FULLNET COMMUNICATIONS INC (Form: 10KSB, Received: 04/02/2001 16:51:05)

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, 2000

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

For the transition period from ___________________ to ___________________

Commission File Number: 000-27031

FULLNET COMMUNICATIONS, INC.

(Exact Name of Registrant as Specified in its Charter)

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

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

201 Robert S. Kerr Avenue, Suite 210
Oklahoma City, Oklahoma 73102

(Address of principal executive offices)

(405) 236-8200

(Registrant's telephone number)

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

Securities registered pursuant to Section 12(g) of the Exchange Act:

Title of each class                    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 $1,915,638

The aggregate market value of the registrant's common stock, $0.00001 par value, held by non-affiliates of the Registrant as of March 23, 2001 was $1,909,975 based on the closing price of $.88 per share on that date as reported by the NASD Electronic Bulletin Board. As of March 23, 2001, 4,160,275 shares of the registrant's common stock, $0.00001 par value, were outstanding.

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

FULLNET COMMUNICATIONS, INC.
FORM 10-KSB
For the Fiscal Year Ended December 31, 2000

TABLE OF CONTENTS

                                     PART I.

Item 1.  Description Of Business...............................................4
Item 2.  Description of Property..............................................17
Item 3.  Legal Proceedings....................................................17
Item 4.  Submission of Matters to a Vote of Security Holders..................17

                                    PART II.

Item 5.  Market for Common Equity and Related Stockholder Matters.............17
Item 6.  Management's Discussion and Analysis or Plan of Operation............19
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...............................................24
Item 11. Security Ownership of Certain Beneficial Owners and Management.......26
Item 12. Certain Relationships and Related Transactions.......................27
Item 13. Exhibits and Reports on Form 8-K.....................................28

SIGNATURES....................................................................31

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

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

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

- We may lose subscribers or fail to grow our subscriber base;
- We may not successfully integrate new subscribers or assets obtained through acquisitions;
- We may fail to compete with existing and new competitors;
- We may not be able to sustain our current growth;
- We may not adequately respond to technological developments impacting the Internet;
- We may experience a major system failure;
- We may not be able to find needed financing.

This list is intended to identify some of the principal factors that could cause actual results to differ materially from those described in the forward-looking statements included elsewhere in this report. These factors are not intended to represent a complete list of all risks and uncertainties inherent in our business, and should be read in conjunction with the more detailed cautionary statements included in this 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.

PART I

Item 1. Description Of Business

General

We are a regional integrated communications provider ("ICP") offering integrated communications and Internet connectivity to individuals, businesses, organizations, educational institutions and government agencies. Through our subsidiaries, we provide high quality, reliable and scalable Internet access, web space design and hosting, and equipment co-location. Our overall strategy is to become the dominant ICP and Internet service provider ("ISP") for residents and small to medium-sized businesses in Oklahoma and contiguous states.

References to us in this Annual Report include our subsidiaries:
FullNet, Inc. ("FullNet"), FullTel, Inc. ("FullTel"), and FullWeb, Inc. ("FullWeb"). Our principal executive offices are located at 201 Robert S. Kerr Avenue, Suite 210, Oklahoma City, Oklahoma 73102, and our telephone number is
(405) 236-8200. We also maintain an Internet site on the World Wide Web ("WWW") at www.fullnet.net. Information contained on our Web site is not, and should not be deemed to be, a part of this Annual Report on Form 10-KSB.

Company History

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

In 1997 we continued our focus on being a backbone provider by upgrading and acquiring more equipment. We also started offering our own ISP brand access and services to our wholesale customers. As of December 31, 2000, there were two ISPs in Oklahoma that used the FullNet brand name where we provide the backbone to the Internet. There are an additional two ISPs that use a private label brand name, where we are their access backbone and provide their technical support, managing and operating their systems on an outsource basis. Additionally, we provide high-speed broadband connectivity, website hosting, network management and consulting solutions to over 60 businesses in Oklahoma.

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

With the incorporation of FullTel and the acquisition of FullWeb, our current business strategy is to become the dominant ICP in Oklahoma and surrounding states, focusing on rural areas. We expect to grow through the acquisition of additional customers for our carrier-neutral co-location space, the acquisition of ISPs and network solutions providers, as well as through a FullNet brand marketing campaign. During the year ended December 31, 2000, we completed four separate acquisitions of ISP companies, operating in, respectively, Tahlequah, Oklahoma; Bartlesville, Oklahoma; Enid, Oklahoma; and Nowata, Oklahoma.

During the month of February 2000, our common stock began trading on the NASD Electronic Bulletin Board under the symbol FULO. While our common stock trades on the NASD Electronic Bulletin Board, it is very thinly traded, and there can be no assurance that 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.

On June 20, 2000, we entered into a contract to provide co-location services to KMC Telecom V, Inc. ("KMC"), a facilities-based competitive local exchange carrier ("CLEC"). The agreement extends until January 31, 2004. Under the terms of the contract, we are paid $44,500 per month to provide co-location and support services for KMC's telecommunications equipment at our network operations center in Oklahoma City, Oklahoma. We completed our network operations center during the first quarter of 2001. KMC moved into our network operations center and began making payments pursuant to the agreement during the third quarter of 2000. We plan to market additional carrier neutral co-location solutions in our network operations center to other CLECs, ISPs and web-hosting companies.

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

Recent Events

Mergers and Acquisitions

Our acquisition strategy is designed to leverage our existing network backbone and internal operations to enable us to enter new markets in Oklahoma, Arkansas and Kansas, as well as to expand our presence in existing markets, and to benefit from economies of scale.

On February 28, 2001, we purchased substantially all of the assets of LawtonNET Communications (LAWTONNET), an Oklahoma sole proprietorship, including approximately 700 individual and business Internet access accounts. Pursuant to the terms of the asset purchase agreement we issued LAWTONNET 35,000 shares of our common stock. In addition, we will pay LAWTONNET an amount based upon the future collected revenues received from all active LAWTONNET customers transferred to us at the time of closing net of the 100% recovery of the $30,000 advance payments made to LAWTONNET during the 30 days following closing.

On February 28, 2001, we purchased substantially all of the assets of Computer Concepts & Research, Inc., d/b/a SONET Communications (SONET), an Oklahoma corporation, including approximately 915 individual and business Internet access accounts. Pursuant to the terms of the asset purchase agreement we issued SONET 30,000 shares of our common stock. In addition, we will pay SONET an amount based upon the future collected revenues received from all active SONET customers transferred to us at the time of closing.

These acquisitions will be 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.

We acquired four Internet service provider businesses in Oklahoma during the year ended December 31, 2000.

On January 25, 2000, we entered into an Asset Purchase Agreement with FullNet of Tahlequah, Inc., an Oklahoma corporation ("FOT"), in which we purchased substantially all of FOT's assets, including approximately 400 individual and business Internet access accounts. We paid FOT an aggregate amount of $97,735, comprised of $35,890 in cash and a note payable for $61,845.

On February 4, 2000, we entered into an Asset Purchase Agreement with FullNet of Bartlesville ("FOB"), an Oklahoma sole proprietorship in which we purchased substantially all of FOB's assets, including approximately 400 individual and business Internet access accounts. We paid FOB an aggregate amount of $178,400, payable in 42,744 shares of our common stock (valued for purposes of the acquisition at $3.00 per share) and a note payable for $50,168.

On February 29, 2000, we 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 our subsidiary, 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, we paid the shareholders of Harvest an aggregate amount of $1,912,500 payable in 537,500 shares of our common stock (valued for purposes of the merger at $3.00 per share), a note payable for $175,000 and $125,000 in cash.

On June 2, 2000, we entered into an Asset Purchase Agreement with FullNet of Nowata ("FON"), an Oklahoma sole proprietorship, in which we purchased substantially all of FON's assets, including approximately 300 individual and business Internet access accounts. Pursuant to the terms of the Agreement, we agreed to pay FON an aggregate purchase price of $137,000, payable in 38,198 shares of our common stock (valued for purposes of the acquisition at $2.33125 per share) and a note payable for $47,950.

These acquisitions were accounted for as purchases. The aggregate purchase price has been allocated to the underlying net assets purchased or net liabilities assumed based on their estimated fair values at the respective acquisition date. This allocation results in cost in excess of net assets of businesses acquired of $1.9 million and covenants not to compete of $.5 million, which are being amortized over the estimated periods benefited of two to five years. Prior to the acquisitions, each of FOT, FOB, FON and Harvest was a customer of our ISP access services.

Financing Activities

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

In February, March, June and September 2000, we obtained interim loans totaling $505,000 through the issuance of promissory notes bearing interest at 14% per annum to 14 accredited investors. The terms of the financing additionally provided for the issuance of five-year warrants to purchase an aggregate of 250,000 shares of our common stock at $0.01 per share and provided for certain registration rights. The promissory notes required monthly interest payments, matured in six months and were extendible for two 90-day periods upon issuance of additional warrants for an aggregate 250,000 shares exercisable at $0.01 per share for each extension. In August 2000, we extended the terms of ten of the interim loans for an additional 90 days and in connection therewith, issued warrants for an additional 137,500 shares. As of December 31, 2000, warrants to purchase an aggregate 262,500 shares of common stock have been exercised at an aggregate exercise price of $2,625.

In March 2000, we obtained interim loans totaling $500,000 through the issuance of promissory notes bearing interest at 14% per annum to two accredited investors. The terms of the financing additionally provided for the issuance of five-year warrants to purchase 100,000 shares of our common stock at $0.01 per share, and provided for certain registration rights. The promissory notes required quarterly interest payments, matured in six months and initially were extendible for two 90-day periods upon issuance of additional warrants for an aggregate 10,000 shares exercisable at $0.01 per share for each extension. In October 2000, the terms of the two interim loans were amended to provide that, in the event of a second 90-day extension, we would issue warrants to purchase an aggregate 160,000 shares of common stock. On March 8, 2000, the interim loan investors exercised their warrants and purchased 100,000 shares of our common stock at an aggregate exercise price of $1,000. In August 2000, we extended the terms of the two interim loans for an additional 90 days, and, in connection therewith, issued warrants for an additional 10,000 shares, of which warrants to purchase an aggregate 5,000 shares of common stock have been exercised at an aggregate exercise price of $50 as of December 31, 2000.

In August 2000, we obtained a short-term loan of $100,000 from Timothy J. Kilkenny, Chairman of the board and CEO, through the issuance of a promissory note bearing interest at 9% per annum. The terms of the financing additionally provided for the issuance of five year warrants to purchase an aggregate of 50,000 shares of our common stock at $0.01 per share, and provided for certain registration rights. The promissory note requires monthly interest payments, matures on the earlier of (i) the date which is within five days of receipt of funds by us of any offering raising gross proceeds to us of at least $1,000,000 or (ii) May 2, 2001.

On September 29, 2000, we began offering through a private placement a minimum of $700,000 and a maximum of $2.0 million in the form of three-year term convertible promissory notes bearing interest at 11% per annum (the "Notes"), which can be increased to $2.5 million at the election of the Placement Agent. The initial closing of $700,000 occurred on November 9, 2000. A second closing of $62,500 occurred on December 1, 2000, and we have subsequently received $100,000 of additional subscriptions to the Notes. Each of the Notes is convertible into our common stock at the election of the holder thereof, at a conversion rate of $1.00 per share, subject to adjustment under certain circumstances. The Notes are accompanied by warrants to purchase a number of shares of our common stock equal to the number obtained by dividing 25% of the face amount of the Notes purchased by $1.00 and provide for certain registration rights.. Said warrants may be exercised at any time after the date of grant for five years at a price of $0.01 per share. We have utilized the funds from this offering for primarily for the retirement of debt, completion of our network operations center and working capital. Additionally, $1,005,000 of interim loans, as discussed above, was converted to the Notes on November 9, 2000. As of December 31, 2000, warrants to purchase an aggregate 267,500 shares of common stock have been exercised at an aggregate exercise price of $2,675. If a registration statement covering the common stock underlying the Notes and the warrants has not been filed with the Securities Exchange Commission (the "SEC") on or before February 28, 2001, the interest rate of the Notes will increase from 11% per annum to 12.5% per annum until the time the registration statement is filed with the SEC and is declared effective. If a registration statement covering the common stock underlying the Notes and the warrants has not been declared effective by the SEC by February 15, 2001, the conversion price of the Notes shall be reduced by 2% to $.98 per share, and shall be reduced by an additional 2% for every 30 days thereafter until the registration is declared effective by the SEC. As of the date of this Annual Report, a registration statement covering the common stock underlying the Notes and the warrants has not been filed with the SEC, as such, the interest rate of the Notes has been increased to 12.5% per annum and the conversion price has been reduced to $.96 per share.

Proceeds from the February 2000 Regulation D offering, the interim loans, the short-term loan from Mr. Kilkenny and the September 2000 private placement 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 United 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 our business, we believe that we are 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. We believe that we are uniquely positioned, among purely local or regional ISPs, to benefit from this continued growth. Specifically, we believe that a window of opportunity currently exists within the state of Oklahoma. Currently, competition from the national ISPs, such as America Online, Prodigy, and 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, we believe that our target area, rural Oklahoma, is grossly underserviced. Accordingly, we believe that a real opportunity exists for us and our subsidiaries to establish a stronghold on the Oklahoma Internet market, given the local infrastructure that we already have in place as well as our multi-pronged marketing strategy.

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.

We intend 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, our wholly owned subsidiary, to become a CLEC. Our intention is to provide IP telephony services and CLEC services to subscribers in the State of Oklahoma.

Our Business Strategy

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

Target Strategic Acquisitions

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

o Potential revenue and subscriber growth
o Low subscriber turnover or churn rates
o Density in the market as defined by a high ratio of subscribers to points of presence ("POPs")
o Favorable competitive environment
o Low density network platforms that can be integrated readily into our backbone network
o Favorable consolidation savings

Since December 31, 2000, we have completed two separate acquisitions of ISP companies, operating in Lawton, Oklahoma.

Generate Internal Sales Growth

We intend to expand our customer base by significantly increasing our direct and indirect regional sales forces as well as our marketing efforts. As of December 31, 2000, our direct sales force consisted of one individual in our Oklahoma City office coordinating all our business to Business ("B2B") solutions sales. We currently have one individual responsible state wide to manage the consumer ISP market, with dealers and independent sales representatives responsible for their individual markets. Our sales force is supported in their efforts by technical engineers and, in some instances, our senior management. We intend to increase the number of our sales offices through expanding the size of our direct sales force with the goal of having an effective selling presence in all major communities in the state of Oklahoma. In addition, we are exploring other strategies to grow our direct sales force, including developing an inside sales center and other marketing partners such as electric cooperatives. We currently have one of the twenty local Oklahoma electric cooperatives as a marketing partner.

Develop the Dominant Regional Brand

We seek 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. We intend to change these brands on a market by market basis as we implement enhancements to improve customer satisfaction.

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

Develop Strategic Relationships

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

Grow Subscriber Base

We intend to grow our subscriber base through a combination of internal and acquisition driven growth. This growth will help to increase the density of the subscriber base on a subscriber-per-POP basis, which should allow us to leverage our cost structure, particularly those costs associated with network operations, customer support, back office functions and management overhead. We expect our local markets to generate internal subscriber growth primarily by enhancing subscribers' online experience, providing a sense of a national presence while maintaining local community content and developing a consumer recognized regional FullNet brand.

Increase Rural Area Market Share

We believe that 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. We believe we can obtain a significant ISP and B2B market share in Oklahoma. To that end, we, through our wholly owned subsidiary, FullTel, became a licensed CLEC in the state of Oklahoma and intend 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

We intend to capitalize on our existing customer base and future customers by aggressively cross selling our value-added services through a referral system that has every local retail ISP sales representative referring B2B customers. We are committed to offering our customers reliable value-added network services necessary to address their Internet, communications and network management requirements. Based on our existing network infrastructure and expertise, we are able to offer these services continuously, reliably and on a cost-effective basis.

Enhance Subscribers' Online Experience

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

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

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

o New Products and Services - Offer subscribers new products and services, such as 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 our subscribers in exchange for fee based revenues.

Internet Access Services

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

Our branded and private label Internet access services are provided through a statewide network with POPs in 14 communities throughout the state of Oklahoma. POPs are local telephone numbers through which subscribers can access the Internet. Our business services consist of high speed Internet access services and other services that enable wholesale customers to outsource their Internet and electronic commerce activities. We had approximately 3,500 subscribers at December 31, 2000. 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.

We intend to expand our subscriber base through a marketing campaign and through acquisitions. We are focusing our acquisition efforts on companies with forward-looking sales and marketing, high-quality customer service and a solid local market dominance. Since December 31, 2000, we have completed two separate acquisitions of ISP companies operating in Lawton, Oklahoma. See "Item
1. Description of Business - Recent Events." Additionally, we are expanding our sales and marketing staff in an effort to increase our subscriber base in the markets in which we currently operate.

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

o Dial-Up Connections

The simplest connection to the Internet is the dial-up account. This method of service connects the user to the Internet through the use of a modem and standard telephone line. Currently, FullNet users can connect via dial-up at speeds up to 56 Kbps. We support these users through the use of sophisticated modem banks at the POP that send data through a router and out to the Internet. We support 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 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. We have the capacity to sell a leased line connection to users. This method of connection gives the user a full-time high-speed (up to 1.5 mbps) connection to the Internet through 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 our preference to offer the customer a two-way wireless connection, thus capturing telephone company revenue and saving the customer money.

Additionally, we are in the process of implementing operations as a CLEC, which will enable us 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 - Internet Access Services." 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, our CLEC, subject to our ability to raise sufficient capital we will have the ability to offer DSL service, and offer local dial-up Internet access in each of such communities so served.

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

Fast and Reliable Internet Access-We have implemented a network architecture providing exceptional quality and consistency in Internet services, making us the recognized backbone leader in the Oklahoma ISP industry. We offer 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. Our dial-up access supports all major platforms and operating systems, including MS Windows, UNIX(R), Mac OS, OS/2 and LINUX. This allows simplified access to all Internet applications, including the WWW, email, news and FTP.

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

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

CLEC Operations

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

While Internet access is the core focus of growth for us, we plan to also provide traditional telephone service throughout Oklahoma and contiguous states. We intend to seek approval to operate as a CLEC in additional states as we expand into such areas.

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

Once we are able to install the FullTel data center telephone switching equipment, FullTel will extend local access telephone numbers to every city in which we will market, sell and operate our retail FullNet ISP brand and our B2B network design, connectivity, domain and Web hosting businesses. It is anticipated that initially, FullTel will provide us with local telephone access in 35-40 targeted cities where we will either already own ISP operations or have commenced sales and marketing. However, our ability to fully take advantage of these opportunities will be dependent upon the availability of additional capital.

Sales and Marketing

Although we expect that the bulk of our new subscribers will come through acquisition of ISPs, our expanded local sales system is also an integral part of our growth plan. Local sales and marketing will give our brand name recognition that will lead to an increase in our 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 our markets. Finally, since there is not as much competition in the smaller metropolitan and rural markets, monthly churn rates are lower and word-of-mouth referrals are a significant generator of new subscribers. We believe that we have significant opportunities for acquisition and internal sales growth in these market areas.

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

Competition

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

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

ISPs

According to industry sources, there are over 5,000 ISPs in the United States and Canada consisting of national, regional and local providers. Our current primary competitors include other ISPs with a significant national presence that focus on business customers, such as UUNet Technologies, Inc., GTE Internetworking (formerly BBN), Concentric Network and DIGEX. While we believe that our level of customer service and support and target market focus distinguish us from these competitors, such competitors have greater market share, brand recognition, financial, technical and personnel resources than us. We also compete with unaffiliated regional and local ISPs in our 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 us. 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, we believe that there is a move toward horizontal integration by ILECs and CLECs through acquisitions or joint ventures with, and the wholesale purchase of, connectivity from 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, we expect that we 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.

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 us 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. Our ability to compete with telephone and cable television companies that are able to support broadband transmissions, and to provide better Internet services and products, may depend on future regulation to guarantee open access to the broadband networks. However, in January 1999, the 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 regulation, 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 we are unable to gain access to these facilities on reasonable terms, our business, financial condition and results of operations could be materially adversely affected.

Online Service Providers

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

However, America Online's 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 us. CompuServe has also announced that it will target Internet connectivity for the small to medium sized business market.

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

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

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

Our Internet operations are not currently subject to direct regulation by the FCC or any other U.S. governmental agency, other than regulations applicable to businesses generally. However, the FCC continues to review its regulatory position on the usage of the basic network and communications facilities by 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 our 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 our costs of serving dial-up customers and could have a material adverse effect on our business, financial condition and results of operations.

In addition to our ISP operations, we have recently focused attention on acquiring telecommunications assets and facilities, which is a regulated activity. Fulltel, our wholly owned subsidiary, has received CLEC certification in the State of Oklahoma, and an important part of our 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, we could become subject to further regulation by the FCC and/or another regulatory agency, including state and local entities.

The Telecommunications Act has caused fundamental changes in the markets for local exchange services. In particular, the Telecommunications Act and the FCC rules issued pursuant to it mandate competition in local markets and require that 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. We believe 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 our position. An unfavorable result may have an adverse impact on our potential future revenues as a CLEC.

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

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 we believe that our plans, intentions and expectations reflected in such forward looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. Important factors that could cause actual results to differ materially from our forward looking statements are set forth below and elsewhere in this Annual Report. All forward looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements set forth below.

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

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

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

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

New Concept; Uncertainty of Market Acceptance and Commercialization Strategy. Our proposed entry into IP telephony represent a relatively 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 us to create awareness and demand by consumers. Our marketing strategy and preliminary and future marketing plans may be unsuccessful and are subject to change as a result of a number of factors, including progress or delays in our marketing efforts, changes in market conditions (including the emergence of potentially significant related market segments for applications of our technology), the nature of possible license and distribution arrangements which may or may not become available to us in the future and economic, regulatory and competitive factors. There can be no assurance that our strategy will result in successful product commercialization or that our efforts will result in initial or continued market acceptance for our proposed products.

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

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

Potential Government Regulations. We are subject to state commission, FCC and court decisions as they relate to the interpretation and implementation of the Telecommunications Act, the interpretation of CLEC interconnection agreements in general and our interconnection agreements in particular. In some cases, we may be 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 we are a party. The results of any of these proceedings could have a material adverse effect on the our business, prospects, financial condition and results of operations.

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

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

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

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

Customers

In 2000, we had one customer which represented 11.3% of our gross revenues. On June 20, 2000, we entered into a contract to provide co-location services to KMC Telecom V, Inc. ("KMC"), a facilities-based competitive local exchange carrier ("CLEC"). The agreement extends until January 31, 2004. Under the terms of the contract, we are paid $44,500 per month to provide co-location and support services for KMC's telecommunications equipment at our network operations center in Oklahoma City, Oklahoma. KMC moved into our network operations center and began making payments pursuant to the agreement during the third quarter of 2000.

Employees

As of December 31, 2000, we had 24 employees employed in engineering, sales, marketing, customer support and related activities and general and administrative functions. None of our employees are represented by a labor union, and we consider our relations with our employees to be good. We also engage consultants from time to time with respect to various aspects of our business.

Item 2. Description of Property

We maintain our executive office in approximately 13,600 square feet at 201 Robert S. Kerr Avenue, suite 210 in Oklahoma City. These premises are occupied pursuant to a ten-year lease that expires December 31, 2009. The lease requires monthly rental payments starting at approximately $3,300 per month during 2000 and increasing to approximately $14,200 per month in the tenth year of the lease.

We also lease space in a number of private facilities in which our equipment is housed. The monthly lease payments for such private facilities are approximately $2,300.

Item 3. Legal Proceedings

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

Item 4. Submission of Matters to a Vote of Security Holders

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

PART II

Item 5. Market for Common Equity and Related Stockholder Matters

Number of stockholders

The number of beneficial holders of record of our common stock as of the close of business on March 23, 2001 was approximately 90.

Dividend Policy

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

Recent Sales of Unregistered Securities

During February 1999, we 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. No sales commissions were paid in connection with the sale of the convertible notes and the securities were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act.

In April 1999, we completed an offering of our common stock 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, we determined that we and/or others may have 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, we extended rescission offers to certain of our stockholders who had acquired Common Stock in the 504 offering and who were residents of Florida and Oklahoma. As a result of the rescission offer, we repurchased 11,000 shares for an aggregate repurchase price of $11,000 plus interest.

In February 2000, we completed an additional offering of our common stock pursuant to Regulation D of the securities Act. We sold 45,200 shares of common stock for aggregate proceeds of $135,600. Net proceeds were approximately $123,000, after payment of offering expenses.

In February, March, June and September 2000, we obtained interim loans totaling $505,000 through the issuance of promissory notes bearing interest at 14% per annum to 14 accredited investors. Net proceeds were approximately $478,500, after payment of placement fees and commissions totaling $26,500 and other offering expenses. The terms of the financing additionally provided for the issuance of five-year warrants to purchase an aggregate of 250,000 shares of our common stock at $0.01 per share and provided for certain registration rights. The promissory notes required monthly interest payments, matured in six months and were extendible for two 90-day periods upon issuance of additional warrants for an aggregate 250,000 shares exercisable at $0.01 per share for each extension. In August 2000, we extended the terms of ten of the interim loans for an additional 90 days and in connection therewith, issued warrants for an additional 137,500 shares. As of December 31, 2000, warrants to purchase an aggregate 262,500 shares of common stock have been exercised at an aggregate exercise price of $2,625. The securities were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act.

In March 2000, we obtained interim loans totaling $500,000 through the issuance of promissory notes bearing interest at 14% per annum to two accredited investors. Net proceeds were approximately $460,000, after payment of placement fees and commissions totaling $40,000 and other offering expenses. The terms of the financing additionally provided for the issuance of five-year warrants to purchase 100,000 shares of our common stock at $0.01 per share, and provided for certain registration rights. The promissory notes required quarterly interest payments, matured in six months and initially were extendible for two 90-day periods upon issuance of additional warrants for an aggregate 10,000 shares exercisable at $0.01 per share for each extension. In October 2000, the terms of the two interim loans were amended to provide that, in the event of a second 90-day extension, we would issue warrants to purchase an aggregate 160,000 shares of common stock. On March 8, 2000, the interim loan investors exercised their warrants and purchased 100,000 shares of our common stock at an aggregate exercise price of $1,000. In August 2000, we extended the terms of the two interim loans for an additional 90 days, and, in connection therewith, issued warrants for an additional 10,000 shares, of which warrants to purchase an aggregate 5,000 shares of common stock have been exercised at an aggregate exercise price of $50 as of December 31, 2000. The securities were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act.

In August 2000, we obtained a short-term loan of $100,000 from Timothy J. Kilkenny, Chairman of the board and CEO, through the issuance of a promissory note bearing interest at 9% per annum. The terms of the financing additionally provided for the issuance of five-year warrants to purchase an aggregate of 50,000 shares of our common stock at $0.01 per share, and provided for certain registration rights. The promissory note requires monthly interest payments, matures on the earlier of (i) the date which is within five days of receipt of funds by us of any offering raising gross proceeds to us of at least $1,000,000 or (ii) May 2, 2001. No sales commissions were paid in connection with such issuance and the securities were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act.

On September 29, 2000, we began offering through a private placement a minimum of $700,000 and a maximum of $2.0 million in the form of three-year term convertible promissory notes bearing interest at 11% per annum (the "Notes"), which can be increased to $2.5 million at the election of the Placement Agent. The initial closing of $700,000 occurred on November 9, 2000. The second closing of $62,500 occurred on December 1, 2000. Net proceeds were approximately $667,500, after payment of placement fees and commissions totaling $95,000 and other offering expenses. Each of the Notes is convertible into our common stock at the election of the holder thereof, at a conversion rate of $1.00 per share, subject to adjustment under certain circumstances. The Notes are accompanied by warrants to purchase a number of shares of our common stock equal to the number obtained by dividing 25% of the face amount of the Notes purchased by $1.00 and provide for certain registration rights. Said warrants may be exercised at any time after the date of grant for five years at a price of $0.01 per share. Additionally, $1,005,000 of interim loans, as discussed above, were converted to the Notes on November 9, 2000. As of December 31, 2000, warrants to purchase an aggregate 267,500 shares of common stock have been exercised at an aggregate exercise price of $2,675. If a registration statement covering the common stock underlying the Notes and the warrants has not been declared effective by the SEC by February 15, 2001, the conversion price of the Notes shall be reduced by 2% to $.98 per share, and shall be reduced by an additional 2% for every 30 days thereafter until the registration is declared effective by the SEC. As of the date of this Annual Report, a registration statement covering the common stock underlying the Notes and the warrants has not been filed with the SEC, as such, the interest rate of the Notes has been increased to 12.5% per annum and the conversion price has been reduced to $.96 per share. The securities were issued in reliance on the exemption from registration provided by Section 4(2) and Rule 506 of Regulation D of the Securities Act

On January 5, 2001, we entered into an agreement with a third party pursuant to which we obtained an interim loan for $250,000. The agreement provided for the issuance of warrants to purchase 125,000 shares of our common stock at $.01 per share, and certain registration rights. The loan bears interest at 10% per annum. The principal and interest are due on March 31, 2001. Net proceeds were approximately $225,000, after payment of placement fees and commissions totaling $25,000 and other offering expenses. The securities were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act.

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

The following table sets forth the high and low closing sale price of our common stock as reported on the NASD Electronic Bulletin Board for the periods indicated.

                                               Common Stock
                                            Closing Sale Prices
                                       ----------------------------
                                            High           Low
                                            ----           ---
2000 --CALENDAR QUARTER ENDED:
March 31                                  $ 4.75         $ 2.56
June 30                                     2.75           1.87
September 30                                2.75           1.03
December 31                                 1.38            .84

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

The following discussion should be read in conjunction with our Consolidated Financial Statements and notes thereto included in Part II, Item 7 of this 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 our other periodic reports and documents filed with the Securities and Exchange Commission.

The following discussion of the results of operations and financial condition should be read in conjunction with our Consolidated Financial Statements and the Notes thereto included elsewhere in this Annual Report.

Year Ended December 31, 2000 vs. Year Ended December 31, 1999

Revenues

Access service revenues increased $615,000 to $1,093,000 for the year ended December 31, 2000 from $478,000 for the year ended December 31, 1999. This increase is a result of the acquisition of four ISPs during the year ended December 31, 2000, which accounted for an increase in dial-up Internet access revenue of approximately $657,000. As a result of these acquisitions, we realized a decrease in leased line revenues of approximately $38,000 during the year ended December 31, 2000 compared to the year ended December 31, 1999. The four ISPs we acquired had previously been customers of our Internet backbone services.

Network solutions and other revenues increased $179,000 to $823,000 for the year ended December 31, 2000 from $644,000 for the year ended December 31, 1999. The increase is attributable to growth in server co-location of $60,000, of which $50,000 relates to one customer. We commenced our carrier-neutral premise co-location services during the end of the third quarter 2000 and recognized revenues for services of $217,000 for the year ended December 31, 2000. Equipment sales decreased $93,000 to $137,000 for the year ended December 31, 2000 from $230,000 for the year ended December 31, 1999. Consulting revenues decreased $11,000 during the year ended December 31, 2000 compared to the year ended December 31, 1999. We historically have not actively marketed our network solutions sales and consulting, and have typically made such sales to our existing customer base. Web hosting revenues increased $7,000 to $202,000 for the year ended December 31, 2000 from $195,000 for the year ended December 31, 1999. In addition, we realized a decrease in revenues charged to resellers for the addition of dial-up subscribers of $29,000 during the year ended December 31, 2000 compared to the year ended December 31, 1999. This decrease is due to the acquisition of four ISPs in 2000 that previously had been customers of our backbone services. We charge a fee to our resellers for each dial-up subscriber that is added to their respective customer base.

Operating Costs and Expenses

Cost of access service revenues increased $309,000 to $509,000 for the year ended December 31, 2000 from $200,000 for the year ended December 31, 1999, due to the increased costs of providing Internet access in Tahlequah, Bartlesville, Enid and Nowata relating to the acquisition of ISPs in those towns during the year ended December 31, 2000. The increase in costs is attributable primarily to $282,000 of connectivity costs incurred in conjunction with the access service customers acquired during 2000 in four Oklahoma towns: Enid, Bartlesville, Nowata and Tahlequah

Cost of network solutions and other revenues decreased $2,000 to $246,000 for the year ended December 31, 2000 from $248,000 for the year ended December 31, 1999. Cost of equipment sales decreased $61,000 to $119,000 for the year ended December 31, 2000 from $180,000 for the year ended December 31, 1999. This is offset by an increase in the cost of bandwidth of $52,000 incurred by FullWeb to service the increase in the number of web hosting and co-location customers over the prior comparative year.

Selling, general and administrative expenses increased $1,517,000 to $2,520,000 for the year ended December 31, 2000 from $1,003,000 for the year ended December 31, 1999. The increase includes an increase in payroll costs of $511,000 over the prior comparable year related to the hiring of additional personnel. Professional fees increased $585,000 to $750,000 during the year ended December 31, 2000 from $165,000 for the year ended December 31, 1999. Professional fees include legal, accounting, investment banking and consulting fees. Approximately $448,000 of the $750,000 of professional fees for the year ended December 31, 2000 were attributable to noncash expenses relating to the fair value of common stock, options and warrants issued for services.. Rent expense, advertising, insurance premiums, bad debt expense, and equipment lease expense increased $64,000, $41,000, $66,000, $40,000 and $38,000, respectively, for the year ended December 31, 2000 over the prior comparable period. The remainder of the increase is attributable to various increases in other accounts in amounts less than $20,000 per account.

Depreciation and amortization expense increased $655,000 to $800,000 for the year ended December 31, 2000 from $145,000 for the year ended December 31, 1999. Amortization of cost in excess of net assets of businesses acquired increased $403,000 to $473,000 for the year ended December 31, 2000 from $70,000 for the year ended December 31, 1999. Amortization of covenants not to compete was $106,000 for the year ended December 31, 2000 compared to $0 for the prior comparable period. The remainder of the increase was attributable to depreciation expense related to the purchase of equipment and equipment acquired through acquisition and leasehold improvement amortization during the year ended December 31, 2000.

Interest Expense

Interest expense increased $866,000 to $944,000 for the year ended December 31, 2000 from $78,000 for the year ended December 31, 1999. This increase was due to $649,000 of noncash interest expense recorded for the year ended December 31, 2000 associated with amortization of the loan discount relating to interim financing issued with warrants, and $145,000 of interest expense on interim financing obtained in 2000. In addition, we incurred interest expense of $18,000 on notes issued in conjunction with four acquisitions during 2000 and loans assumed in conjunction with the Harvest Communications merger. We also incurred $28,000 of interest expense during the year ended December 31, 2000 related to the private placement of convertible notes payable during the fourth quarter.

Other Expense

Other expense increased $20,000 to $60,000 for the year ended December 31, 2000 from $40,000 for the year ended December 31, 1999. The increase was attributable to fees paid to local exchange carriers for the future collocation of DSL equipment with such carriers in four cities.

Extraordinary Item - Extinguishment of Debt

In the fourth quarter of 2000, we exchanged interim financing notes payable with a face value of $1,005,000 and a carrying value of $882,000 for $1,005,000 of convertible notes payable and 661,250 common stock purchase warrants. This event has been accounted for as an extinguishment of the interim financing notes payable and we have recorded a loss on extinguishment of debt of $529,158. Such loss is presented in the consolidated statement of operations as an extraordinary item.

Cumulative Effect of Accounting Change

In November 2000, the Emerging Issues Task Force (EITF) reached consensus on Issue 00-27, Application of EITF Issue No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, to Certain Convertible Instruments, which is effective for all such instruments. This issue clarifies the accounting for instruments with beneficial conversion features or contingently adjustable conversion ratios. This issue requires companies to measure a convertible instrument's beneficial conversion feature using an effective conversion price.

Consequently, the conversion option embedded in our convertible notes payable issued with detachable warrants has an intrinsic value even though the conversion price was equal to the market price of our common stock at the time of issuance. The beneficial conversion feature is calculated by first allocating the proceeds received in the financing to the convertible notes payable and to the detachable warrants included in the transaction, and then measuring the intrinsic value using on the effective conversion price based on the allocated proceeds.

We have presented the effect of adoption, an additional $341,000 in imputed interest expense, as a cumulative effect of accounting change as required in EITF 00-27.

Liquidity and Capital Resources

We used $704,000 and $243,000 of cash for operating activities for the years ended December 31, 2000 and 1999, respectively, as a result of a net loss for the periods. As of December 31, 2000, we had $13,000 in cash and $1,475,000 in current liabilities, including $178,000 of deferred revenues that will not require settlement in cash.

Capital expenditures relating to business acquisitions net of cash acquired were $127,000 for the year ended December 31, 2000. In addition, property, plant and equipment purchases amounted to $847,000 for the year ended December 31, 2000, including $900,000 related to leasehold improvements for our new office space and construction in progress on our network operations center, which was completed during the first quarter 2001. We also received net proceeds of $110,000 from the sale of a building acquired in conjunction with the Harvest Communications merger. Proceeds received from the sale were used to repay the note payable relating to the building.

Net cash provided by financing activities was $1,569,000 and $268,000 for years ended December 31, 2000 and 1999, respectively. The cash provided in 2000 was due primarily to the issuance of a note payable to our founder and CEO, the issuance of interim notes payable, the issuance of convertible promissory notes payable and the private placement of common stock. We received net proceeds of $100,000 from the note payable to our founder and CEO, $939,000 from interim notes payable, $667,000 from the sale of convertible promissory notes payable pursuant to Rule 506 of Regulation D and $123,000 from the common stock placement.

On January 5, 2001, we entered into an agreement with a third party pursuant to which we obtained an interim loan for $250,000. The agreement provides for the issuance of five-year warrants to purchase 125,000 shares of our common stock at $.01 per share, warrants to purchase 125,000 shares of our common stock at $1.00 per share, and provides for certain registration rights. The loan bears interest at 10% per annum and requires payments equal to 50% of the net proceeds we receive from our private placement of Notes. Through February 28, 2001, we have made payments of $35,250. The unpaid principal and interest are due on March 31, 2001.

In February 2001, we received $100,000 of subscriptions to the Notes. See "Item 1. Description Of Business - Financing Activities."

In February 2001, we converted a trade payable and accrued interest approximating $95,000 into a three-year convertible promissory note bearing interest at 11% and a five-year warrant to purchase approximately 24,000 shares of our common stock for $.01 per share (the same instrument we offered in our September 2000 private placement).

In March 2001, the shareholders of Harvest exchanged a note and the accrued interest thereon, totaling approximating $188,000, for a three-year convertible promissory note bearing interest at 11% and a five-year warrant to purchase approximately 46,963 shares of our common stock for $.01 per share (the same instrument we offered in our September 2000 private placement). See "Item
1. Description of Business - Recent Events - Mergers and Acquisitions."

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

o the purchase and installation of telephone switches in Oklahoma, Arkansas and Kansas
o purchase and installation of broadband Internet access equipment
o mergers and acquisitions
o further development of operations support systems and other automated back office systems

As our cost of developing new networks and services, funding other strategic initiatives and operating our business will depend on a variety of factors (including, among other things, the number of subscribers and the service for which they subscribe, the nature and penetration of services that may be offered by us, regulatory changes, and actions taken by competitors in response to our strategic initiatives), it is almost certain that actual costs and revenues will vary from expected amounts, very likely to a material degree, and that such variations are likely to affect our future capital requirements. Current cash balances as of March 23, 2001 will not be sufficient to fund our current business plan beyond the next three months. As a consequence, we are currently seeking additional convertible debt and/or equity financing as well as the placement of a credit facility to fund our liquidity needs. There can be no assurance that we will be able to raise additional capital on satisfactory terms or at all.

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

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

No assurance can be given that we will be successful in developing and maintaining a level of cash flow from operations sufficient to permit us to pay the principal of, and interest and any other payments on, outstanding indebtedness. If we are unable to generate sufficient cash flow from operations to service our indebtedness, we may have to modify our growth plans, limit our capital expenditures, restructure or refinance our indebtedness or seek additional capital or liquidate our 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 our 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. We do not expect this new standard to have any impact on our financial statements.

Other Matters

Employee Stock Grant

Pursuant to a stock bonus approved by our Board of Directors and granted in June 1999, Roger S. Laubhan and Jason C. Ayers, two officers, 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 issued in January 2000. We recognized $181,055 as compensation expense in 1999 relating to the grant of common stock to these employees.

Financial Advisory Services Agreements

We 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 was for financial services and had a term of September 1, 1999 through August 31, 2000. Pursuant to the agreement, if the investment banker completed a private placement for the Company, it would receive 8.5% of the dollar value of the transaction. If the investment banker closed a debt financing for the Company, it would receive a 5% transaction fee. As of December 31, 2000, the investment banker had closed debt transactions aggregating $450,000, resulting in $22,500 fees payable to the investment banker.

The second agreement was for financial advisory and merger/acquisition services and also had a term of September 1, 1999 through August 31, 2000. The fee for the advisory services was $5,000 per month plus expenses (up to $5,000 per month) and 100,000 shares of Common Stock (see Note G to the financial statements for discussion of the stock transaction). Additionally, this agreement provided for merger/acquisition services. The cost for this service was $2,500 per month plus expenses (up to $5,000 per month) and a scaled percentage of any completed acquisition (see Note I to the financial statements related to acquisitions). As of December 31, 2000, the Company had completed four merger/acquisition transactions and paid approximately $68,000 in percentage-based fees to the investment banker.

In April 2000, the Company amended its contract with its investment banker, which entitled the investment banker to an additional 100,000 shares of common stock.

Item 7. Financial Statements

Our consolidated financial statements 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) Report of Independent Auditors
(2) Consolidated Balance Sheets as of December 31, 2000 and 1999
(3) Consolidated Statements of Operations for Years Ended December 31, 2000 and 1999
(4) Consolidated Statements of Stockholders' Equity (Deficit) for Years Ended December 31, 2000 and 1999
(5) Consolidated Statements of Cash Flows for Years Ended December 31, 2000 and 1999
(6) Notes to Consolidated Financial Statements for Years Ended December 31, 2000 and 1999

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

None.

PART III.

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

The following information is furnished as of March 23, 2001 for each person who serves as an executive officer or director of FullNet Communications, Inc.. The Board of Directors currently consists of two members, although we intend to increase the size of the Board in the future. The directors serve one-year terms until their successors are elected. Our executive officers are elected annually by the Board of Directors. The executive officers serve terms of one year or until their death, resignation or removal by the Board of Directors. There are no family relationships between any of the directors and executive officers, other than between Timothy J. Kilkenny and Laura L. Kilkenny, who are husband and wife. In addition, there was no arrangement or understanding between any executive officer and any other person pursuant to which any person was selected as an executive officer.

         Name           Age                    Position
         ----           ---                    --------
Timothy J. Kilkenny      42    Chairman  of  the Board of Directors, President
                               and CEO
Laura L. Kilkenny        43    Director
Roger P. Baresel         45    Director, Chief Financial Officer and Secretary
Wallace L. Walcher       40    Vice President of Acquisitions and
                               Telecommunications
Wesdon C. Peacock        32    Vice President of Web Services
Travis Lane              31    Vice President of Finance
Jason C. Ayers           26    Vice President of Operations
B. Don Turner            59    Vice President of Authorized Agent Sales

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

Laura L. Kilkenny, D.O. has been one of our directors since May 1995. Dr. Kilkenny was Corporate Secretary from May 1995 until February 2000. Dr. Kilkenny received her Doctorate of Osteopathic Medicine in May 1997. Prior to the commencement of her medical studies in 1990, Dr. Kilkenny worked in banking. Dr. Kilkenny resigned as director on December 31, 2000.

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

Wallace L. Walcher became our Vice President of Acquisitions and Telecomunications on December 8, 2000. Prior to that he served as our Chief Operating Officer from March 1, 2000. Previously, Mr. Walcher was President and CEO of Harvest Communications of Enid, Oklahoma, which he founded in December 1995, and which was purchased by us on February 29, 2000. Mr. Walcher began his career with Price Waterhouse, attaining senior audit status before moving on to a controller position with InfoView, Inc., a high-tech startup, which went public in 1984. From 1988 until the founding of Harvest , Mr. Walcher worked for various companies that are now part of CitiGroup. Mr. Walcher brings to us a strong technical background which includes wireless expertise. He holds a Bachelors degree in accounting from Oklahoma State University in Stillwater, Oklahoma, in which he graduated Summa Cum Laude. Mr. Walcher is also a certified public accountant.

Wesdon C. Peacock has been a key member of our management team since 1996. He is an accomplished and highly motivated executive with experience in diverse corporate arenas. Mr. Peacock has contributed to our growth in our Web Hosting and Internet divisions. Mr. Peacock has also owned and operated a web hosting company within the state of Oklahoma.

Travis Lane has been with us since October 1999 and serves as Vice President of Finance. Prior to joining us, Mr. Lane served as a public accountant with Deloitte & Touche, LLP from January 1994 to October 1999, most recently as an audit manager. Mr. Lane received his BBA in accounting from the University of Oklahoma in Norman, Oklahoma. Mr. Lane is also a certified public accountant.

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

B. Don Turner is currently our Vice President of Authorized Agent Sales. Mr. Turner has worked in marketing, sales, sales management and executive management since 1961. Mr. Turner was involved in developing and implementing strategic action plans for major broadcast companies in markets from Lubbock, Texas to Atlanta, Georgia. He was Director of Marketing for 66 Federal Credit Union (the credit union for Phillips Petroleum) and its affiliates, Tyson Foods Credit Union and The University of Kansas Credit Union, from 1994 to 1998 at which time he was promoted to the position of AVP, Business Development, Community & Governmental Affairs. Mr. Turner joined us on May 1, 2000 as Chief Marketing Officer and since has been given additional responsibility.

Key Employees

Dawn Deckman, 42, has been our Director of Sales and Marketing since April 1997. Ms. Deckman has been in sales and management in the telephony/data/Internet industry for the past five years.

Michael D Tomas, 28, has been IS Manager since June 1999 and our employee since July 1996. Mr. Tomas currently is completing his studies at the University of Oklahoma for a degree in Management Information Systems. Mr. Tomas has formal training with Cisco, Win 3.1, Win95/98, and Windows NT 4.0 as well as LAN/WAN setup, including experience with wireless networking.

Compliance with Section 16(a) of the Exchange Act, Beneficial Ownership Reporting Requirements

Section 16(a) of the Securities and Exchange Act of 1934, as amended, requires our directors and executive officers and any persons who own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission ("SEC") and each exchange on which our securities are listed, reports of ownership and subsequent changes in ownership of our common stock and our other securities. Officers, directors and greater than 10% stockholders are required by SEC regulation to furnish us with copies of all
Section 16(a) forms they file. Based solely on review of the copies of such reports furnished to us or written representations that no other reports were required, we believe that during 2000 all filing requirements applicable to our officers, directors and greater than 10% beneficial owners were met, except for the late filing of Form 4 for Timothy J. Kilkenny, Laura L. Kilkenny, Roger P. Baresel, Wallace L. Walcher, B. Don Turner and Jason C. Ayers.

Item 10. Executive Compensation

The following table sets forth, for the last three fiscal years, the cash compensation paid by us to our Chairman and Chief Executive Officer (the "Named Executive Officer"). No other directors or executive officers earned in excess of $100,000 during fiscal 2000.

                               Annual Compensation      Long-Term Compensation
                               -------------------   ---------------------------
                                                     Securities
                                                     Underlying
                       Fiscal                          Options       All Other
Name and Principal     Year      Salary      Bonus      (#) (1)     Compensation
Position               ------  ----------   ------   -----------    ------------

Timothy J. Kilkenny    2000    $75,000(5)   $ -        100,000      $ 12,480 (2)

President and Chief    1999     45,900        -        120,000        11,338 (3)
Executive Officer
                       1998     31,200        -           -            7,433 (4)

(1) Options are granted with an exercise price equal to the fair market value of our common stock on the date of the grant.
(2) Represents $1,200 of expense reimbursement for business use of Mr. Kilkenny's automobile and $11,280 of insurance premiums paid by us for the benefit of Mr. Kilkenny. We also provide use of an automobile to Mr. Kilkenny, the value of which is not greater than $5,000 annually.
(3) Represents $1,214 of expense reimbursement for business use of Mr. Kilkenny's automobile and $10,124 of insurance premiums paid by us for the benefit of Mr. Kilkenny.
(4) Represents $1,875 of expense reimbursement for business use of Mr. Kilkenny's automobile and $5,558 of insurance premiums paid by us for the benefit of Mr. Kilkenny.
(5) Includes $25,000 of deferred compensation.

Stock Options Granted

We do not have a written stock option plan. However, the Board of Directors approved a total of 1,053,400 options for grant during 2000. The following table shows stock options granted to the Named Executive Officer during the year ended December 31, 2000.

Option Grants During Last Fiscal Year

                        Individual Grants
----------------------------------------------------------
   Number of         % of Total
  Securities      Options Granted  Exercise or
  Underlying      To Employees in   Base price  Expiration

Name Options Granted Fiscal Year ($/sh) Date

Timothy J. Kilkenny 100,000 (1) 9.5% (2) $1.00 12/08/10

(1) Options were granted outside of a formal plan. The options become exercisable 33,333, 33,333 and 33,334 on December 8, 2001, December 8, 2002 and December 8, 2003, respectively. The options expire on December 8, 2010 and have an exercise price of $1.00 per share, which was equal to the fair value per share price of our common stock on the grant date.

(2) All options granted during 2000 are nonqualified stock options. During 2000, an aggregate of 953,400 options were granted outside of a formal plan to employees. Options granted generally become exercisable in part after one year from the date of grant and generally have a term of ten years following the date of grant, unless sooner terminated in accordance with the terms of such plan.

Fiscal Year End Option Values

The following table sets forth certain information as of December 31, 2000, regarding outstanding options granted during 2000 held by the following Named Executive Officer. During 2000, the Named Executive Officer did not exercise any options, nor did we reprice any outstanding options. For the purposes of this table, the "value" of an option is the difference between the estimated fair market value at December 31, 2000 of the shares of common stock subject to the option and the aggregate exercise price of such option.

                            Number of Unexercised   Value of Unexercised In-the-
                                 Options at               Money Options at
                              December 31, 2000         December 31, 2000 (1)
                              -----------------         ---------------------

        Name            Exercisable  Unexercisable   Exercisable   Unexercisable
        ----            -----------  -------------   -----------   -------------

Timothy J. Kilkenny       120,000       100,000          $ -            $ -
Chairman, President and
Chief Executive Officer

(1) Based on the December 31, 2000 estimated fair value of our common stock of $.88 per share.

Director Compensation

During the fiscal year ended December 31, 2000, our directors did not receive any compensation for serving in such capacities.

Employment Agreements

We have no employment contracts with any Named Executive Officer.

Bonus Stock Grant

Pursuant to a stock bonus granted in June 1999 by the Board of Directors, Mr. Peacock and Mr. Ayers were granted 51,730 and 25,865 shares of common stock equal to 2% and 1%, respectively, of the fully diluted common stock outstanding at such date. Two other key employees were granted common stock equal to a total of 4% of the fully diluted common stock outstanding at such date, one of which was an officer during 1999. Such shares were issued in January 2000.

Item 11. Security Ownership of Certain Beneficial Owners and Management

Security Ownership

The following table sets forth information as of March 23, 2001, concerning the beneficial ownership of Common Stock by each of our directors, each executive officer named in the table under the heading "Item 9. Directors and Executive Officers, Promoters and Control Persons" and all of our directors and executive officers as a group, and by each person who is known by us to own more than 5% of the outstanding shares of Common Stock. Unless otherwise indicated, the beneficial owner has sole voting and investment power with respect to such stock.

                                                  Common Stock
                                         ------------------------------
                                          Number of        Percent of
Beneficial Owner                            Shares          Class (1)
----------------                         -------------   --------------
Timothy J. Kilkenny* (2) (3)              1,550,000            37.7%
Laura L. Kilkenny (2) (3)                 1,550,000            37.7%
Roger P. Baresel* (2) (4)                   158,350             3.9%
Wallace L. Walcher (2) (5)                  751,050            18.9%
Wesdon C. Peacock (2) (9)                    56,730             1.4%
Travis Lane (2) (6)                          25,400              .6%
Jason C. Ayers (2) (7)                       35,865              .9%
B. Don Turner (2) (8)                        25,000              .6%
                                         -------------   --------------
All executive officers and directors
as a group (7 persons)                    2,602,395            59.6%
                                         -------------   --------------

* Director
(1) Percent of class for any stockholder listed is calculated without regard to shares of common stock issuable to others upon exercise of outstanding stock options. Any shares a stockholder is deemed to own by having the right to acquire by exercise of an option or warrant are considered to be outstanding solely for the purpose of calculating that stockholder's ownership percentage. We computed the percentage ownership amounts in accordance with the provisions of Rule 13d-3(d), which includes as beneficially owned all shares of common stock which the person or group has the right to acquire within the next 60 days. (2) Address is c/o 201 Robert S. Kerr Avenue, Suite 210, Oklahoma City, Oklahoma 73102.
(3) Timothy J. Kilkenny and Laura L. Kilkenny each hold, in their respective names, 690,000 shares of our common stock. The number of shares includes 120,000 shares of our common stock that are subject to currently exercisable stock options held by Mr. Kilkenny, and 50,000 shares of our common stock subject to currently exercisable common stock purchase warrants held by Mr. Kilkenny. Amounts shown do not include options, held by Mr. Kilkenny, to purchase 100,000 shares of our common stock exercisable at $1.00 per share beginning December 8, 2001.
(4) The number of shares includes 25,000 shares of our common stock that are subject to a currently convertible promissory note held by Mr. Baresel, 75,000 shares of our common stock that are subject to currently exercisable common stock purchase warrants and options held by Mr. Baresel, 25,000 shares of our common stock that are subject to common stock options exercisable April 11, 2001 held by Mr. Baresel, 600 shares of our common stock held by Mr. Baresel, 31,250 shares of common stock held by Mr. Baresel and his wife as joint tenants and 1,500 shares of our common stock held by Judith A. Baresel, wife of Mr. Baresel. Amounts shown do not include options, held by Mr. Baresel, to purchase 50,000 shares of our common stock exercisable at $1.00 per share beginning July 10, 2001.

(5) Wallace L. Walcher and Kathryn Walcher, husband and wife, hold 486,102 shares of our common stock as joint tenants. The number of shares includes 56,963 shares of our common stock that are subject to currently exercisable common stock purchase warrants held by Mr. Walcher, 20,133 shares of our common stock that are subject to currently exercisable common stock options held by Mr. Walcher and 187,852 shares of our common stock that are subject to a currently convertible promissory note held by Mr. Walcher. Amounts shown do not include options, held by Mr. Walcher, to purchase 40,267 shares exercisable at $3.00 per share beginning February 28, 2002 and 15,000 shares exercisable at $1.00 per share beginning December 8, 2001.

(6) The number of shares includes 25,000 shares of our common stock that are subject to currently exercisable common stock options held by Mr. Lane, and 400 shares of our common stock held by Mr. Lane. Amounts shown do not include options to purchase 50,000 shares of our common stock exercisable at $1.25 per share beginning October 12, 2001.

(7) The number of shares includes 25,865 shares of our common stock held by Mr. Ayers and 10,000 shares of our common stock that are subject to common stock options exercisable April 14, 2001 held by Mr. Ayers. Amounts shown do not include options, held by Mr. Ayers, to purchase 20,000 shares exercisable at $2.38 per share beginning April 14, 2002 and 45,000 shares exercisable at $1.00 per share beginning December 8, 2001.

(8) The number of shares includes 25,000 shares of our common stock that are subject to common stock options exercisable May 1, 2001 held by Mr. Turner. Amounts shown do not include options to purchase 50,000 shares exercisable at $2.85 per share beginning May 1, 2002 and 25,000 shares exercisable at $1.00 per share beginning December 8, 2001.

(9) The number of shares includes 51,730 shares of our common stock held by Mr. Peacock and 5,000 shares of our common stock that are subject to currently exercisable common stock options held by Mr. Peacock. Amounts shown do not include options to purchase 10,000 shares exercisable at $l.25 per share beginning October 19, 2001 and 60,000 shares exercisable at $l.00 per share beginning December 8, 2001.

Item 12. Certain Relationships and Related Transactions

Pursuant to a stock bonus approved by the Board of Directors and granted in June 1999, Wesdon C. Peacock and Jason C. Ayers, two of our officers, and two other employees, one of which was an officer during 1999, were granted 181,055 shares of common stock equal to 2%, 1%, 3% and 1%, respectively, of the fully diluted common shares outstanding at such date. Such shares were not issued until January 2000. We recognized $181,055 as compensation expense in 1999 related to the grant of restricted common stock to these employees.

On August 2, 2000, we obtained a short-term loan of $100,000 from our founder and CEO through the issuance of a 14% promissory note. The terms of the financing additionally provided for the issuance of five-year warrants to purchase an aggregate of 50,000 shares of the our common stock at $.01 per share, and provided for certain registration rights. The promissory note requires monthly interest payments, matures on the earlier of (i) the date which is within five days of our receipt of funds of any offering raising gross proceeds of at least $1,000,000 or (ii) in three months, and is extendible for two 90-day periods upon issuance of additional warrants for an aggregate 50,000 shares exercisable at $.01 per share for each extension. In the fourth quarter of 2000, our founder and CEO agreed to reduce the interest rate on the promissory note to 9% and waive the warrant provisions relating to extensions of the loan. On November 2, 2000, we exercised one of the 90-day extensions available and extended the loan through February 2, 2001. On February 2, 2001, we exercised our second extension and extended the loan through May 2, 2001.

In connection with his employment, the Company issued stock options for 100,000 shares exercisable at $1.00 per share beginning December 8, 2001 to our founder and CEO.

In connection with his employment, the Company issued stock options for 100,000 shares and warrants for 75,000 shares with a weighted average exercise price of $.58 per share during the fourth quarter of 2000 to one of its officers and directors. In addition, during the fourth quarter of 2000, this officer and his wife purchased $25,000 of the 11% convertible promissory notes and related warrants sold in our September 29, 2000 private placement.

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

Item 13. Exhibits and Reports on Form 8-K

(a) The following 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
 ------                          -------

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

4.2 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). #

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

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

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

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

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

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

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

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

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

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

*4.13 Form of Convertible Promissory Note for September 29, 2000, private placement.

*4.14 Form of Warrant Agreement for September 29, 2000, private placement.

*4.15 Form of Warrant Certificate for September 29, 2000, private placement

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

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

10.3 Interconnection agreement between Registrant and Southwestern Bell dated March 19, 1999 (filed as Exhibit 6.1 to 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). #

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

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

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

10.8 Amendment to Financial Advisory Services Agreement between the Company and National Securities Corporation, dated April 21, 2000 (Financial Advisory Services Agreement between the Company and National Securities Corporation, dated September 17, 1999 filed as Exhibit 10.1 to the Company's Form 10-KSB dated March 30, 2000 and incorporated herein by reference) filed as Exhibit 10.3 to the Company's Quarterly Report on Form 10-QSB for the Quarter ended June 30, 2000 and

          incorporated herein by reference).                                #

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

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

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

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

*10.13    Promissory  Note dated  August 2,  2000,  issued to Timothy J.
          Kilkenny.

*10.14    Warrant  Agreement dated August 2, 2000,  issued to Timothy J.
          Kilkenny.

*10.15    Warrant  Certificate dated August 2, 2000 issued to Timothy J.
          Kilkenny

*10.16    Stock  Option  Agreement  dated  December  8, 2000,  issued to
          Timothy J. Kilkenny.

*10.17    Warrant  Agreement dated November 9, 2000,  issued to Roger P.
          Baresel.

*10.18    Warrant  Agreement dated December 29, 2000, issued to Roger P.
          Baresel.

*10.19    Stock Option  Agreement  dated  February  29, 2000,  issued to
          Wallace L Walcher.

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

*10.21    Stock  Option  Agreement  dated  October 19,  1999,  issued to
             Wesdon C. Peacock.

*10.22    Stock Option  Agreement dated April 14, 2000,  issued to Jason
            C. Ayers.

*10.23    Stock  Option  Agreement  dated May 1, 2000,  issued to B. Don
            Turner.

*10.24    Form of Stock Option Agreement dated December 8, 2000,  issued
          to Jason C.  Ayers,  Wesdon  C.  Peacock,  B. Don  Turner  and
          Wallace L. Walcher

*10.25    Warrant Certificate Dated November 9, 2000, issued to Roger P.
          Baresel

*10.26    Warrant Certificate Dated November 9, 2000, issued to Roger P.
          Baresel

*10.27    Warrant  Certificate  Dated December 29, 2000, issued to Roger
          P. Baresel

*10.28    Stock Option Agreement dated October 13, 2000, issued to Roger
          P. Baresel.

*10.29    Stock  Option  Agreement  dated  October 12,  1999,  issued to
          Travis Lane.

*10.30    Promissory  Note dated  January 5, 2001,  issued to Generation
          Capital Associates

*10.31    Placement  Agency  Agreement  dated  November 8, 2000  between
          FullNet   Communications,   Inc.   and   National   Securities
          Corporation
    -------------------------------------------------

# Incorporated by reference.
* Filed herewith.

(b) Reports on Form 8-K

None

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 30, 2001    By: /s/ TIMOTHY J. KILKENNY
                             -----------------------

                             Timothy J. Kilkenny
                             President and Chief Executive Officer



Date:  March 30, 2001    By: /s/ TRAVIS LANE
                             ---------------

                             Travis Lane
                             Vice President and Chief 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 30, 2001    By: /s/ TIMOTHY J. KILKENNY
                             -----------------------

                             Timothy J. Kilkenny,
                             Chairman of the Board and Director



Date:  March 30, 2001    By: /s/ ROGER P. BARESEL
                             --------------------

                             Roger P. Baresel, Director

Report of Independent Certified Public Accountants

Board of Directors
FullNet Communications, Inc.

We have audited the accompanying consolidated balance sheets of FullNet Communications, Inc. (an Oklahoma corporation) and Subsidiaries, as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the 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, 2000 and 1999, and the consolidated results of their operations and their consolidated cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company incurred a net loss of $4,032,000 for the year ended December 31, 2000 and, as of that date, the Company's current liabilities exceeded its current assets by $1,285,000. These factors, among others, as discussed in Note A to the financial statements, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note A. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

GRANT THORNTON LLP

Oklahoma City, Oklahoma
February 9, 2001 (except for Note P, as to which the date is February 28, 2001)

F-1

                  FullNet Communications, Inc. and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS

                                  December 31,

                                  ASSETS                                   2000            1999
                                                                      ------------    ------------
CURRENT ASSETS
     Cash                                                             $     13,150    $     12,671
     Accounts receivable, net                                              141,712          70,306
     Prepaid expenses and other current assets                              35,215          15,491
                                                                      ------------    ------------

                    Total current assets                                   190,077          98,468

PROPERTY AND EQUIPMENT, net                                              1,126,156         117,262

COST IN EXCESS OF NET ASSETS OF BUSINESSES
     ACQUIRED, net                                                       1,761,548         295,084

COVENANTS NOT TO COMPETE, net                                              395,450            --

OTHER ASSETS                                                               218,973          53,399
                                                                      ------------    ------------

TOTAL                                                                 $  3,692,204    $    564,213
                                                                      ============    ============

  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
     Accounts payable - trade                                         $    720,022    $    100,684
     Accrued and other current liabilities                                 137,501          42,424
     Notes payable, current portion                                        438,589          58,949
     Deferred revenue                                                      178,498          74,720
                                                                      ------------    ------------

                    Total current liabilities                            1,474,610         276,777

NOTES PAYABLE, less current portion                                      1,988,057         586,922

OTHER                                                                       59,223            --

STOCKHOLDERS' EQUITY (DEFICIT)
     Commonstock - $.00001 par value; authorized, 10,000,000
           shares; issued and outstanding, 3,942,775 shares in 2000
           and 2,088,928 shares in 1999                                         39              21
     Common stock issuable, 318,709 shares in 1999                            --           318,709
     Additional paid-in capital                                          5,250,026         429,295
     Accumulated deficit                                                (5,079,751)     (1,047,511)
                                                                      ------------    ------------

                    Total stockholders' equity (deficit)                   170,314        (299,486)
                                                                      ------------    ------------

TOTAL                                                                 $  3,692,204    $    564,213
                                                                      ============    ============

See accompanying notes to financial statements.

F-2

                  FullNet Communications, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                             Year ended December 31,

                                                                   2000           1999
                                                               -----------    -----------
REVENUES
        Access service revenues                                $ 1,092,964    $   477,627
        Network solutions and other revenues                       822,674        644,327
                                                               -----------    -----------

                 Total revenues                                  1,915,638      1,121,954


OPERATING COSTS AND EXPENSES
        Cost of access service revenues                            509,081        199,804
        Cost of network solutions and other revenues               246,036        248,415
        Selling, general and administrative expenses             2,519,847      1,002,861
        Depreciation and amortization                              799,564        144,670
                                                               -----------    -----------

                 Total operating costs and expenses              4,074,528      1,595,750
                                                               -----------    -----------


LOSS FROM OPERATIONS                                            (2,158,890)      (473,796)

INTEREST EXPENSE                                                  (943,673)       (77,871)
OTHER EXPENSE                                                      (59,519)       (39,928)
                                                               -----------    -----------

Loss before extraordinary item and cumulative effect of
     accounting change                                          (3,162,082)      (591,595)

EXTRAORDINARY ITEM - extinguishment of debt                       (529,158)          --
                                                               -----------    -----------

Loss before cumulative effect of accounting change              (3,691,240)      (591,595)

CUMULATIVE EFFECT OF ACCOUNTING CHANGE                            (341,000)          --
                                                               -----------    -----------

NET LOSS                                                       $(4,032,240)   $  (591,595)
                                                               ===========    ===========

Per common share (basic and diluted)
     Loss before extraordinary item and cumulative effect of
          accounting change                                    $      (.94)   $      (.30)
     Extraordinary item                                               (.16)          --
     Cumulative effect of accounting change                           (.10)          --
                                                               -----------    -----------


     Net loss                                                  $     (1.20)   $      (.30)
                                                               ===========    ===========


Weighted average number of common shares outstanding
     Basic and diluted                                           3,346,658      1,994,548
                                                               ===========    ===========

See accompanying notes to financial statements.

F-3

                  FullNet Communications, Inc. and Subsidiaries

            CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)

                     Years ended December 31, 2000 and 1999



                                                        Common stock           Common       Additional
                                                        ------------            stock        paid-in     Accumulated
                                                    Shares        Amount      issuable       capital       deficit        Total
                                                 -----------   -----------   -----------   -----------   -----------   -----------
Balance at January 1, 1999                               500   $       500   $      --     $      --     $  (455,916)  $  (455,416)

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

Common stock issued, net of offering expenses        637,500             6          --         483,130          --         483,136

Common stock issuable relating to services
  performed for offering, 104,320 shares                --            --         104,320      (104,320)         --            --

Common stock issuable for employee bonuses,
  181,055 shares                                        --            --         181,055          --            --         181,055

Conversion of debt to equity                          71,428             1          --          49,999          --          50,000

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

Issuance of common stock in conjunction with
  acquisitions                                       618,442             6          --       1,829,776          --       1,829,782

Common stock issued, net of offering expenses         45,200             1          --         122,807          --         122,808

Exercise of stock options                             34,830          --            --          34,830          --          34,830

Warrant exercise                                     660,000             6          --           6,594          --           6,600

Common stock issued under previous commitments       318,709             3      (318,709)      318,706          --            --

Common stock issued in exchange for services         176,666             2          --         314,164          --         314,166

Warrants issued related to financing                    --            --            --       1,571,832          --       1,571,832

Intrinsic value of beneficial conversion
  feature on issuance of debt                           --            --            --         341,000          --         341,000

Options and warrants issued for compensation
  and services                                          --            --            --         281,022          --         281,022

Net loss                                                --            --            --            --      (4,032,240)   (4,032,240)
                                                 -----------   -----------   -----------   -----------   -----------   -----------

Balance at December 31, 2000                       3,942,775   $        39   $      --     $ 5,250,026   $(5,079,751)  $   170,314
                                                 ===========   ===========   ===========   ===========   ===========   ===========

See accompanying notes to financial statements.

F-4

                  FullNet Communications, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             Year ended December 31,

                                                                                            2000           1999
                                                                                        -----------    -----------

CASH FLOWS FROM OPERATING ACTIVITIES
     Net loss                                                                           $(4,032,240)   $  (591,595)
     Adjustments to reconcile net loss to net cash used in operating activities
          Noncash compensation expense                                                      146,858           --
          Depreciation and amortization                                                     799,564        144,670
          Stock issued or issuable for services                                             314,166        214,389
          Options and warrants issued for services                                          134,102           --
          Amortization of discount relating to financing                                    649,214           --
          Extraordinary loss on extinguishment of debt                                      529,158           --
          Cumulative effect of accounting change                                            341,000           --
          Provision for uncollectible accounts receivable                                    48,797           --
          Net (increase) decrease in
               Accounts receivable                                                          (34,852)        35,503
               Prepaid expenses and other current assets                                     (2,343)       (15,154)
               Other assets                                                                  (2,000)        (5,000)
          Net increase (decrease) in
               Accounts payable - trade                                                     255,540        (28,893)
               Accrued and other liabilities                                                 82,000         25,566
               Other liabilities                                                             66,625        (22,659)
                                                                                        -----------    -----------

                    Net cash used in operating activities                                  (704,411)      (243,173)

CASH FLOWS FROM INVESTING ACTIVITIES
     Purchases of property and equipment                                                   (847,148)       (12,624)
     Proceeds from sale of property, net of closing costs                                   110,122           --
     Acquisitions of businesses, net of cash acquired                                      (127,057)          --
                                                                                        -----------    -----------

                    Net cash used in investing activities                                  (864,083)       (12,624)

CASH FLOWS FROM FINANCING ACTIVITIES
     Deferred offering costs                                                                 10,898        (30,899)
     Principal payments on borrowings under notes payable                                  (262,906)       (58,567)
     Proceeds from note payable to related party                                            100,000           --
     Principal payments on note payable to related party                                    (50,000)       (43,891)
     Principal payments on borrowings related to purchase of subsidiary                        --         (122,405)
     Proceeds from issuance of interim financing and warrants, net of offering costs        938,500           --
     Proceeds from issuance of convertible notes payable                                    762,500         50,000
     Convertible debt issue costs                                                           (95,019)          --
     Proceeds from exercise of stock options                                                 34,830           --
     Proceeds from exercise of warrants                                                       6,600           --
     Principal payments on capital lease obligations                                         (4,732)       (10,192)
     Proceeds from issuance of notes payable                                                  5,494          1,088
     Issuance of common stock, net of offering costs                                        122,808        483,136
                                                                                        -----------    -----------

                    Net cash provided by financing activities                             1,568,973        268,270
                                                                                        -----------    -----------

NET INCREASE IN CASH                                                                            479         12,473
Cash at beginning of year                                                                    12,671            198
                                                                                        -----------    -----------
Cash at end of year                                                                     $    13,150    $    12,671
                                                                                        ===========    ===========
                                                                                                       (continued)

F-5

                  FullNet Communications, Inc. and Subsidiaries

                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                             Year ended December 31,

                                                                             2000           1999
                                                                         -----------    -----------

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest                                                   $   233,568    $    78,000

NONCASH INVESTING AND FINANCING ACTIVITIES
Conversion of debt to equity                                                    --           50,000
Common stock issuable related to services performed for offering                --          104,320
Assets acquired through issuance of capital lease                             25,240           --
Assets financed through accounts payable                                     200,704           --
Conversion of interim financing to convertible notes payable               1,005,000           --

FullNet of Tahlequah Asset Purchase
     Fair value of assets acquired                                       $    (4,086)   $      --
     Fair value of covenant not to compete                                   (21,919)          --
     Cost in excess of net assets acquired and covenant not to compete       (71,730)          --
     Note payable issued                                                      61,845           --
                                                                         -----------    -----------

     Cash paid to purchase Tahlequah assets                              $   (35,890)   $      --
                                                                         ===========    ===========

FullNet of Bartlesville Asset Purchase
     Fair value of liabilities assumed                                   $    16,380    $      --
     Fair value of common stock issuance                                     128,232
     Fair value of covenant not to compete                                   (42,715)          --
     Cost in excess of net assets acquired and covenant not to compete      (152,065)          --
     Note payable issued                                                      50,168           --
                                                                         -----------    -----------

     Cash paid to purchase Bartlesville assets                           $      --      $      --
                                                                         ===========    ===========

Harvest Communications, Inc. Merger
     Fair value of liabilities assumed                                   $    97,358    $      --
     Fair value of common stock issuance                                   1,612,500
     Fair value of covenant not to compete                                  (408,388)          --
     Cost in excess of net assets acquired and covenant not to compete    (1,601,470)          --
     Note payable issued                                                     175,000           --
                                                                         -----------    -----------
     Cash paid to acquire Harvest Communications, Inc.                   $  (125,000)   $      --
                                                                         ===========    ===========

FullNet of Nowata Asset Purchase
     Fair value of liabilities assumed                                   $     2,650    $      --
     Fair value of common stock issuance                                      89,050           --
     Fair value of covenant not to compete                                   (28,400)          --
     Cost in excess of net assets acquired and covenant not to compete      (111,250)          --
     Note payable issued                                                      47,950           --
                                                                         -----------    -----------

     Cash paid to purchase Nowata assets                                 $      --      $      --
                                                                         ===========    ===========
                                                                                        (concluded)

See accompanying notes to financial statements.

F-6

FullNet Communications, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSDecember 31, 2000 and 1999

NOTE A - ORGANIZATION AND NATURE OF OPERATIONS

FullNet Communications, Inc. and Subsidiaries (the Company) is an integrated communications provider (ICP) offering communications, connectivity and data storage to individuals, businesses, organizations and educational institutions, as well as governmental agencies. Through its subsidiaries: FullNet, Inc., FullTel, Inc. and FullWeb, Inc., the Company provides Internet 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 (ISPs) and businesses
o Carrier-neutral telecommunications premise co-location
o Web page design, hosting, server co-location and e-commerce solutions

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 (see Note O).

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. However, the Company has sustained substantial net losses in 1999 and 2000. In addition, the Company has used, rather than provided, cash in its operations and at December 31, 2000 current liabilities exceed current assets by $1,285,000.

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

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

NOTE B - SUMMARY OF ACCOUNTING POLICIES

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

F-7

1. Consolidation

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

2. Revenue Recognition

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

3. Accounts Receivable

Accounts receivable consist of the following as of December 31:

                                                   2000            1999
                                                   ----            ----

   Accounts receivable                           $ 170,713       $  70,306
        Less allowance for doubtful accounts       (29,001)              -
                                                 ---------       ---------


                                                 $ 141,712       $  70,306
                                                 =========       =========

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

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

   Software                     3 years
   Computers and equipment      5 years
   Furniture and fixtures       7 years
   Leasehold improvements       Shorter of estimated  life of improvement or the
                                lease term

5.       Intangible Assets
         -----------------

Cost in excess of net assets of businesses acquired and covenants not to compete are carried net of accumulated amortization. Amortization is computed using the straight-line method over the estimated periods to be benefited. Prior to October 1, 1999, the estimated amortization period was 15 years for cost in excess of net assets of businesses acquired. Effective October 1, 1999, management changed the 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. 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. The estimated amortization period for covenants not to compete is two to five years.

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, 2000 or 1999.

F-8

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.

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, 2000 and 1999 as the effect of outstanding convertible notes payable, stock options and warrants (see Notes E, G and J) would be antidilutive.

9. Stock Options and Warrants

The Company applies the intrinsic value method in accounting for stock-based compensation issued to employees.

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

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

10. Advertising

The Company expenses advertising production costs as they are incurred and advertising communication costs the first time the advertising takes place. Advertising expense for the years ended December 31, 2000 and 1999 was $68,979 and $30,399, respectively.

11. Use of Estimates

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

12. Reclassifications

Certain reclassifications have been made to the 1999 financial statements to conform to the 2000 presentation.

F-9

NOTE C - PROPERTY AND EQUIPMENT

Property and equipment consist of the following at December 31:

                                         2000           1999
                                         ----           ----

Computers and equipment              $   625,751    $   363,370
Leasehold improvements                   901,711           --
Software                                  60,391           --
Furniture and fixtures                    10,394          5,785
                                     -----------    -----------
                                       1,598,247        369,155
     Less accumulated depreciation      (472,091)      (251,893)
                                     -----------    -----------
                                     $ 1,126,156    $   117,262
                                     ===========    ===========

Depreciation expense for the years ended December 31, 2000 and 1999 was $220,198 and $72,360, respectively.

NOTE D - INTANGIBLE ASSETS

Cost in excess of net assets of businesses acquired relates to the 2000 purchases of certain business operations in Tahlequah, Oklahoma (the FullNet of Tahlequah, Inc. (FOT) acquisition), Bartlesville, Oklahoma (the FullNet of Bartlesville (FOB) acquisition), Nowata, Oklahoma (the FullNet of Nowata (FON) acquisition), the 2000 merger with Harvest Communications, Inc. (the Harvest merger), the 1997 purchase of certain business operations in Tulsa, Oklahoma
(the Tulsa acquisition) and the 1998 purchase of Animus (the Animus acquisition)
as follows:

                                             December 31,
                                     --------------------------
                                         2000           1999
                                     -----------    -----------

FOT acquisition                      $    71,730    $      --
FOB acquisition                          152,065           --
FON acquisition                          111,250           --
Harvest merger                         1,601,470           --
Tulsa acquisition                         70,000         70,000
Animus acquisition                       318,597        318,597
                                     -----------    -----------
                                       2,325,112        388,597
     Less accumulated amortization      (563,564)       (93,513)
                                     -----------    -----------
                                     $ 1,761,548    $   295,084
                                     ===========    ===========

Amortization expense for the years ended December 31, 2000 and 1999 relating to cost in excess of net assets of businesses acquired was $470,051 and $72,310, respectively.

Covenants not to compete consist of the following:

                                                        December 31,
                                                  ------------------------
                                                     2000          1999
                                                  ----------    ----------

FOT acquisition                                   $   21,919    $     --
FOB acquisition                                       42,715          --
FON acquisition                                       28,400          --
Harvest merger                                       408,388          --
                                                  ----------    ----------
                                                     501,422          --
     Less accumulated amortization                  (105,972)         --
                                                  ----------    ----------

                                                  $  395,450    $     --
                                                  ==========    ==========

Amortization expense for the year ended December 31, 2000 relating to covenants not to compete was $105,972.

F-10

NOTE E - NOTES PAYABLE

In February, March, June and September 2000, the Company obtained interim loans totaling $505,000 through the issuance of 14% promissory notes to 14 accredited investors. The terms of the financing additionally provided for the issuance of five-year warrants to purchase an aggregate 250,000 shares of the Company's common stock at $.01 per share, and provided for certain registration rights. The promissory notes required monthly interest payments, matured in six months and were extendible for two 90-day periods upon issuance of additional warrants for an aggregate 250,000 shares exercisable at $.01 per share for each extension. In August 2000, the Company extended the terms of ten of the bridge loans for an additional 90 days and, in connection therewith, issued warrants for an additional 137,500 shares. As of December 31, 2000, warrants to purchase an aggregate 262,500 shares of common stock had been exercised at an aggregate exercise price of $2,625 (see discussion below for the exchange of these interim notes to convertible promissory notes on November 9, 2000).

In March 2000, the Company obtained interim loans totaling $500,000 through the issuance of 14% promissory notes to two accredited investors. The terms of the financing additionally provided for the issuance of five-year warrants to purchase 100,000 shares of the Company's common stock at $.01 per share, and provided for certain registration rights. The promissory notes required quarterly interest payments, matured in six months and initially were extendible for two 90-day periods upon issuance of additional warrants for an aggregate 10,000 shares exercisable at $.01 per share for each extension. On March 8, 2000, 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 August 2000, the Company extended the terms of the two bridge loans for an additional 90 days and, in connection therewith, issued warrants for an additional 10,000 shares, of which 5,000 warrants have been exercised at an aggregate exercise price of $50 as of December 31, 2000. In October 2000, the terms of the two bridge loans were amended to provide that, in the event of a second 90-day extension, the Company would issue warrants to purchase an aggregate 160,000 shares of common stock (see discussion below for the exchange of these interim notes to convertible promissory notes on November 9, 2000).

In November and December 2000, the Company sold an aggregate $762,500 of 11% convertible promissory notes (the Notes) in conjunction with a private placement of such notes (see Note P). The terms of the Notes are 36 months with limited prepayment provisions. The Notes may be converted by the holder at any time at $1.00 per share and by the Company upon registration and when the closing price of the Company's common stock has been at or above $3.00 per share for three consecutive trading days; provided, however, if a registration statement to register the common stock underlying both the Notes and the detached warrants has not been declared effective by February 15, 2001, the Conversion Price shall be reduced by 2% to $.98 per share, and shall be reduced by an additional 2% for every 30 days thereafter until registration occurs.

Additionally, the Notes are accompanied by warrants to purchase a number of shares of Company common stock equal to the number obtained by dividing 25% of the face amount of the Notes purchased by $1.00. Said warrants are exercisable at any time beginning on the date of grant and ending on the date five years therefrom at a price of $.01 per share. Under the terms of the Notes, the Company is required to register the common stock underlying both the Notes and the detached warrants by filing a registration statement with the Securities and Exchange Commission within 45 days following the Final Expiration Date of the Offering (March 31, 2001). The Notes will pay interest of 11% per annum, payable quarterly commencing January 1, 2001, provided, however, that if a registration statement for the common stock underlying the Notes and warrants has not been filed on or before February 28, 2001, the Notes shall pay interest at 12.5% per annum until such time as a registration statement is filed.

On November 9, 2000, the Company exchanged $1,005,000 in existing interim loans for convertible promissory notes containing terms identical to the Notes (the Exchange). As a condition of the Exchange, warrants to purchase 410,000 shares of common stock were issued (see Note N). Said warrants are exercisable at any time beginning on the date of grant and ending on the date five years therefrom at a price of $.01 per share.

F-11

Notes payable consist of the following at December 31:

                                                                                        2000           1999
                                                                                    -----------    -----------
  Convertible  promissory  notes;  interest  at  11%  of  face  amount,  payable
  quarterly  commencing January 1, 2001; these notes are unsecured and mature in
  2003; $1,767,500 face amount less unamortized discount of $338,236;  effective
  rate of 20%                                                                       $ 1,429,264    $      --


  Note  payable to the  Company's  founder  and CEO,  including  interest at 9%,
  payable quarterly, matures on the earlier of (i) the date which is within five
  days of receipt of funds by the Company of any offering raising gross proceeds
  to the  Company  of at least  $1,000,000  or (ii) May 3,  2001;  this  note is
  unsecured (see Note H)                                                                 50,000           --

  Acquisition note payable to the former stockholder of Harvest  Communications,
  Inc.;  including  interest  at 8%, with the  principal  and  interest  thereon
  payable on the earlier to occur of (a) the closing of any single funding (debt
  or equity)  obtained by the Company  subsequent  to the date of the note of at
  least  $2,000,000,  (b)  the  closing  of  any  underwritten  offering  of the
  Company's  common  stock  or  (c)  March 6, 2001; this note is  unsecured (see
  Note I)                                                                               175,000           --

  Note  payable to a bank,  payable in monthly  installments  of $2,849  through
  October  2005 and $1,558  from  November 2005   until paid in full,  including
  interest at a variable  rate (prime plus 2.25%;  11.75% at December 31, 2000),
  matures September 2014; collateralized by substantially all assets acquired in
  conjunction  with the acquisition of Harvest  Communications,  Inc. One of the
  Company's  officers who was the sole  stockholder  of Harvest  Communications,
  Inc. is a co-maker on this note and it is  partially  guaranteed  by the Small
  Business Administration (see Note I)                                                   58,518           --

  Three notes  payable to a bank,  payable in monthly  installments  aggregating
  $10,010,  including  interest ranging from 9.5% to 11.5%,  maturing  September
  2008;  collateralized  by property  and  equipment,  accounts  receivable  and
  Company  common stock owned by the founder and CEO of the Company;  guaranteed
  by the founder and CEO of the Company                                                 591,408        645,871

  Other unsecured notes payable                                                         122,456           --
                                                                                    -----------    -----------

                                                                                      2,426,646        645,871
       Less current portion                                                            (438,589)       (58,949)
                                                                                    -----------    -----------


                                                                                    $ 1,988,057    $   586,922
                                                                                    ===========    ===========

F-12

Aggregate future maturities of notes payable at December 31, 2000 are as follows:

Year ending December 31
    2001                               $   438,589
    2002                                    80,880
    2003                                 1,846,528
    2004                                    87,029
    2005                                    95,843
    Thereafter                             216,013
                                       -----------
                                         2,764,882
Less unamortized discount                 (338,236)
                                       -----------

                                       $ 2,426,646
                                       ===========

NOTE F - INCOME TAXES

Due to net losses, no provision for income taxes was necessary for 2000 or 1999, and no provision for income taxes was allocated to the extraordinary item or cumulative effect of accounting change.

The Company's effective income tax rate on loss before extraordinary item and cumulative effect of accounting change differed from the federal statutory rate of 34% as follows at December 31:

                                                 2000           1999
                                             -----------    -----------

Income taxes at federal statutory rate       $(1,075,000)   $  (201,142)
Change in valuation allowance                    628,000        179,335
Nondeductible expenses                           565,000         12,980
Exclusion of Subchapter S loss                      --           48,733
State income taxes, net of federal benefit      (118,000)       (15,476)
Adjustment of prior year estimates                  --          (24,430)
                                             -----------    -----------

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

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

                                                    2000         1999
                                                  ---------    ---------

Deferred income tax assets
         Basis difference in intangible assets    $  38,500    $  11,000
         Deferred revenue                            67,000       28,000
         Net operating loss                         687,000      178,500
         Other                                       53,000         --
         Valuation allowance                       (828,000)    (200,000)
                                                  ---------    ---------

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

Increase in valuation allowance                   $ 628,000    $ 179,000
                                                  =========    =========

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, 2000, the Company has a net operating loss carryforward of approximately $1,820,000 which will expire at various dates through 2020. 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

NOTE G - STOCKHOLDERS' EQUITY (DEFICIT)

In February 2000, the Company raised $122,808 (net of offering expenses of approximately $13,000) in an offering of its common stock. The offering was made pursuant to an exemption from the registration requirements of the Securities Act of 1933 (the Securities Act), as amended, and Regulation D of such Securities Act. Under this offering, shares were sold for $3.00 per share.

In April 2000, the Company amended its contract with its investment banker, which entitled the investment banker to an additional 100,000 shares of the Company's common stock. The fair value of the shares on the date of grant was $237,500, which was amortized over the remaining life of the original contract, through August 2000. These shares were issued in December 2000.

The Company issued 618,442 shares valued at approximately $1,830,000 in conjunction with the completion of four acquisitions during 2000 (see Note I).

Warrants to purchase 660,000 shares of stock were exercised during 2000 for an aggregate price of approximately $6,600 (see Note E).

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 $.00001. Basic and diluted loss per share has been restated for all periods presented to reflect this stock split.

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 the Company's common stock pursuant to the note agreements.

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 pursuant to Rule 504 of Regulation D (the 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 the Company's common stock and options to purchase a maximum 90,000 shares of the Company's common stock were to be issued to such entity as partial compensation for services 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 the Company's common stock and options to purchase 92,205 shares of the Company's common stock 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 consolidated financial statements based on an estimated fair market value of $1 per share. Additionally, the terms of the stock options were as follows:

Shares   Exercise price 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. Options for 34,830 shares of the Company's common stock were exercised on February 15, 2000 for $34,830.

F-14

During June 1999,  181,055  shares of Company  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.

On September 1, 1999,  the Company  entered into a financial  advisory  services
agreement  with an  investment  banker (see Note K).  Pursuant to this  advisory
agreement, 100,000 shares of the Company's common stock (estimated fair value of
$100,000) were to be issued to this entity as partial  compensation for services
performed.  The earned  portion of such shares as of December 31, 1999  ($33,334
and 33,334 shares) is recorded in the  stockholders'  deficit  section as common
stock issuable at December 31, 1999. These shares were issued in January 2000.

At December  31, 1999,  318,708  shares of common  stock were  issuable  without
additional consideration. These shares were issued in January 2000.

A summary of stock purchase  warrant and certain stock option  activity for 2000
follows:

                                                                                                   Number
                                                                                                     of
                                                                                                   shares
                                                                                                 ---------
    Issued during 1999 and outstanding at December 31, 1999                                         92,205
    Issued during 2000
        In connection with Harvest merger (exercise price $2.55 per share)                          10,000
        In connection with interim financing (exercise price $.01 per share)                       497,500
        For consulting services (weighted average exercise price $1.35)                            125,000
        In connection with related party note payable (exercise price $.01 per share)               50,000
        For placement agent services in connection with issuance of convertible
             notes payable (exercise price $1.00 per share)                                         70,000
        In connection with the Exchange (exercise price $.01 per share)                            410,000
        In connection with issuance of convertible notes payable (exercise price
             $.01 per share)                                                                       441,875
        In connection with employment agreement (exercise price $.01 per share)                     75,000
                                                                                                 ---------

                           Total issued during 2000                                              1,679,375

    Exercised during 2000                                                                         (694,830)
                                                                                                 ---------

    Outstanding at December 31, 2000                                                             1,076,750
                                                                                                 =========

Outstanding stock purchase warrants and certain stock options outstanding at December 31, 2000 are as follows:

   Number             Exercise              Expiration
 of shares              price                  year
 ---------            --------              ----------


   814,375            $   .01                  2005
   100,000               1.00                  2003
    70,000               1.00                  2005
    57,375               1.25                  2002
    10,000               2.55                  2005
    25,000               2.77                  2003
----------

 1,076,750
==========

F-15

NOTE H - RELATED PARTY TRANSACTIONS

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

NOTE I - ACQUISITIONS

On January 25, 2000, the Company entered into an asset purchase agreement with FullNet of Tahlequah, Inc. (FOT), an Oklahoma corporation, 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.

On February 4, 2000, the Company entered into an asset purchase agreement with 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 was paid in full in November 2000.

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, Inc., one of the Company's wholly owned subsidiaries. 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 stockholders 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.

On June 2, 2000, the Company entered into an asset purchase agreement with FullNet of Nowata (FON), an Oklahoma sole proprietorship, in which the Company purchased substantially all of FON's assets, including approximately 300 individual and business Internet access accounts. Pursuant to the terms of the Agreement, the Company agreed to pay FON an aggregate purchase price of $137,000, payable in 38,198 shares of the Company's common stock (valued for purposes of the acquisition at $2.33 per share) and a note payable for $47,950.

These acquisitions were accounted for as purchases. The aggregate purchase price has been allocated to covenants not to compete, cost in excess of net assets of businesses acquired and the underlying net assets purchased or net liabilities assumed based on their estimated fair values at the respective acquisition date. Covenants not to compete aggregated approximately $500,000 for the acquisitions and are amortized over the lives of the covenants, two to five years. Cost in excess of net assets of businesses acquired totaled approximately $1,900,000, which is being amortized over the estimated periods benefited of three to five years. Prior to the acquisitions, each of FOT, FOB, Harvest and FON was a customer of the Company's Internet service provider access services.

F-16

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

                                                   Year ended
                                      ----------------------------------
                                             2000               1999
                                      ---------------   ----------------

Revenue                               $    2,046,000    $     2,503,000
Net loss                              $   (4,137,000)   $    (1,079,000)
Basic and diluted loss per share      $        (1.20)   $         (0.42)

The pro forma results above include amortization of (a) covenants not to compete and (b) cost in excess of net assets of businesses acquired and interest expense on debt assumed or issued to finance the acquisitions. The pro forma results are not necessarily indicative of what actually would have occurred if the acquisitions had been completed as of the beginning of each of the periods presented, nor are they necessarily indicative of future consolidated results.

NOTE J - STOCK-BASED COMPENSATION

During 2000 and 1999, the Company issued employee stock options accounted for under APB Opinion No. 25 and related interpretations.

During 1999, options to purchase 120,000 shares of the Company's common stock were issued to the founder and CEO of the Company, which vested in October 2000. The options have an exercise price of $1.15, and expire during February 2002. The other options generally have terms of ten years when issued and vest 33% each year for three years beginning at the date of grant.

Had compensation cost for the Company's stock options been determined based on the fair value at the grant dates consistent with the method of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, the Company's net loss and loss per share in 2000 and 1999 would have been increased to the pro forma amounts indicated below:

                                                2000              1999
                                                ----              ----

Net loss
          As reported                       $(4,032,240)      $  (591,595)
          Pro forma                          (4,226,752)         (599,748)

Basic and diluted loss per share
          As reported                       $     (1.20)      $      (.30)
          Pro forma                         $     (1.26)      $      (.30)

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

                                                     2000            1999
                                                     ----            ----

Risk free interest rate                                5%              6%
Expected lives (in years)                              5            8 and 3
Expected volatility                                  134%              0%
Dividend yield                                         0%              0%

F-17

A summary of the status of the Company's  outstanding  employee stock options as
of  December  31,  2000 and 1999 and  changes  during  the years  then  ended is
presented below.

                                                   2000                  1999
                                          --------------------    ------------------
                                                      Weighted              Weighted
                                                      average               average
                                                      exercise              exercise
                                            Shares     price      Shares     price
                                          ---------  ---------  ---------  ---------
Outstanding at beginning of year            277,634    $1.21         --     $ -
Granted                                     953,400     1.76      277,634    1.21
Exercised                                      --       --           --      --
Canceled                                   (190,000)    2.91         --      --
                                          ---------             ---------

Outstanding at end of year                1,041,034     1.40      277,634   $1.21
                                          =========             =========

Options exercisable at year end             221,930     1.15         --      --
                                          =========             =========

Weighted  average fair value of options
granted during the year                                $1.37                $ .28

                             Options outstanding          Options exercisable
                   -----------------------------------  ----------------------
                                 Weighted-
                      Number      average    Weighted-     Number    Weighted-
                   outstanding   remaining    average   exercisable   average
Range of exercise      at       contractual   exercise      at        exercise
      prices        12/31/00      life         price     12/31/00      price
-----------------  -----------  -----------  ---------  -----------  ---------

  $1.00 - $1.50      827,634     8.42 years    $1.08      221,930      $1.15
  $1.81 - $3.00      213,400     9.31 years    $2.66         --         --

NOTE K - COMMITMENTS AND CONTINGENCIES

Advisory Agreements

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

The first agreement was for financial services and had a term of September 1, 1999 through August 31, 2000. If the investment banker completed a private placement for the Company, it would receive 8.5% of the dollar value of the transaction. If the investment banker closed a debt financing for the Company, it would receive a 5% transaction fee. As of December 31, 2000, the investment banker has closed debt transactions aggregating $450,000, resulting in $22,500 of debt financing fees. As of December 31, 1999, no such transactions had been completed.

F-18

The second agreement was for financial advisory and merger/acquisition services and also had a term of September 1, 1999 through August 31, 2000. The fee for the advisory services was $5,000 per month plus expenses (up to $5,000 per month) and 100,000 shares of the Company's common stock (see Note G). Additionally, this agreement called for merger/acquisition services. The cost for this service was $2,500 per month plus expenses (up to $5,000 per month) and a scaled percentage of any completed acquisition (see Note I). As of December 31, 2000, the Company has completed four merger/acquisition transactions and paid approximately $68,000 in percentage-based fees. No such transactions had occurred as of December 31, 1999.

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
     2001                         $  357,478
     2002                            271,464
     2003                            218,428
     2004                            203,723
     2005                            144,994
     Thereafter                      640,469
                                  ----------
                                  $1,836,556
                                  ==========

Rental expense for all operating leases for the years ended December 31, 2000 and 1999 was $496,000 and $192,000, respectively.

NOTE L - FAIR VALUE OF FINANCIAL INSTRUMENTS

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

                                    2000                    1999
                          ----------------------  ----------------------
                           Carrying      Fair      Carrying      Fair
                            amount       value      amount       value
                          ----------  ----------  ----------  ----------
Financial liabilities
    Notes payable         $2,427,000  $2,272,000  $  646,000  $  638,000

NOTE M - EXTRAORDINARY ITEM

In the fourth quarter of 2000, the Company exchanged interim financing notes payable with a face value of $1,005,000 and a carrying value of $882,000 for $1,005,000 of convertible notes payable and 661,250 common stock purchase warrants (see Note E). This event has been accounted for as an extinguishment of the interim financing notes payable and the Company has recorded a loss on extinguishment of debt of $529,158. Such loss is presented in the consolidated statement of operations as an extraordinary item.

NOTE N - CUMULATIVE EFFECT OF ACCOUNTING CHANGE

F-19

Consequently, the conversion option embedded in the Company's convertible notes payable issued with detachable warrants has an intrinsic value even though the conversion price was equal to the market price of the Company's common stock at the time of issuance. The beneficial conversion feature is calculated by first allocating the proceeds received in the financing to the convertible notes payable and to the detachable warrants included in the transaction, and then measuring the intrinsic value using the effective conversion price based on the allocated proceeds.

The Company has presented the effect of adoption, an additional $341,000 in imputed interest expense, as a cumulative effect of accounting change as required in EITF 00-27.

NOTE O - SIGNIFICANT CUSTOMER

During the year ended December 31, 2000, the Company had one customer that comprised approximately 11% of total revenues for the year. There were no significant customers during the year ended December 31, 1999.

NOTE P - SUBSEQUENT EVENTS

Acquisitions

On February 28, 2001, the Company purchased substantially all of the assets of LawtonNET Communications (LAWTONNET), an Oklahoma sole proprietorship, including approximately 700 individual and business Internet access accounts. Pursuant to the terms of the asset purchase agreement, the Company issued LAWTONNET 35,000 shares of the Company's common stock. The Company will pay LAWTONNET an amount based upon the future collected revenues received from all active LAWTONNET customers transferred at the time of closing, net of the 100% recovery of $30,000 in advance payments made to LAWTONNET during the 30 days following closing.

On February 28, 2001, the Company purchased substantially all of the assets of Computer Concepts & Research, Inc., d/b/a SONET Communications (SONET), an Oklahoma corporation, including approximately 915 individual and business Internet access accounts. Pursuant to the terms of the asset purchase agreement, the Company issued SONET 30,000 shares of the Company's common stock. In addition, the Company will pay SONET an amount based upon the future collected revenues received from all active SONET customers transferred at the time of closing.

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.

Financing

On January 5, 2001, the Company entered into an agreement with a third party pursuant to which the Company obtained an interim loan for $250,000. The agreement provides for the issuance of five-year warrants to purchase 125,000 shares of the Company's common stock at $.01 per share, warrants to purchase 125,000 shares of the Company's common stock at $1.00 per share and certain registration rights. The loan bears interest at 10% per annum and requires payments equal to 50% of the net proceeds received by the Company from its private placement of convertible notes payable. Through February 28, 2001, the Company had made payments of $35,250. The unpaid principal and interest are due on March 31, 2001.

During February 2001, the Company received $100,000 of subscriptions to the Notes more fully described in Note E.

F-20

Pursuant to the provisions of the private placement of the Company's convertible notes payable, if a registration statement for the common stock underlying the Notes and warrants has not been declared effective by February 15, 2001, the conversion price shall be reduced by 2% from $1.00 to $.98 per share, and shall be reduced by an additional 2% for every 30 days thereafter until the registration is effective. As of February 9, 2001, a registration statement had not been filed.

In addition, if a registration statement for the common stock underlying the Notes and warrants has not been filed on or before February 28, 2001, the Notes shall pay interest at 12.5% per annum until such time as a registration statement is filed. As of February 28, 2001, a registration statement had not been filed. Interest on the Notes increased from 11% to 12.5% as of that date and will remain at 12.5% until such time as a registration statement is filed.

In addition, the Company has not made the required interest payment of approximately $28,000 on the Notes which was due on January 1, 2001. Pursuant to the terms of the Notes, the Company will be considered in default upon the receipt of written notice informing it of such default from the note holder and such default shall continue for a period of ten days after receiving said written notice. As of February 9, 2001, the Company has not received any such notice of default.

F-21

EXHIBIT 21.1

Subsidiaries of FullNet Communications, Inc.

Name                               State of Incorporation
----                               ----------------------


FullNet, Inc.                           Oklahoma
FullTel, Inc.                           Oklahoma
FullSolutions, Inc.                     Oklahoma

*Full Web, Inc. Oklahoma

* A wholly owned subsidiary of FullSolutions, Inc.

Exhibit 4.13

CONVERTIBLE NOTE

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED OR SOLD, UNLESS IT HAS BEEN REGISTERED UNDER SUCH ACT OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE AND THEN ONLY IN COMPLIANCE WITH THE RESTRICTIONS ON TRANSFER SET FORTH HEREIN.

PRINCIPAL AMOUNT No. 00-
$_________ ___________, 2000

CONVERTIBLE NOTE
DUE __________, 2003

FOR VALUE RECEIVED, the undersigned, FULLNET COMMUNICATIONS, INC., an Oklahoma corporation (the "Company"), promises to pay to the order of _____________, or the permitted assigns hereof (the "Holder") at the Company's principal executive office the principal sum of $ _________in lawful money of the United States of America on _______, 2003 (the "Maturity Date"), together with interest on the unpaid balance of said principal sum, subject to Section 1 or 2 hereof, at the rate of 11% per annum (computed on the basis of a 365-day year) from the date hereof until said principal sum is fully paid; provided, however, in the event the registration statement has not been filed on or before February 28, 2001, as set forth in Section 5 hereof, the interest payable under this Note shall be increased to a rate of 12.5% per annum until such time as a registration statement is filed and actual registration occurs. Payments of interest under this Note, subject to conversion in accordance with Sections 1 or 2 hereof, shall be made every ninety (90) days, commencing ______, 200_, and on the Maturity Date, in the same manner as payments of principal.

1. Conversion at the Election of the Holder. Subject to the provisions hereof, at the option of the Holder (exercisable, if at all, by written notice to the Company delivered, together with this Note, on or before the third anniversary of the date of this Note and, if required by the Company, an instrument of transfer in form satisfactory to the Company duly executed by the Holder and promptly delivered to the Company), the unpaid principal balance of this Note shall be converted into shares of common stock of the Company, $0.00001 par value per share ("Common Stock"), at a price equal to $1.00 per share (subject to adjustment, as provided herein, the "Conversion Price"); provided, however, if a registration statement for the Common Stock underlying the Note has not been declared effective by February 15, 2001, the Conversion Price shall be reduced by 2% to $.98 per share, and shall be reduced by an additional 2% for every thirty days thereafter until registration occurs.

2. Conversion at the Election of the Company. Notwithstanding the foregoing, after effectiveness of the registration statement under Section 5 hereof, if the Common Stock trades at a value equal to or greater than $3.00 per share for three (3) consecutive trading days on which any trades of the Common Stock were made, the unpaid principal balance of this Note shall, at the discretion of the Company after ten (10) days written notice to the Holder, be converted into Common Stock at the Conversion Price; provided, however, if a registration statement for the Common Stock underlying the Note has not been declared effective by February 15, 2001, the Conversion Price shall be reduced by 2% to $.98 per share, and shall be reduced by an additional 2% for every thirty days thereafter until registration occurs. Such Notice shall state the principal amount of this Note and, if applicable, the interest thereon to be converted. Upon any conversion, the Holder shall be entitled to receive such number of shares of Common Stock as shall equal the unpaid amount of principal and accrued interest to be converted, divided by the Conversion Price.

In the event of any conversion under this Note, the Company may elect to pay any accrued interest under this Note in cash or in additional shares of Common Stock at the Conversion Price.

The Note may be prepaid at the Company's sole discretion so long as (i) an effective registration statement is in place covering the shares of common stock underlying the Note at the time of prepayment, (ii) the Note Holders receive twenty (20) days written notice of the Company's intention to prepay the Note, and (iii) the Note Holders have the right at their sole discretion to exercise their conversion rights in lieu of prepayment. Except as set forth in this Section 2, principal and interest on this Note may not be prepaid.

3. Procedure for Conversion.

A. At the Election of the Holder. In order to exercise the conversion right hereunder, the Holder of this Note shall give written notice to the Company at least five (5) days prior to the conversion date (the "Conversion Date") at the Company's principal office, that the Holder elects to convert this Note or the portion thereof specified in said notice, and shall surrender this Note to the Company on or before the Conversion Date at such office. Such notice shall also state the name or names, together with the address or addresses, in which the certificate or certificates for shares of Common Stock which shall be issuable on such conversion shall be issued. This Note surrendered for conversion shall, unless the shares issuable on conversion are to be issued in the same name as the name of the original Holder, be accompanied by instruments of transfer, in form reasonably satisfactory to the Company, duly executed by the Holder or the Holder's duly authorized attorney.

B. At the Election of the Company. In the case of a conversion at the option of the Company, the Holder shall surrender this Note to the Company within ten (10) days after the Company's notice of conversion.

Under both A and B, above, as promptly as practicable after surrender of this Note to the Company by the Holder, the Company shall issue and deliver to such Holder, registered in the name of such Holder, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion bearing the following restrictive legend:

THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED EXCEPT IN COMPLIANCE HEREWITH.

All shares delivered upon the conversion of this Note shall be validly issued and outstanding and fully paid and nonassessable. At such time the rights of the Holder of this Note as such Holder shall cease, and the Holder shall be deemed to have become the Holder of record of the Common Stock into which this Note shall have been converted.

4. Issuance of Common Stock Purchase Warrants. In addition to the interest payable pursuant to the terms of the Notes, the Company agrees to issue to the Holder as additional compensation, warrants (the "Warrants") to purchase a number of shares of Company common stock equal to the number obtained by dividing 25% of the face amount of the Notes purchased by $1.00, at the per share price and on the terms set forth in the Warrant Agreement, a form of which is attached hereto as Exhibit "A." The Warrant is deemed earned on payment in full by the Holder under this Agreement and will not terminate on the payment or prepayment of this Note.

5. Registration of Securities. Under the terms of this Note, the Company is required to register the Common Stock underlying this Note and Warrants by filing a registration statement with the Securities and Exchange Commission within forty-five (45) days following the Final Expiration Date of the Offering. In the event the registration statement has not been filed on or before February 28, 2001, the interest payable under this Note shall be increased to a rate of 12.5% per annum until such time as a registration statement is filed and actual registration occurs. Until such registration statement has been filed, Holder shall not be entitled to sell, assign, pledge or otherwise dispose of the Common Stock or any interest therein.

6. Interest; Fractional Shares. The Company shall pay all interest on this Note or the portion thereof surrendered for conversion accrued to the date upon which the conversion shall have been effected, to the extent such interest is not to be converted. In case this Note is not converted, the Company shall pay to the holder the remaining principal balance of this Note at the Maturity Date, together with interest thereon in accordance with the terms of this Note. No fractional share shall be issued upon conversion of this Note, but if the conversion results in a fraction, an amount equal to such fraction multiplied by the Conversion Price shall be paid in cash to the holder of this Note.

7. Antidilution Adjustments. If the Company shall (a) pay a stock dividend or make a stock distribution payable in shares of Common Stock, (b) subdivide its outstanding Common Stock, (c) combine its outstanding Common Stock into a smaller number of shares, (d) issue by reclassification of its Common Stock any shares of the Company or (e) merge, consolidate, sell, lease or exchange all or substantially all of its assets, or have a share exchange or engage in a similar transaction affecting its Common Stock, the Conversion Price and terms for conversion shall be adjusted so that the holder of this Note shall be entitled to receive upon conversion thereof the same number and kind of shares of Common Stock and the same amount of cash as the holder would have been entitled to receive upon the happening of the above events if immediately prior to any such event this Note shall have been converted. For this purpose any event described in clauses (a) through (e) in the preceding sentence shall be deemed to have occurred immediately after the opening of business on the day following the date fixed for the determination of the Shareholders entitled to participate in such event.

8. Note Registry. The Company shall maintain books for the transfer and registration of this Note. Such registers shall show the names and addresses of the respective Holders of this Note and the principal amount thereof.

8.1. Transfer Restrictions. In addition to the other provisions of this Note, any transfer of this Note shall be effected only if the Company shall have received an opinion of counsel addressed to the Company (which opinion and counsel shall be reasonably satisfactory to the Company), to the effect that the proposed transfer of the Note may be effected without registration under the Securities Act. The Holder of this Note shall not transfer or assign this Note or any interest herein to any other party without the prior written consent of the Company.

8.2. Transfers and Exchanges of Notes. The Company shall transfer, from time to time, this Note and any outstanding Notes issued in substitution for this Note upon the books to be maintained by the Company for that purpose, upon surrender thereof for transfer properly endorsed or accompanied by appropriate instructions for transfer. Upon any such transfer, a new Note shall be issued to the transferee and the surrendered Note shall be cancelled. Notes may be exchanged at the option of the holder thereof, when surrendered at the principal office of the Company for another Note, or other Notes of different denominations, of like tenor and representing in the aggregate the same principal amount.

8.3. Mutilated or Missing Note. In case this Note shall be mutilated or lost, stolen or destroyed, the Company may in its discretion issue and deliver in exchange and substitution for a mutilated Note which shall be cancelled, or in lieu of and substitution for a lost, stolen or destroyed Note, a new Note of like tenor and in the same principal amount; but only upon receipt of evidence satisfactory to the Company of such loss, theft or destruction and indemnity, if requested, also satisfactory to it. Applicants for such substitute Notes shall also comply with such other reasonable regulations and pay such other reasonable charges as the Company may prescribe.

9. Reservation of Shares etc. The Company shall at all times keep reserved out of its authorized and unissued shares and/or shares held in its treasury a number of shares of Common Stock sufficient to provide for the conversion of all outstanding Notes, including this Note.

10. Default. Each of the following events or occurrences shall constitute a "Default" under this Note: (a) the Company shall fail to pay to Holder any interest or principal owing hereunder when it becomes due and payable, either at maturity, upon declaration or acceleration or otherwise and such default shall continue for a period of ten (10) days after the Company has received written notice informing it of such default from Holder; (b) the Company shall fail to duly perform any of its other agreements or obligations under this Note, within ten (10) days after Holder provides written notice to the Company thereof; (c) the dissolution or liquidation (by operation of law or otherwise, other than an administrative dissolution under Oklahoma law which is remedied within thirty (30) days) of the Company; or (d) a receiver, trustee or custodian shall be appointed for the Company or any part of its property, or any proceeding shall be commenced by or against the Company, under any bankruptcy, reorganization, debt arrangement or insolvency law, and, in the case of any such proceeding commenced against the Company, such proceeding shall not be dismissed within thirty (30) days thereafter.

10.1. Remedy Upon Default. Upon the occurrence and during the continuance of a Default, Holder at its option shall have all rights and remedies of a creditor under applicable law or any other agreement or instrument between the Company and Holder. In addition to the foregoing rights and remedies, following a Default, Holder, by written notice to the Company, shall have the right to declare that all or any amounts shall become immediately due and payable, whereupon all such amounts shall become immediately due and payable, without further notice, demand, declaration or presentment of any kind (provided that upon a Default described in clause (d) of the foregoing paragraph, all amounts owing hereunder automatically shall become due and payable, without declaration, notice, demand or presentment of any kind). The Company agrees to pay to Holder all reasonable expenses incurred or paid by Holder, including reasonable attorneys' fees and court costs, in connection with the collection of this Note after a Default under this Note.

11. Waiver of Presentment. Except as provided herein, the Company hereby waives presentment, diligence in the collection or protection, protest, notice of protest and default, and notice of dishonor. No delay by Holder in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by Holder of any right or remedy shall preclude any other or further exercise thereof or the exercise of any other right or remedy.

12. Note Holder not Deemed a Stockholder. Nothing contained in this Note or in any of the Notes which may be issued from time to time in substitution for this Note shall be construed as conferring upon the Holder hereof the right to vote or to consent or to receive notice as a stockholder in respect of the meetings of stockholders for any purpose, or any other rights whatsoever, as a stockholder of the Company.

13. Representations and Warranties by Holder. Holder understands and acknowledges that acquisition of this Note is intended to be exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), by virtue of the provisions of Section 4(2) of the Securities Act and Regulation D promulgated under the Securities Act, as amended ("Regulation D"), and there is no existing public or other market for this Note (this Note and any Common Stock to which it may be converted are collectively referred to herein as the "Securities") and there can be no assurance that Holder will be able to sell or dispose of the Securities. Holder represents and warrants to the Company that:

(a) Securities acquired are being acquired for its own account and without a view to the distribution or resale of such Securities or any interest therein in violation of the Securities Act;

(b) Holder is an "Accredited Investor", as such term is defined in Rule 501(a) of Regulation D;

(c) Holder has such experience in business and financial matters as to be fully capable of evaluating the risks and merits of an investment in the Securities, and Holder's financial position is such that it is able to bear the risk of such investment in the Securities, including the risk of possible loss of such entire investment;

(d) Holder has reviewed information relating to the Company and its subsidiaries and the value of the Securities and has had the opportunity to ask questions and request additional relevant documents from the Company concerning the foregoing, which questions have been answered to Holder's full satisfaction. Holder is familiar with the affairs, financial condition and prospects of the Company and its subsidiaries and has acquired sufficient information to reach an informed and knowledgeable decision to acquire the Securities. Holder further understands that the Company makes no representations as to the current or any future value of the Securities or the value of the Company. Holder has consulted, or has had the opportunity to consult, with counsel, accountants and other professionals as to all matters covered by this Note and has not relied upon the advice of the Company or its officers or directors for investment, tax, legal or other advice with respect to this Note or the Common Stock;

(e) Holder understands that the Securities have not been and, subject to the reasonable best efforts obligations of the Company under the Company's Private Placement Memorandum dated as of September 29, 2000 (the "Memorandum"), will not be registered under the Securities Act or under any state securities laws, and further understands that the Securities and the acquisition hereunder have not been approved or disapproved by the SEC or any other federal or state agency;

(f) Holder understands that the Securities cannot be resold unless registered under the Securities Act and under applicable state securities laws or unless an exemption from such registration is available. Holder further understands that any resale is also subject to the terms of this Note; and

(g) Neither this Note nor any other document or representations made by the Holder in connection with the Securities contains any untrue statement of a material fact or omit to state any material fact required to be stated herein or necessary in order to make the statements made not misleading.

14. Agreement of Holder. The Holder of this Note by accepting the same consents and agrees with the Company that:

(a) This Note is transferable only on the registry books of the Company by the registered Holder hereof in person or by such Holder's attorney duly authorized in writing, and only if surrendered at the principal executive office of the Company, duly endorsed, or accompanied by a proper instrument of transfer satisfactory to the Company in its sole discretion; and

(b) The Company may deem and treat the person in whose name this Note is registered as the absolute owner for all purposes whatever and the Company shall not be affected by any notice to the contrary.

15. Successors and Assigns. This Note and the agreements made herein shall inure to the benefit of and be binding upon the Company, the Holder hereof and their respective successors and permitted assigns.

16. General. This Note shall be deemed to be a contract made under the laws the State of Oklahoma and for all purposes shall be construed in accordance with the laws of said State, without regard to the conflicts of laws principles thereof. If any part of this Note is unenforceable, that will not make any other part unenforceable. The section headings herein are for convenience only and shall not affect the interpretation of any of the provisions hereof.

17. Amendment: Modification. This Note may not be amended or modified except by an agreement in writing signed by the party to be charged.

18. Notices. All notices, requests, claims, demands and other communications hereunder shall be in writing and shall be given (and shall be deemed to have been duly given upon receipt) by delivery in person, by telecopy, or by registered or certified mail (postage prepaid, return receipt requested) to the respective parties at the following addresses (or at such other address for a party as shall be specified by like notice):

if to Holder:

at Holder's last known address
as shown on the Register

with a copy to:

if to the Company:

FullNet Communications, Inc.
201 Robert S. Kerr, Suite 210
Oklahoma City, Oklahoma 73102

with a copy to:

Jeanette C. Timmons, Esq.
Day, Edwards, Propester & Christensen, P.C.
210 Park Avenue, Suite 2900
Oklahoma City, Oklahoma 73102

All such notice and communications shall be deemed to have been given:
(a) when delivered, if personally delivered, (b) one business day after being sent if sent by confirmed telecopy, and (c) two business days after being deposited in the mail, postage prepaid, if by registered or certified mail.

FULLNET COMMUNICATIONS, INC.

By:____________________________________
Timothy J. Kilkenny, President and CEO

(Corporate Seal)

ATTEST:

Roger P. Baresel, Secretary

Exhibit 4.14
FULLNET COMMUNICATIONS, INC.
(an Oklahoma corporation)

WARRANT AGREEMENT

_________, 200_

Dear ________:

FullNet Communications, Inc., an Oklahoma corporation (the "Company"), agrees to issue to ________, (the "Warrants") to purchase the number of shares of common stock, par value $0.00001 per share (the "Common Stock"), of the Company set forth herein, subject to the terms and conditions contained herein.

1. Issuance of Warrants; Exercise Price. The Warrants, which shall be certificated in the form attached hereto as EXHIBIT "A," (each, a "Warrant Certificate") shall be issued to you, concurrently with the execution herewith of the Company's 11% Convertible Promissory Note dated of even date herewith in the amount of $50,000 (the "Note"). The Warrants shall provide that you, or such other holder or holders of the Warrants to whom transfer is authorized in accordance with the terms of this Agreement, shall have the right to purchase an aggregate of 12,500 shares of Common Stock for an exercise price equal to $0.01 per share (the "Exercise Price").

2. Exercise of Warrants. At any time and from time to time after the date hereof and expiring on the fifth anniversary of the date of this Agreement at 5:00 p.m., Central Standard Time, Warrants may be exercised as to all or any portion of the whole number of shares of Common Stock covered by the Warrants by the holder thereof by surrender of the Warrants, accompanied by a subscription for shares to be purchased in the form attached to each Warrant Certificate and by payment to the Company as set forth in the Warrant Certificate in the amount required for purchase of the shares as to which the Warrant is being exercised, delivered to the Company at its principal office at 201 Robert S. Kerr, Suite 210, Oklahoma City, Oklahoma 73102, Attention: President. Upon the exercise of a Warrant, in whole or in part, the Company will, within ten (10) days thereafter, at its expense (including the payment by the Company of any applicable issue or transfer taxes), cause to be issued in the name of and delivered to the holder a certificate or certificates for the number of fully paid and non-assessable shares of Common Stock to which such holder is entitled upon exercise of the Warrant. In the event such holder is entitled to a fractional share, in lieu thereof, such holder shall be paid a cash amount equal to such fraction, multiplied by the Current Value (as hereafter defined) of one full share of Common Stock on the date of exercise. Certificates for shares of Common Stock issuable by reason of the exercise of the Warrant or Warrants shall be dated and shall be effective as the date of the surrendering of the certificates for the shares so purchased. In the event a Warrant is exercised, as to less than the aggregate amount of all shares of Common Stock issuable upon exercise of all Warrants held by such person, the Company shall issue a new Warrant to the holder of the Warrant so exercised covering the aggregate number of shares of Common Stock as to which Warrants remain unexercised.

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For purposes of this section, Current Value is defined (i) in the case for which a public market exists for the Common Stock at the time of such exercise, the average of the daily closing prices of the Common Stock for twenty
(20) consecutive business days commencing thirty (30) business days before the date of exercise, and (ii) in the case no public market exists at the time of such exercise, at the Appraised Value. For the purposes of this Agreement, "Appraised Value" is the value determined in accordance with the following procedures. For a period of five (5) days after the date of an event (a "Valuation Event") requiring determination of Current Value at a time when no public market exists for the Common Stock (the "Negotiation Period"), each party to this Agreement agrees to negotiate in good faith to reach agreement upon the Appraised Value of the securities or property at issue, as of the date of the Valuation Event, which will be the fair market value of such securities or property, without premium for control or discount for minority interests, illiquidity or restrictions on transfer. In the event that the parties are unable to agree upon the Appraised Value of such securities or other property by the end of the Negotiation Period, then the Appraised Value of such securities or property will be determined for purposes of this Agreement by a recognized appraisal or investment banking firm mutually agreeable to the holders of the Warrants and the Company (the "Appraiser"). If the holders of the Warrants and the Company cannot agree on an Appraiser within two (2) business days after the end of the Negotiation Period, the Company, on the one hand, and the holders of the Warrants, on the other hand, will each select an Appraiser within ten (10) business days after the end of the Negotiation Period and those two (2) Appraisers will select ten (10) days after the end of the Negotiation Period an independent Appraiser to determine the fair market value of such securities or property, without premium for control or discount for minority interests. Such independent Appraiser will be directed to determine fair market value of such securities as soon as practicable, but in no event later than thirty (30) days from the date of its selection. The determination by an Appraiser of the fair market value will be conclusive and binding on all parities to this Agreement. Appraised Value of each share of Common stock at a time when (i) the Company is not a reporting company under the Exchange Act and (ii) the Common Stock is not traded in the organized securities markets, will, in all cases, be calculated by determining the Appraised Value of the entire Company taken as a whole and dividing that value by the number of shares of Common Stock then outstanding, without premium for control or discount for minority interests, illiquidity or restrictions on transfer. The costs of the Appraiser will be borne by the Company. In no event will the Appraised Value of the Common Stock be less than the per share consideration received or receivable with respect to the Common Stock or securities or property of the same class in connection with a pending transaction involving a sale, merger, recapitalization, reorganization, consolidation, or share exchange, dissolution of the Company, sale or transfer of all or a majority of its assets or revenue or income generating capacity, or similar transaction.

3. Registration Rights.

(a) SB-2 Registration Rights. The Company will register the shares of Common Stock underlying the Warrants (the "Warrant Shares") by filing a registration statement with the Securities and Exchange Commission within forty-five (45) days following the Final Expiration Date (as defined in the Company's Private Placement Memorandum) of the Offering. The Company shall register its securities on Form SB-2 under the Securities Act of 1933, as amended (the "Securities Act") or any successor to such form in a manner that will, upon being declared effective, constitute a "shelf" registration for purposes of Rule 415 under the Securities Act, pursuant to which the Warrant Shares may be sold from time to time and in such amounts as the holder(s) thereof may hereafter determine, all in a manner consistent with all applicable provisions of the Securities Act; provided, however, if at the time the Company intends to file the Form SB-2, the Company has formulated plans to file within 60 days thereof another registration statement covering the sale of any of its securities in a public offering under the Securities Act, no registration of the Warrant Shares shall be initiated under this Section 3(a) until 90 days after the effective date of such registration statement unless the Company is no longer proceeding diligently to secure the effectiveness of such registration statement; provided that the Company shall provide the Warrant holder(s) the right to participate in such public offering pursuant to, and subject to, Section 3(b). The Company will use its best efforts to have the Form SB-2 declared effective. At its expense, the Company will keep such registration effective for a period of one hundred eighty
(180) days or until the holder or holders have completed the distribution described in the registration statement relating thereto, whichever first occurs; and furnish such number of prospectuses and other documents incident thereto as a holder from time to time may reasonably request.

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(b) Piggyback Registration Rights. At any time following the date hereof, whenever the Company proposes to register any Common Stock for its own or the account of others under the Securities Act for a public offering, other than (i) any shelf registration of shares to be used as consideration for acquisitions of additional businesses by the Company and (ii) registrations relating to employee benefit plans, the Company shall give each Warrant holder prompt written notice of its intent to do so. Upon the written request of any Warrant holder given within 15 business days after receipt of such notice, the Company shall cause to be included in such registration all Warrant Securities (including any shares of Common Stock issued as a dividend or other distribution with respect to, or in exchange for, or in replacement of such Warrant Securities) which any Warrant holder requests; provided, however, if the Company is advised in writing in good faith by any managing underwriter of an underwritten offering of the securities being offered pursuant to any registration statement under this Section 3(b) that the number of shares to be sold by persons other than the Company is greater than the number of such shares which can be offered without adversely affecting the offering, the Company may reduce pro rata the number of shares offered for the accounts of such persons (based upon the number of shares held by such person) to a number deemed satisfactory by such managing underwriter.

(c) Lock-up Agreement. In consideration for the Company's agreeing to its obligations under this Section 3, each Warrant holder agrees that, effective upon the request of the underwriters managing the Company's initial public offering, such holder shall be obligated, so long as all executive officers and directors of the Company are bound by a comparable obligation, not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any shares of Common Stock underlying the Warrants (other than those included in the registration) without the prior written consent of such underwriters, for such period of time (not to exceed one hundred eighty
(180) days) from the effective date of such initial public offering as the underwriters may specify.

4. Specific Performance. The Company stipulates that remedies at law, in money damages, available to the holder of a Warrant, or of a holder of Common Stock issued pursuant to exercise of a Warrant, in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Agreement are not and will not be adequate. Therefore, the Company agrees that the terms of this Agreement may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise.

5. Successors and Assigns; Binding Effect. This Agreement shall be binding upon and insure to the benefit of you and the Company and their respective successors and permitted assigns.

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6. Notices. Any notice hereunder shall be given by registered or certified mail, if to the Company, at its principal office, and, if to the holders, to the respective addresses shown in the Warrant ledger of the Company, provided that any holder may at any time on three (3) days' written notice to the Company designate or substitute another address where notice is to be given. Notice shall be deemed given and received after a certified or registered letter, properly addressed with postage prepaid, is deposited in the U.S. mail.

7. Severability. Every provision of this Agreement is intended to be severable. If any term or provision hereof is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the remainder of this Agreement.

8. Assignment; Replacement of Warrants. If the Warrant or Warrants are assigned, in whole or in part, the Warrants shall be surrendered at the principal office of the Company, and thereupon, in the case of a partial assignment, a new Warrant shall be issued to the holder thereof covering the number of shares not assigned, and the assignee shall be entitled to receive a new Warrant covering the number of shares so assigned. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of any Warrant and appropriate bond or indemnification protection, the Company shall issue a new Warrant of like tenor. The Warrants will not be transferred, sold, or otherwise hypothecated by you or any other person and the Warrants will be nontransferable, except to (i) one or more persons, each of which on the date of transfer is an officer, shareholder, or employee of you;
(ii) a partnership or partnerships, the partners of which are you and one or more persons, each of whom on the date of transfer is an officer of you; (iii) a successor to you in merger or consolidation; (iv) a purchaser of all or substantially all of your assets; or (v) a person that receives a Warrant upon death of a holder pursuant to will, trust, or the laws of intestate succession.

9. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Oklahoma without giving effect to the principles of choice of laws thereof.

10. Definition. All references to the word "you" in this Agreement shall be deemed to apply with equal effect to any persons or entities to whom Warrants have been transferred in accordance with the terms hereof, and, where appropriate, to any persons or entities holding shares of Common Stock issuable upon exercise of Warrants.

11. Headings. The headings herein are for purposes of reference only and shall not limit or otherwise affect the meaning of any of the provisions hereof.

12. Counterparts. This Agreement may be executed in two or more counterparts, and it will not be necessary that the signatures of all parties hereto be contained on any one counterpart hereof. Each counterpart will be deemed an original, but all counterparts together will constitute one and the same instrument. The parties agree that a facsimile of this Agreement signed by the parties will constitute an agreement in accordance with the terms hereof as if all of the parties had executed an original of this Agreement.

Very truly yours,

FULLNET COMMUNICATIONS, INC.

By: _______________________________________
Timothy J. Kilkenny, President and CEO

ACCEPTED AS OF THE _____ DAY OF ________________, 200_

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Exhibit 4.15

WARRANT CERTIFICATE

THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.

THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.

FULLNET COMMUNICATIONS, INC.

No.: W-00-0_ _____ Warrants Date: _____ __, 200_

THIS IS TO CERTIFY that ________ or the assigns, as permitted in that certain Warrant Agreement (the "Warrant Agreement"), dated of even date herewith, by and among FullNet Communications, Inc. (the "Company") and _________, is entitled to purchase at any time or from time to time, after the date hereof until 5:00 p.m., Central Standard Time on _____, 200_ an aggregate of _______ shares of common stock, par value $0.00001 per share, of the Company, for an exercise price per share of $0.01 per share as set forth in the Warrant Agreement referred to herein. This Warrant is issued pursuant to the Warrant Agreement, and all rights of the holder of this Warrant are further governed by, and subject to the terms and provisions of such Warrant Agreement, copies of which are available upon request to the Company. The holder of this Warrant and the shares issuable upon the exercise hereof shall be entitled to the benefits, rights and privileges and subject to the obligations, duties and liabilities provided for in the Warrant Agreement.

The issuance of this Warrant and the shares issuable upon the due and timely exercise hereof have not been registered under the Securities Act of 1933, as amended (the "Act"), or any similar state securities law or act, and, as such, no public offering of either this Warrant or any of the shares of common stock issuable upon exercise of this Warrant may be made other than under an exemption under the Act or until the effectiveness of a registration statement under such Act covering such offering. Transfer of this Warrant is restricted pursuant to the terms of Section 8 of the Warrant Agreement.

Subject to the provisions of the Act, of the Warrant Agreement and of this Warrant, this Warrant and all rights hereunder are transferable, in whole or in part, only to the extent expressly permitted in such documents and then only at the office of the Company at 201 Robert S. Kerr, Suite 210, Oklahoma City, Oklahoma 73102, Attention: President, by the holder hereof or by a duly authorized attorney-in-fact, upon surrender of this Warrant duly endorsed, together with the Assignment hereof duly endorsed. Until transfer hereof on the books of the Company, the Company may treat the registered holder hereof as the owner hereof for all purposes.
THIS WARRANT CERTIFICATE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE COMPANY AND THE HOLDER HEREOF SHALL BE GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF OKLAHOMA, WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES OF OKLAHOMA LAW.

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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed and its corporate seal to be hereunto affixed by its proper corporate officers thereunto duly authorized.

FULLNET COMMUNICATIONS, INC.

By:___________________________________
Timothy J. Kilkenny, President and CEO

(SEAL)

Attest:
Roger P. Baresel, Secretary

FULLNET COMMUNICATIONS, INC.

SUBSCRIPTION

      To Be Signed Only Upon Exercise (in whole or in part) of the Warrants

TO:                              FULLNET COMMUNICATIONS, INC.
                                 201 Robert S. Kerr, Suite 210
                                 Oklahoma City, Oklahoma 73102
                                 Attention:  President

         1. The undersigned, _________________________________,  pursuant to the

provisions of the Warrant Agreement dated as of _______, 200_, and the attached Warrant Certificate, hereby agrees to subscribe for the purchase of _______ shares of the common stock of FullNet Communications, Inc. covered by the attached Warrant Certificate, and makes payment therefore in full at the price per share provided by the Warrant Agreement.

2. The undersigned Holder elects to pay the aggregate purchase price for such shares of common stock (i) by lawful money of the United States or the enclosed certified or official bank check payable in United States dollars to the order of the Company in the amount of $____________, or (ii) by wire transfer of United States funds to the account of the Company in the amount of $___________, which transfer has been made before or simultaneously with the delivery of this Subscription pursuant to the instructions of the Company.

3. Please issue a stock certificate or certificates representing the appropriate number of shares of common stock in the name of the undersigned or in such other name(s) as is specified below:

-----------------------------------          -----------------------------------
(Name)                                       (Social Security or Fed ID #)

-----------------------------------          -----------------------------------
(Signature)                                  (Address)

-----------------------------------          -----------------------------------
(Date)                                       (Address)

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ASSIGNMENT

FOR VALUE RECEIVED ____________________________ hereby sells, assigns and transfer unto ______________________ the foregoing Warrant and all rights evidenced thereby, and does irrevocably constitute and appoint ________________________, attorney, to transfer said Warrant on the books of

FullNet Communications, Inc.

---------------------------------      -----------------------------------------
(Name)                                 (Name of Assignee)

---------------------------------      -----------------------------------------
(Signature)                            (Signature of Assignee)

---------------------------------      -----------------------------------------
(Social Security or Fed ID #)          (Social Security or Fed ID # of Assignee)

---------------------------------      -----------------------------------------

---------------------------------      -----------------------------------------
(Address)                              (Address of Assignee)

---------------------------------
(Date)

PARTIAL ASSIGNMENT

FOR VALUE RECEIVED ____________________________ hereby sells, assigns and transfer unto ______________________ the right to purchase _____ shares of the common stock of FullNet Communications, Inc. by the foregoing Warrant, and a proportionate part of said Warrant and the rights evidenced thereby, and does irrevocably constitute and appoint ________________________, attorney, to transfer that part of said Warrant on the books of FullNet Communications, Inc.

---------------------------------      -----------------------------------------
(Name)                                 (Name of Assignee)

---------------------------------      -----------------------------------------
(Signature)                            (Signature of Assignee)

---------------------------------      -----------------------------------------
(Social Security or Fed ID #)          (Social Security or Fed ID # of Assignee)

---------------------------------      -----------------------------------------
(Address)                              (Address of Assignee)

---------------------------------
(Date)

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FINAL FORM OF PROMISSORY NOTE FOR OKLAHOMA INVESTORS

Exhibit 10.13

THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL TO THE HOLDER OF SUCH NOTE WHICH OTHER COUNSEL IS REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH NOTE MAY BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR APPLICABLE STATE SECURITIES LAWS.

FULLNET COMMUNICATIONS, INC.
9% Promissory Note

DATED: August 2, 2000

PRINCIPAL AMOUNT (US$): $100,000

FULLNET COMMUNICATIONS, INC., an Oklahoma corporation (the "Company"), for value received, hereby promises to pay to Timothy J. Kilkenny, residing at 12720 SW 58th, Mustang, OK 74069 or registered assigns (the "Payee" or "Holder") upon due presentation and surrender of this Note on the Repayment Date (as hereinafter defined) the principal amount of One Hundred Thousand Dollars ($100,000), and accrued interest thereon as hereinafter provided.

1. PAYMENT OF PRINCIPAL AND INTEREST; METHOD OF PAYMENT.

1.1 Payment. Payment of the principal and accrued interest on this Note shall be made in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. Interest (computed for the actual number of days elapsed on the basis of a year consisting of 365 days) on the unpaid portion of said principal amount from time to time outstanding shall be paid by the Company at the rate of nine percent (9%) per annum (the "Stated Interest Rate"), said interest payable to the Payee on the tenth day following the end of each calendar month. The principal shall be due and payable on the Repayment Date, which payment shall be made only upon presentation and surrender of this Note to the Company at its address set forth herein. The Company will pay or cause to be paid all sums becoming due hereon for principal and interest by check sent to the Holder's above address or to such other address as the Holder may designate for such purpose from time to time by written notice to the Company,

Page 1 of 6

1.2 Repayment Date.

(a) For purposes hereof, unless sooner repaid by the Company, the "Repayment Date" shall mean the earlier of the following dates: (i) the date which is within five (5) days of receipt of funds by the Company of any offering raising gross proceeds to the Company of at least $1,000,000 (which offering the Company intends to conduct but of which there is no assurance); provided, however, if funds related to any such offering are received in tranches, "Repayment Date" shall be deemed to mean the date which is within five (5) days of receipt of first funds received by the Company, or (ii) the date which is three
(3) months after the above-stated issuance date of this Note (the "Initial Three-Month Term"), unless extended pursuant to Section 1.2(b) hereunder.

(b) The Company may, by written notice to the Holder within ten (10) days prior to the end of the Initial Three-Month Term and the delivery to Holder with such notice of 50,000 Warrants (as such term is defined in Section 1.3 hereof), extend the Repayment Date for an additional ninety (90) days (the "First Extension Period"); provided, however, that the Company may, by written notice to the Holder within ten (10) days prior to the end of the First Extension Period and the delivery to Holder with such notice of another 50,000 Warrants (as such term is defined in Section 1.3 hereof), extend the Repayment Date for a second ninety (90) day period (the "Second Extension Period"), in which case all principal and any accrued and unpaid interest thereon shall be due and payable on the last day of the Second Extension Period.

1.3 Issuance of Common Stock Purchase Warrants. In addition to the interest payable pursuant to Section 1.1 above, the Company agrees to issue to the Holder as additional compensation, 50,000 common stock purchase warrants (the "Warrants"), giving the Holder the right to purchase from the Company 50,000 shares of the Company's $.00001 common stock ("Common Stock"), at the per share price and on the terms set forth in the Warrants, a form of which is attached hereto as Exhibit "A." The Warrants are deemed earned on the initial advance by the Holder under this Agreement and will not terminate on the payment or prepayment of this Note.

1.4 Prepayment. The Note may be prepaid in full or in part by the Company at any time prior to the Repayment Date. Any prepayment of this Note shall be applied first to any accrued but unpaid interest, then to the principal amount of the Note.

2. RANKING OF NOTE.

2.1 Junior to Existing Debt. The Company, for itself, its successors and assigns, covenants and agrees, and the Payee and each successive Holder by acceptance of this Note, likewise covenants and agrees that the payment of the principal of and interest on this Note ranks junior and is subordinate to all existing indebtedness, including trade debt.

2.2 Indebtedness. "Indebtedness" means (a) any liability of the Company
(i) for borrowed money, or (ii) evidenced by a note, debenture, bond or other instrument of indebtedness (including, without limitation, a purchase money obligation), given in connection with the acquisition of property, assets or services, (iii) for the payment of rent or other amounts relating to capitalized lease obligations, or (iv) trade accounts payable and trade credit; (b) any liability of others described in the preceding clause (a) which the Company has guaranteed or which is otherwise its legal liability; and (c) any modification, renewal, extension, replacement or refunding of any such liability described in the preceding clauses (a) and (b) except that Indebtedness.

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2.3 Further Actions. The Holder agrees to execute such subordination agreements, instruments or waivers as may be reasonably necessary to reflect the subordination of this Note to the Indebtedness.

3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

The Company represents and warrants to the Holder that the Company:

(a) is a corporation duly organized, validly existing and in good standing under the laws of the State of Oklahoma;

(b) has all requisite power and authority and all necessary licenses and permits to own and operate its properties and to carry on its business as now conducted and as presently proposed to be conducted, the failure of which would not have a material adverse effect on the business, operations, properties, liabilities or condition (financial or otherwise) of the Company; and

(c) has adequate authority, power and legal right to enter into, execute and deliver the Note. On execution and delivery, the Note will be a legal, valid and binding obligation of the Company enforceable in accordance with its terms.

4. EVENTS OF DEFAULT.

It shall be an Event of Default with respect to this Note upon the occurrence and continuation uncured of any of the following events:

4.1 Default in Payment, Etc.

(a) A default in the payment of any interest or principal payments on this Note, and such default shall continue uncured for fifteen (15) days after due date and notice is received from Holder of such default for the making of such interest or principal payment; or

(b) default in the performance, or breach, of any other covenant of the Company in this Note and continuance of such default or breach uncured for a period of thirty (30) days after receipt of notice as to such breach or after the Company knew or should have known of such breach.

4.2 Bankruptcy. The entry of a decree or order by a court having jurisdiction adjudging the Company a bankrupt or insolvent, or approving a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company, under federal bankruptcy law, as now or hereafter constituted, or any other applicable federal or state bankruptcy, insolvency or other similar law, and the continuance of any such decree or order unstayed and in effect for a period of sixty (60) days; or the commencement by the Company of a voluntary case under federal bankruptcy law, as now or hereafter constituted, or any other applicable Federal or state bankruptcy, insolvency, or other similar law, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under federal bankruptcy law or any other applicable Federal or state law, or the consent by it to the filing of such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator or similar official of the Company or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action.

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5. REMEDIES UPON DEFAULT.

5.1 Acceleration. Upon an Event of Default and at any time during the continuation thereof, the Holder, by notice in writing given to the Company, may declare the entire principal of this Note then outstanding to be due and payable immediately, and upon any such declaration the same shall become and be due and payable immediately, anything herein contained to the contrary notwithstanding.

5.2 Proceedings and Actions. During the continuation of any Event of Default, the Holder may institute such actions or proceedings in law or equity as it shall deem expedient for the protection of its rights and may prosecute and enforce its claims against all assets of the Company, and in connection with any such action or proceeding shall be entitled to receive from the Company payment of the principal amount of this Note plus accrued interest to the date of payment plus reasonable expenses of collection including, without limitation, attorney's fees and expenses.

6. RESTRICTIONS ON TRANSFER.

6.1 The Holder acknowledges that he has been advised by the Company that this Note has not been registered under the Act, that the Note is being issued on the basis of the statutory exemption provided by section 4(2) of the Act and/or Regulation D promulgated thereunder relating to transactions by an issuer not involving any public offering, and that the Company's reliance thereon is based in part upon the representations made by the Holder in the Holder's Investor Representation Letter, previously furnished to the Company. The Holder acknowledges that he has been informed by the Company of, or is otherwise familiar with, the nature of the limitations imposed by the Act and the rules and regulations thereunder on the transfer of securities. In particular, the Holder agrees that no sale, assignment or transfer of the Note shall be valid or effective, and the Company shall not be required to give any effect to any such sale, assignment or transfer, unless (i) the sale, assignment or transfer of the Note is registered under the Act, it being understood that the Note is not currently registered for sale and that the Company has no obligation or intention to so register the Notes, or (ii) the Note is sold, assigned or transferred in accordance with all the requirements and limitations of Rule 144 under the Act, it being understood that Rule 144 is not available at the present time for the sale of the Note and that there can be no assurance that Rule 144 sales will be available at any time in the future, or (iii) such sale, assignment, or transfer is otherwise exempt from registration under the Act. The Holder of this Note and each transferee hereof further agrees that if any distribution of this Note is proposed to be made by them otherwise than by delivery of a prospectus meeting the requirements of Section 10 of the Act, such action shall be taken only after submission to the Company of an opinion of counsel, reasonably satisfactory in form and substance to the Company's counsel, to the effect that the proposed distribution will not be in violation of the Act or of applicable state law. Furthermore, it shall be a condition to the transfer of this Note that any transferee thereof deliver to the Company his written agreement to accept and be bound by all of the terms and conditions contained in this Note.

Page 4 of 6

7. MISCELLANEOUS.

7.1 No Recourse. No recourse whatsoever, either directly or through the Company or any trustee, receiver or assignee, shall be had in any event or in any manner against any past, present or future stockholder, director or officer of the Company for the payment of the principal of or interest on this Note or for any claim based thereon or otherwise in respect this Note, this Note being a corporate obligation only.

7.2 Notices. All communications provided hereunder shall be in writing and, if to the Company, delivered or mailed by registered or certified mail addressed to FullNet Communications, Inc., 201 Robert S. Kerr, Suite 210, Oklahoma City, Oklahoma 73102 or, if to the Holder, at 12720 SW 58th, Mustang, OK 74069.

7.3 Lost, Stolen or Mutilated Note. In case this Note shall be mutilated, lost, stolen or destroyed, the Company may, in its discretion, issue and deliver in exchange and substitution for and upon cancellation of the mutilated Note, or in lieu of and substitution for the Note, lost, stolen or destroyed, a new Note of like tenor and representing an equivalent right or interest, but only upon receipt of evidence satisfactory to the Company of such loss, theft or destruction and an indemnity, if requested, also satisfactory to it.

7.4 Course of Dealing. No course of dealing between the Company and the Holder hereof shall operate as a waiver of any right of any Holder hereof, and no delay on the part of the Holder in exercising any right hereunder shall so operate.

7.5 Amendments. This Note may be amended only by a written instrument executed by the Company and the Holder hereof. Any amendment shall be endorsed upon this Note, and all future holders shall be bound thereby.

7.6 Governing Law. This Note shall be construed in accordance with and governed by the laws of the State of Oklahoma, without giving effect to conflict of laws principles.

Page 5 of 6

DATED the date first written above.

FULLNET COMMUNICATIONS, INC.

By:________________________________
Travis Lane,
Vice President and Chief Financial Officer

(SEAL)

Attest:

Jeanette C. Timmons, Secretary

Page 6 of 6

FINAL FORM OF WARRANT AGREEMENT

Exhibit 10.14

FULLNET COMMUNICATIONS, INC.
(an Oklahoma corporation)

WARRANT AGREEMENT

August 2, 2000

Timothy J. Kilkenny
12720 SW 58th
Mustang, OK 74069

Mr. Kilkenny:

FullNet Communications, Inc., an Oklahoma corporation (the "Company"), agrees to issue to you warrants (the "Warrants") to purchase the number of shares of common stock, par value $0.00001 per share (the "Common Stock"), of the Company set forth herein, subject to the terms and conditions contained herein.

1. Issuance of Warrants; Exercise Price. The Warrants, which shall be certificated in the form attached hereto as EXHIBIT "A," (each, a "Warrant Certificate") shall be issued to you concurrently with the execution hereof in consideration of the Promissory Loan in the amount of $100,000 pursuant to the terms of the 9% Promissory Note dated of even date herewith (the "Note"). The Warrants shall provide that you, or such other holder or holders of the Warrants to whom transfer is authorized in accordance with the terms of this Agreement, shall have the right to purchase an aggregate of 50,000 shares of Common Stock for an exercise price equal to $.01 per share (the "Exercise Price"); provided, however, that in the event the Company desires to extend for ninety (90) days the maturity date of the Note, the Company shall issue to you the right to purchase an additional 50,000 shares of Common Stock at the Exercise Price. The Company shall have the option to extend for two (2) ninety (90) day periods the maturity date of the Note, subject in each case to the grant of additional Warrants as set forth in the preceding sentence.

2. Exercise of Warrants. At any time and from time to time after the date hereof and expiring on the fifth anniversary of the effective date of this Agreement at 5:00 p.m., Central Standard Time, Warrants may be exercised as to all or any portion of the whole number of shares of Common Stock covered by the Warrants by the holder thereof by surrender of the Warrants, accompanied by a subscription for shares to be purchased in the form attached to each Warrant Certificate and by payment to the Company as set forth in the Warrant Certificate in the amount required for purchase of the shares as to which the Warrant is being exercised, delivered to the Company at its principal office at 201 Robert S. Kerr, Suite 210, Oklahoma City, Oklahoma 73102, Attention: CFO. Upon the exercise of a Warrant, in whole or in part, the Company will, within ten (10) days thereafter, at its expense (including the payment by the Company of any applicable issue or transfer taxes), cause to be issued in the name of and delivered to the holder a certificate or certificates for the number of fully paid and non-assessable shares of Common Stock to which such holder is entitled upon exercise of the Warrant. In the event such holder is entitled to a fractional share, in lieu thereof, such holder shall be paid a cash amount equal to such fraction, multiplied by the Current Value (as hereafter defined) of one full share of Common Stock on the date of exercise. Certificates for shares of Common Stock issuable by reason of the exercise of the Warrant or Warrants shall be dated and shall be effective as the date of the surrendering of the certificates for the shares so purchased. In the event a Warrant is exercised, as to less than the aggregate amount of all shares of Common Stock issuable upon exercise of all Warrants held by such person, the Company shall issue a new Warrant to the holder of the Warrant so exercised covering the aggregate number of shares of Common Stock as to which Warrants remain unexercised.

- 1 -

For purposes of this section, Current Value is defined (i) in the case for which a public market exists for the Common Stock at the time of such exercise, the average of the daily closing prices of the Common Stock for twenty (20) consecutive business days commencing thirty (30) business days before the date of exercise, and (ii) in the case no public market exists at the time of such exercise, at the Appraised Value. For the purposes of this Agreement, "Appraised Value" is the value determined in accordance with the following procedures. For a period of five (5) days after the date of an event (a "Valuation Event") requiring determination of Current Value at a time when no public market exists for the Common Stock (the "Negotiation Period"), each party to this Agreement agrees to negotiate in good faith to reach agreement upon the Appraised Value of the securities or property at issue, as of the date of the Valuation Event, which will be the fair market value of such securities or property, without premium for control or discount for minority interests, illiquidity or restrictions on transfer. In the event that the parties are unable to agree upon the Appraised Value of such securities or other property by the end of the Negotiation Period, then the Appraised Value of such securities or property will be determined for purposes of this Agreement by a recognized appraisal or investment banking firm mutually agreeable to the holders of the Warrants and the Company (the "Appraiser"). If the holders of the Warrants and the Company cannot agree on an Appraiser within two (2) business days after the end of the Negotiation Period, the Company, on the one hand, and the holders of the Warrants, on the other hand, will each select an Appraiser within ten (10) business days after the end of the Negotiation Period and those two (2) Appraisers will select ten (10) days after the end of the Negotiation Period an independent Appraiser to determine the fair market value of such securities or property, without premium for control or discount for minority interests. Such independent Appraiser will be directed to determine fair market value of such securities as soon as practicable, but in no event later than thirty (30) days from the date of its selection. The determination by an Appraiser of the fair market value will be conclusive and binding on all parities to this Agreement. Appraised Value of each share of Common stock at a time when (i) the Company is not a reporting company under the Exchange Act and (ii) the Common Stock is not traded in the organized securities markets, will, in all cases, be calculated by determining the Appraised Value of the entire Company taken as a whole and dividing that value by the number of shares of Common Stock then outstanding, without premium for control or discount for minority interests, illiquidity or restrictions on transfer. The costs of the Appraiser will be borne by the Company. In no event will the Appraised Value of the Common Stock be less than the per share consideration received or receivable with respect to the Common Stock or securities or property of the same class in connection with a pending transaction involving a sale, merger, recapitalization, reorganization, consolidation, or share exchange, dissolution of the Company, sale or transfer of all or a majority of its assets or revenue or income generating capacity, or similar transaction.

3. Registration Rights.

(a) S-3 Registration Rights. The Company will register the shares of Common Stock underlying the Warrants (the "Warrant Shares") within thirty (30) days following the date upon which the Company shall become eligible to register its securities on Form S-3 under the Securities Act of 1933, as amended (the "Securities Act") or any successor to such form in a manner that will, upon being declared effective, constitute a "shelf" registration for purposes of Rule 415 under the Securities Act, pursuant to which the Warrant Shares may be sold from time to time and in such amounts as the holder(s) thereof may hereafter determine, all in a manner consistent with all applicable provisions of the Securities Act; provided, however, if at the time of such S-3 eligibility, the Company has formulated plans to file within 60 days thereof a registration statement covering the sale of any of its securities in a public offering under the Securities Act, no registration of the Warrant Shares shall be initiated under this
Section 3(a) until 90 days after the effective date of such registration statement unless the Company is no longer proceeding diligently to secure the effectiveness of such registration statement; provided that the Company shall provide the Warrant holder(s) the right to participate in such public offering pursuant to, and subject to,
Section 3(b). The Company will use its best efforts to have the Form S-3 declared effective. At its expense, the Company will keep such registration effective for a period of one hundred eighty (180) days or until the holder or holders have completed the distribution described in the registration statement relating thereto, whichever first occurs; and furnish such number of prospectuses and other documents incident thereto as a holder from time to time may reasonably request.

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5. Successors and Assigns; Binding Effect. This Agreement shall be binding upon and insure to the benefit of you and the Company and their respective successors and permitted assigns.

-3-

9. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Oklahoma without giving effect to the principles of choice of laws thereof.

11. Headings. The headings herein are for purposes of reference only and shall not limit or otherwise affect the meaning of any of the provisions hereof.

Very truly yours,

FULLNET COMMUNICATIONS, INC.

By: ____________________________________
Travis Lane, Vice President and CFO

ACCEPTED AS OF THE 2ND DAY OF AUGUST, 2000:
TIMOTHY J. KILKENNY

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Exhibit 10.15

WARRANT CERTIFICATE

THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.

FULLNET COMMUNICATIONS, INC.

No.: W-00-13 50,000 Warrants Date: August 2, 2000

THIS IS TO CERTIFY that Timothy J. Kilkenny or his assigns, as permitted in that certain Warrant Agreement (the "Warrant agreement"), dated of even date herewith, by and among FullNet Communications, Inc. (the "Company") and Timothy J. Kilkenny is entitled to purchase at any time or from time to time on or after the date hereof, until 5:00 p.m., Central Standard Time on August 2, 2004, an aggregate of Fifty Thousand (50,000) shares of common stock, par value $0.00001 per share, of the Company, for an exercise price per share of $.01 per share as set forth in the Warrant Agreement referred to herein. This Warrant is issued pursuant to the Warrant Agreement, and all rights of the holder of this Warrant are further governed by, and subject to the terms and provisions of such Warrant Agreement, copies of which are available upon request to the Company. The holder of this Warrant and the shares issuable upon the exercise hereof shall be entitled to the benefits, rights and privileges and subject to the obligations, duties and liabilities provided for in the Warrant Agreement.

Subject to the provisions of the Act, of the Warrant Agreement and of this Warrant, this Warrant and all rights hereunder are transferable, in whole or in part, only to the extent expressly permitted in such documents and then only at the office of the Company at 201 Robert S. Kerr, Suite 210, Oklahoma City, Oklahoma 73102, Attention CFO, by the holder hereof or by a duly authorized attorney-in-fact, upon surrender of this Warrant duly endorsed, together with the Assignment hereof duly endorsed. Until transfer hereof on the books of the Company, the Company may treat the registered holder hereof as the owner hereof for all purposes.

Warrant Ceriticate

Page 1 of 4

THIS WARRANT CERTIFICATE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE COMPANY AND THE HOLDER HEREOF SHALL BE GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF OKLAHOMA, WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES OF OKLAHOMA LAW.

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed and its corporate seal to be hereunto affixed by its proper corporate officers thereunto duly authorized.

FULLNET COMMUNICATIONS, INC.

By:___________________________________
Travis Lane, Vice President and CFO

(SEAL)

Attest:

Jeanette C. Timmons, Secretary

Warrant Certificate

Page 2 of 4

FULLNET COMMUNICATIONS, INC.

SUBSCRIPTION

      To Be Signed Only Upon Exercise (in whole or in part) of the Warrants

TO:                              FULLNET COMMUNICATIONS, INC.
                                 201 Robert S. Kerr, Suite 210
                                 Oklahoma City, Oklahoma 73102
                                 Attention:  CFO

         1. The undersigned, _________________________________,  pursuant to the

provisions of the Warrant Agreement dated as of August 2, 2000 and the attached Warrant Certificate, hereby agrees to subscribe for the purchase of _______ shares of the common stock of FullNet Communications, Inc. covered by the attached Warrant Certificate, and makes payment therefor in full at the price per share provided by the Warrant Agreement.

2. The undersigned Holder elects to pay the aggregate purchase price for such shares of common stock (i) by lawful money of the United States or the enclosed certified or official bank check payable in United States dollars to the order of the Company in the amount of $______________, or (ii) by wire transfer of United States funds to the account of the Company in the amount of $___________, which transfer has been made before or simultaneously with the delivery of this Subscription pursuant to the instructions of the Company.

3. Please issue a stock certificate or certificates representing the appropriate number of shares of common stock in the name of the undersigned or in such other name(s) as is specified below:

--------------------------------------    --------------------------------------
(Name)                                    (Social Security #)

--------------------------------------    --------------------------------------
(Signature)                               (Address)

--------------------------------------    --------------------------------------
(Date)                                    (Address)

WARRANT CERTIFICATE

PAGE 3 OF 4

ASSIGNMENT

FullNet Communications, Inc.

-----------------------------------    -----------------------------------------
(Name)                                 (Name of Assignee)

-----------------------------------    -----------------------------------------
(Signature)                            (Signature of Assignee)

-----------------------------------    -----------------------------------------
(Social Security or Fed ID #)          (Social Security or Fed ID # of Assignee)

-----------------------------------    -----------------------------------------

-----------------------------------    -----------------------------------------
(Address)                              (Address of Assignee)

-----------------------------------
(Date)

PARTIAL ASSIGNMENT

-----------------------------------    -----------------------------------------
(Name)                                 (Name of Assignee)

-----------------------------------    -----------------------------------------
(Signature)                            (Signature of Assignee)

-----------------------------------    -----------------------------------------
(Social Security or Fed ID #)          (Social Security or Fed ID # of Assignee)

-----------------------------------    -----------------------------------------

-----------------------------------    -----------------------------------------
(Address)                              (Address of Assignee)

-----------------------------------
(Date)

WARRANT CERTIFICATE

PAGE 4 OF 4

Exhibit 10.16

NUMBER:
**002**

THE SECURITIES REPRESENTED HEREBY MAY NOT BE SOLD OR TRANSFERRED IN WHOLE OR IN PART, UNLESS A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), HAS BEEN DECLARED EFFECTIVE WITH RESPECT TO SUCH SECURITIES, OR COUNSEL SATISFACTORY TO FULLNET COMMUNICATIONS, INC. HAS RENDERED AN OPINION TO FULLNET COMMUNICATIONS, INC. IN FORM AND SUBSTANCE SATISFACTORY TO FULLNET COMMUNICATIONS, INC. THAT THE PROPOSED TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE ACT OR THE RULES AND REGULATIONS THEREUNDER.

STOCK OPTION

OPTIONS TO PURCHASE COMMON STOCK

FULLNET COMMUNICATIONS, INC.

Date: December 8, 2000

This is to certify that, for value received, Timothy J. Kilkenny or any subsequent holder or holders of option rights hereunder by virtue of assignment or transfer ("Holder") is entitled to purchase, subject to the provisions of this Stock Option (this "Option"), from FULLNET COMMUNICATIONS, INC., an Oklahoma corporation (the "Company"), up to ONE HUNDRED THOUSAND (100,000) shares of Common Stock, $.00001 par value, of the Company (the "Stock") at an exercise price of ONE DOLLAR ($1.00) per share (the "Exercise Price"), for an aggregate exercise price of ONE HUNDRED THOUSAND DOLLARS ($100,000) (the "Aggregate Exercise Price"). With the exception of any adjustments pursuant to
Section 4 of this Option, the Stock issuable upon exercise of this Option shall be in all respects identical to the Common Stock issued and outstanding of the Company as of the date hereof. The shares of Stock or other securities deliverable upon such exercise, as adjusted from time to time, are hereinafter sometimes referred to as the "Option Securities." The vested and exercisable portion of this Option may be exercised by the Holder at any time in whole or in part. Unless the context otherwise requires, the term "Option" or "Options" as used herein includes this Option and any other Option or Options that may be issued pursuant to the provisions of this Option, whether upon transfer, assignment, partial exercise, divisions, combinations, exchange or otherwise, and the term "Holder" includes any registered transferee or transferees or registered assignee or assignees of Holder, who in each case shall be subject to the provisions of this Option, and when used with reference to Option Securities, means the holder or holders of such Option Securities.

SECTION 1. Exercise of Option. Subject to the provisions hereof, one-third of this Option shall vest and become exercisable, on a cumulative basis, on each anniversary date of the grant of this Option from its date of issuance so long as Timothy J. Kilkenny continues to provide services to the Company in a capacity of equal or greater responsibility than he was on the date of grant and the vested and exercisable portion of this Option may be exercised in whole or in part at any time or from time to time during the period commencing with its vesting (the "Commencement Date") and ending 5:00 P.M., Central Standard Time, on December 8, 2010 (the "Expiration Date") in accordance with Section 1.1 and/or Section 1.2 hereof. Upon such exercise, the Company shall issue to the Holder one or more certificates for the Option Securities, as appropriate. If this Option is exercised in part only, the Company shall, promptly after presentation of this Option upon such exercise, execute and deliver a new Option evidencing the rights of Holder thereof to purchase the balance of the Option Securities purchasable hereunder upon the same terms and conditions as herein set forth.

SECTION 1.1 Cash Exercise. The Holder hereof may effect a cash exercise of all or any portion of the vested and exercisable portion of this Option by surrender of this Option, together with the duly executed Purchase Form annexed hereto, to the Company at its principal offices at any time prior to the Expiration Date, accompanied by payment in cash or by certified or official bank check payable to the order of the Company in the amount equal to Exercise Price multiplied by the number of Option Securities specified in the Purchase Form.

shares of Common Stock evidenced by the certificate or certificates accompanying the Purchase Form that have been held by the Holder for more than six months on the date of issuance of the Option Securities pursuant to exercise of this Option and (ii) "Market Value" shall mean, as of the close of the business day preceding the date of exercise of this Option, (A) if the Common Stock is listed for trading on a national or regional stock exchange or is included on the Nasdaq National Market or SmallCap Market, the closing sale price quoted on such exchange or the Nasdaq National Market or SmallCap Market which is published in The Wall Street Journal for the trading day immediately preceding the date of exercise, or if no trade of the Common Stock shall have been reported on such date, the last sale price so quoted for the next day prior thereto on which a trade in the Common Stock was so reported or (B) if the Common Stock is not so listed or admitted to trading or included on a national or regional stock exchange, the Nasdaq National Market or Nasdaq SmallCap Market, the average of the closing highest reported bid and lowest reported ask price as quoted on the National Association of Securities Dealer's OTC Bulletin Board or in the "pink sheets" published by the National Daily Quotation Bureau for the business day immediately preceding the date of exercise on which the Common Stock is traded or, if no trade of the Common Stock shall have been reported on such date, the last sale price so quoted for the next day prior thereto on which a trade in the Common Stock was quoted.

SECTION 2. Reservation of Shares. The Company shall at all times after the Commencement Date and until expiration of this Option reserve for issuance and delivery upon exercise of this Option the number of Option Securities as shall be required for issuance and delivery upon exercise of this Option.

SECTION 3. Transfer, Exchange, Assignment or Loss of Option.

3.1 This Option may be assigned or transferred, in whole or in part, as provided herein so long as such assignment or transfer is in accordance with and subject to the provisions of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (said Act and such rules and Regulations being hereinafter collectively referred to as the "Securities Act"). Any purported transfer or assignment made other than in accordance with this
Section 3 shall be null and void and of no force and effect.

3.2 Any assignment permitted hereunder shall be made by surrender of this Option to the Company at its principal office with the Assignment Form annexed hereto duly executed and funds sufficient to pay any transfer tax. In such event, the Company shall, without charge, execute and deliver a new Option in the name of the assignee named in such instrument of assignment and designate the assignee as the registered holder on the Company's records and this Option shall promptly be canceled. This Option may be divided or combined with other Options which carry the same rights upon presentation thereof at the principal office of the Company together with a written notice signed by Holder hereof, specifying the names and denominations in which new Options are to be issued.

3.3 Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of this Option, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification to the Company or (in the case of mutilation) presentation of this Option for surrender and cancellation, the Company will execute and deliver a new Option of like tenor and date and any such lost, stolen, destroyed or mutilated Option shall thereupon become void. This Option may be exchanged at the option of the Holder for another Option or Options of different denominations, of like tenor and evidencing in the aggregate the number of shares of Stock or Option Securities purchasable pursuant to this Option, upon surrender of this Option, with the Form of Assignment duly filled in and executed, to the Company at its principal office, at any time or from time to time after the close of business on the date hereof and prior to the close of business on the Expiration Date. The Company shall promptly cancel the surrendered Option and deliver the new Option or Options pursuant to the provisions of this Section.

SECTION 4. Adjustment in the Number, Kind and Price of Option Securities. The number and kind of Option Securities purchasable upon exercise of this Option shall be subject to adjustment from time to time upon the occurrence, after the date hereof, of the following events:

4.1 In the event the Company shall (i) pay a dividend in, or make a distribution of, shares of Stock or of capital stock convertible into Stock on its outstanding Stock, (ii) subdivide its outstanding shares of Stock into a greater number of such shares, or (iii) combine its outstanding shares of Stock into a smaller number of such shares, the total number of shares of Stock purchasable upon the exercise of this Option immediately prior thereto shall be adjusted so that the Holder shall be entitled to receive at the same Aggregate Exercise Price the number of shares of Stock and the number of shares of capital stock convertible into Stock which such Holder would have owned or have been entitled to receive immediately following the happening of such event. Any adjustment made pursuant to this Subsection shall, in the case of a stock dividend or distribution or a stock issuance, become effective as of the record date therefor and, in the case of a subdivision or combination, be made as of the effective date thereof.

4.2 In the event of any adjustment of the total number of shares of Stock purchasable upon the exercise of this Option pursuant to Subsection 4.1, the Aggregate Exercise Price shall remain unchanged, but the number of shares of capital stock or Option Securities obtainable on exercise of this Option, and the per share exercise price shall be adjusted as provided in Subsection 4.1.

4.3 In the event of a capital reorganization or a reclassification of the Stock (except as provided in Subsection 4.1 or Subsection 4.4), the holder of this Option, upon exercise thereof, shall be entitled to receive, in lieu of the Stock to which he would have become entitled upon exercise immediately prior to such reorganization or reclassification, the shares (of any class or classes) or other Option Securities or property of the Company (or cash) that the Holder would have been entitled to receive at the same Aggregate Exercise Price upon such reorganization or reclassification if this Option had been exercised immediately prior thereto; and in any such case, appropriate provision shall be made for the application of this Section 4 with respect to the rights and interests thereafter of the Holder of this Option (including, but not limited to, the allocation of the Aggregate Exercise Price between or among the Option Securities), to the end that this Section 4 (including the adjustments of the number of shares of Stock or other Option Securities purchasable) shall thereafter be reflected, as nearly as reasonably practicable, in all subsequent exercises of this Option for any shares or other Option Securities or other property (or cash) thereafter deliverable upon the exercise of this Option.

4.4 In case of any consolidation of the Company with, or merger of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger which does not result in any reclassification or change of the outstanding Stock), or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, the corporation formed by such consolidation or merger or the corporation which shall have acquired such assets, as the case may be, shall execute and deliver to the Holder a supplement to this Option or a new option providing that the Holder of this Option shall have the right thereafter (until the Expiration Date) to receive, upon exercise of this Option or any new option, at the same Aggregate Exercise Price, solely the kind and amount of shares of Option Securities and property (or cash) receivable upon such consolidation, merger, sale or transfer by the Holder of this Option for the number and kind of Option Securities for which this Option might have been exercised immediately prior to such consolidation, merger, sale or transfer. Such supplemental option or new option shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided in this Section. The above provision of this Subsection 4.4 shall similarly apply to successive consolidations, mergers, sales or transfers.

4.5 Whenever the Option Securities purchasable upon exercise of this Option are modified as provided in Subsection 4.1 or 4.4 (provided that any such modifications shall not change or extend the expiration date of this Option), the Company will promptly deliver to the Holder a certificate signed by the Chairman of the Board, Chief Executive Officer or the President, or a Vice President of the Company and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Company setting forth the number and kind of Option Securities purchasable and the other property (including cash) receivable by the Holder upon exercise of this Option or any supplemental or new option. Such certificate will state that such adjustments in the kind of purchasable Option Securities and other property (including cash) receivable by the Holder upon exercise of this Option conform to the requirements of this
Section 4, and setting forth a brief statement of the facts accounting for such adjustments. In the event, the Holder of this Option does not agree with such determination of the Board of Directors of the Company as set forth in the certificate, the Company shall retain a firm of independent public accountants acceptable to the Holder to make any computation required under this Section 4, and a certificate signed by such firm shall be conclusive evidence of the correctness of any computation made under this Section 4.

SECTION 5. Redemption and Dividend Consent Requirements. This Option may not be redeemed by the Company. During the period from the date hereof until exercise of this Option in full or through the Expiration Date, the Company shall not declare any dividends payable in cash or property (other than in liquidation, voluntary or involuntary dissolution or winding-up of the Company) without the prior written consent of the Holder of this Option.

SECTION 6. Notice of Certain Corporation Action. In case the Company after the date hereof shall propose to effect any consolidation or merger to which the Company is a party and for which approval of any shareholders of the Company is required, or any sale, transfer or other disposition of its property and assets substantially as an entirety, or the liquidation, voluntary or involuntary dissolution or winding-up of the Company, then, in each such case, the Company shall mail (by first-class, postage prepaid mail) to the Holder of this Option notice of such proposed action, which notice shall specify the date on which such reclassification, reorganization, consolidation, merger, sale, transfer, other disposition, liquidation, voluntary or involuntary dissolution or winding-up shall take place or commence, as the case may be, and which shall also specify any record date for determination of holders of the capital stock of the Company entitled to vote thereon or participate therein and shall set forth such facts with respect thereto as shall be reasonably necessary to indicate any adjustments in the number or kind of Option Securities purchasable upon exercise of this Option which will be required as a result of such action, and the Holder may thereafter exercise this Option. Such notice shall be filed and mailed in the case of any action covered by this Section 6, at least 20 days prior to the earlier of (i) the date on which such reclassification, reorganization, consolidation, merger, sale, transfer, other disposition, liquidation, voluntary or involuntary dissolution or winding-up is expected to become effective, (ii) the date on which it is expected that holders of shares of the capital stock of record on such date shall be entitled to exchange their shares for securities or other property deliverable upon such reclassification, reorganization, consolidation, merger, sale, transfer, other disposition, liquidation, voluntary or involuntary dissolution or winding-up, or (iii) the record date for determination of holders of the capital stock of the Company entitled to vote on such action or participate in such action. Failure of the Holder to exercise this Option in whole or in part prior to any corporate action as described in this Section 6 shall not affect or alter the rights of the Holder as set forth in this Option.

SECTION 7. Registration of Securities. The Holder shall have the right to demand and require to, and the Company shall, immediately prepare and file under the Securities Act a registration statement to allow the unrestricted sale of the Option Securities to the public from time to time, and the Company shall take all actions necessary to cause such registration statement to be current and effective during the period from the registration statement initially becoming effective through (i) the Expiration Date or (ii) at any other time when this Option is exercisable, so as to allow the unrestricted sale of the Option Securities by the Holder to the public. The Company will also file such applications and other documents necessary to permit the sale of the Option Securities to the public in all states which the Holder may reasonably request. In performing its obligations under this Section 7, the Company shall pay all expenses incident to such registration, including, without limitation, all registration, filing and applicable securities exchange and market system fees, all fees and expenses of complying with securities or blue sky laws, printing expenses, delivery expenses, transfer agent fees, fees and disbursements of counsel for the Company and its independent public accountants. The Holder shall be responsible for all fees and expenses of their counsel and other professional advisors.

SECTION 8. Tax Withholdings. The Company's obligation to deliver the Option Securities upon the exercise of this Option may be subject to the satisfaction of all applicable federal, state and local income tax withholding requirements. Subject to approval by the Board of Directors of the Company, the Holder may, in his discretion, use cash payment or shares of Common Stock or other Option Securities in satisfaction of all or part of the required federal, state and local income tax withholding incurred by the Holder in connection with the exercise of this Option ("Taxes") by any one or a combination of the following methods: (i) the Holder may make a cash payment to the Company, (ii) the Holder may have the Company withhold from the Option Securities otherwise issuable upon exercise of this Option a portion of those Option Securities with an aggregate Market Value equal to the amount of such Taxes (not to exceed 100 percent of such Taxes) as designated by the Holder, and (iii) the Holder may deliver to the Company, at the time the Option is exercised, one or more shares of Mature Shares held by the Holder (other than pursuant to the transaction triggering the Taxes) with an aggregate Market Value equal to such Taxes (not to exceed 100 percent of such Taxes). The Mature Shares, if applicable, delivered by the Holder to the Company in payment of all or any portion of the Taxes shall be canceled by the Company upon receipt.

SECTION 9. Governing Law. This Option shall be construed in accordance with the laws of the State of Oklahoma applicable to contracts executed and to be performed wholly within such state.

SECTION 8. Notice. Notices and other communications to be given to Holder of this Option shall be delivered by hand or by first-class mail, postage prepaid, to

Mr. Timothy J. Kilkenny 12720 SW 58th Mustang, OK 74069

(until another address is filed in writing by the Holder with the Company). Notices or other communications to the Company shall be deemed to have been sufficiently given if delivered by hand or by first-class mail, postage prepaid to the Company at

FULLNET COMMUNICATIONS, INC.
200 North Harvey Street, Suite 1704
Oklahoma City, Oklahoma 73102

or such other address as the Company shall have designated by written notice to such registered owner as herein provided. Notice by mail shall be deemed given when deposited in the United States mail, postage prepaid, as herein provided.

SECTION 11. Successors. All the covenants and provisions of this Option by or for the benefit of the Company shall bind and inure to the benefit of its successors and assigns hereunder, and all covenants and provisions of this Option by or for the benefit of the Holder of this Option shall bind and inure to the benefit of the Holder of this Option.

SECTION 12. Termination. This Agreement shall terminate as of the close of business on the Expiration Date, or such earlier date upon which this Option shall have been exercised in full. However, with respect to obligations contained herein regarding the registration of the Option Securities, such obligations shall continue on and after the Expiration Date if this Option is fully or partially exercised on or before the Expiration Date.

SECTION 13. Benefits of this Agreement. Nothing in this Option shall be construed to give to any person or corporation other than the Company, and its respective successors and assigns hereunder and the registered holder of this Option any legal or equitable right, remedy or claim under this Option, but this Option shall be for the sole and exclusive benefit of the Company and its respective successors and assigns hereunder and the registered holder of this Option.

IN WITNESS WHEREOF, Company has executed this Stock Option on December 8, 2000.

FULLNET COMMUNICATIONS, INC.

By: ____________________________________________
Timothy J. Kilkenny, Chief Executive Officer

PURCHASE FORM (CASH EXERCISE)

(TO BE EXECUTED BY THE HOLDER OF THE STOCK OPTION IF EXERCISED IN WHOLE OR IN
PART)

To: FULLNET COMMUNICATIONS, INC.
The undersigned _____________________________________ Please insert name of Holder hereby irrevocably elects, pursuant to Section 1.1 of the Option, to exercise the right of purchase represented by the Stock Option (the "Option") to which this Purchase Form is attached, for, and to purchase thereunder, ( ) shares of Common Stock provided for therein and tenders payment herewith to the order of FULLNET COMMUNICATIONS, INC. in the amount of $ . The undersigned requests that certificates for such shares of Common Stock be issued as follows:
Name:

Address:

Deliver to:

Address:

and if said number of shares of Common Stock shall not be all the shares of Common Stock purchasable thereunder, that a new Stock Option for the balance remaining of shares of Common Stock purchasable under the Option be registered in the name of, and delivered to the undersigned at the address stated below:
Name:

Address:

Deliver to:

Address:

Dated:                        ,             Signature __________________________
      ------------------------  ----

                                    (Signature  must  conform in all respects to
                                    the name of Holder as  specified on the face
                                    of the  Stock  Option  in every  particular,
                                    without   alteration,   enlargement  or  any
                                    change whatever.)

PURCHASE FORM (STOCK IN LIEU OF CASH PAYMENT EXERCISE)

(TO BE EXECUTED BY THE HOLDER OF THE STOCK OPTION IF EXERCISED IN WHOLE OR IN
PART)

To: FULLNET COMMUNICATIONS, INC.
The undersigned
Please insert name of Holder hereby irrevocably elects, pursuant to Section 1.2 of the Option, to exercise the right of purchase represented by the Stock Option (the "Option") to which this Purchase Form is attached, for, and to purchase thereunder, ( ) shares of Common Stock provided for therein and tenders payment herewith shares of Common Stock of the Company held by the Holder as evidenced by the certificate or certificates accompanying this Purchase Form. The undersigned requests that certificates for such shares of Common Stock be issued as follows:
Name:

Address:

Deliver to:

Address:

Deliver to:

Address:

Dated:                        ,             Signature __________________________
      ------------------------  ----
                                                     (Signature  must conform in
                                                     all respects to the name of
                                                     Holder as  specified on the
                                                     face of the Stock Option in
                                                     every  particular,  without
                                                     alteration,  enlargement or
                                                     any change whatever.)

ASSIGNMENT FORM
(TO BE EXECUTED BY THE HOLDER OF THE STOCK OPTION ONLY UPON ASSIGNMENT)

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto

_________________________________ ("Assignee") the right to purchase___________ ________________(___________________________) shares of Common Stock subject to purchase under the Stock Option (the "Option") to which this Assignment is attached, and appoints ____________________________________________Attorney to transfer said Option or portion thereof on the books of FULLNET COMMUNICATIONS, INC. with the full power of substitution in the premises. In accordance with
Section 3 of the Option, the undersigned requests that the Company execute, issue and deliver a new Stock Option evidencing the rights of the Assignee to purchase such assigned shares of Common Stock to Assignee as follows:

Name:

Address:

Deliver to:

Address:

and if said number of shares of Common Stock shall not be all the shares of Common Stock purchasable under the Option, that the Company execute, issue and deliver a new Stock Option for the balance remaining of shares of Common Stock purchasable under the Option to be registered in the name of, and delivered to the undersigned at the address stated below:
Name:

Address:

Deliver to:

Address:
--------------------------------------------------------------------------------

Dated:                        ,     .
       -----------------------  ----

In the presence of:

                                                     Signature _________________
Signature Guaranteed:
                                                     (Signature  must conform in
                                                     all respects to the name of
                                                     Holder as  specified on the
                                                     face of the Stock Option in
                                                     every  particular,  without
                                                     alteration,  enlargement or
                                                     any change whatsoever,  and
                                                     the   signature   must   be
                                                     guaranteed   in  the  usual
                                                     manner.)

Exhibit 10.17

FULLNET COMMUNICATIONS, INC.
(an Oklahoma corporation)

WARRANT AGREEMENT

November 9, 2000

Roger P. Baresel
3509 Banner Court
Edmond, OK 73013

Dear Mr. Baresel:

FullNet Communications, Inc., an Oklahoma corporation (the "Company"), agrees to issue to Roger P. Baresel, (the "Warrants") to purchase the number of shares of common stock, par value $0.00001 per share (the "Common Stock"), of the Company set forth herein, subject to the terms and conditions contained herein.

1. Issuance of Warrants; Exercise Price. The Warrants, which shall be certificated in the form attached hereto as EXHIBIT "A," (each, a "Warrant Certificate") shall be issued to you dated of even date herewith. The Warrants shall provide that you, or such other holder or holders of the Warrants to whom transfer is authorized in accordance with the terms of this Agreement, shall have the right to purchase an aggregate of 50,000 shares of Common Stock for an exercise price equal to $0.01 per share (the "Exercise Price").

Page 1 of 5

3. Registration Rights.

Page 2 of 5

hereafter determine, all in a manner consistent with all applicable provisions of the Securities Act; provided, however, if at the time the Company intends to file the Form SB-2, the Company has formulated plans to file within 60 days thereof another registration statement covering the sale of any of its securities in a public offering under the Securities Act, no registration of the Warrant Shares shall be initiated under this Section 3(a) until 90 days after the effective date of such registration statement unless the Company is no longer proceeding diligently to secure the effectiveness of such registration statement; provided that the Company shall provide the Warrant holder(s) the right to participate in such public offering pursuant to, and subject to, Section 3(b). The Company will use its best efforts to have the Form SB-2 declared effective. At its expense, the Company will keep such registration effective for a period of one hundred eighty
(180) days or until the holder or holders have completed the distribution described in the registration statement relating thereto, whichever first occurs; and furnish such number of prospectuses and other documents incident thereto as a holder from time to time may reasonably request.

5. Successors and Assigns; Binding Effect. This Agreement shall be binding upon and insure to the benefit of you and the Company and their respective successors and permitted assigns.

Page 3 of 5

9. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Oklahoma without giving effect to the principles of choice of laws thereof.

11. Headings. The headings herein are for purposes of reference only and shall not limit or otherwise affect the meaning of any of the provisions hereof.

Very truly yours,

FULLNET COMMUNICATIONS, INC.

By: ______________________________________
Timothy J. Kilkenny, President and CEO

Page 4 of 5

ACCEPTED AS OF THE _____ DAY OF ________________, 2000

Roger P. Baresel

Page 5 of 5

Exhibit 10.18

FULLNET COMMUNICATIONS, INC.
(an Oklahoma corporation)

WARRANT AGREEMENT

December 29, 2000

Roger P. Baresel
3509 Banner Court
Edmond, OK 73013

Dear Mr. Baresel:

1. Issuance of Warrants; Exercise Price. The Warrants, which shall be certificated in the form attached hereto as EXHIBIT "A," (each, a "Warrant Certificate") shall be issued to you dated of even date herewith. The Warrants shall provide that you, or such other holder or holders of the Warrants to whom transfer is authorized in accordance with the terms of this Agreement, shall have the right to purchase an aggregate of 25,000 shares of Common Stock for an exercise price equal to $0.01 per share (the "Exercise Price").

Page 1 of 5

3. Registration Rights.

Page 2 of 5

Securities Act, no registration of the Warrant Shares shall be initiated under this Section 3(a) until 90 days after the effective date of such registration statement unless the Company is no longer proceeding diligently to secure the effectiveness of such registration statement; provided that the Company shall provide the Warrant holder(s) the right to participate in such public offering pursuant to, and subject to, Section 3(b). The Company will use its best efforts to have the Form SB-2 declared effective. At its expense, the Company will keep such registration effective for a period of one hundred eighty
(180) days or until the holder or holders have completed the distribution described in the registration statement relating thereto, whichever first occurs; and furnish such number of prospectuses and other documents incident thereto as a holder from time to time may reasonably request.

5. Successors and Assigns; Binding Effect. This Agreement shall be binding upon and insure to the benefit of you and the Company and their respective successors and permitted assigns.

Page 3 of 5

9. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of Oklahoma without giving effect to the principles of choice of laws thereof.

11. Headings. The headings herein are for purposes of reference only and shall not limit or otherwise affect the meaning of any of the provisions hereof.

Very truly yours,

FULLNET COMMUNICATIONS, INC.

By: _______________________________________
Timothy J. Kilkenny, President and CEO

Page 4 of 5

ACCEPTED AS OF THE _____ DAY OF ________________, 2000

Roger P. Baresel

Page 5 of 5

Exhibit 10.19

FULLNET COMMUNICATIONS, INC.
STOCK OPTION AGREEMENT

THIS STOCK OPTION AGREEMENT (this "Agreement") is made this 29th day of February, 2000, by and between FULLNET COMMUNICATIONS, INC., an Oklahoma corporation (the "Company"), and WALLACE L. WALCHER (the "Grantee"), an individual that is an employee of the Company.

W I T N E S S E T H

WHEREAS, the Company desires to advance the interests of the Company and its shareholders by encouraging and providing for the acquisition of an equity interest in the Company by the Company's key employees by providing additional incentives to such persons, and by enabling the Company to attract and retain the services of such persons who make substantial contributions to the Company through their ability, loyalty and efforts.

WHEREAS, Grantee is a key employee of the Company, and the Company desires to provide incentive to Grantee to continue to render valuable services to the Company in the form of an inducement to acquire a further proprietary interest in the Company by grant of an option to purchase shares of the Company's common stock, par value $.00001 (the "Common Stock").

NOW, THEREFORE, in consideration of the foregoing and of the mutual representations, covenants, warranties and agreements and upon the terms and subject to the conditions hereinafter set forth, the parties hereto agree as follows:

1. Grant of Option. The Company hereby grants to Grantee the right and option to purchase, on the terms and conditions hereinafter set forth, an aggregate of 60,400 shares of the Common Stock at the purchase price of $3.00 per share ("Grantee's Options").

2. Time and Manner of Exercise.

(a) Grantee's Options shall vest and be exercisable as follows: (i) beginning February 28, 2001, one-third of Grantee's Options shall vest and be exercisable, (ii) beginning February 28, 2002, one-third of Grantee's Options shall vest and be exercisable, (iii) beginning February 28, 2003, one-third of Grantee's Options shall vest and be exercisable, and (iv) all of Grantee's Options that have not vested, as set forth above, shall automatically vest and become exercisable if the Common Stock shall be changed into another kind of stock or into securities of another corporation, whether as a result of a reorganization, recapitalization, sale, merger, consolidation, or other similar transaction. The right of Grantee to exercise Grantee's Options, subject to the terms and provisions of this Agreement, shall expire at the end of the tenth year following the date on which the option was granted. Once Grantee's Options become exercisable, they may be exercised in whole at any time or in part from time to time until the expiration or termination of the option, whether or not any option granted previously to the Grantee remains outstanding at the time of such exercise.

Fullnet Communications, Inc.
Stock Option Agreement
Wallace L. Walcher

Page 2

(b) Grantee's Options shall be exercised by written notice delivered to the Company at its principal offices at 200 N. Harvey, Suite 1706, Oklahoma City, Oklahoma, 73102, or such other address as the Company shall designate in writing to the Grantee, setting forth the number of shares as to which the option is being exercised, and accomplished by payment of the option purchase price as follows:

(i) In cash;

(ii) By exchange of Common Stock valued at its Fair Market Value on the date of exercise;

(iii) By means of a brokers' cashless exercise procedure by the delivery to the Company of an exercise notice together with irrevocable instructions to a broker to deliver promptly to the Company the amount of proceeds necessary to pay the purchase price of the shares of Common Stock as to which such exercise relates; or

(iv) By any combination of the foregoing.

(c) Where payment of the purchase price is to be made with shares of Common Stock acquired under any compensation plan of the Company, such shares will not be accepted as payment unless the Grantee has acquired such shares at least six months prior to such payment.

(d) Upon delivery by Grantee to the Company of notice and payment as provided for in this section, the Company shall deliver to Grantee a certificate or certificates representing such shares of Common Stock.

3. Termination of Option.

(a) Except as may be otherwise provided in that certain Employment Agreement of even date herewith between the Company and Grantee, upon cessation of service to the Company by Grantee (for reasons other than retirement or death), including cessation of service due to physical or mental disability that prevents such person from rendering further services to the Company as an employee, only those of Grantee's Options which are exercisable at the date of cessation of service shall be exercisable by the Grantee. Such options shall be exercisable until the first to occur of (i) the expiration of the remaining term of the option, or (ii) three months after cessation of service of the Grantee.

(b) Upon the retirement or death of the Grantee, options shall be exercisable as follows:

Fullnet Communications, Inc.
Stock Option Agreement
Wallace L. Walcher

Page 3

(i) Upon retirement of Grantee while an employee of the Company pursuant to a retirement plan maintained by the Company, Grantee's Options shall continue to be exercisable during their terms as if such person had remained an employee;

(ii) In the event of the death of Grantee while an employee of the Company, the Grantee's Options shall be exercisable until the first to occur of (A) the expiration of the remaining term of the option or (B) one year after the date of the Grantee's death, but only to the extent that the Grantee would have been entitled to exercise the options had he lived during such period.

4. Adjustments in Shares. If the Company shall at any time change the number of issued shares of Common Stock without new consideration to the Company (such as by stock dividend or stock split), the total number of shares available under this Agreement, the number of shares to be granted to the Grantee pursuant to this Agreement, and the number and price of shares of Common Stock subject to outstanding options, shall be adjusted so that the aggregate consideration payable to the Company and the value of such options shall not be changed. If, during the term of Grantee's Options, the Common Stock shall be changed into another kind of stock or into securities of another corporation, whether as a result of a reorganization, recapitalization, sale, merger, consolidation, or other similar transaction, or if additional rights shall be offered with respect to the Common Stock, the Board shall cause adequate provision to be made so that the Grantee shall thereafter be entitled to receive, upon the due exercise of any outstanding options, the securities or rights that the Grantee would have been entitled to receive had he owned the Common Stock acquired on the exercise of such options on the effective date of any such transaction.

5. Rights Prior to Exercise. Neither the Grantee nor his or her legal representatives or beneficiaries shall have any of the rights of a stockholder with respect to any shares subject to any option until payment of the option purchase price and delivery of a certificate for such shares as provided herein.

6. Non-Transferability of Options. No option may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated otherwise than by will or by the laws of descent and distribution. Except as otherwise specifically provided herein, all options granted to Grantee under this Agreement shall be exercisable during the lifetime of such Grantee only by such Grantee. When the Grantee dies, the personal representative or other person entitled to succeed to the rights of the Grantee may exercise such rights, subject to furnishing to the Company proof satisfactory to the Company of his or her right to receive the option under Grantee's will or under the applicable laws of descent and distribution.

7. No Guaranteed Term of Employment. Nothing in this Agreement, or any modification thereof, and no grant of an option, or any term thereof, shall be deemed an agreement or condition guaranteeing to any employee any particular term of employment or limiting the right of the Company, the Board of Directors or the stockholders to terminate the employment of the Grantee.

Fullnet Communications, Inc.
Stock Option Agreement
Wallace L. Walcher

Page 4

8. Administration. The grant of options to Grantee pursuant to this Agreement shall be administered by the Board of Directors of the Company.

9. Other Provisions. This option is granted and delivered in the State of Oklahoma and is intended to be construed and enforced under the laws thereof. The provisions hereof shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors, and assigns.

IN WITNESS WHEREOF, this option is executed on behalf of the Company by its duly authorized officer and by Grantee as of the day and year first above written.

"COMPANY"

Fullnet Communications, Inc.

By: __________________________________________
Name:    Timothy J. Kilkenny
Title:   President and Chief Executive Officer

"GRANTEE"


______________________________________________
Name:    Wallace L. Walcher

Exhibit 10.21

FULLNET COMMUNICATIONS, INC.
STOCK OPTION AGREEMENT

THIS STOCK OPTION AGREEMENT (this "Agreement") is made this 19th day of October, 1999, by and between FULLNET COMMUNICATIONS, INC., an Oklahoma corporation (the "Company"), and Wesdon Peacock, an employee of the Company (the "Grantee").

W I T N E S S E T H

WHEREAS, the Company desires to advance the interests of the Company and its shareholders by encouraging and providing for the acquisition of an equity interest in the Company by its key employees by providing additional incentives to such persons, and by enabling the Company to attract and retain the services of such persons who make substantial contributions to the Company through their ability, loyalty and efforts.

WHEREAS, Grantee is a key employee of the Company, and the Company desires to provide incentive to Grantee to continue to render valuable services to it in the form of an inducement to acquire a further proprietary interest in the Company by grant of an option to purchase shares of the Company's common stock, par value $.00001 (the "Common Stock").

1. Grant of Option. The Company hereby grants to Grantee the right and option to purchase, on the terms and conditions hereinafter set forth, an aggregate of 15,000 shares of the Common Stock at the purchase price of $1.25 per share ("Grantee's Options").

2. Time and Manner of Exercise.

(a) Grantee's Options shall vest and be exercisable as follows:
(i) beginning October 19, 2000, one-third of Grantees Options shall vest and be exercisable, (ii) beginning October 19, 2001, one-third of Grantees Options shall vest and be exercisable, and (iii) beginning December 10, 2002, one-third of Grantees Options shall vest and be exercisable. The right of Grantee to exercise Grantee's Options, subject to the terms and provisions of this Agreement, shall expire at the end of the tenth year following the date on which the option was granted. Once Grantee's Options become exercisable, they may be exercised in whole at any time or in part from time to time until the expiration or termination of the option, whether or not any option granted previously to the Grantee remains outstanding at the time of such exercise.

(b) Grantee's Options shall be exercised by written notice delivered to the Company at its principal offices at 200 N. Harvey, Suite 1704, Oklahoma City, Oklahoma, 73102, or such other address as the Company shall designate in writing to the Grantee, setting forth the number of shares as to which the option is being exercised, and accomplished by payment of the option purchase price as follows:

(i) In cash;

(ii) By exchange of Common Stock valued at its Fair Market Value on the date of exercise;
(iii) By means of a brokers' cashless exercise procedure by the delivery to the Company of an exercise notice together with irrevocable instructions to a broker to deliver promptly to the Company the amount of proceeds necessary to pay the purchase price of the shares of Common Stock as to which such exercise relates; or
(iv) By any combination of the foregoing.

3. Termination of Option.

(a) Upon cessation of service to the Company by Grantee (for reasons other than retirement or death), including cessation of service due to physical or mental disability that prevents such person from rendering further services to the Company as an employee, only those of Grantee's Options which are exercisable at the date of cessation of service shall be exercisable by the Grantee. Such options shall be exercisable until the first to occur of (i) the expiration of the remaining term of the option, or (ii) three months after cessation of service of the Grantee.

(b) Upon the retirement or death of the Grantee, options shall be exercisable as follows: (i) Upon retirement of Grantee while an employee of the Company pursuant to a retirement plan maintained by the Company, Grantee's Options shall continue to be exercisable during their terms as if such person had remained an employee; (ii) In the event of the death of Grantee while an employee of the Company, the Grantee's Options shall be exercisable until the first to occur of (A) the expiration of the remaining term of the option or (B) one year after the date of the Grantee's death, but only to the extent that the Grantee would have been entitled to exercise the options had he lived during such period.

7. No Guaranteed Term of Office. Nothing in this Agreement, or any modification thereof, and no grant of an option, or any term thereof, shall be deemed an agreement or condition guaranteeing to any employee any particular term of office or limiting the right of the Company, the Board of Directors or the stockholders to terminate the employment of the Grantee.

8. Administration. The grant of options to Grantee pursuant to this Agreement shall be administered by the Board of Directors of the Company.

IN WITNESS WHEREOF, this option is executed on behalf of the Company by its duly authorized officer and by Grantee as of the day and year first above written.

"COMPANY"

FullNet Communications, Inc.

By: _______________________
Name: Timothy J. Kilkenny
Title: President and Chief Executive Officer

"GRANTEE"

By: ______________________
Name: Wesdon Peacock

Exhibit 10.22

FULLNET COMMUNICATIONS, INC.
STOCK OPTION AGREEMENT

THIS STOCK OPTION AGREEMENT (this "Agreement") is made this 14th day of April, 2000 by and between FULLNET COMMUNICATIONS, INC., an Oklahoma corporation (the "Company"), and Jason C. Ayers, an individual duly elected to serve as Vice President of the Company and President of FullWeb, Inc., an Oklahoma Corporation, a wholly owned subsidiary of the Company (the "Grantee").

W I T N 7E S S E T H

WHEREAS, the Company desires to advance the interests of the Company and its shareholders by encouraging and providing for the acquisition of an equity interest in the Company by its key employees by providing additional incentives to such persons, and by enabling the Company to attract and retain the services of such persons who make substantial contributions to the Company through their ability, loyalty and efforts.

1. Grant of Option. The Company hereby grants to Grantee the right and option to purchase, on the terms and conditions hereinafter set forth, an aggregate of 30,000 shares of the Common Stock at an exercise price of $2.375 per share ("Grantee's Options").

2. Time and Manner of Exercise.

(a) Grantee's Options shall vest and be exercisable as follows:
(i) beginning April 14, 2001, one-third of Grantees Options shall vest and be exercisable, (ii) beginning April 14, 2002, one-third of Grantees Options shall vest and be exercisable, and (iii) beginning April 14, 2003, one-third of Grantees Options shall vest and be exercisable. The right of Grantee to exercise Grantee's Options, subject to the terms and provisions of this Agreement, shall expire at the end of the tenth year following the date on which the option was granted. Once Grantee's Options become exercisable, they may be exercised in whole at any time or in part from time to time until the expiration or termination of the option, whether or not any option granted previously to the Grantee remains outstanding at the time of such exercise.

(i) In cash;

(ii) By exchange of Common Stock valued at its Fair Market Value on the date of exercise;

(iv) By any combination of the foregoing.

3. Termination of Option.

8. Administration. The grant of options to Grantee pursuant to this Agreement shall be administered by the Board of Directors of the Company.

IN WITNESS WHEREOF, this option is executed on behalf of the Company by its duly authorized officer and by Grantee as of the day and year first above written.

"COMPANY"

FullNet Communications, Inc.

By: _______________________
Name: Timothy J. Kilkenny
Title: President and Chief Executive Officer

"GRANTEE"

By: ______________________
Name: Jason C. Ayers
Title: Vice President and President of FullWeb

Exhibit 10.23

FULLNET COMMUNICATIONS, INC.
STOCK OPTION AGREEMENT

THIS STOCK OPTION AGREEMENT (this "Agreement") is made this 1st day of May, 2000 by and between FULLNET COMMUNICATIONS, INC., an Oklahoma corporation (the "Company"), and B. Don Turner, an individual duly elected to serve as Vice President and Chief Marketing Officer of the Company (the "Grantee").

W I T N E S S E T H

WHEREAS, the Company desires to advance the interests of the Company and its shareholders by encouraging and providing for the acquisition of an equity interest in the Company by its key employees by providing additional incentives to such persons, and by enabling the Company to attract and retain the services of such persons who make substantial contributions to the Company through their ability, loyalty and efforts.

1. Grant of Option. The Company hereby grants to Grantee the right and option to purchase, on the terms and conditions hereinafter set forth, an aggregate of 75,000 shares of the Common Stock at an exercise price of $2.85 per share ("Grantee's Options").

2. Time and Manner of Exercise.

(a) Grantee's Options shall vest and be exercisable as follows:
(i) beginning May 1, 2001, one-third of Grantees Options shall vest and be exercisable, (ii) beginning May 1, 2002, one-third of Grantees Options shall vest and be exercisable, and (iii) beginning May 1, 2003, one-third of Grantees Options shall vest and be exercisable. The right of Grantee to exercise Grantee's Options, subject to the terms and provisions of this Agreement, shall expire at the end of the tenth year following the date on which the option was granted. Once Grantee's Options become exercisable, they may be exercised in whole at any time or in part from time to time until the expiration or termination of the option, whether or not any option granted previously to the Grantee remains outstanding at the time of such exercise.

(i) In cash;

(iv) By any combination of the foregoing.

3. Termination of Option.

8. Administration. The grant of options to Grantee pursuant to this Agreement shall be administered by the Board of Directors of the Company.

IN WITNESS WHEREOF, this option is executed on behalf of the Company by its duly authorized officer and by Grantee as of the day and year first above written.

"COMPANY"

FullNet Communications, Inc.

By: _______________________
Name: Timothy J. Kilkenny
Title: President and Chief Executive Officer

"GRANTEE"

By: ______________________
Name: B. Don Turner
Title: Vice President and Chief Marketing Officer

Exhibit 10.24

FULLNET COMMUNICATIONS, INC.
STOCK OPTION AGREEMENT

THIS STOCK OPTION AGREEMENT (this "Agreement") is made this 8th day of December, 2000 by and between FULLNET COMMUNICATIONS, INC., an Oklahoma corporation (the "Company"), and __________, an individual duly selected to serve as ________ of the Company (the "Grantee").

W I T N E S S E T H

WHEREAS, the Company desires to advance the interests of the Company and its shareholders by encouraging and providing for the acquisition of an equity interest in the Company by its key employees by providing additional incentives to such persons, and by enabling the Company to attract and retain the services of such persons who make substantial contributions to the Company through their ability, loyalty and efforts.

1. Grant of Option. The Company hereby grants to Grantee the right and option to purchase, on the terms and conditions hereinafter set forth, an aggregate of ______ shares of the Common Stock at the purchase price of $1.00 per share ("Grantee's Options").

2. Time and Manner of Exercise.

(a) Grantee's Options shall vest and be exercisable as follows:
(i) beginning December 8, 2001, one-third of Grantees Options shall vest and be exercisable, (ii) beginning December 8, 2002, one-third of Grantees Options shall vest and be exercisable, and (iii) beginning December 8, 2003, one-third of Grantees Options shall vest and be exercisable. The right of Grantee to exercise Grantee's Options, subject to the terms and provisions of this Agreement, shall expire at the end of the tenth year following the date on which the option was granted. Once Grantee's Options become exercisable, they may be exercised in whole at any time or in part from time to time until the expiration or termination of the option, whether or not any option granted previously to the Grantee remains outstanding at the time of such exercise.

(i) In cash;

3. Termination of Option.

8. Administration. The grant of options to Grantee pursuant to this Agreement shall be administered by the Board of Directors of the Company.

IN WITNESS WHEREOF, this option is executed on behalf of the Company by its duly authorized officer and by Grantee as of the day and year first above written.

"COMPANY"

FullNet Communications, Inc.

By: _______________________
Name: Timothy J. Kilkenny
Title: President and Chief Executive Officer

"GRANTEE"

By: ______________________
Name: ______________
Title: _____________

Exhibit 10.25

WARRANT CERTIFICATE

THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.

FULLNET COMMUNICATIONS, INC.

No.: W-00-030a 25,000 Warrants Date: November 9, 2000

THIS IS TO CERTIFY that Roger P. Baresel or the assigns, as permitted in that certain Warrant Agreement (the "Warrant Agreement"), dated of even date herewith, by and among FullNet Communications, Inc. (the "Company") and Roger P. Baresel, is entitled to purchase at any time or from time to time, after the date hereof until 5:00 p.m., Central Standard Time on November 9, 2005 an aggregate of Twenty-five Thousand (25,000) shares of common stock, par value $0.00001 per share, of the Company, for an exercise price per share of $0.01 per share as set forth in the Warrant Agreement referred to herein. This Warrant is issued pursuant to the Warrant Agreement, and all rights of the holder of this Warrant are further governed by, and subject to the terms and provisions of such Warrant Agreement, copies of which are available upon request to the Company. The holder of this Warrant and the shares issuable upon the exercise hereof shall be entitled to the benefits, rights and privileges and subject to the obligations, duties and liabilities provided for in the Warrant Agreement.

Page 1 of 4

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed and its corporate seal to be hereunto affixed by its proper corporate officers thereunto duly authorized.

FULLNET COMMUNICATIONS, INC.

By:______________________________________
Timothy J. Kilkenny, President and CEO

(SEAL)

Attest:

Travis Lane, Assistant Secretary

Page 2 of 4

FULLNET COMMUNICATIONS, INC.

SUBSCRIPTION

      To Be Signed Only Upon Exercise (in whole or in part) of the Warrants

TO:                       FULLNET COMMUNICATIONS, INC.
                          201 Robert S. Kerr, Suite 210
                          Oklahoma City, Oklahoma 73102
                          Attention:  President

         1. The undersigned, _________________________________,  pursuant to the

provisions of the Warrant Agreement dated as of November 9, 2000, and the attached Warrant Certificate, hereby agrees to subscribe for the purchase of _______ shares of the common stock of FullNet Communications, Inc. covered by the attached Warrant Certificate, and makes payment therefore in full at the price per share provided by the Warrant Agreement.

3. Please issue a stock certificate or certificates representing the appropriate number of shares of common stock in the name of the undersigned or in such other name(s) as is specified below:

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(Name)                                    (Social Security or Fed ID #)

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(Signature)                               (Address)

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(Date)                                    (Address)

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ASSIGNMENT

FullNet Communications, Inc.

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(Name)                                 (Name of Assignee)

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(Signature)                            (Signature of Assignee)

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(Social Security or Fed ID #)          (Social Security or Fed ID # of Assignee)

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(Address)                              (Address of Assignee)

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(Date)

PARTIAL ASSIGNMENT

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(Name)                                 (Name of Assignee)

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(Signature)                            (Signature of Assignee)

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(Social Security or Fed ID #)          (Social Security or Fed ID # of Assignee)

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(Address)                              (Address of Assignee)

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(Date)

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Exhibit 10.26

WARRANT CERTIFICATE

THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.

FULLNET COMMUNICATIONS, INC.

No.: W-00-030b 25,000 Warrants Date: November 9, 2000

Page 1 of 4

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed and its corporate seal to be hereunto affixed by its proper corporate officers thereunto duly authorized.

FULLNET COMMUNICATIONS, INC.

By:______________________________________
Timothy J. Kilkenny, President and CEO

(SEAL)

Attest:

Travis Lane, Assistant Secretary

Page 2 of 4

FULLNET COMMUNICATIONS, INC.

SUBSCRIPTION

      To Be Signed Only Upon Exercise (in whole or in part) of the Warrants

TO:                          FULLNET COMMUNICATIONS, INC.
                             201 Robert S. Kerr, Suite 210
                             Oklahoma City, Oklahoma 73102
                             Attention:  President

         1. The undersigned, _________________________________,  pursuant to the

3. Please issue a stock certificate or certificates representing the appropriate number of shares of common stock in the name of the undersigned or in such other name(s) as is specified below:

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(Name)                                    (Social Security or Fed ID #)

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(Signature)                               (Address)

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(Date)                                    (Address)

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ASSIGNMENT

FullNet Communications, Inc.

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(Name)                                 (Name of Assignee)

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(Signature)                            (Signature of Assignee)

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(Social Security or Fed ID #)          (Social Security or Fed ID # of Assignee)

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(Address)                              (Address of Assignee)

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(Date)

PARTIAL ASSIGNMENT

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(Name)                                 (Name of Assignee)

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(Signature)                            (Signature of Assignee)

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(Social Security or Fed ID #)          (Social Security or Fed ID # of Assignee)

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(Address)                              (Address of Assignee)

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(Date)

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Exhibit 10.27

WARRANT CERTIFICATE

THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.

FULLNET COMMUNICATIONS, INC.

No.: W-00-068a 25,000 Warrants Date: December 29, 2000

THIS IS TO CERTIFY that Roger P. Baresel or the assigns, as permitted in that certain Warrant Agreement (the "Warrant Agreement"), dated of even date herewith, by and among FullNet Communications, Inc. (the "Company") and Roger P. Baresel, is entitled to purchase at any time or from time to time, after the date hereof until 5:00 p.m., Central Standard Time on December 29, 2005 an aggregate of Twenty-five Thousand (25,000) shares of common stock, par value $0.00001 per share, of the Company, for an exercise price per share of $0.01 per share as set forth in the Warrant Agreement referred to herein. This Warrant is issued pursuant to the Warrant Agreement, and all rights of the holder of this Warrant are further governed by, and subject to the terms and provisions of such Warrant Agreement, copies of which are available upon request to the Company. The holder of this Warrant and the shares issuable upon the exercise hereof shall be entitled to the benefits, rights and privileges and subject to the obligations, duties and liabilities provided for in the Warrant Agreement.

Page 1 of 4

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed and its corporate seal to be hereunto affixed by its proper corporate officers thereunto duly authorized.

FULLNET COMMUNICATIONS, INC.

By:______________________________________
Timothy J. Kilkenny, President and CEO

(SEAL)

Attest:

Travis Lane, Assistant Secretary

Page 2 of 4

FULLNET COMMUNICATIONS, INC.

SUBSCRIPTION

      To Be Signed Only Upon Exercise (in whole or in part) of the Warrants

TO:                          FULLNET COMMUNICATIONS, INC.
                             201 Robert S. Kerr, Suite 210
                             Oklahoma City, Oklahoma 73102
                             Attention:  President

         1. The undersigned, _________________________________,  pursuant to the

provisions of the Warrant Agreement dated as of December 29, 2000, and the attached Warrant Certificate, hereby agrees to subscribe for the purchase of _______ shares of the common stock of FullNet Communications, Inc. covered by the attached Warrant Certificate, and makes payment therefore in full at the price per share provided by the Warrant Agreement.

3. Please issue a stock certificate or certificates representing the appropriate number of shares of common stock in the name of the undersigned or in such other name(s) as is specified below:

--------------------------------------    --------------------------------------
(Name)                                    (Social Security or Fed ID #)

--------------------------------------    --------------------------------------
(Signature)                               (Address)

--------------------------------------    --------------------------------------
(Date)                                    (Address)

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ASSIGNMENT

FullNet Communications, Inc.

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(Name)                                 (Name of Assignee)

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(Signature)                            (Signature of Assignee)

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(Social Security or Fed ID #)          (Social Security or Fed ID # of Assignee)

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(Address)                              (Address of Assignee)

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(Date)

PARTIAL ASSIGNMENT

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(Name)                                 (Name of Assignee)

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(Signature)                            (Signature of Assignee)

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(Social Security or Fed ID #)          (Social Security or Fed ID # of Assignee)

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(Address)                              (Address of Assignee)

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(Date)

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Exhibit 10.28

NUMBER:
**001**

STOCK OPTION

OPTIONS TO PURCHASE COMMON STOCK

FULLNET COMMUNICATIONS, INC.

Date: October 13, 2000

This is to certify that, for value received, Roger P. Baresel or any subsequent holder or holders of option rights hereunder by virtue of assignment or transfer ("Holder") is entitled to purchase, subject to the provisions of this Stock Option (this "Option"), from FULLNET COMMUNICATIONS, INC., an Oklahoma corporation (the "Company"), up to ONE HUNDRED THOUSAND (100,000) shares of Common Stock, $.00001 par value, of the Company (the "Stock") at an exercise price of ONE DOLLAR ($1.00) per share (the "Exercise Price"), for an aggregate exercise price of ONE HUNDRED THOUSAND DOLLARS ($100,000) (the "Aggregate Exercise Price"). With the exception of any adjustments pursuant to
Section 4 of this Option, the Stock issuable upon exercise of this Option shall be in all respects identical to the Common Stock issued and outstanding of the Company as of the date hereof. The shares of Stock or other securities deliverable upon such exercise, as adjusted from time to time, are hereinafter sometimes referred to as the "Option Securities." The vested and exercisable portion of this Option may be exercised by the Holder at any time in whole or in part. Unless the context otherwise requires, the term "Option" or "Options" as used herein includes this Option and any other Option or Options that may be issued pursuant to the provisions of this Option, whether upon transfer, assignment, partial exercise, divisions, combinations, exchange or otherwise, and the term "Holder" includes any registered transferee or transferees or registered assignee or assignees of Holder, who in each case shall be subject to the provisions of this Option, and when used with reference to Option Securities, means the holder or holders of such Option Securities.

SECTION 1. Exercise of Option. Subject to the provisions hereof, twenty-five percent (25%) of this Option shall vest and become exercisable, on a cumulative basis, every ninety (90) days from its date of issuance so long as Roger P. Baresel continues to provide services to the Company in a capacity of equal or greater responsibility than he was on the date of grant and the vested and exercisable portion of this Option may be exercised in whole or in part at any time or from time to time during the period commencing with its vesting (the "Commencement Date") and ending 5:00 P.M., Central Standard Time, on October 13, 2010 (the "Expiration Date") in accordance with Section 1.1 and/or Section 1.2 hereof. Upon such exercise, the Company shall issue to the Holder one or more certificates for the Option Securities, as appropriate. If this Option is exercised in part only, the Company shall, promptly after presentation of this Option upon such exercise, execute and deliver a new Option evidencing the rights of Holder thereof to purchase the balance of the Option Securities purchasable hereunder upon the same terms and conditions as herein set forth.

SECTION 1.2 Receipt of Stock in Lieu of Cash Payment. The Holder hereof may effect an exercise of all or any portion of the vested and exercisable portion of this Option by surrendering this Option Agreement, together with the duly executed Purchase Form annexed hereto, to the Company at its principal offices at any time prior to the Expiration Date, accompanied by a certificate or certificates evidencing the number of Mature Shares (as defined below) held by the Holder, in which no payment of cash will be required to the extent that the Market Value (as defined below) of the Mature Shares equals or exceeds the total exercise price of the number of Option Securities for which this Option is being exercised. In the event a cash payment shall be required, such cash payment shall be determined in accordance with
Section 1.1 with respect to the number of Option Securities having a total Exercise Price in excess of the Market Value of the Mature Shares accompanying the Purchase Form. The number of Option Securities to be issued to the Holder pursuant to exercise of this Option in accordance with this Section shall be determined by multiplying the number of Mature Shares (held by the Holder) by the Market Value (as defined below) of the Common Stock of the Company and dividing such amount by the Exercise Price of the Options Securities being purchased, less the number of Mature Shares held by the Holder evidenced by the certificate or certificates accompanying the Purchase Form. For purposes of this calculation the number of Mature Shares shall be limited to that number which when multiplied by the Market Value (as defined below) of the Common Stock of the Company yields a value which is less than or equal to the total exercise price of the number of Option Securities for which this Option is being exercised. Thereafter, the Mature Shares delivered to the Company will not be canceled, but will be redelivered to the Holder, as well as the number of Option Securities issuable pursuant to exercise of this Option in accordance with this Section. For purposes hereof, (i) "Mature Shares" shall mean the number of shares of Common Stock evidenced by the certificate or certificates accompanying the Purchase Form that have been held by the Holder for more than six months on the date of issuance of the Option Securities pursuant to exercise of this Option and (ii) "Market Value" shall mean, as of the close of the business day preceding the date of exercise of this Option, (A) if the Common Stock is listed for trading on a national or regional stock exchange or is included on the Nasdaq National Market or SmallCap Market, the closing sale price quoted on such exchange or the Nasdaq National Market or SmallCap Market which is published in The Wall Street Journal for the trading day immediately preceding the date of exercise, or if no trade of the Common Stock shall have been reported on such date, the last sale price so quoted for the next day prior thereto on which a trade in the Common Stock was so reported or (B) if the Common Stock is not so listed or admitted to trading or included on a national or regional stock exchange, the Nasdaq National Market or Nasdaq SmallCap Market, the average of the closing highest reported bid and lowest reported ask price as quoted on the National Association of Securities Dealer's OTC Bulletin Board or in the "pink sheets" published by the National Daily Quotation Bureau for the business day immediately preceding the date of exercise on which the Common Stock is traded or, if no trade of the Common Stock shall have been reported on such date, the last sale price so quoted for the next day prior thereto on which a trade in the Common Stock was quoted.

SECTION 3. Transfer, Exchange, Assignment or Loss of Option.

SECTION 9. Governing Law. This Option shall be construed in accordance with the laws of the State of Oklahoma applicable to contracts executed and to be performed wholly within such state.

SECTION 8. Notice. Notices and other communications to be given to Holder of this Option shall be delivered by hand or by first-class mail, postage prepaid, to

Mr. Roger P. Baresel 3509 Banner Court Edmond, Oklahoma 73013

FULLNET COMMUNICATIONS, INC.
200 North Harvey Street, Suite 1704
Oklahoma City, Oklahoma 73102

IN WITNESS WHEREOF, Company has executed this Stock Option on October 13, 2000.

FULLNET COMMUNICATIONS, INC.

By: _____________________________________________
Timothy J. Kilkenny, Chief Executive Officer

PURCHASE FORM (CASH EXERCISE)

(TO BE EXECUTED BY THE HOLDER OF THE STOCK OPTION IF
EXERCISED IN WHOLE OR IN PART)

To: FULLNET COMMUNICATIONS, INC.
The undersigned ________________________________________ Please insert name of Holder hereby irrevocably elects, pursuant to Section 1.1 of the Option, to exercise the right of purchase represented by the Stock Option (the "Option") to which this Purchase Form is attached, for, and to purchase thereunder, ( ) shares of Common Stock provided for therein and tenders payment herewith to the order of FULLNET COMMUNICATIONS, INC. in the amount of $ . The undersigned requests that certificates for such shares of Common Stock be issued as follows:
Name:___________________________________________________________________________