.  Legal Proceedings

         The Company is not currently engaged in any material legal proceedings.
It is,  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 the
Company's  interconnection  agreements in particular. In some cases, the Company
may be deemed to 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 the  Company is a party.  The results of any of
these  proceedings  could  have a  material  adverse  effect  on  the  Company's
business, prospects, financial condition and results of operations.

         In March 1999, the Company entered into a financial  advisory  services
agreement with a financial advisory firm, pursuant to which the Company's common
stock and stock options were to be issued to such entity as partial compensation
for services to be performed by the  financial  advisor.  The  agreement was the
subject  of a dispute  between  the  Company  and the  financial  advisor.  This
dispute, which was never the subject of a pending legal proceeding, was resolved
in December  1999  through a  settlement  agreement  that  provides  for (i) the
issuance  of  104,320  shares of the  Company's  common  stock to the  financial
advisory firm,  (ii) the granting of options to the financial  advisory firm for
the purchase of an aggregate of 34,830 shares of the  Company's  common stock at
an  exercise  price of $1.00 per share,  and (iii) the  granting  of  additional
options to such firm to purchase an  aggregate  57,375  shares of the  Company's
common stock at an exercise price of $1.25 per share,  which become  exercisable
on October 7, 2000 and expire on December 29, 2002.  Subsequent to the execution
of the settlement agreement, the financial advisory firm exercised its option to
purchase  34,830 shares of the Company's  common stock at an aggregate  exercise
price of $34,830.

                                       18

<PAGE>

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.


                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

         As of December 31,  1999,  there was no public  trading  market for the
Company's  common stock.  On February 9, 2000, the Company's  common stock began
trading on the OTC Bulletin Board under the ticker symbol FULO.

Number of stockholders

         The number of  beneficial  holders of record of the common stock of the
Company as of the close of business on March 10, 2000 was approximately 100.

Dividend Policy

         To date,  the Company  has  declared  no cash  dividends  on its common
stock,  and does not expect to pay cash  dividends in the next term. The Company
intends to retain future  earnings,  if any, to provide funds for operations and
the continued expansion of its business.

Recent Sales of Unregistered Securities

         During  February  1999, the Company  issued  convertible  notes payable
totaling  $50,000 to two accredited  investors.  During April 1999,  these notes
were  converted  into 71,428 shares of common stock pursuant to the terms of the
note agreement. The issuance of the shares was effected pursuant to Section 4(2)
of the Securities Act.

         In April 1999,  the Company  completed  an offering of its common stock
effected pursuant to Rule 504 of Regulation D of the Securities Act. Pursuant to
the 504 offering,  648,500 shares of common stock were sold for aggregate  gross
proceeds of $648,500. Net proceeds were approximately $494,000, after payment of
placement fees and  commissions  totaling  $64,850 and other offering  expenses.
Subsequent to the  offering,  the Company  determined  that it and/or others may
have inadvertently  failed to comply with certain exemptive and/or broker-dealer
registration requirements in certain of the states in which the common stock was
sold.  Consequently,  in July 1999, the Company  extended  rescission  offers to
certain of its  stockholders  who acquired  Common Stock in the 504 offering and
who were residents of Florida and Oklahoma. As a result of the rescission offer,
the Company  repurchased  11,000  shares for an  aggregate  repurchase  price of
$11,000 plus interest.

                                       19

<PAGE>



Item 6.  Management's Discussion and Analysis or Plan of Operation

         The  following  discussion  should  be read  in  conjunction  with  the
Company's  Consolidated  Financial Statements and notes thereto included in Part
II, Item 7 of this Annual 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 risk factors that could cause actual results to
differ  materially from the  forward-looking  statements,  see "Risk Factors" in
Item 1 of this  Annual  Report and the  Company's  other  periodic  reports  and
documents filed with the Securities and Exchange Commission.

         The following  discussion  of the results of  operations  and financial
condition of FullNet Communications, Inc. and its consolidated subsidiaries (the
"Company")  should  be read  in  conjunction  with  the  Company's  Consolidated
Financial  Statements  and the Notes thereto  included  elsewhere in this Annual
Report.

Year Ended December 31, 1999 vs. Year Ended December 31, 1998

Revenues

         Access service revenues  increased  $130,000 from $400,000 for the year
ended December 31, 1998 to $530,000 for the year ended  December 31, 1999.  This
increase  was due to an  increase  in the  number of  dial-up  customers  of the
Company and of the Company's ISP resellers.

         Network  solutions and other revenues  decreased  $10,000 from $602,000
for the year ended December 31, 1998 to $592,000 for the year ended December 31,
1999. The Company  historically has not actively  marketed its network solutions
sales, and has typically made such sales only to its existing customer base.

Operating Costs and Expenses

         Cost of access service revenues increased $24,000 from $174,000 for the
year ended  December 31, 1998 to $198,000 for the year ended  December 31, 1999,
due to the increase in the number of dial-up customers of the Company and of the
Company's  resellers.  Costs did not increase  commensurate with revenues due to
lower negotiated contract rates for the Company's backbone expense.

         Cost of network  solutions and other  revenues  increased  $31,000 from
$217,000  for the year ended  December  31, 1998 to $248,000  for the year ended
December 31, 1999, due to an increase in equipment cost of sales of $23,000 over
the prior year.

         Selling,  general and  administrative  expenses increased $369,000 from
$635,000 for the year ended  December 31, 1998 to $1,004,000  for the year ended
December 31, 1999. The increase was comprised of an increase in payroll costs of
$181,000  related to a June 1999 stock grant  approved by the Board of Directors
and approximately $57,000 related to the hiring of additional personnel, as well
as $35,000 of financial  advisory service fees incurred pursuant to an agreement
entered into by the Company with an investment  banker in September  1999 and an
increase in accounting, consulting and legal fees of $75,000 in 1999 over 1998.

         Depreciation and amortization  expense  increased $39,000 from $106,000
for the year ended December 31, 1998 to $145,000 for the year ended December 31,
1999.  This  increase  was  attributable  to less than a full  year of  goodwill
amortization  in 1998  relating to the purchase of Animus (now FullWeb) in March
1998 and a change in estimated lives of goodwill and intangible assets effective
October 1, 1999, which resulted in $43,000 more expense in 1999 than in 1998.


                                     20

<PAGE>

Other Expense

         Other expense increased $59,000 from $8,000 for the year ended December
31, 1998 to $67,000 for the year ended  December  31,  1999.  This  increase was
attributable to start up costs of $67,000 incurred related to the Company's CLEC
operations.

Liquidity and Capital Resources

         The Company used $243,000 and $31,000 of cash for operating  activities
for the years ended December 31, 1999 and 1998,  respectively,  as a result of a
net loss for the periods.  As of December  31, 1999,  the Company had $13,000 in
cash and $277,000 in current liabilities, including $75,000 of deferred revenues
that  will  not  require  settlement  in  cash.  Capital  expenditures  relating
primarily to the purchase of computer  equipment amounted to $13,000 and $30,000
for the years ended December 31,1999 and 1998,  respectively.  In addition,  the
Company  acquired  FullWeb  in March  1998 for  $175,000  cash and  issuance  of
$175,000 in notes payable. The notes payable were repaid in 1999.

         Net cash provided by financing activities was $268,000 and $237,000 for
years ended December 31, 1999 and 1998, respectively.  The cash provided in 1999
was due  primarily  to the sale of  equity  securities  pursuant  to Rule 504 of
Regulation D of the  Securities  Act. In the second quarter of 1999, the Company
received  net proceeds of $483,000  from the 504  offering.  Of these  proceeds,
$175,000 was used to repay two debt obligations of the Company. During the first
quarter  1999,  the  Company  also  received  $50,000 in  proceeds  from  bridge
financing  for working  capital.  This bridge  financing was converted to 71,428
shares of common stock in the second  quarter 1999. Net cash provided in 1998 is
comprised  of proceeds of $353,000  obtained  through the issuance of term notes
payable.

         The  planned   expansion  of  the   Company's   business  will  require
significant  capital to fund capital  expenditures,  working capital needs, debt
service and the cash flow deficits  generated by operating losses. The Company's
principal capital expenditure requirements will include:

     o    the completion of the Company's Network Operations Center
     o    the  purchase  and  installation  of  telephone  switches in Oklahoma,
          Arkansas and Kansas
     o    purchase  and   installation  of  wireless  and  DSL  Internet  access
          equipment
     o    mergers and acquisitions
     o    further  development of operations support systems and other automated
          back office systems
     o    domain name registration startup costs

         The Company  expects to make capital  outlays of between $3 million and
$4 million during 2000 in order to continue activities called for in its current
business plan and to fund expected  operating  losses.  As the Company's cost of
developing new networks and services,  funding other  strategic  initiatives and
operating  its 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 the
Company, regulatory changes, and actions taken by competitors in response to the
Company's  strategic  initiatives),  it is almost  certain that actual costs and
revenues will vary from expected amounts,  very likely to a material degree, and
that  such  variations  are  likely  to  affect  the  Company's  future  capital
requirements. Current cash balances will not be sufficient to fund the Company's
current  business  plan  beyond the next year.  As a  consequence,  the  Company
intends to seek  additional  debt and/or equity  financing 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.

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

                                       21

<PAGE>

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

         No  assurance  can be given  that the  Company  will be  successful  in
developing and  maintaining a level of cash flow from  operations  sufficient to
permit it to pay the  principal  of, and  interest  and any other  payments  on,
outstanding  indebtedness.  If the Company is unable to generate sufficient cash
flow from  operations  to service  its  indebtedness,  it may have to modify its
growth  plans,  limit its capital  expenditures,  restructure  or refinance  its
indebtedness or seek additional capital or liquidate its assets. There can be no
assurance  (i) that any of these  strategies  could be effected on  satisfactory
terms, if at all, or (ii) that any such strategy would yield sufficient proceeds
to service the Company's debt or otherwise adequately fund operations.

Certain Accounting Matters

         In  July 1998, the Financial Accounting Standards Board issued SFAS No.
133 - Accounting for Derivative  Instruments and Hedging  Activities  ("SFAS No.
133").  SFAS  No.  133  establishes   accounting  and  reporting  standards  for
derivative  instruments  and is effective for 2001.  The Company will adopt SFAS
No. 133 by the  required  effective  date.  The Company has not  determined  the
impact on its financial statements from adopting the new standard.

         In December 1999, the Securities and Exchange  Commission  issued Staff
Accounting  Bulletin No. 101 - Revenue  Recognition ("SAB No. 101"). SAB No. 101
provides  guidance on  recognition,  presentation,  and disclosure of revenue in
financial  statements.  The Company believes that it currently complies with SAB
No. 101.

Other Matters

Employee Stock Grant

         Pursuant  to  a  stock  bonus  approved  by  the Board of Directors and
granted in June 1999,  Roger S.  Laubhan  and Jason C.  Ayers,  officers  of the
Company,  and two other  employees  were granted  181,055 shares of common stock
equal to 3%, 1%, 2% and 1%,  respectively,  of the fully  diluted  common shares
outstanding  at such date.  Such shares were not issued until January 2000.  The
Company  recognized  $181,055 as  compensation  expense in 1999  relating to the
grant of common stock to these employees.

Financial Advisory Services Agreements

         The Company has entered into two separate agreements with an investment
banker ("Investment  Banker") for investment banking and financing  services.  A
summary of the details of these two agreements follows.

         The first  agreement is for financing  services and has a one-year term
commencing  September  1, 1999.  If the  Investment  Banker  completes a private
placement  for the  Company,  it will  receive  8.5% of the dollar  value of the
transaction.  If the Investment  Banker closes a debt financing for the Company,
it  will  receive  a 5%  transaction  fee.  As of  December  31,  1999,  no such
transactions had been completed.

         The second agreement is for financial  advisory and  merger/acquisition
services and also has a one-year term commencing  September 1, 1999. The fee for
the advisory  services is $5,000 per month plus  expenses and 100,000  shares of
common  stock.   Additionally,   this  agreement  calls  for  merger/acquisition
services.  The cost for this  service is $2,500 per month  plus  expenses  and a
scaled percentage of any completed acquisition. No such mergers/acquisitions had
occurred as of December 31, 1999.

                                       22

<PAGE>


Year 2000 Issue

         Prior to entering the year 2000,  or Y2K, the Company  developed  plans
for implementing,  testing and completing any necessary modifications to its key
computer  systems and equipment with embedded chips to ensure that they were Y2K
compliant.  Subsequent to entering the year 2000, the Company has tested its key
computer  systems and to date, it has not  encountered  any material Y2K related
disruptions or failures of its systems or services,  nor has it been notified of
any disruptions or failures in the systems of any of its third parties with whom
it deals.  There is an ongoing risk that Y2K related  problems could still occur
and the Company  will  continue to evaluate  these risks.  However,  the Company
believes that the Y2K issue will not pose any significant  operational  problems
for it.

Item 7.  Financial Statements

The  consolidated  financial  statements  of the  Company  are  incorporated  by
reference from pages F-1 through F-21 of the attached Appendix,  and include the
following:

         Consolidated Financial Statements of FullNet Communications, Inc.

               (1)  Reports of Independent Auditors
               (2)  Consolidated Balance Sheets as of December 31, 1999 and 1998
               (3)  Consolidated  Statements  of  Operations  for  Years   Ended
                    December 31, 1999 and 1998
               (4)  Consolidated  Statements of Stockholders'  Deficit for Years
                    Ended December 31, 1999 and 1998
               (5)  Consolidated  Statements  of  Cash  Flows  for  Years  Ended
                    December 31, 1999 and 1998
               (6)  Notes to Consolidated  Financial  Statements for Years Ended
                    December 31, 1999 and 1998

Item 8.  Changes  In  and  Disagreements  With  Accountants  on  Accounting  and
         Financial Disclosure

         On October 29, 1999, the  Registrant's  Board of directors  engaged the
accounting firm of Grant Thornton LLP as its independent  certifying accountants
for Registrant's  fiscal year ending December 31, 1999 to replace the accounting
firm of Cross &  Robinson,  who was  dismissed  on  October  25,  1999.  Cross &
Robinson's  reports on the financial  statements of the  Registrant for the past
two fiscal  years  ended  December  31,  1998  contained  no adverse  opinion or
disclaimer  of opinion and were not  qualified  or  modified as to  uncertainty,
audit scope or  accounting  principles.  There have been no  disagreements  with
Cross & Robinson on any matter of accounting principles or practices,  financial
statement disclosure,  auditing scope or procedure,  or any reportable events as
defined in Item 304(a)(1)(iv) of Regulation S-B.


                                    PART III.

Item 9.  Directors,   Executive   Officers,   Promoters  and   control  Persons,
         Compliance With Section 16(a) of the Exchange Act

         The  information  required  will be  contained in the  Company's  Proxy
Statement for the 2000 Annual Meeting of Stockholders and is incorporated herein
by reference.

Item 10. Executive Compensation

         The  information  required  will be  contained in the  Company's  Proxy
Statement for the 2000 Annual Meeting of Stockholders and is incorporated herein
by reference.

Item 11. Security Ownership of Certain Beneficial Owners and Management

         The  information  required  will be  contained in the  Company's  Proxy
Statement for the 2000 Annual Meeting of Stockholders and is incorporated herein
by reference.

                                       23

<PAGE>

Item 12. Certain Relationships and Related Transactions

         The  information  required  will be  contained in the  Company's  Proxy
Statement for the 2000 Annual Meeting of Stockholders and is incorporated herein
by reference.

Item 13. Exhibits and Reports on Form 8-K

(a)     The following documents are filed as part of this report:

       (1)     Financial  Statements  are  attached  hereto  as  Appendix  A and
               included herein on pages F-1 through F-21:

       (2)     The exhibits set forth on the  following  Exhibit Index are filed
               with this Report or are  incorporated  by  reference as set forth
               therein.

Exhibit
Number                          Exhibit                                     Page
-------                         -------                                     ----

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

* 4.1     Specimen     Certificate    of    the    Company's    Common
          Stock..........................................................    53

  4.2     See the Company's  Certificate  of Correction to the Amended
          Certificate  of  Incorporation  and the Ninth Section of the
          Certificate  of  Incorporation  and Articles II and V of the
          Company's  Bylaws  (filed  as  Exhibits  2.1  and 2.2 to the
          Company's  Registration Statement on Form 10-SB, file number
          000-27031 and incorporated herein by reference)................    #

*10.1     Financial  Advisory  Services  Agreement between the Company
          and National  Securities  Corporation,  dated  September 17,
          1999...........................................................    55

*10.2     Lease   Agreement   between   the   Company  and  BOK  Plaza
          Associates, LLC, dated December 2, 1999........................    64

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

 16.1     Letter on change in certifying  accountant (filed as Exhibit
          16.1 to the  Company's  Form 8-K dated  November 1, 1999 and
          incorporated herein by reference)..............................    #

*21.1     Subsidiaries of the Company....................................    86

*27.1     Financial Data Schedule........................................    87

                                       24

<PAGE>

     _____________________________

     #  Incorporated by reference.
     *  Filed herewith.

(b)      Reports on Form 8-K

         A report on Form 8-K was filed by the  Company  on  November  1,  1999,
         reporting under "Item 4 - Change in Registrant's Certifying Accountant"
         the Company's change in certified public accountant.

         A report on Form 8-K was filed by the  Company  on  December  1,  1999,
         reporting  under "Item 5 - Other Events a letter that was mailed to all
         shareholders  regarding  the  quarterly  report for the  period  ending
         September 30, 1999.




                                       25

<PAGE>


                                   SIGNATURES

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

                                          REGISTRANT:
                                  FULLNET COMMUNICATIONS, INC.


Date:  March 28, 2000             By: /s/ TIMOTHY J. KILKENNY
                                      -----------------------------------------
                                          Timothy J. Kilkenny
                                          President and Chief Executive Officer



Date:  March 28, 2000             By: /s/ TRAVIS LANE
                                      -----------------------------------------
                                          Travis Lane
                                          Vice President, Chief Financial and
                                          Accounting Officer

          Pursuant to the  requirements of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.

Date:  March 28, 2000             By: /s/ TIMOTHY J. KILKENNY
                                      -----------------------------------------
                                          Timothy J. Kilkenny,
                                          Chairman of the Board and Director



Date:  March 28, 2000             By: /s/ LAURA L. KILKENNY
                                      -----------------------------------------
                                          Laura L. Kilkenny, Director




                                       26

<PAGE>


                                   APPENDIX A








                        Consolidated Financial Statements

                  FullNet Communications, Inc. and Subsidiaries

                     Years ended December 31, 1999 and 1998
                       with Report of Independent Auditors








                                       27

<PAGE>




                      [THIS PAGE LEFT BLANK INTENTIONALLY]





                                       28

<PAGE>


                          FullNet Communications, Inc.

                        Consolidated Financial Statements

                     Years ended December 31, 1999 and 1998




                                    Contents

Report of Independent Certified Public Accountants...........................F-1
Independent Auditor's Report.................................................F-2

Consolidated Financial Statements

Consolidated Balance Sheet...................................................F-3
Consolidated Statements of Operations........................................F-4
Consolidated Statements of Stockholders' Deficit.............................F-5
Consolidated Statements of Cash Flows........................................F-6
Notes to Consolidated Financial Statements...................................F-8









                                       29

<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, 1999,  and the related  consolidated  statements of  operations,  changes in
stockholders'  deficit,  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 generally accepted auditing standards.
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 financial  statements  referred to above present fairly, in
all  material   respects,   the  consolidated   financial  position  of  FullNet
Communications,  Inc.  and  Subsidiaries,  as of  December  31,  1999,  and  the
consolidated  results of their operations and their  consolidated cash flows for
the year then ended in conformity with generally accepted accounting principles.




GRANT THORNTON LLP

Oklahoma City, Oklahoma
January 21, 2000 (except for Note N, as to which
    the date is March 13, 2000)

                                      F-1

<PAGE>


                          Independent Auditor's Report


Board of Directors
Fullnet Communications, Inc.

         We have audited the accompanying  consolidated balance sheet of Fullnet
Communications,  Inc. and its wholly-owned  subsidiaries Animus  Communications,
Inc. and Fulltel,  Inc. (Oklahoma  corporations) as of December 31, 1998 and the
related consolidated  statements of operations,  shareholder's  deficit and cash
flow for the year then ended.  These consolidated  financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.

         We conducted our audit in accordance with generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statement are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting  principles used and significant
estimates  made by  management,  as well as  evaluating  the  overall  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 its subsidiaries Animus Communications,  Inc.
and FullTel,  Inc. as of December 31, 1998, and the results of their  operations
and  their  cash  flow for the year  then  ended in  conformity  with  generally
accepted accounting principles.

                                                  CROSS AND ROBINSON



                                                   /S/ Cross and Robinson
                                                  ----------------------------
                                                  Certified Public Accountants
                                                  Tulsa, Oklahoma


May 21, 1999

                                      F-2

<PAGE>

<TABLE>

<CAPTION>

                  FullNet Communications, Inc. and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS

                                  December 31,


                                    ASSETS                         1999           1998
                                                               -----------    -----------
<S>                                                            <C>            <C>
CURRENT ASSETS
    Cash                                                       $    12,671    $       198
    Accounts receivable (note E)                                    70,306        105,809
    Prepaid and other current assets                                15,491            337
                                                               -----------    -----------

                  Total current assets                              98,468        106,344

PROPERTY AND EQUIPMENT, net (notes C, E and H)                     117,262        176,999

COST IN EXCESS OF NET ASSETS OF BUSINESSES
    ACQUIRED, net of accumulated amortization of $93,512
    in 1999 and $23,359 in 1998 (note D)                           295,084        367,393

OTHER ASSETS
    Deferred income taxes (note F)                                  17,500         17,500
    Deferred offering costs (note N)                                30,899           --
    Other                                                            5,000           --
                                                               -----------    -----------
                                                                    53,399         17,500
                                                               -----------    -----------

                                                               $   564,213    $   668,236
                                                               ===========    ===========

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
    Accounts payable - trade                                   $   100,684    $   129,577
    Accrued liabilities                                             42,424          8,797
    Notes payable, current portion (note E)                         58,949          5,424
    Capital lease obligations (note H)                                --            9,039
    Note payable Animus purchase (note J)                             --          122,405
    Cash overdraft                                                    --            8,061
    Deferred revenue                                                74,720         97,379
    Due to related party (note I)                                     --           43,891
                                                               -----------    -----------

                  Total current liabilities                        276,777        424,573

NOTES PAYABLE, less current portion (note E)                       586,922        697,926

CAPITAL LEASE OBLIGATIONS, less current portion (note H)              --            1,153

STOCKHOLDERS' DEFICIT (note G)
    Common stock - $.00001 par value and 10,000,000 shares
       authorized (1999); $1 par value and 50,000 shares
       authorized (1998)                                                21            500
    Common stock issuable, 318,709 shares                          318,709           --
    Additional paid-in capital                                     429,295           --
    Accumulated deficit                                         (1,047,511)      (455,916)
                                                               -----------    -----------
                                                                  (299,486)      (455,416)
                                                               -----------    -----------

                                                               $   564,213    $   668,236
                                                               ===========    ===========

</TABLE>


     The accompanying notes are an integral part of these statements.

                                       F-3


<PAGE>


                  FullNet Communications, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                             Year ended December 31,


                                                        1999           1998
                                                    -----------    -----------

REVENUES
    Access service revenues                         $   530,003    $   400,016
    Network solution and other revenues                 591,951        601,771
                                                    -----------    -----------
                                                      1,121,954      1,001,787

OPERATING EXPENSES
    Cost of access service revenues                     198,399        173,951
    Cost of network solution and other revenues         248,415        216,517
    Selling, general, and administrative expenses     1,004,266        643,848
    Depreciation and amortization                       144,670        105,594
                                                    -----------    -----------
                                                      1,595,750      1,139,910
                                                    -----------    -----------
                  Loss from operations                 (473,796)      (138,123)

OTHER INCOME (EXPENSE)
    Interest expense                                    (77,871)       (75,398)
    Other                                               (39,928)         4,387
                                                    -----------    -----------

                  NET LOSS                          $  (591,595)   $  (209,134)
                                                    ===========    ===========

BASIC AND DILUTED LOSS PER COMMON SHARE             $      (.30)   $      (.15)
                                                    ===========    ===========

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING            1,994,548      1,380,000
                                                    ===========    ===========





       The accompanying notes are an integral part of these statements.

                                       F-4

<PAGE>

<TABLE>

<CAPTION>

                 FullNet Communications, Inc. and Subsidiaries

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT

                     Years ended December 31, 1999 and 1998





                                                           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, 1998                                  500  $       500   $      --    $      --     $  (244,008)  $  (243,508)

Distributions of previous Subchapter S earnings            --           --            --           --          (2,774)       (2,774)

Net loss                                                   --           --            --           --        (209,134)     (209,134)
                                                    -----------  -----------   -----------  -----------   -----------   -----------

Balance at December 31, 1998                                500          500          --           --        (455,916)     (455,416)

Stock split 2,760-for-1, par value reduced from
    $1.00 per share to $.00001 per share (note G)     1,379,500         (486)         --            486          --            --

Common stock issued, net of offering expenses
    (note G)                                            637,500            6          --        483,130          --         483,136

Common stock issuable relating to services per-
    formed for offering, 104,320 shares (note G)           --           --         104,320     (104,320)         --            --

Common stock issuable for employee bonuses,
    181,055 shares (note G)                                --           --         181,055         --            --         181,055

Conversion of debt to equity (note G)                    71,428            1          --         49,999          --          50,000

Common stock issuable in exchange for services,
    33,334 shares (note G)                                 --           --          33,334         --            --          33,334

Net loss                                                   --           --            --           --        (591,595)     (591,595)
                                                    -----------  -----------   -----------  -----------   -----------   -----------

Balance at December 31, 1999                          2,088,928  $        21   $   318,709  $   429,295   $(1,047,511)  $  (299,486)
                                                    ===========  ===========   ===========  ===========   ===========   ===========

</TABLE>


         The accompanying notes are an integral part of this statement.

                                       F-5

<PAGE>

<TABLE>

<CAPTION>

                 FullNet Communications, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             Year ended December 31,


                                                                 1999         1998
                                                               ---------    ---------
<S>                                                            <C>          <C>
Increase (Decrease) in Cash

Cash flows from operating activities
    Net loss                                                   $(591,595)   $(209,134)
    Adjustments to reconcile net loss to net cash used in
       operating activities
           Depreciation and amortization                         144,670      105,594
           Common stock issuable for services                    214,389         --
           Net (increase) decrease in
              Accounts receivable                                 35,503      (56,778)
              Prepaid and other current assets                   (15,154)      18,439
              Other assets                                        (5,000)        --
           Net increase (decrease) in
              Accounts payable - trade                           (28,893)      30,049
              Accrued and other liabilities                       25,566       11,207
              Deferred revenue                                   (22,659)      69,323
                                                               ---------    ---------

                  Net cash used in operating activities         (243,173)     (31,300)

Cash flows from investing activities
    Purchase of property and equipment                           (12,624)     (30,393)
    Acquisition of subsidiary                                       --       (175,000)
                                                               ---------    ---------

                  Net cash used in investing activities          (12,624)    (205,393)

Cash flows from financing activities
    Deferred offering costs                                      (30,899)        --
    Proceeds from borrowings under notes payable                   1,088      352,720
    Payments on borrowings under notes payable                   (58,567)     (60,718)
    Payments on borrowings related to purchase of subsidiary    (122,405)     (37,055)
    Principal payments on capital lease obligations              (10,192)     (18,059)
    Proceeds from borrowings under convertible notes payable      50,000         --
    Payments on notes to related party                           (43,891)        --
    Issuance of stock, net of offering costs                     483,136         --
                                                               ---------    ---------

                  Net cash provided by financing activities      268,270      236,888
                                                               ---------    ---------

                  NET INCREASE IN CASH                            12,473          195

Cash at beginning of year                                            198            3
                                                               ---------    ---------

Cash at end of year                                            $  12,671    $     198
                                                               =========    =========

</TABLE>

                                       F-6

<PAGE>



                 FullNet Communications, Inc. and Subsidiaries

                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                             Year ended December 31,


                                                   1999        1998
                                                 ---------   ---------

Supplemental cash flow information:
----------------------------------

    Cash paid for interest                       $  78,000   $  75,000
                                                 =========   =========

Noncash investing and financing activities:
------------------------------------------

    Conversion of debt to equity                 $  50,000   $    --
                                                 =========   =========

    Common stock issuable relating to services
       performed for offering                    $ 104,320   $    --
                                                 =========   =========

    Debt issued as investment in subsidiary      $    --     $ 175,000
                                                 =========   =========

    Acquisition of subsidiary fixed assets       $    --     $  28,251
                                                 =========   =========

    Acquired lease obligations of subsidiary     $    --     $ (28,251)
                                                 =========   =========





        The accompanying notes are an integral part of these statements.

                                       F-7
<PAGE>

                 FullNet Communications, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 1999 and 1998


NOTE A - ORGANIZATION AND NATURE OF OPERATIONS

    FullNet  Communications,  Inc. and Subsidiaries  (the Company) is a regional
    integrated communications provider (ICP) offering communications and network
    solutions   to   individuals,   businesses,    organizations,    educational
    institutions, as well as government agencies. Through its four subsidiaries:
    FullNet, Inc. (FullNet),  FullTel, Inc. (FullTel),  and FullSolutions,  Inc.
    (FullSolutions)  and its subsidiary  FullWeb,  Inc.  (FullWeb),  the Company
    provides  Internet,  telephone,  and  network  solutions  designed  to  meet
    customer needs. Services 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 (ISP)
          and businesses
     o    Local telephone  access  (expected to be operational by the end of the
          year 2000)
     o    Network  design,  activation,  management,  optimization,  and ongoing
          support and maintenance
     o    Web page design, hosting, co-location and e-commerce solutions
     o    Domain name registration (expected to be operational by the end of the
          second quarter of 2000)

    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.

    The Company's business plan includes,  among other things,  expansion of its
    Internet access services through mergers and  acquisitions,  the development
    of its local telephone access  services,  and development of its domain name
    registration  services.  This business plan will require significant capital
    to fund  capital  expenditures,  working  capital  needs,  debt  service and
    operationg  cash flow  deficits.  To achieve the objectives of this business
    plan,  the Company will be required to seek  additional  debt and/or  equity
    financing;  however, there can be no assurance that the Company will be able
    to raise additional debt and/or equity financing on satisfactory terms or at
    all.

    Management  believes that,  given its cash position and debt structure after
    the transactions discussed in Note N, operations at the current level can be
    sustained  through  the end of 2000.  However,  if the  Company is unable to
    raise additional debt and/or equity financing on satisfactory terms, it will
    be required to delay the  implementation  of its business  plan.  This could
    have a material adverse effect on the Company's business,  operating results
    and financial  condition and its ability to achieve sufficient cash flow for
    service debt requirements.



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.

    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.  Contract  periods  range from  monthly to yearly.  Deferred
    revenues are calculated for those contracts that continue  subsequent to the
    current year end.  Network  solution  revenues are recognized after services
    are performed.


                                    F-8

<PAGE>


                 FullNet Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998


NOTE B - SUMMARY OF ACCOUNTING POLICIES - CONTINUED

    3.  Accounts Receivable
        -------------------

    Management   considers   accounts   receivable  to  be  fully   collectible;
    accordingly,  no  allowance  for  doubtful  accounts  is  required.  Amounts
    considered  to  be  uncollectible   are  charged  to  operations  when  that
    determination is made.

    4.  Property and Equipment
        ----------------------

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

            Computers and equipment                      5 years
            Furniture and fixtures                       7 years

    5.  Cost in Excess of Net Assets of Businesses Acquired
        ---------------------------------------------------

    Cost in excess of net assets of businesses acquired is being amortized using
    the straight-line  method over estimated  periods to be benefited.  Prior to
    October 1, 1999,  the  estimated  amortization  period  was  fifteen  years.
    Effective  October 1, 1999,  management  changed  this  estimated  remaining
    useful life to six months for the Tulsa acquisition and to 41 months for the
    Animus  acquisition to more closely reflect the estimated  periods benefited
    (see Note D). The effect of this change for the year ended December 31, 1999
    was to increase  amortization expense and net loss by approximately  $43,000
    and to increase basic and diluted loss per share by $.02.

    6.  Long-Lived Assets
        -----------------

     All long-lived assets to be held and used,  including cost in excess of net
     assets of businesses acquired,  are reviewed for impairment whenever events
     or changes in  circumstances  indicate that the related carrying amount may
     not be recoverable.  When required,  impairment losses are recognized based
     upon the  estimated  fair  value of the  asset.  No such  events or changes
     occurred during the years ended December 31, 1999 or 1998.

    7.  Income Taxes
        ------------
    Prior  to  April  8,  1999,   income   taxes  on  net  earnings  of  FullNet
    Communications, Inc. were payable personally by the stockholders pursuant to
    an election  as an S  corporation  under the  Internal  Revenue  Code (IRC).
    Effective April 8, 1999, the number of  stockholders  exceeded the allowable
    number under IRC guidelines,  the S election was terminated, and the Company
    became a C corporation  and adopted the liability  method of accounting  for
    income  taxes.  The  Company's  subsidiaries  are C  corporations  and  have
    followed the liability method of accounting for income taxes for all periods
    presented.

                                      F-9

<PAGE>

                 FullNet Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998


NOTE B - SUMMARY OF ACCOUNTING POLICIES - CONTINUED

    7.  Income Taxes - Continued
        ------------------------
    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 are the same for
    the years  ended  December  31,  1999 and 1998 as the effect of  outstanding
    stock options (see Note K) would be antidilutive.

    9.  Employee Stock Options
        ----------------------

    The Company  applies the  intrinsic  method in  accounting  for its employee
    stock  options.  Accordingly,  compensation  expense is only  recognized for
    grants of options which include an exercise price less than the market price
    of the stock at the date of the grant.

    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,  1999 and 1998 was
    $30,399 and $42,088, respectively.

    11. Reclassifications
        -----------------

    Certain reclassifications have been made to the 1998 financial statements to
    conform to the 1999 presentation.

    12. 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.

                                      F-10

<PAGE>

                 FullNet Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998


NOTE C - PROPERTY AND EQUIPMENT

    Property and equipment consist of the following at December 31:

                                     1999       1998
                                    --------   --------

Computers and equipment             $363,370   $350,747
Furniture and fixtures                 5,785      5,785
                                    --------   --------
                                     369,155    356,532
    Less accumulated depreciation    251,893    179,533
                                    --------   --------

                                    $117,262   $176,999
                                    ========   ========

    Depreciation  expense  for the years  ended  December  31, 1999 and 1998 was
    $72,360 and $84,566, respectively.

NOTE D - COST IN EXCESS OF NET ASSETS OF BUSINESSES ACQUIRED

    Cost in excess of net assets of  businesses  acquired  consists  of the 1997
    purchase  of  certain  business  operations  in Tulsa,  Oklahoma  (the Tulsa
    acquisition) and the 1998 purchase of Animus (the Animus  acquisition)  (see
    Note J) as follows:


                                                                December 31,
                                                            --------------------
                                                              1999       1998
                                                            ---------  ---------
       Tulsa  acquisition, net of accumulated amortization
       of  $40,355 and $6,998 at December 31, 1999 and
       1998, respectively                                   $  29,645  $  63,002

       Animus acquisition, net of accumulated amortization
       of $53,157 and $16,361 at December 31, 1999 and
       1998, respectively                                     265,439    304,391
                                                            ---------  ---------

                                                            $ 295,084  $ 367,393
                                                            =========  =========

    Amortization  expense  for the years  ended  December  31, 1999 and 1998 was
    $72,310 and $21,028, respectively.

                                      F-11

<PAGE>

                  FullNet Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998


NOTE E - NOTES PAYABLE

    Notes payable consist of the following at December 31:

                                                             1999       1998
                                                            --------   --------

       Note   payable   to  bank,   payable   in  monthly
       installments  of  $8,768,  including  interest  at
       9.5%,  matures  September 2008;  collateralized by
       property and equipment,  accounts receivable,  and
       Company common stock owned by the President of the
       Company;   guaranteed  by  the  President  of  the
       Company                                              $564,063   $616,107

       Note   payable   to  bank,   payable   in  monthly
       installments of $444, including interest at 11.5%,
       matures September 2008; collateralized by property
       and  equipment,  accounts  receivable,  and common
       stock  owned  by the  President  of  the  Company;
       guaranteed by the President of the Company             29,826     31,048

       Note   payable   to  bank,   payable   in  monthly
       installments of $798,  including  interest at 11%,
       matures September 2008; collateralized by property
       and  equipment,  accounts  receivable,  and common
       stock  owned  by the  President  of  the  Company;
       guaranteed by the President of the Company             51,982     56,195
                                                            --------   --------
                                                             645,871    703,350
           Less current portion                               58,949      5,424
                                                            --------   --------

                                                            $586,922   $697,926
                                                            ========   ========

    Aggregate future maturities of notes payable are as follows:

              Year ending December 31
                  2000                                       $  58,949
                  2001                                          65,179
                  2002                                          71,865
                  2003                                          79,239
                  2004                                          87,268
                  Thereafter                                   283,371
                                                             ---------
                                                             $ 645,871
                                                             =========

                                      F-12

<PAGE>

                 FullNet Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998


NOTE F - INCOME TAXES

    Due to net losses,  no provision  for income taxes was necessary for 1999 or
    1998.

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

                                               1999         1998
                                             ---------    ---------

Income taxes at federal statutory rate       $(201,142)   $ (71,106)
Change in valuation allowance                  179,335       20,500
Nondeductible expenses                          12,980         --
Exclusion of Subchapter S loss                  48,733       55,917
State income taxes, net of federal benefit     (15,476)      (5,311)
Adjustment of prior year estimates             (24,430)        --
                                             ---------    ---------

            Total tax expense                $    --      $    --
                                             =========    =========

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

                                               1999         1998
                                             ---------    ---------

Deferred income tax assets
    Basis difference in intangible assets    $  10,617    $    --
    Deferred revenue                            28,196         --
    Net operating loss                         178,522       38,000
    Valuation allowance                       (199,835)     (20,500)
                                             ---------    ---------

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

Increase in valuation allowance              $ 179,335    $  20,500
                                             =========    =========

    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, 1999,  the Company has a net  operating  loss
    carryforward  of  approximately  $473,000 which will expire at various dates
    through 2019. As such carryforward can only be used to offset future taxable
    income of the Company, management has provided a partial valuation allowance
    until it is more likely than not that taxable income will be generated.

                                      F-13

<PAGE>

                 FullNet Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998


NOTE G - STOCKHOLDERS' DEFICIT

    On February 15, 1999, the Company's Board of Directors approved an amendment
    to the Company's  certificate of incorporation to increase authorized common
    shares from 50,000 to  10,000,000  shares and to effect a  2760-for-1  stock
    split with a  reduction  in par values  from  $1.00 to  $0.00001.  Basic and
    diluted loss per share amounts have been restated for all periods  presented
    to reflect this stock split.

    During April 1999, the Company raised $483,136 (net of offering  expenses of
    approximately  $154,000)  in an  offering  of its common  stock  exempt from
    registration requirements of the Securities Act of 1933 (the Securities Act)
    pursuant to Rule 504 of Regulation D (504d  Offering).  Under this offering,
    shares were sold at a price of $1.00 per share. In connection with this 504d
    Offering,  the Company entered into a financial  advisory services agreement
    (the Agreement) with a financial advisory firm,  pursuant to which a maximum
    of 200,000 shares of common stock and 90,000 common stock options were to be
    issued to such entity as partial  compensation  for service  performed.  The
    Agreement  became  the  subject of a dispute  between  the  Company  and the
    financial  advisor;  however,  during  December  1999, in settlement of this
    dispute,  the Company  agreed to issue  104,320  shares of common  stock and
    92,205 stock options to the  financial  advisory  firm.  Because the 104,320
    shares were  issuable for services  performed in  conjunction  with the 504d
    Offering, an increase in common stock issuable and a corresponding reduction
    in additional  paid-in  capital was recorded in the  accompanying  financial
    statements  based  on an  estimated  fair  market  value  of $1  per  share.
    Additionally, the terms of the stock options were as follows:

                     Exercise
                        price
        Shares      per share          Vesting date         Expiration date
        ------      ---------       -----------------      -----------------

        34,830          $1.00       December 29, 1999      February 15, 2000
        57,375          $1.25       October 7, 2000        December 29, 2002
        ------

        92,205
        ======

    Because these options were issued in connection with the 504d Offering,  any
    value assigned and credited to additional paid-in capital would result in an
    equal  reduction  of  additional  paid-in  capital  from the 504d  Offering,
    therefore, no accounting recognition has been given to these options.

    During  February  1999,  the Company  issued  convertible  notes  payable to
    individuals totaling $50,000.  During April 1999, these notes were converted
    into 71,428 shares of common stock pursuant to the note agreements.

    During June 1999,  181,055 shares of common stock were approved for issuance
    to employees as a bonus. Compensation expense of $181,055 was recorded based
    on an estimated fair market value of $1 per share.

                                      F-14

<PAGE>

                 FullNet Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998


NOTE G - STOCKHOLDERS' DEFICIT - CONTINUED

    OnSeptember 1, 1999, the Company entered into a financial  advisory services
    agreement with an investment  banker (see Note L). Pursuant to this advisory
    agreement,  100,000  shares  (estimated  fair  value  of $100,000) are to be
    issued to this entity as partial  compensation for services performed.  Such
    shares have not been issued as of  December 31, 1999;  however,  the  earned
    portion  of  such  shares  ($33,334  and  33,334  shares) is recorded in the
    stockholders' deficit section as common stock issuable.

    At December 31, 1999,  318,708  shares of common stock are issuable  without
    additional consideration.

NOTE H - CAPITAL LEASE OBLIGATIONS

    Due to the  purchase  of Animus  during 1998 (see Note J),  certain  capital
    lease obligations were acquired by the Company.  Property held under capital
    leases consists of the following at December 31, 1998:

       Machinery and equipment - computers                           $  28,251
                Less accumulated depreciation                           10,145
                                                                     ---------

                Property and equipment under capital leases, net     $  18,106
                                                                     =========

    Capital lease obligations consist of the following at December 31, 1998:

       Noncancelable equipment lease, payable in monthly
       installments aggregating $6,314, including imputed
       interest at 10%; secured by certain equipment                 $   6,059

       Noncancelable equipment lease, payable in monthly
       installments aggregating $4,836, including imputed
       interest at 22.92%; secured by certain equipment                  4,133
                                                                     ---------
                                                                        10,192
       Less current portion of capital lease obligations                 9,039
                                                                     ---------

                Long-term capital lease obligations, net             $   1,153
                                                                     =========

NOTE I - RELATED PARTY TRANSACTIONS

    The Company had an outstanding obligation of $43,891 at December 31, 1998 to
    a stockholder  for advances made in connection  with the Animus  acquisition
    (see Note J).

                                      F-15

<PAGE>

                 FullNet Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998


NOTE J - PURCHASE OF ANIMUS

    On March 26, 1998,  the Company  purchased  100% of the  outstanding  common
    stock of Animus Communications,  Inc. (now FullWeb), an Oklahoma corporation
    engaged  in  the  business  of  providing  web  hosting   services,   server
    co-locations  selling computer  equipment,  and providing  configuration and
    maintenance of the equipment.

    As a result of the purchase of Animus,  the  stockholders of Animus received
    cash and a note totaling  $350,000.  An initial cash payment of $175,000 was
    paid at  closing  with the note due over the  period of one year  without an
    interest charge.  The financial  statements reflect an imputed interest rate
    of 11% on the note  balance  resulting  in a total  discounted  purchase  of
    $334,460.

    On  September  31,  1998,  the  Company  made a payment  of  $45,825  on the
    noninterest-bearing note with the balance of $129,175 paid on April 1, 1999.
    Since  the note  payable  has been  discounted,  the  principal  balance  at
    December 31, 1998 is reflected in the financial statements as $122,405. This
    note was paid off during 1999.

    The  consolidated  financial  statements  reflect the excess of the purchase
    price ($334,460) over the net assets of the company  purchased  ($15,863) as
    well as the amount of  amortization  for the year ended  December  31,  1998
    ($15,930).  Such excess was being amortized using the  straight-line  method
    over fifteen years through September 30, 1999 (see Note A).

    The  consolidated  pro forma results of operations  which follow assume that
    the acquisition had occurred at the beginning of the period  presented.  The
    calculations  include  adjustments  for  depreciation,   amortization,   and
    interest. The pro forma statements may not be indicative of the results that
    would  have  occurred  if the  acquisition  had been  effective  on the date
    indicated or of the results that may be obtained in the future.

                                                                 1998
                                                              ----------

                Revenues                                      $1,079,480
                                                              ==========

                Net loss                                      $ (197,370)
                                                              ==========

                Net loss per common share                     $     (.14)
                                                              ==========


                                      F-16

<PAGE>

                 FullNet Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998


NOTE K - STOCK OPTIONS

    During 1999, the Company issued  employee stock options  accounted for under
    APB Opinion No. 25 and related  interpretations.  120,000 shares were issued
    to the  President of the  Company,  vest in October  2000,  have an exercise
    price of $1.15,  and expire during October 2003. The other employee  options
    have terms of ten years when  issued  and  generally  vest 33% each year for
    three years  beginning at the date of grant.  The  exercise  prices of these
    options  are $1.25 per share and all  Company  options  are not to be issued
    below the market price of the Company's stock on the date of grant. However,
    because the  Company's  stock is not  actively  traded,  the market price is
    determined  in  good  faith  by the  Board  of  Directors.  Accordingly,  no
    compensation expense has been recognized for employee stock options.

    Had  compensation  cost  for  the  Company's  employee  stock  options  been
    determined  based on the fair value at the grant dates  consistent  with the
    method  of SFAS  No.  123,  Accounting  for  Stock-Based  Compensation,  the
    Company's net loss and loss per share in 1999 would have been as follows:

                     Net loss
                         As reported                            $  (591,595)
                         Pro forma                                 (599,748)

                     Basic and diluted loss per share
                         As reported                            $      (.30)
                         Pro forma                              $      (.30)

    The fair value of each option  grant is estimated on the date of grant using
    the minimum value method  because there was no public trading market for the
    Company's  securities.  Assumptions used were as follows: no dividend yield;
    risk-free interest rate of 6%; and expected lives of 8 and 3 years.

    A  summary  of  the  status  of the  Company's  outstanding  stock  options,
    including  options  issued to a financial  advisory firm (see Note G), as of
    December 31, 1999 and changes during the year then ended is presented below.

                                                                Weighted average
                                                    Shares       exercise price
                                                    -------     ----------------

       Outstanding at beginning of year                 -             $   -
       Granted                                      369,839              1.19
       Exercised                                        -                 -
       Forfeited                                        -
                                                    -------

       Outstanding at end of year                   369,839
                                                    =======

       Options exercisable at year end               34,830
                                                   ========

       Weighted average fair value of employee
       options granted during the year                                $   .28

                                      F-17

<PAGE>

<TABLE>

<CAPTION>

                 FullNet Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998


NOTE K - STOCK OPTIONS - CONTINUED

                                     Options outstanding             Options exercisable
                             ----------------------------------    ----------------------
                                           Weighted-
                                            average    Weighted-                Weighted-
                                Number     remaining    average       Number     average
                             outstanding  contractual  exercise    exercisable  exercise
                             at 12/31/99     life        price     at 12/31/99    price
                             -----------  -----------  ---------   -----------  ---------
<S>                          <C>          <C>          <C>         <C>          <C>
       Exercise prices
           $1.00                  34,830    .12 years      $1.00        34,830      $1.00
           $1.15                 120,000   3.83 years      $1.15             -         -
           $1.25                 215,009   8.13 years      $1.25             -         -
                             -----------                           -----------

                                 369,839                   $1.19        34,830      $1.00
                             ===========                           ===========

</TABLE>

NOTE L - COMMITMENTS AND CONTINGENCIES

    Advisory Agreements
    -------------------

    The Company has entered  into two  separate  agreements  with an  investment
    banker for  investment  banking  and  financial  services.  A summary of the
    details of these two agreements follows.

    The first agreement is for financial services and has a term of September 1,
    1999 through August 31, 2000. If the investment  banker  completes a private
    placement  for the Company,  it will receive 8.5% of the dollar value of the
    transaction  (see Note M  related  to  January  private  placement).  If the
    investment banker closes a debt financing for the Company, it will receive a
    5% transaction  fee. As of December 31, 1999, no such  transactions had been
    completed.

    The  second  agreement  is for  financial  advisory  and  merger/acquisition
    services and also has a term of  September 1, 1999 through  August 31, 2000.
    The fee for the advisory  services is $5,000 per month plus  expenses (up to
    $5,000  per  month)  and  100,000  shares  of common  stock.  See Note G for
    discussion of the stock transaction.  Additionally, this agreement calls for
    merger/acquisition  services.  The cost for this service is $2,500 per month
    plus  expenses  (up to $5,000  per  month)  and a scaled  percentage  of any
    completed acquisition. See Note M related to acquisitions after year end. No
    such mergers/acquisitions had occurred as of December 31, 1999.

                                      F-18

<PAGE>

                 FullNet Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998


NOTE L - COMMITMENTS AND CONTINGENCIES - CONTINUED

    Operating Leases
    ----------------

    The Company  leases certain office  facilities,  equipment,  and phone lines
    used in its  operations  under  operating  leases  expiring at various dates
    through 2009 which provide for payments as follows:

               Year ending December 31
                   2000                                      $   145,076
                   2001                                          135,334
                   2002                                          163,798
                   2003                                          129,496
                   2004                                          136,270
                   Thereafter                                    783,553
                                                              ----------

                                                              $1,493,527
                                                              ==========

    Rental  expense for all  operating  leases for the years ended  December 31,
    1999 and 1998 was $192,316 and $28,010, respectively.

NOTE M - 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.

                                                        1999
                                                --------------------
                                                Carrying      Fair
                                                 amount       value
                                                --------    --------

         Financial liabilities
         Notes payable                          $646,000    $638,000

NOTE N - SUBSEQUENT EVENTS

    Mergers and Acquisitions
    ------------------------

    On January 25, 2000, the Company  entered into an asset  purchase  agreement
    with FullNet of  Tahlequah,  Inc., an Oklahoma  corporation,  (FOT) in which
    FullNet purchased substantially all of FOT's assets, including approximately
    400 individual and business  Internet access accounts.  The Company paid FOT
    approximately  $98,000,  including  approximately $36,000 in cash and a note
    payable for approximately  $62,000.  The note is payable in eighteen monthly
    installments and does not bear interest.

                                      F-19

<PAGE>

                 FullNet Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE N - SUBSEQUENT EVENTS - CONTINUED

    Mergers and Acquisitions - Continued
    ------------------------------------

    On February 4, 2000, the Company  entered into an asset  purchase  agreement
    with David Looper,  d/b/a FullNet of  Bartlesville  (FOB),  an Oklahoma sole
    proprietorship  in which the Company  purchased  substantially  all of FOB's
    assets,  including approximately 400 individual and business Internet access
    accounts. The Company paid FOB approximately $178,000, including $128,000 in
    Company common stock (42,744 shares),  and a note payable for  approximately
    $50,000.  The note bears an interest rate of 8% per annum with the principal
    and interest  thereon  payable on the earlier to occur of (a) the  Company's
    closing of any  private  equity  placement  in excess of  $351,000,  (b) the
    closing of any  underwritten  offering of the Company's common stock, or (c)
    one year from the closing date of the asset purchase agreement.

    On February 29,  2000,  the Company  entered  into an agreement  and plan of
    merger (Merger Agreement) with Harvest  Communications,  Inc. (Harvest),  an
    Oklahoma  corporation,  pursuant  to  which  Harvest  merged  with  and into
    FullNet,  Inc.,  a wholly  owned  subsidiary  of the  Company.  Harvest  had
    approximately   2,500   individual  and  business  dial-up  Internet  access
    accounts,  fifteen  wireless  Internet access  accounts,  and 35 web-hosting
    accounts.  Pursuant to the terms of the Merger  Agreement,  the Company paid
    Harvest  approximately  $1,900,000,  including  $1,600,000 in Company common
    stock (537,500 shares),  a note payable for $175,000,  and $125,000 in cash.
    The note bears an  interest  rate of 8% per annum,  with the  principal  and
    interest  thereon  payable on the earlier to occur of (a) the closing of any
    single  funding   (whether  debt  or  equity)  obtained  by  the  registrant
    subsequent to the date of the Merger  Agreement in an aggregate amount of at
    least  $2,000,000,  (b) the closing of any underwritten  offering of Company
    common stock, or (c) March 6, 2001.

    These  transactions  will be accounted for as purchases.  The purchase price
    will be allocated to the underlying net assets purchased based on their fair
    market values at the respective  acquisition  date.  Additionally,  prior to
    acquisition,  FOT,  FOB, and Harvest were  customers  of the  Company's  ISP
    access services.

    Financing
    ---------

    During February 2000, the Company raised an aggregate  $135,600 in a private
    offering of its common stock exempt from the  registration  requirements  of
    the  Securities  Act pursuant to Rule 504 of  Regulation D. Pursuant to this
    offering,  45,200  shares  were  issued  at a price of $3.00 per  share.  At
    December 31, 1999, related offering costs of approximately $11,000 have been
    deferred and will be charged  against the gross  proceeds of the offering in
    2000.

    On February 29,  2000,  the Company  entered into an agreement  with certain
    individuals  of a firm that  provides  financial  advisory  services  to the
    Company  pursuant to which the Company  obtained a bridge loan of  $275,000.
    The  agreement  provides  for the  issuance of warrants to purchase  137,500
    shares of the  Company's  common  stock at $.01 per share,  and provides for
    certain  registration  rights.  The loan bears an  interest  rate of 14% per
    annum  and  requires  monthly  interest  payments.  The loan term is for six
    months,  and is extendable  for two  ninety-day  periods with issuance of an
    additional warrant for 137,500 shares exercisable at $.01 per share for each
    extension.

                                      F-20

<PAGE>

                 FullNet Communications, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998


NOTE N - SUBSEQUENT EVENTS - CONTINUED

    Financing - Continued
    ---------------------

    During March 2000, the Company entered into two agreements with  third-party
    individuals  pursuant  to  which  the  Company  obtained  bridge  loans  for
    $500,000.  The  agreements  provide for the issuance of warrants to purchase
    100,000 shares of the Company's  common stock at $.01 per share, and provide
    for certain  registration  rights.  The loans bear interest at 14% per annum
    and require quarterly interest payments.  The loan terms are for six months,
    and are extendable for two ninety-day periods with issuance of an additional
    warrant for 10,000 shares at $.01 per share for each extension.

    The Company has not yet determined the value of the warrants associated with
    these loans.  Any value assigned to these warrants will result in a discount
    on the loans and increase their effective interest rate.

    During  January  through March 13, 2000,  the Company  issued  235,400 stock
    options to employees  subject to generally the same terms  discussed in Note
    K. These options all have an exercise price of $3.00 per share.

                                      F-21