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

                                    FORM 10-K

                                   (Mark One)

    [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
        ACT OF 1934 FOR THE FISCAL YEAR ENDED:  DECEMBER 31, 2002

                                       OR

    [ ] TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15(D) OF THE SECURITIES
        EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____ TO ____

                         COMMISSION FILE NUMBER: 0-32617

                              HORIZON TELCOM, INC.
             (Exact name of registrant as specified in its charter)

                    OHIO                                31-1449037
      (State or other jurisdiction          (I.R.S. Employer Identification No.)
    of incorporation or organization)

    68 EAST MAIN STREET, CHILLICOTHE, OH                           45601-0480
  (Address of principal executive offices)                         (Zip Code)

      (Registrant's telephone number, including area code): (740) 772-8200

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

   Securities registered pursuant to Section 12(g) of the Act:
                    CLASS B COMMON STOCK, WITHOUT PAR VALUE.

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of  March  1,  2003,  there  were  90,552  shares  of  class A  common  stock
outstanding and 271,926 shares of class B common stock outstanding.






                              HORIZON TELCOM, INC.
                                    FORM 10-K
                                  ANNUAL REPORT
                                TABLE OF CONTENTS


                                                                                                     

                                                                                                           PAGE NO.
PART I
     ITEM 1.     Business.........................................................................................2
     ITEM 2.     Properties......................................................................................29
     ITEM 3.     Legal Proceedings...............................................................................29
     ITEM 4.     Submission of Matters to a Vote of Security Holders.............................................29

PART II
     ITEM 5.     Market for Registrant's Common Equity and Related Stockholder Matters...........................29
     ITEM 6.     Selected Financial Data.........................................................................31
     ITEM 7.     Management's Discussion and Analysis of Financial Condition and Results of Operation............32
     ITEM 7A.    Quantitative and Qualitative Disclosures About Market Risk......................................73
     ITEM 8.     Financial Statements and Supplementary Data.....................................................73
     ITEM 9.     Changes In and Disagreements With Accountants on Accounting and
                         Financial Disclosure....................................................................73

PART III
     ITEM 10.   Directors and Executive Officers of the Registrant...............................................74
     ITEM 11.   Executive Compensation...........................................................................76
     ITEM 12.   Security Ownership of Certain Beneficial Owners and Management...................................84
     ITEM 13.   Certain Relationships and Related Transactions...................................................85
     ITEM 14.   Controls and Procedures..........................................................................86

PART IV
     ITEM 15.   Exhibits, Financial Statement Schedules and Reports on Form 8-K..................................88







                                     PART I

     As used  herein and  except as the  context  may  otherwise  require,  "the
Company,"  "we," "us," "our" or "Horizon  Telcom" means,  collectively,  Horizon
Telcom, Inc. and its subsidiaries:  Horizon PCS, Inc., The Chillicothe Telephone
Company,  Horizon  Technology,  Inc. and Horizon  Services,  Inc.  References to
"Horizon PCS" refer to Horizon PCS, Inc., and its subsidiaries  Horizon Personal
Communications,  Inc. ("HPC" or "Horizon  Personal  Communications")  and Bright
Personal Communications Services, LLC ("Bright PCS").

                           FORWARD-LOOKING STATEMENTS

     This annual report on Form 10-K includes 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),   which  can  be   identified  by  the  use  of
forward-looking   terminology  such  as:  "may,"  "might,"   "could,"   "would,"
"believe,"  "expect,"  "intend,"  "plan,"  "seek,"   "anticipate,"   "estimate,"
"project" or "continue" or the negative thereof or other  variations  thereon or
comparable terminology.  All statements other than statements of historical fact
included in this annual report on Form 10-K,  including without limitation,  the
statements  under "ITEM 1.  Business" and "ITEM 7.  Management's  Discussion and
Analysis of Financial  Condition and Results of Operation" and located elsewhere
herein  regarding  our  financial  position and  liquidity  are  forward-looking
statements.  These forward-looking  statements also include, but are not limited
to:

     O    changes   in    industry    conditions    created   by   the   Federal
          Telecommunications   Act  of  1996  and  related   state  and  federal
          legislation and regulations;

     O    recovery  of  the  substantial   costs  which  will  result  from  the
          implementation and expansion of our new businesses;

     O    retention of our existing customer base and our ability to attract new
          customers;

     O    rapid changes in technology;

     O    our future compliance with debt covenants;

     O    actions of our competitors;

     O    estimates of current and future population for our markets;

     O    forecasts of growth in the number of consumers  and  businesses  using
          personal communication services ("PCS");

     O    estimates for churn and ARPU (defined below);

     O    statements regarding Horizon PCS' plans for and costs of the build-out
          of its PCS network;

     O    statements  regarding  our  anticipated   revenues,   expense  levels,
          liquidity  and  capital  resources  and  projections  of  when we will
          achieve break-even or positive operating cash flow; and

     O    the anticipated impact of recent accounting pronouncements.

    Although  we believe  the  expectations  reflected  in such  forward-looking
statements are reasonable, we can give no assurance such expectations will prove
to have been correct. Important factors with respect to any such forward-looking
statements,  including certain risks and  uncertainties  that could cause actual
results to differ materially from our expectations (Cautionary Statements),  are
disclosed in this annual report on Form 10-K, including,  without limitation, in
conjunction with the  forward-looking  statements included in this annual report
on Form 10-K.  Important  factors  that  could  cause  actual  results to differ
materially from those in the forward-looking statements included herein include,
but are not limited to:

                                       1


     O    changes or advances in technology and the acceptance of new technology
          in the marketplace;

     O    competition in the industry and markets in which we operate;

     O    changes in government regulation; and

     O    general political economic and business conditions.

     And, in addition the following factors related to Horizon PCS:

     O    Horizon PCS' ability to continue as a going concern;

     O    Horizon PCS' significant level of indebtedness;

     O    the  likelihood  that  Horizon  PCS  will  fail to  comply  with  debt
          covenants in its senior secured credit facility;

     O    the nature and amount of the fees that Sprint charges  Horizon PCS for
          back office services;

     O    Horizon PCS'  potential  need for  additional  capital or the need for
          refinancing existing indebtedness;

     O    Horizon  PCS'  dependence  on its  affiliation  with  Sprint  and  its
          dependence on Sprint's back office services;

     O    the need to  successfully  complete  the  build-out  of  Horizon  PCS'
          portion of the Sprint PCS network on our anticipated schedule;

     O    the  potential  to  continue  to  experience  a high rate of  customer
          turnover;

     O    Horizon  PCS' lack of  operating  history and  anticipation  of future
          losses;

     O    potential fluctuations in Horizon PCS' operating results;

     O    Horizon PCS' ability to attract and retain skilled personnel; and

     O    the  possibility  that the  nature  and  extent  of  Horizon  Telcom's
          ownership interest in Horizon PCS may be materially adversely affected
          by the foregoing factors.

    These   forward-looking   statements   involve  known  and  unknown   risks,
uncertainties and other factors which may cause our actual results,  performance
or achievements to be materially different from any future results,  performance
or achievements  expressed or implied by such  forward-looking  statements.  All
subsequent  written and oral  forward-looking  statements  attributable to us or
persons  acting on our behalf are expressly  qualified in their  entirety by the
Cautionary Statements. See "Risk Factors" under "ITEM 7. Management's Discussion
and Analysis of Financial  Condition and Results of Operation"  included  herein
for  further  information  regarding  risks  and  uncertainties  related  to our
businesses.

ITEM 1.  BUSINESS

RECENT DEVELOPMENTS

     As of December 31, 2002,  Horizon PCS, Inc., a corporation in which we hold
a majority ownership interest, was in compliance with its covenants with regards
to its outstanding debt. However,  Horizon PCS believes that it is probable that
it will violate one or more covenants under its secured credit facility in 2003.
The failure to comply with a covenant would be an event of default under Horizon
PCS'  secured  credit  facility,  and would give the lenders the right to pursue
remedies  against  Horizon PCS.  These remedies  could include  acceleration  of
amounts  due under the  facility.  If the  lenders  elected  to  accelerate  the


                                       2




indebtedness  under the facility,  this would also represent a default under the
indentures  for Horizon PCS' senior  notes and discount  notes (see "Note 12" in
the "Notes to Consolidated  Financial Statements") and would give Sprint certain
remedies under Horizon PCS' Consent and Agreement  with Sprint.  See "The Sprint
Agreements."  Horizon PCS does not have sufficient liquidity to repay all of the
indebtedness under these obligations.  Horizon PCS' independent auditors' report
dated March 4, 2003 states that these  matters  raise  substantial  doubts about
Horizon PCS' ability to continue as a going concern.

     In addition,  without the  additional  borrowing  capacity under the senior
credit  facility,  significant  modifications  in the amounts  charged by Sprint
under  the  management  agreements,  significant  modifications  in the  amounts
charged  by  the  Alliances  under  the  Network  Service  Agreement,  and/or  a
restructuring  of Horizon  PCS' capital  structure,  Horizon PCS likely does not
have  sufficient  liquidity  to fund its  operations  so that it can  pursue its
desired business plan and achieve positive cash flow from operations.

    Horizon PCS plans to take the following  steps (some of which it has already
commenced)  within  the next six  months to  achieve  compliance  under its debt
facilities and to fund its operations:

     O    Entering into  negotiations  with Sprint to adjust the amounts charged
          by Sprint to Horizon  PCS under the Sprint  management  agreements  to
          improve the Horizon PCS's cash flow from operations.

     O    Entering  into  negotiations  with the lenders under the senior credit
          facility to modify the debt  covenants,  and if  necessary,  to obtain
          waivers and/or a forbearance  agreement with respect to defaults under
          Horizon PCS' senior credit facility.

     O    Entering  into  negotiations  with the lenders under its senior credit
          facility to obtain the right to borrow  under the $95 million  line of
          credit and to modify the repayment terms of this facility.

     O    If the lenders under its senior credit facility  accelerate the senior
          secured  debt,  negotiating  a waiver or  forbearance  agreement  with
          representatives of the holders of its senior notes and discount notes.

     O    Entering into negotiations or arbitration with the Alliances to reduce
          the  amounts  charged by  Alliances  to Horizon  PCS under the network
          agreements to improve Horizon PCS' cash flow from operations.

     O    Pursuing means to reduce  operating  expenses by critically  analyzing
          all expenses and entering into pricing negotiations with key vendors.

     Horizon PCS would need to be  successful in these efforts to be in position
to execute its business  plan and achieve  positive  cash flow.  Horizon PCS can
give no assurance  that it will be  successful  in these  efforts.  In its early
discussions  with Sprint,  Sprint has indicated  reluctance in modifying the fee
structure as needed under the first item listed above.

     Horizon PCS has engaged Berenson & Company,  an investment banking firm, to
assist in its efforts to renegotiate or restructure  its equity,  debt and other
contractual obligations.

     If  Horizon  PCS is  unable  to  restructure  its  current  debt and  other
contractual obligations as discussed above, it would need to:

     O    obtain financing to satisfy or refinance its current obligations;

     O    find a purchaser  or strategic  partner for Horizon  PCS'  business or
          otherwise dispose of its assets; and/or

     O    seek bankruptcy protection.

     There  is a  substantial  risk  that  Horizon  Telcom  would lose  all or a
substantial  portion of the value of its investment in Horizon PCS in connection
with any restructuring of Horizon PCS. While Horizon Telcom may retain an equity
interest in a  restructuring  of Horizon PCS, it is possible that Horizon Telcom


                                       3


will lose  voting  control of Horizon  PCS and will lose all of the value of its
investment in Horizon PCS in connection with  restructuring.  See "Risks Related
To Horizon PCS."

     Horizon Telcom,  Chillicothe  Telephone,  Horizon  Technology,  and Horizon
Services are not obligated in any form to assist Horizon PCS in its negotiations
nor are they  obligated  to  compensate  any of Horizon  PCS'  creditors  should
Horizon  PCS default on any debt  agreements.  While  Horizon PCS faces  several
liquidity issues,  the liquidity of Horizon Telcom independent of Horizon PCS is
more favorable. Cash and working capital for Horizon Telcom, net of Horizon PCS,
is approximately $8.8 million and approximately $13.2 million,  respectively. We
believe  that this level of working  capital is  adequate  to  maintain  Horizon
Telcom's operations for the foreseeable  future.  Horizon Telcom, net of Horizon
PCS, generated  approximately  $15.4 million of cash flow from operations during
2002.

OVERVIEW

     Through   its   operating   subsidiaries,   Horizon   Telcom,   Inc.  is  a
facilities-based  telecommunications  carrier  that  provides (i) local and long
distance  telephone,  (ii)  Internet  and network  services to  residential  and
business  customers  located  primarily  in Ohio,  and (iii)  wireless  personal
communications  services to  customers  in Ohio,  Indiana,  Kentucky,  Maryland,
Michigan,  New  Jersey,  New  York,  North  Carolina,  Pennsylvania,  Tennessee,
Virginia and West Virginia.

     We began  operations in 1895 as The Home  Telephone  Company.  In 1929 this
company  changed its name to The  Chillicothe  Telephone  Company  ("Chillicothe
Telephone").  After a  reorganization  in 1996, we became a holding  company and
Chillicothe  Telephone became a wholly-owned  subsidiary.  Chillicothe Telephone
supplies local area telephone  service through its equipment and facilities to a
territory  covering  approximately  800 square  miles in Ross,  Pickaway,  Pike,
Jackson,  Hocking and Vinton  Counties,  Ohio,  as an incumbent  local  exchange
carrier,  commonly  referred to as an "ILEC".  In  addition  to local  telephone
service,  Chillicothe  Telephone  sells  telephone  equipment to businesses  and
offers  Internet  access  through  high-speed  digital  subscriber  line ("DSL")
technology over telephone lines.  Chillicothe  Telephone also offers  high-speed
very-high  digital  subscriber  line ("VDSL")  services over telephone  lines to
residences as an alternative to coaxial cable television services.

     Our  majority-owned  subsidiary,  Horizon  PCS,  Inc.,  is in  the  digital
wireless  personal  communications  industry.  Horizon PCS is a PCS affiliate of
Sprint,  with an exclusive right to market Sprint's PCS products and services to
a total population of over 10.2 million people in portions of twelve  contiguous
states.  A PCS  affiliate  of  Sprint  is an  entity  that has  agreed to act as
Sprint's PCS exclusive  agent to market its services and manage its customers in
a particular area. Horizon PCS' territory covers 54 markets in parts of Indiana,
Kentucky,  Maryland,  Michigan,  New Jersey,  New York,  North  Carolina,  Ohio,
Pennsylvania,  Tennessee,  Virginia,  and West Virginia.  These  territories are
located  between  Sprint's  Chicago,  New York and  Raleigh/Durham  markets  and
connect  or are  adjacent  to 15 major  Sprint  PCS  markets  that  have a total
population  of over 59 million  people.  We  believe  that  connecting  or being
adjacent  to  existing  Sprint PCS  markets is  important  to  Sprint's  and our
strategy to provide  seamless,  nationwide  PCS. As a PCS  affiliate  of Sprint,
Horizon PCS markets digital  personal  communications  services under the Sprint
and Sprint PCS brand names. At December 31, 2002,  Horizon PCS had approximately
270,900 Sprint PCS subscribers in its territory.

     Through our wholly-owned  subsidiary,  Horizon  Technology,  Inc., formerly
known as United Communications,  Inc. ("Horizon  Technology"),  we offer dial-up
Internet and network  services and resell long distance  services.  The Internet
and network services are provided under the  "bright.net"  brand through Horizon
Technology's  contractual  arrangement  with Comnet,  a consortium of small Ohio
telephone companies.  Horizon Technology provides long distance services through
a reselling arrangement with a primary long distance carrier.  Prior to December
1, 2000,  Horizon  Technology  also  operated a paging  business in the state of
Ohio.  On December  1, 2000,  Horizon  Technology  sold the assets of its paging
business to an unrelated third party.

     We also own 100% of Horizon  Services,  Inc.  ("Horizon  Services"),  which
provides  administrative  services  to our  other  subsidiaries.  Administrative
services  provided by Horizon  Services  generally  include  such  functions  as
insurance,  billing  services,  accounting  services,  computer access and other
information technology services and human resources services.


                                       4



     The following chart illustrates our corporate structure:



                                [GRAPHIC OMITTED]



- ---------------------
(1)  The ownership percentage for Horizon PCS excludes options granted under its
     2000 Stock  Option  Plan,  warrants  issued to the  initial  purchasers  of
     Horizon PCS' discount notes and shares subject to Sprint PCS warrants.

(2)  This  percentage  includes  the 48% of Bright  PCS which  Horizon  PCS owns
     indirectly through Horizon Personal Communications.



                                       5


     The  operations of  Chillicothe  Telephone,  a landline  telephone  service
provider, and Horizon PCS, a wireless personal  communications service provider,
are our primary business  segments.  Landline  telephone  services accounted for
approximately 15%, 23% and 51% of our operating revenues, respectively, in 2002,
2001 and 2000.  Landline telephone services accounted for $15.4, $16.1 and $15.1
million  operating  profit for 2002,  2001 and 2000,  respectively.  Horizon PCS
accounted for  approximately  82%, 72%, and 39% of our operating  revenues,  and
$113.0   million,   $83.5  million  and  $40.3  million  of  operating   losses,
respectively, for 2002, 2001 and 2000.

     Horizon Telcom is incorporated  under the laws of Ohio and was organized in
1996 pursuant to the corporate  reorganization  of Chillicothe  Telephone into a
holding company  structure.  Our principal  executive  offices are located at 68
East  Main  Street,  Chillicothe,   Ohio  45601-0480  (telephone  number:  (740)
772-8200).

     Certain   business,   financial  and  competitive   information  about  our
operations is discussed below. For additional information regarding our business
segments,  see  "Note  4  Segment  Information"  in the  Notes  to  Consolidated
Financial  Statements at "ITEM 8. Financial  Statements and Supplementary  Data"
and "ITEM 7.  Management's  Discussion  and Analysis of Financial  Condition and
Results of Operation" below.

EMPLOYEES

     At December 31, 2002,  Horizon Telcom had 968 employees,  of which 143 were
represented by a union. We consider relations with our employees to be good.

                            LOCAL TELEPHONE SERVICES

GENERAL

     Chillicothe Telephone offers integrated  telecommunications  services as an
ILEC to customers served by more than 38,000  telephone  lines,  known as access
lines,  which  have  access to  telephone  service  through  our local  exchange
equipment in Ross, Pickaway,  Pike, Jackson,  Hocking and Vinton Counties, Ohio.
Chillicothe Telephone network facilities include nearly 285 fiber miles, serving
ten  exchanges,  including  a  central  office  acting  as host  to nine  remote
switches.

     The number of access lines  decreased  from 38,892 on December 31, 2001, to
38,203 on December 31, 2002.  The following  table details the changes in access
lines over the past three years:



                                                                              

                                                                     AT DECEMBER 31,
                                              ---------------------------------------------------------
                                                     2002                2001                2000
                                              ------------------  ------------------  -----------------
ACCESS LINES
Residential..............................        28,232     74%      28,480     73%      28,820     76%
Business.................................         9,971     26%      10,412     27%       9,004     24%
                                              ---------  ------   ---------  ------   ---------  ------
TOTAL ILEC...............................        38,203    100%      38,892    100%      37,824    100%
                                              =========  ======   =========  ======   =========  ======


     Customer  satisfaction  remains a top priority and our efforts are directed
accordingly.  Since we serve our home  town,  it is  important  to our  business
strategy that our employees  concentrate on customer  service,  and our training
and orientation programs emphasize that concern.

     The  Chillicothe  Telephone  sales team is  structured  to provide  maximum
flexibility for our customers.  Residential customers may personally meet with a
sales and service  representative  in our business  office or can  alternatively
take advantage of the convenience of calling into our centralized  customer care
center. Our sales team provides "one-stop"  shopping;  each residential customer
service  representative  is trained in all residential  applications,  including
Internet and data services,  digital wireless  services and telephone  equipment
and will additionally address any follow-up sales and billing concerns.

     Business  customers are served by a specialized group trained to manage the
products and services unique to business customers.  Customers with less complex
needs are supported by a telephone customer care group, which develops solutions


                                       6


and  schedules  service  installations.  Major  business  customers are assigned
dedicated account  executives that are familiar with their complex  applications
and service requirements.

     A centralized  operations  service center  provides  telephone  service and
maintenance  for all  ILEC  customers.  In  addition  to  receiving  maintenance
requests,  this center dispatches field personnel and monitors the status of all
service  orders  and  maintenance   requests.   To  ensure  continued   customer
satisfaction,  the center is measured  against  targeted time  intervals and the
ability to meet customer commitment dates.

     Chillicothe  Telephone  operates a class 4/5 Siemens EWSD digital host as a
main  switch,  in  a  network  with  nine  additional  remote  switches  serving
population clusters throughout Ross County, Ohio. Chillicothe Telephone also has
an  extensive  fiber  optic  network,  which  covers  approximately  285  miles.
Chillicothe Telephone has deployed Integrated Services Digital Network ("ISDN"),
Asymmetric Digital  Subscriber Line ("ADSL") and VDSL high-speed  telephone line
access service,  which brings broadband service  capability to approximately 85%
of the access line base.  We continue  to upgrade  our  distribution  network by
moving fiber and  electronics  closer to the customer  through the use of remote
switching units. The customer care service center  operations are supported by a
service order,  trouble-ticketing,  billing and collection  system and automated
call  distribution.  At the heart of our network is a network  operations center
that identifies  problems as they occur and diagnoses potential network problems
before  customers  are  impacted.   Chillicothe   Telephone's  current  strategy
continues to emphasize  expansion of its network  while  providing  high quality
service to as many residents in our markets as possible.

     Chillicothe  Telephone  offers  high-speed  video services through its VDSL
telephone  lines under the name "Horizon View." The first customer was connected
on August 15, 2000. This quality  digital video service  competes with cable and
satellite television  providers.  It also provides high-speed always-on Internet
access and a voice path for regular telephone service.  As of December 31, 2002,
we had 3,790 Horizon View customers.  Chillicothe  Telephone  continues to be at
the  forefront  in providing  video and  high-speed  Internet  services to rural
customers in our local markets.

REGULATION OF CHILLICOTHE TELEPHONE'S LOCAL EXCHANGE CARRIER BUSINESS

     Chillicothe  Telephone  is  subject  to  extensive  regulation  by  various
federal, state and local governmental bodies. Federal laws and regulations, and,
specifically,  the  Telecommunications  Act of  1996,  which  we refer to as the
Telecom Act, have sought to open the local service market to competition.

     The Telecom Act has imposed burdensome  obligations upon ILECs that are not
exempted as "rural telephone companies." These obligations include the duty:

     O    to negotiate  agreements  with competing  local service  providers for
          interconnection of telephone equipment between providers;

     O    to obtain state commission approval of such agreements;

     O    to  interconnect  with  competing  local  carriers at any  technically
          feasible point;

     O    to  provide  nondiscriminatory  access  to  separate  portions  of the
          telephone network at regulated prices;

     O    to furnish local  competitors  with local services at wholesale  rates
          for resale purposes; and

     O    to allow  local  competitors  to  co-locate  their  equipment  in ILEC
          central offices.

     Chillicothe  Telephone  takes the  position  that it is a "rural  telephone
company"  within the meaning  established  by the Telecom  Act, and is therefore
presently  exempt from these ILEC  obligations.  It will  retain this  exemption
unless and until the Public Utilities  Commission of Ohio ("PUCO") terminates it
at the request of a competing local carrier.

     The Telecom Act also imposes  obligations upon all local exchange  carriers
(ILECs and  competitive  local exchange  carriers,  also referred to as "CLECs,"
which also offer local  telephone  services  utilizing in part the facilities of
the ILEC). These obligations include:


                                       7


     O    the  payment  of  reciprocal   compensation   for  the  transport  and
          termination of local calls;

     O    the ability of customers to change local  telephone  service  carriers
          while  maintaining the same telephone  number,  known as "local number
          portability" as well as dialing parity;

     O    affording  access by competing  local  telephone  service  carriers to
          poles, ducts, conduits and rights-of-way.

     Small  carriers  may  request  suspension  or  modification  by their state
commission  of  some or all of  these  requirements,  but  such  suspensions  or
modifications are extremely difficult to obtain.  Chillicothe  Telephone has not
sought or obtained  suspension or  modification  of any of these local  exchange
carrier obligations.

     As a general matter,  federal regulation increases Chillicothe  Telephone's
business  risks and may have a  substantial  impact on  Chillicothe  Telephone's
future  operating  results.  The  Federal   Communications   Commission  ("FCC")
regulates two significant sources of Chillicothe  Telephone's revenues - namely,
interstate  access  charges  and  Federal  Universal  Service  Support.  Federal
Universal Service Support is a program that provides funding to qualifying ILECs
such as Chillicothe Telephone.

     The FCC currently  has several  proceedings  pending that could  materially
change the mechanisms for determining  interstate  access charges and the dollar
revenues received by Chillicothe  Telephone from this source.  For example,  the
FCC recently  adopted  portions of an interstate  access charge reform  proposal
submitted by the  Multi-Association  Group comprised of four national  telephone
trade associations.  As adopted, the Multi-Association  Group Plan increased the
monthly federal subscriber line charges paid by Chillicothe Telephone's business
and  residential  customers and reduced the  per-minute  access  charges paid by
Chillicothe  Telephone's  interexchange  carrier  customers.  There are  several
portions  of the  proposed  plan which the FCC did not adopt but are still under
consideration.   The  Multi-Association  Group  Plan  has  received  substantial
opposition from interexchange carriers, state commissions,  and consumer groups,
and  the  remaining  portions  of  the  plan  may  be  rejected  or  adopted  in
significantly modified form by the FCC.

     The FCC also has  initiated  a  proceeding  to examine the  feasibility  of
replacing the current  mechanisms of inter-carrier  compensation,  including the
access charge mechanism,  with a "bill-and-keep" approach. Under a bill-and-keep
approach,  each  carrier is  required to recover  the costs of  termination  and
origination  from its own end-user  customers.  Such an approach could result in
increased rates to Chillicothe's business and residential end-user customers.

     The FCC recently adopted, in large part, a recommendation by the Rural Task
Force for reform of the Federal Universal  Service Support  mechanism  presently
applicable to Chillicothe  Telephone.  The FCC's order retains the embedded cost
mechanism,  a methodology  presently  used to determine and  distribute  Federal
support to rural  telephone  companies  to enable them to cover the high cost of
specific new telephone network technology. It also recalculates and modifies the
indexed cap that limits Federal high-cost telephone service support, establishes
a new  mechanism to enable rural  telephone  companies to obtain some  universal
service  support for exchanges that they acquire and upgrade,  and permits rural
telephone  companies  facing potential  competition to disaggregate  their study
areas to discourage  competitors from entering rural population centers in order
to seize  disproportionate  amounts of the universal service support received by
rural ILECs.

     Chillicothe  Telephone is required to contribute  to the Federal  Universal
Service Support program. States also have similar assessment mechanisms.  At the
present time it is not possible to predict the extent of Chillicothe Telephone's
total Federal and state universal  service  assessments or the amount of dollars
it will receive from Federal and state universal service funds.

     The FCC and the Federal Bureau of  Investigation  are  responsible  for the
implementation  of the  Communications  Assistance for Law Enforcement Act. This
legislation  obligates Chillicothe Telephone to upgrade its switching facilities
to give it the  capabilities and capacity to install and operate  wiretaps,  pen
registers and similar surveillance activities in response to properly authorized
requests  from  Federal,  state and local law  enforcement.  The  Communications
Assistance for Law Enforcement Act statute and regulations  also impose security


                                       8


and  administrative  obligations  and risks upon  carriers  such as  Chillicothe
Telephone.  Some  of the  more  expensive  and  risky  potential  Communications
Assistance for Law Enforcement  Act obligations - for example,  those related to
the  interception  of  packet-switched  communications  - are still  subject  to
litigation before the FCC and the courts.

     Federal  statutes and FCC rules and  proceedings  regarding the slamming of
local and long  distance  customers,  the use of  Customer  Proprietary  Network
Information and the  conservation of telephone  number  resources can affect the
costs and risks of doing  business  of  Chillicothe  Telephone  and other  local
exchange carriers.

     State  laws  and  regulations  require  us  to  comply  with  Ohio  pricing
regulations,  file  periodic  reports,  pay  various  fees and comply with rules
governing  quality of service,  consumer  protection and similar matters.  Local
regulations require us to obtain municipal franchises and to comply with various
building codes and business license requirements.

     Chillicothe  Telephone  continues to provide local exchange service through
traditional rate base, rate of return regulation. The PUCO has a new alternative
rate regulation and, when the regulation is finalized, Chillicothe Telephone has
the right to elect this form of  regulation.  Generally,  we would have  greater
flexibility in bundling service packages. Basic residential rates are frozen and
future  offerings of other products are limited.  We have not decided whether to
elect the alternative rate regulation.

COMPETITION

     Several factors have resulted in rapid change and increased  competition in
the local telephone market over the past 17 years, including:

     O    growing  customer  demand  for  alternative   products  and  services,
          including  wireless  products  which include long distance for one low
          rate,

     O    technological advances in transmitting voice, data and video,

     O    development of fiber optics and digital electronic technology,

     O    a  decline  in the  level  of  access  charges  paid by  interexchange
          carriers to local telephone  companies to access their local networks,
          and

     O    legislation and regulations designed to promote competition.

     To date, we have not faced  competition for local telephone  service in the
Chillicothe  Telephone  service  territory from any  competitive  local exchange
carriers.  It is possible,  however,  that we will face such  competition in the
future.  Adelphia  Cable is  already  offering  cable  services,  long  distance
telephone  services  as a  reseller,  as well  as  high-speed  Internet  access.
Adelphia  Cable has slowed its  deployment  of  services  which  leads to a more
favorable position for us. Adelphia Cable and its subsidiaries, partnerships and
joint ventures  voluntarily  filed  petitions for relief under Chapter 11 of the
United States  Bankruptcy  Code.  If Adelphia  Cable is acquired or emerges from
bankruptcy in a favorable competitive position, we may face more competition not
only in our cable service but also in our local telephone offerings.

     No potential  competitive local exchange carrier has asked us to enter into
agreements to connect its network with our network. If competition  develops, we
may  face  pressure  to  match  the  pricing  and  service  offerings  of  these
competitors which could negatively impact our business.


                                       9


                  LONG DISTANCE, INTERNET AND NETWORK SERVICES

     Our wholly-owned subsidiary, Horizon Technology, Inc., offers long distance
service,   Internet  and  data  services  and  network  consulting  services  to
customers.

LONG DISTANCE SERVICE

     The long distance market has become  significantly  more competitive  since
1984,  when AT&T was required to divest its local telephone  system.  Since that
time,  new  competitors  have  entered  the  market and  prices  have  declined,
resulting in increased consumer demand and significant market growth.  Increased
competition has also led to increased  consolidation among long distance service
providers. Major long distance competitors include AT&T, Verizon, Sprint and MCI
WorldCom, Inc. Furthermore, all Bell companies have received permission to offer
long  distance  services  in certain  states.  These  competitors  benefit  from
established  market share and from  established  trade names through  nationwide
advertising.  Internet-protocol  telephony,  a potential competitor for low cost
telephone service, is also developing.

     Horizon  Technology began offering long distance  services as a reseller in
1996 and now provides that service to  approximately  10,000  access  lines.  We
expect to continue to offer a  competitively  priced service to those  customers
who are looking for a local supplier of long distance services.

INTERNET ACCESS SERVICE

     Horizon  Technology   provides  Internet  and  data  services  through  our
affiliation with Comnet. Comnet is a consortium of 20 independent local exchange
carriers in Ohio, and one Ohio electric cooperative. We have the right to market
and sell Internet and data services using the "bright.net"  brand in 27 counties
in southern Ohio, including  Chillicothe  Telephone's service territory.  Comnet
provides  wholesale gateway access,  service,  support and bandwidth services to
the Internet for retail Internet  service  providers  primarily in Ohio.  Comnet
also provides advanced intelligent networking services to Ohio's rural areas via
special  signaling  networks.  Horizon  Technology owns a less than five percent
interest  in Comnet.  As of  December  31,  2002,  we had  approximately  12,500
subscribers to this service.  Additionally,  there are  approximately  2,600 DSL
subscribers that we offer Internet access to through our Viewnet service.

     We offer a variety of means to access the  Internet  through our  telephone
network.  We also offer a full range of customer premise  equipment  required to
connect to the Internet. Our access services include:

     O    Dial-up Access.  Our dial-up  services  provide access to the Internet
          through  ordinary  telephone  lines  at  speeds  of up to 56 kbps  and
          through digital ISDN lines at speeds of up to 128 kbps.

     O    Dedicated Access. We offer a broad line of high-speed dedicated access
          utilizing frame relay and dedicated  circuits,  which provide business
          customers with direct access to a full range of Internet applications.

     O    DSL  Access.  We began  to offer  several  ILEC  customers  high-speed
          Internet  access service using ADSL technology in the first quarter of
          2000. ADSL technology permits high-speed digital transmission over the
          existing copper wiring of regular telephone lines. Our ADSL service is
          available at speeds up to 1.5 mbps. Our ADSL services are designed for
          residential  users and  small-to-medium  sized  businesses  to provide
          high-quality  Internet  access  at  speeds  faster  than  ISDN  and at
          flat-rate  prices  that are lower than  traditional  dedicated  access
          charges.  As the local  exchange  carriers  in other areas of southern
          Ohio begin offering DSL technology,  we hope to offer broadband or DSL
          in the rest of our bright.net service territory.

     Account  executives  sell Internet and data  services  directly to business
customers in our service  areas.  Our  technical  support  staff is available 24
hours a day,  seven  days a week.  Our  technicians  design,  order,  configure,
install and maintain all of our equipment to suit the customer's  needs. We have
a customer care group dedicated to Internet and data services.



                                       10


     In general,  Internet and data  services  are not  regulated at the Federal
level. An important  regulatory issue currently  pending before both the FCC and
Federal  courts is how  Internet  traffic  will be  classified  and  treated for
purposes of interstate  access  charges and reciprocal  compensation  related to
local traffic.  Internet service providers currently obtain access services from
local  exchange   carriers  without  having  to  pay  the  access  charges  that
interexchange carriers pay for equivalent service. This special exemption may be
withdrawn  at any time,  in which  case  Internet  services  could be subject to
access charges. As we provide Internet services directly to the ILECs' networks,
a change in the  treatment  of  Internet  traffic  for  purposes  of  reciprocal
compensation would likely have little effect on our operations.

     The Internet and data  services  market is  extremely  competitive,  highly
fragmented  and  has  grown   dramatically  in  recent  years.   The  market  is
characterized  by the  absence of  significant  barriers  to entry and the rapid
growth in Internet usage among customers. Sources of competition are:

     O    access and content  providers,  such as AOL, the Microsoft Network and
          Prodigy;

     O    local,  regional  and national  Internet  service  providers,  such as
          EarthLink;

     O    the  Internet   services  of  regional,   national  and  international
          telecommunications  companies,  such as Verizon, AT&T, BellSouth,  and
          MCI WorldCom;

     O    online  services  offered by incumbent cable  providers,  such as Time
          Warner and Adelphia; and

     O    DSL and two-way satellite providers.

NETWORK CONSULTING

     Our  Computer  Solutions  division  offers  network  consulting   services,
computer  training  and  computer  repair  services.   We  offer  a  variety  of
value-added services,  including Web hosting, Web design,  co-location,  virtual
private  networks or intranets,  remote access and security  solutions and video
conferencing.

     We provide software  solutions that enable companies to conduct  electronic
commerce.  We offer electronic data interchange and non-Internet based solutions
consisting of software and services that are designed to help businesses connect
to their suppliers and customers.  We also provide Internet commerce software to
allow  businesses  to build Web  applications  for  commerce-enabled  Web sites,
intranets and extranets. Common features of this software include the ability to
build electronic catalogs to conduct transactions and to integrate with business
systems, including purchasing, accounting and inventory systems.

                    WIRELESS PERSONAL COMMUNICATIONS SERVICES

     The information set forth under this heading  describes the business of our
subsidiary Horizon PCS, Inc., a Delaware corporation.  Horizon Telcom owns 56.3%
of the  outstanding  shares of all classes of capital  stock on a fully  diluted
basis,  and 83.1% of the total voting  power of all classes of capital  stock of
Horizon PCS on a fully  diluted  basis.  References  under this heading to "we,"
"us" and "our" are to Horizon PCS and its subsidiaries.

OVERVIEW

     We are a Sprint PCS affiliate with an exclusive  right to market Sprint PCS
products and services to a total  population of over 10.2 million in portions of
twelve contiguous  states.  Our markets are located between Sprint PCS' Chicago,
New York and  Raleigh/Durham  markets  and  connect or are  adjacent to 15 major
Sprint PCS markets  that have a total  population  of over 59 million.  As a PCS
affiliate of Sprint, we market digital personal communications services, or PCS,
under the Sprint and  Sprint PCS brand  names.  At  December  31,  2002,  we had
approximately 270,900 Sprint PCS subscribers in our territory.

     Our  territory  includes  significant  market  coverage in  Indiana,  Ohio,
Pennsylvania,  Tennessee,  Virginia and West  Virginia  and selected  markets in
Kentucky,  Maryland,  Michigan,  New Jersey,  New York and North  Carolina.  Our


                                       11


markets are adjacent to or connect a number of major  markets owned and operated
by Sprint PCS,  including Buffalo,  Chicago,  Cincinnati,  Cleveland,  Columbus,
Detroit, Indianapolis, Knoxville, Lexington, New York, Philadelphia, Pittsburgh,
Raleigh/Durham, Richmond and Washington, DC. In addition, our territory contains
more than 2,600 heavily traveled  interstate miles,  including over 460 miles of
Interstate 80, a major  east-west  artery  connecting  New York to Chicago,  and
numerous other Federal and major state  highways.  Our territory is also home to
more than 60 four-year  colleges and universities  with a student  population of
over 240,000, as well as a number of smaller colleges and universities.

HISTORY AND BACKGROUND

     The following are key milestones in Horizon PCS' business:

     O    In  November  1996,  we  acquired  PCS  licenses  in the FCC's C Block
          auction  giving us the right to  provide  service  to five  markets in
          Ohio,   West  Virginia  and  Kentucky  with  a  total   population  of
          approximately  1.0 million.  In August 1997,  approximately ten months
          after   receiving  our  licenses,   we  launched  PCS  service  as  an
          independent  service  provider  operating under the "Horizon  Personal
          Communications"  brand  name.  We were the third  C-Block  licensee to
          launch  PCS  service  in the  United  States and the first to use CDMA
          technology.

     O    In June 1998, we returned all of our FCC licenses except for a portion
          of the license covering our Chillicothe,  Ohio, market in exchange for
          the forgiveness of our FCC debts. In connection with the return of our
          FCC licenses,  we agreed to become one of five charter PCS  affiliates
          of Sprint. Our initial grant of markets from Sprint consisted of seven
          markets in Ohio, West Virginia and Kentucky with a total population of
          approximately  1.6 million  residents.  This grant  included  the five
          markets for which we originally  held  licenses.  In November 1998, we
          began  offering PCS service  under the Sprint  licenses.  However,  we
          continued to use Horizon Personal  Communications as the primary brand
          for marketing our PCS service.

     O    In August 1999,  Sprint granted us 17 additional  markets in Virginia,
          West Virginia, Tennessee,  Maryland, Kentucky, North Carolina and Ohio
          with a total population of  approximately  3.3 million  residents.  In
          conjunction  with this second  grant,  we also  entered into a network
          services  agreement  with the West  Virginia PCS Alliance and Virginia
          PCS Alliance,  which we refer to as the  Alliances.  The Alliances are
          two related,  independent  PCS providers  offering  services under the
          NTELOS  brand,  and whose  network is  managed by CFW  Communications.
          Under this  agreement,  we  obtained  the right to use their  wireless
          network to provide  Sprint PCS  services to our  customers  in most of
          these new  markets.  At December  31,  2002,  the  Alliances'  network
          provided coverage to 1.8 million residents,  or 62% of their network's
          portion of our total population.

     O    In September 1999, Horizon Telcom,  sold its interest in the towers it
          owned  to SBA  Communications  Corp  ("SBA")  for  $15.7  million  and
          invested the net proceeds in Horizon PCS.  Prior to the sale,  Horizon
          PCS had been leasing the towers from Horizon  Telcom.  Horizon PCS now
          leases those towers from SBA.

     O    In September 1999, a Horizon PCS subsidiary became one of the founders
          of  Bright  PCS,   receiving  a  26%  equity  stake  in  exchange  for
          approximately $3.1 million. Bright PCS became the exclusive Sprint PCS
          affiliate for 13 markets in Indiana,  Ohio and Michigan,  with a total
          population of approximately 2.4 million. At that time, we also entered
          into a management  agreement with Bright PCS which we agreed to manage
          Bright PCS' network  build-out and operation.  We launched  service in
          substantially all of the Bright PCS markets in October 2000.

     O    In  December  1999,  we  completed  a  two-month   transition  from  a
          co-branded  marketing  strategy  to  marketing  and selling all of our
          products and services  exclusively  under the "Sprint PCS" brand name,
          which gave us full access to Sprint's major national PCS retailers.

     O    In  May  2000,   Sprint   granted  us  an  additional  17  markets  in
          Pennsylvania, New York, Ohio and New Jersey with a total population of
          approximately 2.9 million residents.


                                       12


     O    In June 2000,  we acquired the remaining 74% of Bright PCS equity that
          we did not already own to become a 100% owner.  As  consideration  for
          the outstanding  Bright PCS equity, we exchanged 4.7 million shares of
          Horizon  PCS'  class B common  stock  equal  to 8% of its  outstanding
          shares of all classes of its common stock prior to the acquisition and
          31,912  shares  of  Horizon  Telcom  common  stock  equal to 8% of the
          outstanding  shares of Horizon  Telcom,  which Horizon PCS acquired in
          February 2000.

     O    On September  26,  2000,  an investor  group led by Apollo  Management
          purchased $126.5 million of Horizon PCS convertible preferred stock in
          a private  placement.  Concurrently,  holders  of  Horizon  PCS' $14.1
          million  short-term  convertible  note (including  accrued interest of
          $1.1 million)  converted it into the same convertible  preferred stock
          purchased by the investor  group.  Concurrently,  Horizon PCS received
          $149.7 million from the issuance of $295.0 million of senior  discount
          notes due 2010 and $50.0 million of term loans from its $225.0 million
          secured credit facility (later increased to a $250.0 million facility)
          with a bank  group.  The  discount  notes were  subject to an exchange
          offer filed with the SEC which was completed.

     O    In  December  2001,  the  Company  received  $175.0  million  from our
          offering of 13.75% senior  notes.  The senior notes were subject to an
          exchange offer which was completed.

     The Sprint PCS agreements  require Horizon PCS to interface with the Sprint
PCS  wireless  network  by  building  Horizon  PCS's  network  to operate on PCS
frequencies  licensed  to Sprint in the 1900 MHz  range.  Under the  Sprint  PCS
agreements, we have agreed to:

     O    construct and manage a network in HPCS'  territory in compliance  with
          Sprint's PCS licenses and the terms of the management agreement;

     O    distribute,  during the term of the management  agreement,  Sprint PCS
          products and services; and

     O    conduct advertising and promotion activities in HPCS' territory.

     Horizon  PCS  must  comply  with  Sprint's  PCS  program  requirements  for
technical   standards,   customer  service  standards,   national  and  regional
distribution  and  national  accounts  programs to the extent that Sprint  meets
these  requirements.  For further  discussion of the Sprint PCS agreements,  see
"The Sprint PCS Agreements" below.

CURRENT OPERATING ENVIRONMENT AND OUR BUSINESS STRATEGY

     Since  the  beginning  of  2002,  the  wireless  communications   industry,
including Sprint and its PCS affiliates, has experienced significant declines in
per share  equity  prices  and debt  ratings.  We believe  that this  decline in
wireless  stocks and debt ratings results from a weaker outlook for the wireless
industry than previously  expected.  Reasons for a weaker operating  environment
include:

     O    declining  rates of  subscriber  growth in the United States caused by
          the  lack of  availability  of new  quality  subscribers,  as  overall
          penetration rates in the wireless industry approximate 50%;

     O    concerns that intense  competition among wireless service providers in
          the  United  States  will  continue  to lead to service  offerings  of
          increasingly large bundles of minutes at lower prices;

     O    higher rates of churn resulting from intense  competition and programs
          for lower credit rating ("sub-prime") subscribers; and

     O    the highly leveraged capital structures of many wireless providers and
          a lack of viable financing alternatives.


                                       13



     Our business has been and continues to be affected by these general  market
conditions.  In addition,  as a result of our dependence on Sprint,  we are also
confronted  with  additional  factors  that  have had a  negative  impact on our
operations such as:

     O    At Sprint's direction,  we offered a no deposit account spending limit
          ("NDASL") program that attracted sub-prime subscribers and contributed
          to high rates of churn.  Sprint has discontinued the NDASL program and
          replaced it with Clear Pay, which tightened credit  restrictions,  and
          Clear Pay II, which re-instituted  deposit requirements for most lower
          credit quality  customers and introduces  additional  controls on loss
          exposure;

     O    The amount of the  affiliation  and back  office  fees and roaming and
          other  charges that we pay to Sprint  expressed as a percentage of our
          service  revenues has  increased  over the years to a level of 42% for
          2002. Consequently,  our ability to control costs through our own cost
          cutting measures is more limited;

     O    Over  the past  year,  Sprint  has  taken a number  of  actions  which
          resulted  in  unanticipated  charges  or  increases  in charges to the
          Company.  Some of these charges  resulted from prior billing errors by
          Sprint, while others were charges to which we had little or no advance
          notice.  The effect of these  actions was to reduce our  liquidity and
          interject  a  greater  degree  of  uncertainty  to  our  business  and
          financial planning;

     O    Our dependence on Sprint to provide  customer care provides us limited
          tools to improve the quality of customer care, which may contribute to
          higher churn; and

     O    Our dependence on Sprint to provide  services,  including  back-office
          services, gives us a more limited control of our own working capital.

     In reaction to these changes,  we have implemented a variety of operational
management initiatives, including:

     O    We have  reorganized our sales group and added strategic  positions to
          better manage our sales team;

     O    We have reduced  planned  capital  expenditures  and preserved cash by
          delaying or eliminating  plans to expand our network of  company-owned
          retail  stores,  and have held headcount  steady to control  operating
          expenses within the retail channel;

     O    We  have  implemented   several  network  cost  control   initiatives,
          including  a  reduction  of  engineering  and  operations  staffing in
          recognition of a transition from network deployment  activities toward
          steady-state network operations;

     O    We are  reducing  advertising  expenditures  to  preserve  cash  while
          concurrently increasing sales productivity through the use of outbound
          local marketing,  business development and community relations efforts
          directed through our retail stores and local marketing support staff;

     O    We  have  implemented  a churn  reduction  initiative  as a  proactive
          response to keep  valuable  customers  and to assist the customer care
          services provided by Sprint;

     O    We reinstituted  the deposit on sub-prime  subscribers in an effort to
          focus  on  value  added,  long-term  subscribers.  As  a  result,  our
          percentage  of  higher  credit  rating  ("prime")   customers  in  our
          subscriber  portfolio  increased to 74% at December 31, 2002, from 65%
          at its lowest point on March 31, 2002; and

     O    We have commenced  negotiations  with Sprint for a modification in the
          manner that we are charged for back office services.

     O    As a result of the industry  trends  discussed above and the fact that
          wireless industry acquisitions subsequent to the Company's acquisition
          of Bright  PCS have  been  valued  substantially  lower on a price per
          population and price per subscriber  basis,  the Company believed that


                                       14


          the fair  value of Bright PCS and its  assets  had been  reduced.  The
          Company recorded a goodwill  impairment of approximately $13.2 million
          during the quarter ended  December 31, 2002 (See "Note 7" under "Notes
          to Consolidated Financial Statements").

OPERATIONAL ANALYSIS

     We focused a significant  amount of our  operational  efforts over the past
twelve months on upgrading our wireless  network to be able to provide the first
level of third generation  ("3G") network services marketed by Sprint nationally
as "PCS Vision." In conjunction with Sprint's  nationwide  launch of PCS Vision,
we  began  providing  3G  services  across  our  network  in  mid-August   2002.
Subscribers are now able to connect to the Internet with their handsets,  PDA's,
and laptops at speeds of up to 144  kilobits  per second  ("kbps").  The average
user will  experience  peak  rates of 75-80  kbps,  which is two to three  times
faster than historical dial-up speeds. We can now offer several new products and
services to our subscribers.

     In  addition  to the 3G  upgrades,  253  cell  sites  were  added  to  both
substantially  complete  our  build-out  requirements  with  Sprint  and  expand
coverage and capacity where  necessary.  At December 31, 2002, we covered 73% of
the total population of 10.2 million in our territory.

SPRINT

     Sprint operates the nation's largest all-digital, all PCS wireless network,
serving more than 4,000 cities and communities across the United States.  Sprint
has  licensed  PCS  coverage of more than 280  million  people in all 50 states,
Puerto Rico and the U.S. Virgin Islands. In August 2002, Sprint became the first
wireless  carrier in the country to launch next generation  services  nationwide
delivering faster speeds and advanced  applications on Vision-enabled phones and
devices.

     Sprint  Affiliation.  We have the  exclusive  right to use the  Sprint  and
Sprint PCS brand names for the sale of Sprint PCS  products  and services in our
territory.  Additionally,  we believe that Sprint,  using CDMA  technology,  has
developed a path to wireless  high-speed data that will ultimately benefit us as
customer  demand  for robust  data  enabled  services  increases.  In  addition,
Sprint's national  advertising  campaigns,  national  distribution  channels and
developed marketing programs are provided to us under our Sprint PCS agreements.
We offer the same strategic pricing plans, promotional campaigns and handset and
accessory promotions as Sprint.

     Marketing  and pricing.  Our use of the Sprint  national  pricing  strategy
offers our subscribers  standardized  service plans.  Sprint's pricing plans are
typically structured with monthly recurring charges,  large local calling areas,
bundles of minutes  and  service  features  such as  voicemail,  caller ID, call
waiting,  call forwarding and three-way calling. We also feature Sprint Free and
Clear  plans,  which offer plans for  consumer  and  business  subscribers,  and
include  long  distance  calling  from  anywhere  on the Sprint  PCS  nationwide
network. In addition,  Sprint's national Free and Clear plans include the option
to choose free long  distance  calling from  anywhere on Sprint PCS'  nationwide
network, a package of off-peak minutes or the Sprint PCS Wireless Web.

     Local focus.  Our local focus enables us to supplement  Sprint's  marketing
strategies  with our own  strategies  tailored to each of our specific  markets.
These include attracting local businesses to diversify our distribution channels
and using  local  radio  and  newspaper  advertising  to sell our  products  and
services in each of our markets.  We also enhance our local focus with  specific
service  plans  called  Area-wide  Plans.  These  plans  are  designed  for  our
territories  to create a more  competitive  product  to those  offered  by other
regional or local providers.  We have established a local sales force to execute
our  marketing  strategy  through  company-owned  Sprint PCS stores and employ a
direct sales force targeted to business sales.  Our PCS affiliation  with Sprint
provides us with access to major  national  retailers  under  Sprint's  existing
sales and  distribution  agreements and other  national  sales and  distribution
channels,  including  Radio Shack,  Best Buy,  Circuit City and Office Depot. In
addition to the Sprint provided  channels above, we own and manage 44 Sprint PCS
retail stores  throughout our  territory.  For the year ended December 31, 2002,
our retail stores provided approximately 40% of our gross customer additions.



                                       15


NETWORK BUILD-OUT

     Our  network  build-out  strategy  is to  provide  service  to the  largest
communities in our markets and to cover interstates and primary roads connecting
these  communities  to each other,  and to the adjacent  major markets owned and
operated  by  Sprint.  We  believe  that we  have  substantially  completed  our
build-out requirements.  Our network now offers service to 7.4 million residents
or 73% of the total population in our territory.

     Switching.  We  currently  use three  switching  centers in  Johnson  City,
Tennessee,  Erie, Pennsylvania,  and Fort Wayne, Indiana, to provide services to
our network.  We also utilize the  Alliance's  two  switching  centers under our
network services agreement (see "Alliances Network Services Agreement" below). A
switching center serves several purposes, including routing calls, managing call
handoff, managing access to the public telephone network and providing access to
voice mail.  We believe the  capacity  of our  switching  centers is adequate to
accommodate our planned growth.

     CDMA (Code  Division  Multiple  Access)  Technology.  Sprint's  network and
Sprint's network partners' networks all use CDMA technology.  CDMA technology is
fundamental to  accomplishing  our business  objective of providing high volume,
high  quality  airtime at a low cost.  We believe that CDMA  provides  important
system performance benefits.  CDMA systems offer more powerful error correction,
less  susceptibility to fading and less interference than analog systems.  Using
enhanced  voice coding  techniques,  CDMA systems  achieve voice quality that is
comparable  to  that  of the  typical  wireline  telephone.  This  CDMA  vocoder
technology  also  employs  adaptive  equalization,  which  filters out  annoying
background  noise more effectively  than existing  wireline,  analog cellular or
other digital PCS phones.  CDMA technology also allows a greater number of calls
within one allocated  frequency and reuses the entire frequency spectrum in each
cell.  In addition,  CDMA  technology  combines a coding scheme with a low power
signal to enhance  security and privacy.  As a subscriber  travels from one cell
site to another  cell site,  the call must be  "handed  off" to the second  cell
site.  CDMA systems  transfer  calls  throughout  the network  using a technique
referred to as soft hand-off,  which connects a mobile  subscriber's call with a
new cell site while  maintaining  a connection  with the cell site  currently in
use. CDMA  standards and products allow existing CDMA networks to be upgraded to
the next generation of wireless  technology.  This technology offers data speeds
of up to 144 kbps voice capacity  improvements of over 50% and improved  battery
life in the handset.

ALLIANCES NETWORK SERVICES AGREEMENT

     The Alliances are two related,  independent PCS providers  offering service
under the NTELOS brand name. In August 1999, we entered into a network  services
agreement  with  the  Alliances  for 13 of our  markets  in  Virginia  and  West
Virginia.  Under this agreement,  we are entitled to use the Alliances' wireless
network and equipment to provide services to our customers in these markets. The
Alliances  are  required  to  maintain  their  network to Sprint  PCS  technical
standards.  We pay the Alliances a minimum  monthly charge for a fixed number of
minutes and a per minute of use charge for minutes in excess of the fixed number
of minutes.

     As of December 31, 2002,  the  Alliances had deployed 510 cell sites within
our markets in West Virginia and Virginia and provided coverage to approximately
62% of the total  population of 2.9 million  residents in the markets covered by
our network services agreement.

     In the event we terminate our agreement  with the Alliances  because of the
Alliances'  breach of the  agreement,  we have the right to  continue to use the
Alliances'  network  for up to 36 months  after the  termination  at rates which
reflect  a  significant  discount  from the  standard  pricing  terms  under our
agreement.  This is intended to enable us to continue to provide services to our
customers  while we build-out our own network.  In addition,  after December 31,
2003,  we  have  the  right  to  overbuild   the   Alliances'   markets,   on  a
market-by-market basis, at any time for any reason.

     On March 4,  2003,  NTELOS  and  certain  of its  subsidiaries  have  filed
voluntarily petitions for reorganization under Chapter 11 of the U.S. Bankruptcy
Code in the U.S.  Bankruptcy  Court for the Eastern  District of  Virginia.  The
results of NTELOS'  restructuring  could have a material  adverse  impact on our
operations.  Pursuant to bankruptcy  law, the Alliances have the right to assume
or reject the network  services  agreement.  If the Alliances reject the network
services  agreement,  we  will  lose  the  ability  to  provide  service  to our
subscribers  in Virginia and West  Virginia  through the  Alliances  Network and
Sprint  may take the  position  that we would  be in  breach  of our  management
agreements with Sprint.



                                       16


    Prior to the  Alliances'  bankruptcy  filing,  Horizon had asserted that the
Alliances had overcharged Horizon approximately $4,799,000 for charges that were
neither  authorized nor  contemplated by the network  services  agreement.  As a
result  of the  Alliances'  bankruptcy  filing,  Horizon  was at risk  that  any
subsequent  payments that it would make for services under the network  services
agreement  could  impair its setoff or  recoupment  rights  with  respect to its
claims  for a  repayment  of the  unauthorized  charges.  Consequently,  Horizon
declined to make a scheduled payment of $3 million to the Alliances on March 11,
2003 for services  rendered by the  Alliances in January 2003 and, on that date,
filed a motion in the Alliances' bankruptcy case to protect its rights.

     On March 12, 2003, the Alliances  telecopied to Horizon a letter  notifying
Horizon of the failure to make payment on the January 2003 invoice, which letter
purported to be a ten-business day notice under the network  services  agreement
that  would give the  Alliances  the right to  terminate  the  agreement  at the
conclusion of such ten-day period.

     On March 24, 2003, Horizon PCS and the Alliances entered into a Stipulation
which  provided  that  Horizon  would pay the  January  2003 and  February  2003
invoices,  the bankruptcy court would provide procedural protection of Horizon's
claim,  the Alliances  would  withdraw the default  notice and the parties would
move forward to settle or arbitrate the merits of Horizon's  claim. On March 26,
2003, the Court in the NTELOS bankruptcy case approved the Stipulation.

COMPETITION

     Given the broad geographic  coverage of our territory,  we face substantial
competition  from a large number of other  wireless  providers.  We compete,  to
varying  degrees,  with regional and national  cellular,  PCS and other wireless
service  providers.  Currently,  we believe our  strongest  competition  is from
cellular  providers,  many of which  have  been  operating  in our  markets  and
building their customer base for a number of years.

     Our largest single competitor is Verizon Wireless,  which offers service in
the  majority of our markets.  We also face  significant  competition  from AT&T
Wireless,  T-Mobile  and  Nextel,  which  operates  in  conjunction  with  their
affiliates  in  almost  all of our  markets.  Our  primary  competitors  offer a
wireless  service that is generally  comparable to our PCS service.  The intense
competition  among wireless  service  providers in the United States will likely
continue to lead to service  offerings of increasingly  large bundles of minutes
at lower prices.

     In  addition,   we  compete   with   paging,   dispatch  and  other  mobile
telecommunications  companies in our markets. Potential users of PCS systems may
find their  communications  needs  satisfied  by other  current  and  developing
technologies.  One or  two-way  paging or beeper  services  that  feature  voice
messaging  and data  display as well as  tone-only  service may be adequate  for
potential customers who do not need immediate two-way voice communications.

     In the  future,  we  expect to face  increased  competition  from  entities
providing similar services using other  communications  technologies,  including
satellite-based  telecommunications  and fixed wireless providers.  While few of
these  technologies  and services are  currently  operational,  others are being
developed or may be developed in the near future.

INTELLECTUAL PROPERTY

     "Sprint," the Sprint  diamond design logo,  "Sprint PCS," "Sprint  Personal
Communications  Services," "The Clear Alternative to Cellular,"  "Experience the
Clear  Alternative  to Cellular  Today,"  "PCS  Vision" and "Free and Clear" are
service marks  registered  with the United  States Patent and Trademark  Office.
These service  marks are owned by Sprint.  Pursuant to the trademark and service
mark license agreements, we have the right to use, royalty-free,  the Sprint and
Sprint PCS brand  names and the Sprint  diamond  design  logo and other  service
marks of Sprint in connection  with marketing,  offering and providing  licensed
services to end-users and resellers, solely within our territory.


                                       17


     Except in  limited  instances,  Sprint has agreed not to grant to any other
person a right or license  to provide or resell,  or act as agent for any person
offering,  licensed services under the licensed marks in our market areas except
as to Sprint PCS'  marketing  to  national  accounts  and the  limited  right of
resellers of Sprint PCS to sell their products and services in our market areas.
In all other instances,  Sprint reserves for itself and its affiliates the right
to use the licensed marks in providing its services,  subject to its exclusivity
obligations described above, whether within or without our territory.

     The trademark license agreements contain numerous restrictions with respect
to the use and  modification of any of the licensed  marks.  See "The Sprint PCS
Agreements: The Trademark and Service Mark License Agreements."

     This annual report on Form 10-K  includes  product  names,  trade names and
trademarks of other  companies.  We do not have any rights with respect to these
product names, trade names and trademarks.

SUPPLIERS AND EQUIPMENT VENDORS

     We do not  manufacture  any of the handsets or network  equipment we use in
our  operations.  We purchase our network  equipment  and  handsets  pursuant to
various Sprint vendor arrangements that provide us with volume discounts.  These
discounts have reduced the overall capital required to build our network.

     We currently  purchase our handsets  from Sprint and our  accessories  from
Sprint and certain other third-party vendors. Our agreements with Sprint require
us to pay Sprint $4.00 for each 3G handset that we purchase either directly from
Sprint  or from a  Sprint  authorized  distributor.  We  agreed  to pay this fee
starting  with  purchases  on July 1, 2002 and ending on the earlier of December
31, 2004 or the date on which the  cumulative 3G handset fees received by Sprint
from all  Sprint  network  partners  equal  $25,000,000.  We  further  agreed to
purchase 3G handsets only from Sprint or a Sprint authorized  distributor during
this period.

                            THE SPRINT PCS AGREEMENTS

     The  following is a summary of the  material  terms and  provisions  of the
Sprint PCS agreements. The summary applies to the Sprint PCS agreements for both
Horizon Personal Communications and Bright PCS except where otherwise indicated.
The Sprint PCS agreements,  in their entirety,  are included as exhibits to this
annual  report of Form 10-K.  References  under  this  heading to "we," "us" and
"our" are to Horizon PCS and its subsidiaries.

OVERVIEW OF SPRINT RELATIONSHIP AND PCS AGREEMENTS

     We have eight major agreements with Sprint  (collectively,  the "Sprint PCS
Agreements").  Under the  Sprint  PCS  agreements,  we  exclusively  market  PCS
services under the Sprint and Sprint PCS brand names in our markets.  The Sprint
PCS agreements  require us to interface with the Sprint PCS wireless  network by
building  our  network to operate on PCS  frequencies  licensed to Sprint in the
1900 MHz  range.  The  Sprint  PCS  agreements  also give us access to  Sprint's
equipment  discounts,  roaming revenue from Sprint PCS customers  traveling into
our territory, and various other back office services. The Sprint PCS agreements
have initial  terms of twenty  years with three  ten-year  renewals  which would
lengthen the contracts to a total of fifty years. The Sprint PCS agreements will
automatically  renew  for each  additional  ten-year  term  unless  Sprint or we
provide the other with two years' prior  written  notice to terminate the Sprint
PCS agreements. The initial terms of the agreements will expire in 2018.

     The agreements consist of one of each of the following for Horizon Personal
Communications and one of each for Bright PCS:

     O    the management agreement;

     O    the services agreement;

     0    the trademark and service mark license agreement with Sprint PCS; and

     O    the trademark and service mark license agreement with Sprint.

THE MANAGEMENT AGREEMENT

     Under our Sprint PCS agreements, we have agreed to:



                                       18


     O    construct  and manage a network in our  territory in  compliance  with
          Sprint's PCS licenses and the terms of the management agreement;

     O    distribute,  during the term of the management  agreement,  Sprint PCS
          products and services; and

     O    conduct advertising and promotion activities in our territory.

     Sprint will monitor our network operations and has unconditional  access to
our network.

     Exclusivity. We are designated as the only person or entity that can manage
or operate a PCS network for Sprint in our territory.  Sprint is prohibited from
owning, operating, building or managing another wireless mobility communications
network in our territory while our management agreement is in place and no event
has occurred that would permit the  agreement to terminate.  Sprint is permitted
under our agreement to make national sales to companies in our territory, and as
required by the FCC, to permit resale of the Sprint PCS products and services in
our territory. We accrue the financial benefits of either of these activities.

     Network build-out:  The management agreement specifies the terms of the PCS
affiliation with Sprint,  including the required network build-out plan. We have
agreed to  operate  our  network to  provide  for a  seamless  handoff of a call
initiated in our territory to a neighboring Sprint PCS network.

     Our long-term affiliation  agreements with Sprint, which we refer to as the
Sprint PCS agreements, require us to build and operate the portion of the Sprint
PCS network  located in our  territory in  accordance  with  Sprint's  technical
specifications  and coverage  requirements.  The  agreements  also require us to
provide  minimum network  coverage to the population  within each of the markets
that make up our territory by specified dates.

     Under our original Sprint PCS agreements,  we were required to complete the
build-out in several of our markets in Pennsylvania and New York by December 31,
2000. Sprint and HPC agreed to an amendment of the build-out requirements, which
extended the dates by which we were to launch coverage in several  markets.  The
amended Sprint PCS agreement provides for monetary penalties to be paid by us if
coverage is not launched by these extended  contract  dates.  We believe that we
have substantially complied with our build-out requirements.

     Products and services. The management agreement identifies the products and
services that we can offer in our territory.  These services  include Sprint PCS
consumer  and business  products  and  services  available as of the date of the
agreements,  or as modified by Sprint.  We are allowed to sell wireless products
and services  that are not Sprint PCS products and services if those  additional
products and services do not otherwise violate the terms of the agreement, cause
distribution channel conflicts,  materially impede the development of the Sprint
PCS network, cause consumer confusion with Sprint's PCS products and services or
violate the  trademark  lease  agreements.  We may  cross-sell  services such as
Internet access, customer premise equipment and prepaid phone cards with Sprint,
Sprint PCS and other PCS affiliates of Sprint. If we decide to use third parties
to provide these  services,  we must give Sprint an  opportunity  to provide the
services on the same terms and  conditions.  We cannot offer wireless local loop
services  specifically  designed for the  competitive  local exchange  market in
areas where  Sprint owns the local  exchange  carrier  unless we name the Sprint
owned local exchange carrier as the exclusive distributor or Sprint approves the
terms and  conditions.  Subject to  agreements  existing  before we became a PCS
affiliate of Sprint, we are required to use Sprint's long distance service which
we can buy at wholesale rates.

     Service  pricing.  We  must  offer  Sprint  PCS  subscriber  pricing  plans
designated for regional or national  offerings,  including  Sprint PCS' Free and
Clear  plans.  We are  permitted  to  establish  our own local  price  plans for
Sprint's PCS products and services offered only in our territory, subject to the
terms of the  agreement,  consistency  with Sprint PCS'  regional  and  national
pricing plans, regulatory requirements,  capability and cost of implementing the
rate plans in Sprint's systems and Sprint's approval.

     Fees.  We are  entitled to receive  from  Sprint an amount  equal to 92% of
collected  revenues under the Sprint PCS agreements.  Collected revenues include
revenue from Sprint PCS subscribers based in our territory,  excluding  outbound
roaming, and inbound non-Sprint PCS roaming. Except in the case of taxes, we are
entitled to 100% of the  following  revenues that are not  considered  collected
revenues:



                                       19


     O    outbound non-Sprint PCS roaming revenue;

     O    inbound Sprint PCS roaming fees;

     O    proceeds  from the  sales of  handsets  and  accessories  through  our
          distribution channels; and

     O    proceeds from sales not in the ordinary course of business.

     Roaming.  Although  many  Sprint PCS  subscribers  will  purchase a bundled
pricing  plan that allows  roaming  anywhere on the Sprint PCS' and  affiliates'
network without  incremental roaming charges, we will earn roaming revenues from
every minute that a Sprint PCS  subscriber  not based in our  territory  and any
non-Sprint  PCS subscriber  uses our network.  We will earn revenues from Sprint
based on an  established  per-minute  rate for  Sprint  PCS' or its  affiliates'
subscribers  roaming in our territory.  Similarly,  we will pay for every minute
our own subscribers use the Sprint PCS nationwide network outside our territory.
The analog roaming rate onto a non-Sprint  PCS  provider's  network is set under
Sprint PCS' third-party roaming agreements.

     Advertising  and  promotions.   Sprint  is  responsible  for  all  national
advertising  and  promotion  of the Sprint PCS  products  and  services.  We are
responsible for  advertising  and promotion in our territory,  including the pro
rata cost of any promotion or advertising  done by any third-party  retailers in
our territory  pursuant to a national  cooperative  advertising  agreement  with
Sprint.  Sprint's  PCS  service  area  includes  the urban  markets  around  our
territory. Sprint will pay for advertising in these markets. Given the proximity
of these markets to ours, we expect  considerable  spill-over  from Sprint's PCS
advertising in surrounding urban markets.

     Program requirements. We must comply with Sprint's PCS program requirements
for  technical  standards,  customer  service  standards,  national and regional
distribution  and  national  accounts  programs to the extent that Sprint  meets
these  requirements.  Sprint can adjust the  program  requirements  from time to
time. We have the right to appeal to Sprint's management adjustments which could
cause an unreasonable increase in cost to us if the adjustment: (1) causes us to
incur  a cost  exceeding  5% of  the  sum of our  equity  plus  our  outstanding
long-term  debt, or (2) causes our long-term  operating  expenses to increase by
more than 5% (10% for Bright PCS) on a net present value basis. If Sprint denies
our appeal, we must then comply with the program  adjustment,  or Sprint PCS has
the right to  exercise  the  termination  rights  described  below.  There is no
cross-default  provision  between the Sprint PCS agreements for Horizon Personal
Communications and the Sprint PCS agreements for Bright PCS.

     Non-competition.  We may not offer Sprint PCS products and services outside
our territory without the prior written approval of Sprint. Within our territory
we may offer,  market or promote  telecommunications  products and services only
under the Sprint PCS brands, our own brand, brands of related parties of ours or
other products and services approved under the management agreement, except that
no brand of a significant competitor of Sprint PCS or its related parties may be
used for those products and services.  To the extent we have or obtain  licenses
to provide PCS services  outside our  territory,  we may not use the spectrum to
offer  Sprint PCS  products  and services  without  prior  written  consent from
Sprint.

     Termination  of  management  agreement.  The  management  agreement  can be
terminated as a result of:

     O    termination of Sprint's PCS licenses;

     O    an uncured breach under the management agreement;

     O    bankruptcy of a party to the management agreement;

     O    the management  agreement not complying with any applicable law in any
          material respect;

     O    the  termination  of either of the  trademark and service mark license
          agreements; or



                                       20


     O    our failure to obtain the financing necessary for the build-out of our
          network and for our working capital needs.

     The  termination  or  non-renewal  of either of the  management  agreements
triggers our rights and those of Sprint, as described below.

     If we have the right to terminate the  management  agreement  because of an
event of termination  caused by a Sprint breach under the management  agreement,
we may generally:

     O    require  Sprint  to  purchase  all of our  operating  assets  used  in
          connection with our network for an amount equal to at least 80% of our
          Entire Business Value as defined below;

     O    if Sprint  was the  licensee  for 20MHz or more of the  spectrum  in a
          particular  market on the date the management  agreement was executed,
          require Sprint to sell to us, subject to governmental  approval, up to
          10MHz of licensed  spectrum  for an amount equal to the greater of (1)
          the  original  cost  to  Sprint  of the  license  plus  any  microwave
          relocation  costs  paid by  Sprint  or (2) 9% of our  Entire  Business
          Value; or

     O    sue Sprint for damages or submit the matter to arbitration and thereby
          not terminate the management agreement.

     If Sprint has the right to terminate the management agreement because of an
event of termination caused by us, Sprint may generally:

     O    require us to sell our operating  assets to Sprint for an amount equal
          to 72% of our Entire Business Value;

     O    require us to purchase,  subject to governmental approval, up to 10MHz
          of  licensed  spectrum  for an amount  equal to the greater of (1) the
          original cost to Sprint of the license plus any  microwave  relocation
          costs paid by Sprint or (2) 10% of our Entire Business Value;

     O    take any action as Sprint  deems  necessary  to cure our breach of the
          management  agreement,   including  assuming  responsibility  for  and
          operating our network; or

     O    sue us for damages or submit the matter to arbitration and thereby not
          terminate the management agreement.

     Non-renewal.  If Sprint  gives us timely  notice that it does not intend to
renew the management agreement, we may:

     O    require  Sprint  to  purchase  all of our  operating  assets  used  in
          connection  with our network for an amount  equal to 80% of our Entire
          Business Value; or

     O    if Sprint  was the  licensee  for 20MHz or more of the  spectrum  in a
          particular  market on the date the management  agreement was executed,
          require Sprint to sell to us, subject to governmental  approval, up to
          10MHz of licensed  spectrum  for an amount equal to the greater of (1)
          the  original  cost  to  Sprint  of the  license  plus  any  microwave
          relocation  costs  paid by  Sprint or (2) 10% of our  Entire  Business
          Value.

     If we give Sprint timely notice of  non-renewal,  or we both give notice of
non-renewal, or the management agreement can be terminated for failure to comply
with legal requirements or regulatory considerations, Sprint may:

     O    purchase all of our operating assets for an amount equal to 80% of our
          Entire Business Value; or



                                       21


     O    require us to purchase, subject to governmental approval, up to 10 MHz
          of  licensed  spectrum  for an amount  equal to the greater of (1) the
          original cost to Sprint of the license plus any  microwave  relocation
          costs paid by Sprint or (2) 10% of our Entire Business Value.

     Determination  of Entire Business Value. If the Entire Business Value is to
be determined,  we and Sprint will each select one independent appraiser and the
two  appraisers  will  select  a third  appraiser.  The  three  appraisers  will
determine the Entire Business Value on a going concern basis using the following
guidelines:

     O    the Entire  Business Value is based on the price a willing buyer would
          pay a willing seller for the entire on-going business;

     O    then-current customary means of valuing a wireless  telecommunications
          business will be used;

     O    the business is  conducted  under the Sprint and Sprint PCS brands and
          the Sprint PCS agreements;

     O    that we own the spectrum  and  frequencies  presently  owned by Sprint
          that we use and are subject to the Sprint PCS agreements; and

     O    the valuation  will not include any value for  businesses not directly
          related to the Sprint PCS products and services,  and these businesses
          will not be included in the sale.

     Indemnification.  We have  agreed to  indemnify  Sprint and its  directors,
employees  and  agents  and  related  parties  of Sprint  and  their  directors,
employees  and agents  against any and all claims  against any of these  parties
arising  from our  violation  of any law, a breach by us of any  representation,
warranty  or  covenant  contained  in the  management  agreement  or  any  other
agreement  between us and Sprint,  our ownership of the operating  assets or the
actions or the  failure to act of anyone who is  employed  or hired by us in the
performance  of any work  under  the  management  agreement,  except we will not
indemnify  Sprint for any claims arising solely from their negligence or willful
misconduct.  Sprint has agreed to indemnify us and our directors,  employees and
agents  against all claims  against any of these  parties  arising from Sprint's
violation of any law, from Sprint's  breach of any  representation,  warranty or
covenant  contained in the management  agreement or any other agreement  between
Sprint and us, or the actions or the failure to act of anyone who is employed or
hired by Sprint in the  performance of any work under the  management  agreement
except  Sprint  will not  indemnify  us for any claims  arising  solely from our
negligence or willful misconduct.

     Sprint PCS warrants. In connection with Sprint's grant to us of our markets
in Pennsylvania,  New York, Ohio and New Jersey,  Horizon PCS agreed to grant to
Sprint  warrants to acquire  shares of Horizon PCS' class A common  stock.  (See
"Note 18" under "Notes to Consolidated Financial Statements" included herein).

THE SERVICES AGREEMENTS

     The services agreements outline back office services provided by Sprint and
available  to us at  established  rates.  Sprint  can  change  any or all of the
service  rates  one time in each  twelve  month  period.  Some of the  available
services include:  billing,  customer care,  activation,  credit checks, handset
logistics,  home  locator  record,  voice  mail,  prepaid  services,   directory
assistance,   operator  services,  roaming  fees,  roaming  clearinghouse  fees,
interconnect fees and  inter-service  area fees. Sprint offers three packages of
available  services.  Each package  identifies  which services must be purchased
from  Sprint  and which may be  purchased  from a vendor or  provided  in-house.
Essentially,  services such as billing, activation and customer care must either
all be purchased from Sprint or we may provide those services ourselves. When we
signed our  original  Sprint  PCS  agreements,  we  elected to provide  billing,
activation  and customer care  services on our own. In  connection  with the May
2000  grant by  Sprint of  additional  markets  to us,  we agreed to change  our
arrangement under the services agreement so that Sprint will provide activation,
billing and customer care. Accordingly, in June 2001, we discontinued the use of
our own activation,  billing,  and customer care  capabilities.  We now purchase
those  services  from Sprint.  For our Bright PCS markets and our new markets in
Pennsylvania,  New York and New Jersey, we launched these markets using Sprint's
billing and customer  care  services.  Sprint may contract with third parties to
provide  expertise  and  services  identical  or  similar  to  those  to be made
available  or provided to us. We have  agreed not to use the  services  received
under the services  agreement in connection  with any other  business or outside
our territory.  We may  discontinue  use of any service upon three months' prior


                                       22


written notice.  Sprint may discontinue a service  provided that Sprint provides
us with nine months' prior notice.

     We have  agreed with Sprint to  indemnify  each other as well as  officers,
directors, employees and other related parties and their officers, directors and
employees  for  violations  of law or the  services  agreement  except  for  any
liabilities  resulting from the indemnitee's  negligence or willful  misconduct.
The services  agreement  also provides  that no party to the  agreement  will be
liable  to  the  other  party  for  special,  indirect,  incidental,  exemplary,
consequential  or  punitive  damages,  or  loss  of  profits  arising  from  the
relationship  of the parties or the conduct of business under, or breach of, the
services  agreement  except as may otherwise be required by the  indemnification
provisions.  The services agreement automatically terminates upon termination of
the management  agreement and neither party may terminate the services agreement
for any reason other than the termination of the management agreement.

THE TRADEMARK AND SERVICE MARK LICENSE AGREEMENTS

     We have  non-transferable,  royalty-free  licenses  to use the  Sprint  and
Sprint PCS brand names and "diamond" symbol,  and several other U.S.  trademarks
and service marks such as "The Clear  Alternative  to  Cellular,"  "PCS Vision,"
"Free and Clear" and  "Clarity  You Can See and Hear" on Sprint PCS products and
services.  We believe  that the Sprint  and Sprint PCS brand  names and  symbols
enjoy a very high degree of awareness,  providing us an immediate benefit in the
market  place.  Our use of the  licensed  marks is subject to our  adherence  to
quality standards determined by Sprint and use of the licensed marks in a manner
which  would not reflect  adversely  on the image of quality  symbolized  by the
licensed marks. We have agreed to promptly notify Sprint of any  infringement of
any of the licensed  marks within our  territory of which we become aware and to
provide  assistance to Sprint in connection  with  Sprint's  enforcement  of its
rights.  We have agreed with Sprint to indemnify each other for losses  incurred
in connection with a material  breach of the trademark  license  agreements.  In
addition, we have agreed to indemnify Sprint from any loss suffered by reason of
our  use  of  the  licensed  marks  or  marketing,   promotion,   advertisement,
distribution,  lease or sale of any  Sprint  products  and  services  other than
losses arising  solely out of our use of the licensed  marks in compliance  with
the contractual guidelines.

     Sprint can terminate  the trademark and service mark license  agreements if
we file for  bankruptcy,  materially  breach  the  agreement  or our  management
agreement is terminated. We can terminate the trademark and service mark license
agreements  upon Sprint's  abandonment  of the licensed marks or if Sprint files
for bankruptcy, or the management agreement is terminated.

CONSENT AND  AGREEMENT  FOR THE  BENEFIT OF THE  HOLDERS OF THE  SECURED  CREDIT
FACILITY

     On September  26, 2000,  Horizon PCS entered into a senior  secured  credit
facility (the "secured credit facility") with a group of financial  institutions
to provide an  aggregate  commitment,  subject to certain  conditions,  of up to
$250.0  million.  The secured credit facility is  collateralized  by a perfected
security  interest in substantially  all of Horizon PCS' tangible and intangible
current and future assets,  including an assignment of Horizon PCS'  affiliation
agreements  with  Sprint  and a pledge of all of the  capital  stock of  Horizon
Personal Communications and Bright PCS.

     Sprint entered into a consent and agreement (the "senior secured  consent")
for the benefit of the  holders of the  indebtedness  under our  secured  credit
facility.  This agreement was  acknowledged by us, and modified  Sprint's rights
and remedies  under our Sprint PCS  agreements,  for the benefit of the existing
and future holders of  indebtedness  under our secured  credit  facility and any
refinancing of the secured credit facility, which was a condition to the funding
of any amounts under our secured credit facility.

     The senior secured consent principally provides for the following:

     O    Sprint's  consent to the pledge of  substantially  all of our  assets,
          including our rights in the Sprint PCS agreements;

     O    Sprint's  consent to the pledge of all our equity interests in Horizon
          Personal  Communications  and  Bright  PCS and the  pledge by  Horizon
          Personal Communications and Bright PCS of all equity interests in each
          of their subsidiaries;


                                       23



     O    for  redirection of payments due to us under our Sprint PCS agreements
          to the  administrative  agent during the  continuation  of our default
          under our secured credit facility;

     O    for Sprint to  maintain  10 MHz of PCS  spectrum in all of our markets
          until our secured credit facility is satisfied or our operating assets
          are sold after our default under our secured credit facility;

     O    for Sprint  and the  administrative  agent to provide  each other with
          notices  of default  by us under the  Sprint  PCS  agreements  and the
          secured credit facility, respectively; and

     O    the ability to appoint  interim  replacements,  including  Sprint or a
          designee of the  administrative  agent,  to operate our portion of the
          Sprint  PCS  network  under  the  Sprint  PCS   agreements   after  an
          acceleration  of or event of default under our secured credit facility
          or an event of termination under the Sprint PCS agreements.

     Sprint's right to purchase on acceleration of amounts outstanding under our
secured credit facility.  Subject to the requirements of applicable law, so long
as our secured credit facility remains  outstanding,  the senior secured consent
provides that Sprint may purchase our operating  assets or pledged equity of our
operating  subsidiaries,  upon its receipt of notice of an  acceleration  of our
secured credit facility upon the following terms:

     O    Sprint elects to make such a purchase of our operating assets within a
          specified period;

     O    the purchase price of our operating assets is the greater of an amount
          equal to 72% of our "Entire Business Value" or the amount we owe under
          our secured credit facility;

     O    if Sprint has given  notice of its  intention to exercise the purchase
          right  for our  operating  assets,  then the  administrative  agent is
          prohibited  from  enforcing  its  security  interest for a time period
          after the  acceleration  or until  Sprint  rescinds  its  intention to
          purchase; and

     O    if we receive a written offer within a time period after  acceleration
          that is acceptable  to us to purchase our operating  assets or pledged
          equity of our  operating  subsidiaries  after the  acceleration,  then
          Sprint  has the right to  purchase  our  operating  assets or  pledged
          equity of our operating subsidiaries on terms at least as favorable to
          us as the offer we receive.

     Sale of operating assets to third parties.  If Sprint does not purchase our
operating  assets after an  acceleration  of the  obligations  under our secured
credit  facility,  then  the  administrative  agent  will be  able  to sell  the
operating assets,  subject to the requirements of applicable law,  including the
law relating to foreclosures of security  interests.  The  administrative  agent
will have two options:

     O    to sell the assets to an entity that meets the  requirements to be our
          successor under the Sprint PCS agreements; or

     O    to sell the assets to any other third-party  (including competitors of
          Sprint PCS), principally subject to the condition that Sprint does not
          have to accept the  third-party  as a PCS  affiliate of Sprint and may
          terminate our Sprint PCS agreements.

             REGULATION OF THE WIRELESS TELECOMMUNICATIONS INDUSTRY

     The FCC regulates the licensing,  construction,  operation, acquisition and
interconnection  arrangements  of  wireless  telecommunications  systems  in the
United States.  As an FCC licensee in our  Chillicothe,  Ohio market,  and as an
entity  facilitating PCS operations on Sprint PCS' spectrum under our Sprint PCS
agreements,  Horizon  PCS  must  ensure  that  its  operations  comply  with FCC
requirements.

     The FCC has adopted,  or is in the process of adopting,  a series of rules,
regulations and policies to, among other things:


                                       24



     O    grant or deny licenses for PCS frequencies;

     O    grant or deny PCS license renewals;

     O    rule on assignments and/or transfers of control of PCS licenses;

     O    govern the  interconnection of PCS networks with the networks of other
          wireless and wireline carriers;

     O    possibly  facilitate  the offering of a "calling  party pays"  service
          which would require that a party who calls a subscriber  would pay for
          the call;

     O    establish access and universal service funding provisions in an effort
          to raise funds to help defray the cost of providing telecommunications
          services to rural and other high-cost areas;

     O    possibly permit  commercial  mobile radio service  spectrum to be used
          for  transmission  of  programming  material  targeted  to  a  limited
          audience;

     O    impose fines and forfeitures for violations of any of the FCC's rules;
          and

     O    regulate the technical standards of PCS networks.

     The FCC had  previously  prohibited a single  entity from having a combined
attributable  interest  of  20% or  greater  in  broadband  PCS,  cellular,  and
specialized mobile radio service licenses totaling more than 55 MHz in any urban
areas or rural areas.  This  "spectrum  cap" was raised from 45 MHz to 55 MHz in
urban  areas as the  result of recent  FCC  action.  Interests  held by  passive
institutional  investors,  small companies and rural telephone companies are not
usually deemed  attributable for purposes of this prohibition if these interests
do not exceed  40%.  The FCC  eliminated  this  restriction  on January 1, 2003.
Instead  the FCC  will  consider  competitive  factors  when  licensees  seek to
aggregate  large amounts of spectrum in an area. We cannot predict  whether this
action  will  lead  to  more  consolidation  in the  wireless  telecommunication
industry generally, or in any of our PCS service areas.

TRANSFERS AND ASSIGNMENTS OF PCS LICENSES

     The FCC must  give  prior  approval  to the  assignment  of,  or  transfers
involving,  substantial  changes  in  ownership  or  control  of a PCS  license.
Non-controlling  interests in an entity that holds a PCS license or operates PCS
networks  generally  may be  bought  or sold  without  prior  FCC  approval.  In
addition,  a recent FCC order requires only  post-consummation  notification  of
certain pro forma assignments or transfers of control.

CONDITIONS OF PCS LICENSES

     All PCS  licenses are granted for ten-year  terms  conditioned  upon timely
compliance  with  the  FCC's  build-out  requirements.  Pursuant  to  the  FCC's
build-out  requirements,  all 30 MHz  broadband  PCS  licensees  must  construct
facilities that offer coverage to one-third of the population  within five years
and to two-thirds of the population  within ten years, and all 10 MHz and 15 MHz
broadband PCS licensees  must  construct  facilities  that offer  coverage to at
least  one-quarter  of the  population  within  five  years or make a showing of
"substantial service" within that five-year period.  Failure to meet these build
out requirements  can result in license  cancellation  without a hearing.  Other
rule violations could result in license  revocations and/ or monetary fines. The
FCC also requires  licensees to maintain a certain  degree of control over their
licenses.  The Sprint PCS  agreements  reflect an  arrangement  that the parties
believe meets the FCC requirements  for licensee  control of licensed  spectrum.
However,  the FCC decides whether a licensee has maintained the requisite degree
of control on a  case-by-case  basis,  upon  consideration  of the  "totality of
circumstances."  It is therefore  difficult to predict in advance with  absolute
certainty whether a particular arrangement will pass FCC muster. If the FCC were
to determine that our agreements with Sprint need to be modified to increase the
level of licensee control, the Sprint PCS agreements may be modified to cure any
purported  deficiency  regarding  licensee  control  of the  licensed  spectrum.
However  the   business   arrangement   between  the  parties  may  have  to  be
restructured.



                                       25


PCS LICENSE RENEWAL

     PCS licensees can renew their licenses for additional  ten-year terms.  PCS
renewal  applications  are not  subject to  auctions.  However,  under the FCC's
rules,  third  parties may oppose  renewal  applications  and/or file  competing
applications.  If one or  more  competing  applications  are  filed,  a  renewal
application will be subject to a comparative  renewal  hearing.  The FCC's rules
afford PCS renewal  applicants  involved in comparative  renewal hearings with a
"renewal  expectancy." The renewal expectancy is the most important  comparative
factor in a  comparative  renewal  hearing and is  applicable if the PCS renewal
applicant has: (1) provided  "substantial  service" during its license term; and
(2) substantially  complied with all applicable laws and FCC rules and policies.
The FCC's rules define "substantial  service" in this context as service that is
sound,  favorable  and  substantially  above the level of mediocre  service that
might minimally warrant renewal.

INTERCONNECTION

     The FCC has the  authority  to  order  interconnection  between  commercial
mobile  radio  providers  and any  other  common  carrier.  The FCC has  ordered
traditional  telephone  companies to provide  compensation to commercial  mobile
radio providers for the  termination of traffic.  Using these new rules, we have
negotiated  interconnection  agreements for the Sprint PCS network in our market
area with the major regional Bell operating  companies,  GTE, Sprint and several
smaller  independent  local exchange  carriers.  Interconnection  agreements are
negotiated on a state-wide basis. If an agreement cannot be reached,  parties to
interconnection   negotiations   can  submit   outstanding   disputes  to  state
authorities for arbitration.  Negotiated  interconnection agreements are subject
to state approval.  On July 18, 2000, the FCC adopted an order denying  requests
for mandatory  interconnection between resellers' switches and commercial mobile
radio  providers'  networks,  and  declining to impose  general  interconnection
obligations between these networks.

ALLOCATION OF ADDITIONAL PCS AND OTHER WIRELESS LICENSES

     The FCC from time to time  re-auctions  PCS licenses that it has re-claimed
from other carriers,  or PCS licenses that carriers have voluntarily returned to
the agency. The FCC also periodically allocates and assigns new spectrum for the
provision of wireless  services.  It is possible  that such actions could create
new  competitors  in our current PCS service  areas,  and we cannot  predict the
effect that such actions would have on our business.

OTHER FCC REQUIREMENTS

     The FCC adopted  rules in June 1996 that  require  local  exchange and most
commercial  mobile radio carriers,  to program their networks to allow customers
to  change  service  providers  without  changing  telephone  numbers,  which is
referred to as service provider number  portability.  The FCC currently requires
most  commercial  mobile radio carriers to implement  nationwide  roaming.  Most
commercial mobile radio carriers were required to implement  nationwide  roaming
by November 24, 2002 as well. The FCC currently  requires most commercial mobile
radio  providers  to be able to deliver  calls from  their  networks  to numbers
anywhere in the country, and to contribute to the Local Number Portability Fund.

     The FCC has adopted rules  permitting  broadband  PCS and other  commercial
mobile radio  providers to provide  wireless local loop and other fixed services
that would  directly  compete  with the  wireline  services  of local  telephone
companies. In June 1996, the FCC adopted rules requiring broadband PCS and other
commercial  mobile radio  providers to implement  enhanced  emergency 911 (E911)
automatic location  identification (ALI) capabilities within 18 months after the
effective date of the FCC's rules.  Sprint's initial compliance with these rules
occurred  on or before  October  1,  2001.  In  addition,  the FCC has  required
implementation  of Phase II  emergency  911  capabilities  by  October  1, 2002,
including  the ability to provide ALI of  subscribers  by latitude and longitude
with a specified  accuracy.  Sprint has  obtained  waivers of the  relevant  ALI
enhanced 911 requirements based on a modified  deployment plan, which includes a
number of  interim  benchmarks  and other  conditions,  and  would  provide  for
completing  Phase II E911  deployment  by 2005.  The Company's  Chillicothe  PCS
system,  the licenses to which the Company owns,  is currently  exempt from E911
ALI requirements.



                                       26


     On  June  10,  1999,  the  FCC  initiated  a  regulatory   proceeding  (the
competitive  networks proceeding) seeking comment from the public on a number of
issues related to competitive access to multiple-tenant buildings, including the
following:

     O    the FCC's tentative conclusion that the Communications Act of 1934, as
          amended,  requires  utilities  to permit  telecommunications  carriers
          access to rooftop and other rights-of-way in multiple tenant buildings
          under  just,  reasonable  and   nondiscriminatory   rates,  terms  and
          conditions; and

     O    whether   building   owners   that   make   access   available   to  a
          telecommunications carrier should be required to make access available
          to all other telecommunications carriers on a nondiscriminatory basis,
          and whether the FCC has the authority to impose such a requirement.

     On October 25, 2000, the FCC issued an order that addressed  certain of the
issues in the competitive networks proceeding. Notably, the FCC:

     O    prohibits  carriers from entering into contracts that restrict  owners
          of commercial  office buildings from permitting  access from competing
          carriers;

     O    clarifies the FCC's rules governing control of in-building wiring;

     O    concludes that utilities that own conduits or  rights-of-way  within a
          building must give non-discretionary access thereto; and

     O    concludes  that  parties  with  a  direct  or  indirect  ownership  or
          leasehold  interest in property,  including  building tenants,  should
          have the ability to place  antennas one meter or less in diameter used
          to receive or transmit any fixed wireless service in certain areas.

     This proceeding  could affect the availability and pricing of sites for our
antennae and those of our competitors.

COMMUNICATIONS ASSISTANCE FOR LAW ENFORCEMENT ACT

     The  Communications  Assistance  for Law  Enforcement  Act,  or CALEA,  was
enacted  in  1994  to  preserve  electronic  surveillance  capabilities  by  law
enforcement  officials  in  the  face  of  rapidly  changing  telecommunications
technology.  CALEA requires telecommunications carriers, including us, to modify
their  equipment,  facilities,  and services to allow for authorized  electronic
surveillance  based on either  industry  or FCC  standards.  The FCC has adopted
rules  implementing  this  statute and has  established  various  implementation
deadlines. Like other wireless carriers, Sprint has sought certain extensions of
the deadlines,  and these requests remain pending.  We may be subjected to fines
of as much as  $10,000  per day if we are unable to comply  with a  surveillance
request from law enforcement due to the lack of a required CALEA  capability for
which we or Sprint have not sought or received and extension.

OTHER FEDERAL REGULATIONS

     Wireless systems must comply with FCC and Federal  Aviation  Administration
("FAA")  regulations   regarding  the  siting,   lighting  and  construction  of
transmitter towers and antennas. In addition, FCC environmental  regulations may
cause  some cell  site  locations  to become  subject  to  regulation  under the
National  Environmental Policy Act (NEPA). The FCC is required to implement this
Act by requiring carriers to meet land use and radio frequency standards.

     Carriers must comply with certain other FCC requirements:

     o    payment of annual regulatory user fees;


                                       27


     o    submission of FCC Form 499A and 499Q  reports,  providing the FCC with
          information  needed  to  calculate  universal  service,  local  number
          portability and other contribution amounts owed by the carrier;

     o    compliance with the FCC's 711 hearing-impaired  access requirements by
          October 1, 2001;

     o    compliance   with  the  FCC's   digital  TTY  (access  for  the  deaf)
          requirements,  including  purchase of necessary software and equipment
          by December 31, 2001,  implementation  by June 30, 2002, and filing of
          quarterly progress reports during the interim;

     o    submission of annual Form 395 employment report;

     o    periodic filing of Form 602 ownership report; and

     o    submission of other required  reports,  as applicable,  including Form
          502 Number Utilization and Forecast Report, Form 477 Local Competition
          and Broadband Reporting Worksheet, From 478 Slamming Complaint Report,
          International Traffic Data Report, and Annual Financial Report.

REVIEW OF UNIVERSAL SERVICE REQUIREMENTS

     The FCC and the  states are  required  to  establish  a  universal  service
program to ensure  that  affordable,  quality  telecommunications  services  are
available  to all  Americans.  Sprint is required to  contribute  to the Federal
universal  service  program  as well as  existing  state  programs.  The FCC has
determined that Sprint's  contribution to the Federal  universal service program
is a variable  percentage of "end-user  telecommunications  revenues."  Although
many states are likely to adopt a similar assessment methodology, the states are
free to  calculate  telecommunications  service  provider  contributions  in any
manner  they choose as long as the  process is not  inconsistent  with the FCC's
rules.  At the  present  time it is not  possible  to predict  the extent of the
Sprint total Federal and state universal  service  assessments or its ability to
recover from the universal service fund.

WIRELESS FACILITIES SITING

     States and  localities  are  allowed to apply  zoning  requirements  to PCS
facility and tower proposals, but are not permitted to regulate the placement of
wireless  facilities so as to prohibit the provision of wireless  services or to
discriminate  among  providers  of these  services.  In  addition,  so long as a
wireless  system  complies  with the FCC's  rules,  states  and  localities  are
prohibited from using radio frequency  health effects as a basis to regulate the
placement,  construction  or  operation  of  wireless  facilities.  The  FCC  is
considering numerous requests for preemption of local actions affecting wireless
facilities  siting.  The Federal courts have been  inconsistent in deciding such
disputes.

STATE REGULATION OF WIRELESS SERVICE

    Section 332 of the  Communications  Act preempts  states from regulating the
rates and entry of commercial mobile radio providers,  like us. However,  states
may attempt to regulate  other  aspects of our service  provision.  In addition,
states may petition the FCC to regulate these  providers and the FCC may grant a
state's petition if the state  demonstrates  that (1) market  conditions fail to
protect  subscribers  from  unjust  and  unreasonable  rates or  rates  that are
unjustly or unreasonably discriminatory,  or (2) when commercial mobile radio is
a replacement for landline  telephone service within the state. To date, the FCC
has granted no petition  of this type.  To the extent that we may provide  fixed
wireless service, we may be subject to additional state regulation.


                                       28


ITEM 2.  PROPERTIES

     Management believes that its property, plant and equipment are adequate for
its business at Chillicothe Telephone, Horizon Technology and Services, although
additional  property,  plant  and  equipment are being  added.  The  Chillicothe
Telephone  Company  built a new  22,500  square  foot  operations  and  training
facility,  which was completed in the summer of 2001. This building is leased by
Horizon  Technology  from  Chillicothe  Telephone  and is used for their primary
offices.  Our properties consist of land,  buildings,  central office equipment,
exchange and toll switches,  data transmission  equipment,  underground conduits
and  cable,  aerial  cable,  poles,  wires,   telephone  instruments  and  other
equipment. Our principal operations are conducted in a group of buildings we own
on East Main  Street,  Chillicothe,  Ohio.  These  headquarters  buildings  have
approximately 40,000 square feet of floor space.

     Chillicothe  Telephone occupies several properties and buildings comprising
approximately 51,000 square feet in the aggregate,  used for telephone switches,
warehouse and office space.  Chillicothe  Telephone  installed new plant record,
mapping and billing software in 2000.  Chillicothe Telephone also maintains over
130  vehicles  used  in  servicing   customers  and  maintaining  the  telephone
infrastructure  for residential  customers and business  services.  In addition,
Chillicothe Telephone has easements it uses in deploying its wireline network.

     Horizon PCS' principal executive offices, which are leased from Chillicothe
Telephone, are located at 52 E. Main Street, Chillicothe, Ohio 45601-0480, which
is also the  location  of its  first  PCS  store.  Horizon  PCS also  leases  an
additional 43 other retail stores  throughout  its  territory.  Horizon PCS owns
three  switching  facilities  in Fort Wayne,  Indiana,  Erie,  Pennsylvania  and
Johnson City,  Tennessee.  As of December 31, 2002,  Horizon PCS leased space on
828 on-air towers. Horizon PCS believes that its facilities are adequate for its
current  operations and are in good condition and additional leased space can be
obtained if needed on commercially reasonable terms.

ITEM 3.  LEGAL PROCEEDINGS

     On July 3, 2002, the Federal Communications Commission (the "FCC") issued a
declaratory  ruling on issues  referred to it by a U.S.  District  Court, in the
case of Sprint  Spectrum  L.P.  v.  AT&T  Corp.  The FCC held that PCS  wireless
carriers could not unilaterally  impose terminating long distance access charges
pursuant  to FCC  rules.  This  FCC  ruling  did not  preclude  a  finding  of a
contractual  basis for these charges,  nor did it rule whether or not Sprint had
such a contract with carriers such as AT&T. This ruling has been appealed to the
U.S.  Circuit Court of Appeals for the District  Columbia.  The underlying  case
remains  pending in the trial court,  but has been stayed pending the outcome of
the  appeal.  Because the appeal of the FCC ruling and the  underlying  case are
both still pending, we cannot predict, with certainty, the final outcome of this
action.  As a result,  Horizon PCS recorded a reduction in revenue in the second
quarter of 2002 of approximately $1.3 million representing previously billed and
recognized  access revenue.  Horizon PCS plans to cease recognition of this type
of revenue in future quarters,  unless there is ultimately a favorable ruling by
the courts or the FCC on this issue.  Sprint has  asserted  the right to recover
these revenues from Horizon PCS. Horizon PCS will continue to assess the ability
of Sprint or other  carriers  to  recover  these  charges.  Horizon  PCS is also
continuing to review the  availability of defenses we may have against  Sprint's
claim to recover these revenues from us.

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

     No  matters  were  submitted  to a vote of  shareholders  during the fourth
quarter of 2002.

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     To date,  both our class A common  stock and our class B  nonvoting  common
stock have traded  principally in local  transactions  without the benefit of an
established  public trading market,  or an organized system for reporting prices
paid.

     There is currently no market for the Company's common stock. The authorized
capital  stock of Horizon  Telcom  consists of 200,000  shares of class A common
stock, without par value and 500,000 shares of class B common stock, without par


                                       29


value.  Class A common stock is  exchangeable at a one to one ratio with class B
common  stock.  Holders  of class A common  stock are  entitled  to one vote per
share.  Holders of class B common  stock do not have  voting  rights,  except as
otherwise required by law.

     We paid the following  quarterly  cash  dividends per share during the past
two calendar years:

                                                              2002       2001
                                                          --------   --------
       First Quarter..................................    $   1.25   $   1.15
       Second Quarter.................................        1.25       1.25
       Third Quarter..................................        1.25       1.25
       Fourth Quarter.................................        1.25       1.25
                                                          --------   --------
                Total.................................    $   5.00   $   4.90
                                                          ========   ========

     Dividends are paid only as and when declared by our board of directors,  in
its sole discretion,  based on our financial  condition,  results of operations,
market conditions and such other factors as it may deem appropriate.

     There were 354 holders on record of our class A common stock as of December
31,  2002.  There were 668  holders of record of our class B common  stock as of
December  31,  2002.  This number does not include  beneficial  owners of common
stock whose shares are held in the name of various dealers, depositories, banks,
brokers or other fiduciaries.

RECENT SALES OF UNREGISTERED SECURITIES

          (1)  During 2002, two people holding options to acquire Horizon Telcom
               class B common stock each  exercised  the vested  portions of the
               options  (149  shares each at $60 per  share).  Both  individuals
               exercised  in April 2002,  and each was an  executive  officer or
               director. See "ITEM 11. Executive Compensation."

          (2)  In May 2002 and November  2002,  Horizon PCS issued an additional
               1,060,201  and 1,099,958  shares,  respectively,  of  convertible
               preferred  stock  as a  dividend-in-kind  to the  holders  of the
               outstanding convertible preferred stock.

     Exemption  from the  registration  provisions of the Securities Act for the
transactions described in paragraph (2) above was claimed on the basis that such
transaction did not constitute an "offer," "offer to sell," "sale," or "offer to
buy" under Section 5 of the  Securities  Act.  Exemption  from the  registration
provisions of the Securities Act for the transactions described in paragraph (1)
above was claimed  under  Section 4(2) of the  Securities  Act and the rules and
regulations  promulgated  thereunder on the basis that such transactions did not
involve any public offering,  the purchasers were  sophisticated  with access to
the kind of  information  registration  would  provide and that such  purchasers
acquired  such  securities  without  a view  towards  distribution  thereof.  In
addition,  exemption from the registration  provisions of the Securities Act for
the  transactions  described in paragraph  (1) was claimed under Section 3(b) of
the  Securities  Act on the basis that such  securities  were sold pursuant to a
written  compensatory benefit plan or pursuant to a written contract relating to
compensation  and not for  capital  raising  purposes  and  exemption  from  the
registration  provisions of the Securities Act for the transactions described in
paragraph (2) above was claimed under Rule 144A of the Securities Act.

EQUITY COMPENSATION PLAN INFORMATION

     The  following  table  provides  information  as of December  31, 2002 with
respect to shares of Horizon  Telcom's and Horizon PCS' common stock that may be
issued under existing equity compensation plans.


                                       30



                                                                                          

                                               HORIZON TELCOM                                  HORIZON PCS
                               --------------------------------------------  --------------------------------------------
                                                 Weighted        Number of                     Weighted-       Number of
                                 Number of        Average         Shares       Number of        Average         Shares
                                   Shares        Exercise        Remaining       Shares        exercise        Remaining
                                   Issued          Price       to be Issued      Issued          price       to be Issued
                               -------------  -------------   -------------  -------------- --------------  --------------
Equity Plans approved by
stockholders............            950         $ 60.00           9,050         4,513,854     $    0.51        7,183,030
                               =============  =============   =============  ============== ==============  ==============



TRANSFER AGENT AND REGISTRAR

     The  registrar  and  transfer  agent for  Horizon  Telcom  common  stock is
National City Bank of Ohio.

ITEM 6.  SELECTED FINANCIAL DATA

     The  following  tables  set  forth  our  selected  historical  consolidated
financial  data. We derived the data as of and for the five years ended December
31, 2002,  2001,  2000,  1999 and 1998 from our audited  consolidated  financial
statements and related notes.  This data should be read in conjunction  with our
audited consolidated  financial statements and related notes for the years ended
December  31,  2002,  2001 and 2000  included  under with "ITEM 7.  Management's
Discussion and Analysis of Financial  Condition and Results of  Operation,"  and
"ITEM 8. Financial Statements and Supplementary Data."



                                                                                     
                                                            FOR THE YEAR ENDED DECEMBER 31,
                                 ----------------------------------------------------------------------------------
                                      2002              2001             2000            1999             1998
                                 --------------    --------------   --------------  --------------   --------------
Operating revenues.............. $ 264,706,821     $ 170,140,016    $  73,999,642   $  49,406,480    $  41,518,407
Operating income (loss).........  (112,737,213)      (82,689,886)     (37,142,923)     (4,504,463)       2,038,267
Net loss........................  (186,100,403)     (118,820,602)     (44,673,246)     (4,481,098)      (1,207,083)
Diluted loss per share of
  common stock (1)..............       (513.48)          (329.59)         (129.03)         (11.23)           (3.03)
Cash dividends on common
  stock.........................     1,812,204         1,767,088        1,793,038       1,815,014        1,815,014
Dividends per share on common
  stock (1).....................          5.00              4.90             4.60            4.55             4.55
Capital expenditures............    73,905,456       132,506,210      101,491,729      17,799,773       15,984,218



                                                                  AS OF DECEMBER 31,
                                 ----------------------------------------------------------------------------------
                                      2002              2001             2000            1999             1998
                                 --------------    --------------   --------------  --------------   --------------
Property, plant and equipment
  in-service, net.............   $ 299,487,567     $ 229,492,123    $ 121,933,149   $  72,868,507    $  79,565,362
Total assets..................     545,750,113       577,913,866      466,299,843     101,713,365      106,102,379
Long-term debt................     558,284,349       402,055,643      205,283,104      45,557,965       53,180,442
Convertible preferred stock of
  subsidiary - book value.....     157,105,236       145,349,043      134,421,881              --               --
Stockholders' equity (deficit)    (265,366,491)      (76,476,363)      41,634,415      27,693,752       33,987,193

Non-financial data:
Total access lines............          38,203            38,892           37,824          36,832           36,554
Total Horizon PCS subscribers
  (2).........................         270,900           194,100           66,400          13,700            2,100
Total bright.net subscribers..          12,500            14,900           15,000          14,500           11,800

- --------------------------
(1)  Earnings  (loss) and  dividends per share have been adjusted to reflect the
     change in number of shares caused by the  three-for-one  stock split in the
     form of a stock dividend.
(2)  Represents approximate number of subscribers.




                                       31



ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

OVERVIEW

     We have focused a significant  amount of our  operational  efforts over the
past twelve  months  upgrading  our  wireless  network to be able to provide the
first  level of third  generation  ("3G")  network  services  marketed by Sprint
nationally as "PCS Vision." In conjunction  with Sprint's  nationwide  launch of
PCS  Vision,  Horizon  PCS began  providing  3G  services  across its network in
mid-August 2002.  Subscribers are now able to connect to the Internet with their
handsets,  PDA's,  and  laptops  at  speeds  of up to 144  kilobits  per  second
("kbps").  We believe the average user will experience peak rates of 75-80 kbps,
which is two to three times faster than historical dial-up speeds.

     During the second half of 2001 and first half of 2002, a significant number
of our  customer  additions  were under the NDASL  program.  These lower  credit
quality  customers  activated  under the NDASL program led to higher churn rates
and an  increased  amount  of bad  debt  during  the  second  half  of 2002 as a
significant number of these customers were disconnected and written-off.

     Sprint has  discontinued  the NDASL program and replaced it with Clear Pay,
which  tightened  credit  restrictions,  and Clear Pay II,  which  re-instituted
deposit  requirements  for most lower credit  quality  customers and  introduces
additional controls on loss exposure. In addition, we have focused our marketing
efforts toward recruiting higher quality customers.  As a result, our percentage
of prime  credit  customers  in our  subscriber  portfolio  increased  to 74% at
December 31, 2002, from 65% at its lowest point on March 31, 2002.

     In response to  increased  competition  from other  carriers and to improve
focus on penetrating  our markets with PCS Vision,  Horizon PCS  reorganized its
operations  group on  October  1,  2002.  Horizon  PCS  realigned  its  internal
geographic  markets  and added a vice  president  to oversee our  marketing  and
retail operations  teams.  Horizon PCS looks forward to the benefits of this new
organizational  alignment and believes it will result in higher gross subscriber
additions and a better retention effort.

     Chillicothe  Telephone continued to upgrade its landline network with fiber
optic cabling.  This upgrade will expand  bandwidth  capacity,  improve  network
efficiency  and  extend  the reach of our  network.  Through  this  upgrade,  we
expanded  the  availability  of our VDSL  product  and saw steady  growth in the
number of new VDSL  subscribers.  Our VDSL  subscribers can currently enjoy over
100  digital  cable  channels,  high-speed  Internet  access and basic  landline
telephone service.

     Horizon  PCS is  currently  in  the  process  of  attempting  to  negotiate
modifications  to  lending  arrangements  and major  contractual  relationships.
Horizon Telcom, Chillicothe Telephone,  Horizon Technology, and Horizon Services
are not obligated in any form to assist  Horizon PCS in their  negotiations  nor
are they obligated to compensate  any of Horizon PCS'  creditors  should Horizon
PCS default on any debt agreements.  Defaults of covenants on debt agreements of
Horizon  PCS  will not  result  in  defaults  in any  debt  agreements  or other
contractual  obligation  of Horizon  Telcom or any of its  subsidiaries.  Should
Horizon  PCS be  unsuccessful  in its  efforts  to  modify  its debt  and  major
contractual  relationships,  it is possible that our equity  ownership  would be
substantially  changed and  reduced.  Should our  ownership  of Horizon PCS fall
below  50%  and  we  lose  control,  Horizon  PCS  may  not be  included  in the
consolidated  results of Horizon Telcom. This would have a significant impact on
the presentation of operations of Horizon Telcom.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     Allowance for Doubtful Accounts. With respect to Horizon PCS, estimates are
used in determining our allowance for doubtful  accounts  receivable,  which are
based  on a  percentage  of our  accounts  receivables  by aging  category.  The
percentage is derived by considering  our historical  collections  and write-off
experience,  current aging of our accounts receivable and credit quality trends,
as well as Sprint's credit policy.


                                       32



     The following table provides  certain  statistics on Horizon PCS' allowance
for doubtful  accounts  receivable  of wireless  subscribers  for the year ended
December 31:



                                                                                      

                                                                  2002             2001             2000
                                                             -------------    --------------   -------------
Provision as a percent of wireless subscriber
  revenue............................................              10%               8%              8%
Write-offs, net of recoveries as a percent of
  wireless subscriber revenue........................              10%               7%              5%
Allowance for doubtful accounts as a percent of
  PCS accounts receivable............................              11%              11%             22%


     Under Sprint's  service plans,  wireless  customers who do not meet certain
credit  criteria  can select  any plan  offered  subject to an account  spending
limit,  referred to as ASL, to control  credit risk exposure.  Account  spending
limits range from $125 to $200  depending on the credit quality of the customer.
Prior to May 2001,  all of these  customers were required to make a deposit that
could be credited against future billings.  In May 2001, the deposit requirement
was  eliminated  on certain,  but not all,  credit  classes ("No Deposit ASL" or
"NDASL").  As a  result,  a  significant  amount  of our new  wireless  customer
additions  (approximately  59%) were  NDASL  subscribers  during  the  program's
available period.

     This increase in sub-prime credit customers under the NDASL program has led
to higher  churn rates  (defined  below) and an increase in account  write-offs.
While the average  balance  written-off  for an NDASL customer is lower than the
average write-off balances of non-account  spending limit customers,  the number
of NDASL write-offs has caused an increase in the total amount  written-off each
quarter, resulting in the need for a higher allowance and provision for doubtful
accounts receivable.

     Beginning in November  2001, the NDASL program was replaced by "Clear Pay",
which had tightened credit  criteria.  In April 2002, we replaced Clear Pay with
"Clear  Pay II," which  re-instated  the  deposit  requirement  for most  credit
classes with account spending limits and featured increased back-office controls
with respect to credit qualification and account collections.  We anticipate the
implementation  of the Clear Pay II  program  will  reduce  our  future bad debt
exposure. If the deposit requirement is later removed or if these allowances for
doubtful  accounts  receivable  estimates are insufficient  for any reason,  our
operating income and available cash could be reduced.  At December 31, 2002, the
allowance  for  doubtful   accounts  was  $2,308,000.   At  December  31,  2002,
approximately  30% of the subscribers in our markets were account spending limit
customers with no deposit paid.

     With  respect  to  our  landline  segments  accounts   receivable  consists
primarily  of  amounts  billed to  interexchange  carriers  for  allowing  their
customers  to access our network  when their  customers  place a call.  Accounts
receivable  also includes  charges for  advertising in  Chillicothe  Telephone's
yellow pages directory and amounts billed to customers for monthly services. Our
collection history with  interexchange  carriers has been good.  However,  we do
have some  exposure to WorldCom and  WorldCom's  MCI  division,  which  declared
bankruptcy on July 21, 2002. Our outstanding  accounts  receivable with WorldCom
at December 31, 2002 was approximately $600,000. Chillicothe Telephone wrote off
approximately  $375,000  at  year-end  2002  which  was  related  to  WorldCom's
pre-petition  bankruptcy  balances.  The  allowance  for doubtful  interexchange
accounts  receivable is approximately 4% of accounts  receivable at December 31,
2002.

     Revenue Recognition. Horizon PCS records equipment revenue from the sale of
handsets  and  accessories  to  subscribers  in its  retail  stores and to local
distributors  in its  territories  upon  delivery.  Horizon  PCS does not record
equipment   revenue  on  handsets  and   accessories   purchased  from  national
third-party  retailers or directly from Sprint by  subscribers in our territory.
After  the  handset  has been  purchased,  the  subscriber  purchases  a service
package,  revenue from which is recognized monthly as service is provided and is
included in subscriber  revenue,  net of credits  related to the billed revenue.
Horizon  PCS  believes  the  equipment  revenue and  related  cost of  equipment
associated  with the sale of wireless  handsets  and  accessories  is a separate
earnings process from the sale of wireless services to subscribers. For industry
competitive reasons, Horizon PCS sells wireless handsets at a loss. Because such
arrangements  do not require a customer to subscribe  to Horizon  PCS'  wireless
services and because Horizon PCS sells wireless  handsets to existing  customers
at a loss,  it accounts for these  transactions  separately  from  agreements to
provide customers wireless service.


                                       33


     Horizon  PCS'  accounting  policy for the  recognition  of  activation  fee
revenue is to record the  revenue  over the  periods  such  revenue is earned in
accordance with the current  interpretations  of SEC Staff  Accounting  Bulletin
("SAB") No. 101,  "Revenue  Recognition in Financial  Statements."  Accordingly,
activation fee revenue and direct  customer  activation  expense is deferred and
will be recorded over the average life for those  customers (30 months) that are
assessed an activation  fee. The Company  recognized  approximately  $2,992,000,
$695,000  and $47,000 of both  activation  fee revenue and  customer  activation
expense during 2002, 2001 and 2000, respectively, and had deferred approximately
$6,093,000  and  $3,809,000  of  activation  fee  revenue  and  direct  customer
activation expense at December 31, 2002 and 2001.

     A  management  fee  of  8%  of  collected  PCS  revenues  from  Sprint  PCS
subscribers based in Horizon PCS' territory, is accrued as services are provided
and remitted to Sprint PCS and recorded as general and administrative  expenses.
Revenues  generated  from the sale of  handsets  and  accessories,  inbound  and
outbound  Sprint PCS roaming fees, and roaming  services  provided to Sprint PCS
customers who are not based in Horizon PCS'  territory are not subject to the 8%
affiliation  fee.  Expense  related to the  management  fees  charged  under the
agreement was approximately $12,027,000, $5,923,000 and $1,302,000 for the years
ended December 31, 2002, 2001 and 2000 respectively.

     The landline  telephone  services operating segment consists of basic local
and  long-distance  toll,  network access  services and other related  telephone
service revenue.  Intra-LATA,  (Local Access and Transport Area) (i.e., the area
of southern Ohio, including Columbus originally covered by area code 614), basic
local exchange and long-distance  service revenue consists of flat rate services
and measured  services  billed to customers  utilizing  Chillicothe  Telephone's
landline telephone network. Long distance  intraLATA/interstate revenue consists
of  message  services  that  terminate  beyond  the  basic  service  area of the
originating  wire center.  Network access revenue consists of revenue derived by
our landline  telephone  services  segment from the provision of exchange access
services  to an  interexchange  carrier or to an end user  beyond  the  exchange
carrier's  network.  Other related telephone service revenue includes  directory
advertising related to a telephone directory published annually.

     Other revenues include Internet access  services,  equipment  systems sales
and information  services.  Internet access revenues for our bright.net services
are monthly  service fees and other charges billed to our bright.net  customers.
Service fees primarily consist of monthly recurring charges billed to customers.
Equipment  system sales and other revenues  consist of sales made by Chillicothe
Telephone to various  businesses  or other  residential  customers for equipment
used on the telephone system.

     Chillicothe  Telephone  is  an  independent  local  exchange  carrier  that
provides  local  telephone  service  within  ten  local  exchanges.  Chillicothe
Telephone   follows  an  access   charge   system  as  ordered  by  the  Federal
Communications  Commission  ("FCC")  and the PUCO in  1984.  The  access  charge
methodology  provides  a  means  whereby  local  exchange  carriers,   including
Chillicothe  Telephone,  provide their customers access to the facilities of the
long-distance  carriers and charge long-distance carriers for interconnection to
local facilities.

     The PUCO  issued an  Opinion  and Order  effective  January  1,  1988,  for
reporting  intra-LATA  (Local Access and  Transport  Area) toll  revenues.  This
methodology is defined as the Originating  Responsibility  Plan with a Secondary
Carrier Option  (ORP-SCO).  This plan calls for one or more primary  carriers in
each LATA with other local exchange carriers acting as secondary  carriers.  The
secondary  carriers  provide the primary carrier with access to local facilities
and are  compensated  based upon  applicable  intra-LATA  access charge tariffs.
Chillicothe Telephone is a primary carrier. Intra-LATA toll revenue is reflected
in basic and  long-distance  service  revenue on the  accompanying  consolidated
statements  of  operations,  and is  recognized  as such  services are provided.
Estimated unbilled amounts are accrued at the end of each month.

     Chillicothe   Telephone  recognizes  revenue  for  billing  and  collection
services  performed  on behalf of certain  interexchange  carriers.  Chillicothe
Telephone is reimbursed for this service based on the number of messages  billed
on behalf of the  interexchange  carrier.  The  revenues  from this  service are
recognized in the same period the services are provided.  Chillicothe  Telephone
also recognizes  advertising  revenues from its telephone  directory.  Telephone
directory  customers  sign an annual  contract  which is billed in twelve  equal
installments.  The revenue  derived from  directory  advertising  is  recognized
equally  over the  twelve-month  period of the  directory,  consistent  with the
ratemaking  treatment.  These  items  are  recorded  in  other  revenues  on the
accompanying consolidated statements of operations.



                                       34


     Chillicothe  Telephone  recognizes revenues on the completed contract basis
for the installation of  telecommunication  and other related  equipment.  These
revenues are reported as equipment system sales on the accompanying consolidated
statements of operations.  Maintenance  revenues are recognized over the life of
the contract,  and recorded as other revenues on the  accompanying  consolidated
statements of operations.

     Horizon  Technology is an FCC-licensed  radio common carrier that primarily
provides Internet access services and resells long-distance service. Revenues on
equipment sales were  recognized at the time of sale.  Revenues for the Internet
and long distance services are recognized monthly as service is rendered.

     Impairment of  Long-Lived  Assets and  Goodwill.  The Company  accounts for
long-lived assets and goodwill in accordance with the provisions of Statement of
Financial  Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
or  Disposal  of  Long-Lived  Assets"  and SFAS No.  142,  "Goodwill  and  Other
Intangible  Assets."  SFAS No. 144 requires that  long-lived  assets and certain
identifiable  intangibles be reviewed for impairment  whenever events or changes
in  circumstances  indicate  that the  carrying  amount  of an asset  may not be
recoverable.  Recoverability  of  assets  to be held and used is  measured  by a
comparison of the carrying  amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired,  the
impairment  to be  recognized  is measured  by the amount by which the  carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying  amount or fair value less costs to
sell. As a result, the Company recorded  approximately $3.5 million with respect
to Horizon PCS related to accelerated  depreciation on an impaired asset for the
year ended December 31, 2002.  SFAS No. 142 requires annual tests for impairment
of goodwill  including  intangible  assets that have indefinite useful lives and
interim  tests when an event has occurred  that more likely than not has reduced
the fair value of such assets.  The Company recorded a goodwill  impairment with
respect to Horizon PCS of $13.2 million during the year ended December 31, 2002.




                                       35


RESULTS OF OPERATIONS  FOR THE YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE YEAR
ENDED DECEMBER 31, 2001

     This  discussion  and analysis is presented on an operating  segment basis.
The following table details the  consolidated  statements of income by operating
segment for the years ended December 31, 2002 and 2001:



                                                                         
                                                     For the Year Ended December 31,
                                           ------------------------------------------------------
                                              Wireless Personal             Landline Telephone
                                            Communications Services         And Other Services
(Dollars in thousands)                     -------------------------    -------------------------
OPERATING REVENUES:                            2002         2001            2002         2001
                                           ------------ ------------    ------------ ------------
   PCS subscriber and roaming...........   $   207,978  $   115,906     $        --  $        --
   PCS equipment........................         7,847        7,106              --           --
   Basic local and long-distance service            --           --          18,702       19,586
   Network access.......................            --           --          21,523       20,198
   Equipment systems sales, information
     services, Internet access and other            --           --           8,657        7,344
                                           ------------ ------------    ------------ ------------
     Total operating revenues..........        215,825      123,012          48,882       47,128
                                           ------------ ------------    ------------ ------------

OPERATING EXPENSES:
   Cost of PCS and other equipment sales        19,189       14,871             607          688
   Cost of services.....................       166,904      100,257          16,296       14,911
   Selling and marketing................        52,601       48,993           1,648        1,553
   General and administrative...........        35,654       21,505          20,959       21,457
   Non-cash compensation................           397        1,044              16          105
   Loss on disposal of assets...........           632        1,297              16           --
   Depreciation and amortization........        40,271       18,519           9,032        7,630
   Impairment of goodwill and impact of
     acquisition-related deferred taxes.        13,222           --              --           --
                                           ------------ ------------    ------------ ------------
     Total operating expenses...........       328,870      206,486          48,574       46,344
                                           ------------ ------------    ------------ ------------

OPERATING INCOME (LOSS).................      (113,045)     (83,474)            308          784
                                           ------------ ------------    ------------ ------------

NONOPERATING INCOME (EXPENSE):
   Interest expense, net................       (60,601)     (27,434)         (2,769)      (2,131)
   Subsidiary preferred stock dividends.       (11,756)     (10,930)             --           --
   Interest income, net.................         2,990        5,054             (67)         110
                                           ------------ ------------    ------------ ------------
     Total nonoperating expense.........       (69,367)     (33,310)         (2,836)      (2,021)
                                           ------------ ------------    ------------ ------------

LOSS BEFORE INCOME TAX EXPENSE AND
   MINORITY INTEREST....................      (182,412)     (116,784)        (2,528)      (1,237)

INCOME TAX (EXPENSE) BENEFIT............            --            --         (1,160)      (1,783)

MINORITY INTEREST IN LOSS...............            --            --             --          984
                                           ------------ -------------   ------------ ------------

NET INCOME (LOSS).......................   $  (182,412) $   (116,784)   $    (3,688) $    (2,036)
                                           ============ =============   ============ ============




                                       36



WIRELESS PERSONAL COMMUNICATIONS SERVICES SEGMENT

     The following  discussion  details key operating metrics and the results of
operations for our wireless personal communications segment over the last fiscal
year. Our wireless  personal  communications  segment  consists  entirely of the
operations of Horizon PCS.

     Under the  Sprint  Agreements,  Sprint  provides  the  Company  significant
support  services such as billing,  collections,  long distance,  customer care,
network operations support,  inventory logistics support,  use of the Sprint and
Sprint PCS brand names, national advertising,  national distribution and product
development.  Additionally,  the Company derives substantial roaming revenue and
expenses when Sprint's and Sprint's network  partners' PCS wireless  subscribers
incur  minutes  of use in the  Company's  territories  and  when  the  Company's
subscribers  incur minutes of use in Sprint and other Sprint  network  partners'
PCS territories.  These  transactions  are recorded in roaming revenue,  cost of
service,  cost of equipment  and selling and marketing  expense  captions in the
accompanying consolidated statements of operations.  Cost of service and roaming
transactions  include,  long distance charges,  roaming expense and the costs of
services  such  as  billing,   collections,   and  customer  service  and  other
pass-through  expenses.  Cost of  equipment  transactions  relate  to  inventory
purchased by the Company from Sprint  under the Sprint  Agreements.  Selling and
marketing  transactions  relate to subsidized  costs on handsets and commissions
paid  by the  Company  under  Sprint's  national  distribution  program.  The 8%
management  fee is  included  in general and  administrative.  Amounts  recorded
relating  to the Sprint  Agreements  for the years ended  December  31, 2002 and
2001, are approximately as follows:




TOTAL REVENUES AND EXPENSES PROVIDED BY            YEAR ENDED DECEMBER 31,
SPRINT AGREEMENTS                                    2002             2001
- ----------------------------------------        -------------   --------------

Roaming revenue.........................        $  51,688,000    $  37,734,000
                                                =============   ==============

Cost of Service:
  Roaming...............................        $  40,883,000    $  27,007,000
  Billing and customer care.............           20,587,000       10,475,000
  Long Distance.........................           10,470,000        6,640,000
                                                -------------   --------------
    Total cost of service...............           71,940,000       44,122,000
Selling and marketing...................            2,566,000        1,460,000
General and administrative
  Affiliation fee.......................           12,027,000        5,923,000
                                                -------------   --------------
    Total expense.......................        $  86,533,000    $  51,505,000
                                                =============   ==============

KEY METRICS - HORIZON PCS

     Customer  Additions.   As  of  December  31,  2002,  we  provided  personal
communication service directly to approximately 270,900 customers.  For the year
ended  December  31, 2002 and 2001,  Horizon PCS net  subscribers  increased  by
approximately  76,800 and 127,700  customers,  respectively.  Gross  activations
during  2002 were 12% higher  than 2001.  However,  an  increase in the churn of
NDASL and Clear Pay subscribers resulted in overall lower net customer additions
for the year ended  December 31, 2002,  compared to the year ended  December 31,
2001.

     Cost Per Gross  Addition.  CPGA  summarizes the average cost to acquire new
customers  during the period.  CPGA is  computed by adding the income  statement
components  of selling and  marketing,  cost of equipment and  activation  costs
(which are included as a component of cost of service) and reducing  that amount
by the equipment revenue recorded,  then divide that net amount by the total new
customers acquired during the period.  CPGA increased to $342 for the year ended
December  31,  2002,  compared to $339 for the year ended  December 31, 2001 due
primarily to an increase in commissions.

     Churn.  Churn is the monthly rate of customers  that both  voluntarily  and
involuntarily  discontinued  service  during the  month.  Churn is  computed  by
dividing the number of customers that discontinued service during the month, net
of 30-day returns, by the beginning customer base for the period.  Churn for the
year is an average of the  twelve  months in the year.  Churn for the year ended
December 31,  2002,  was 3.5%  compared to 2.4% for the year ended  December 31,
2001.  This  increase  in churn is a result  of an  increase  in the  amount  of
sub-prime  credit  quality   customers  the  Company  added  whose  service  was


                                       37


involuntarily  discontinued during the period. We believe that it is likely that
churn will remain at or slightly below this level during 2003.

     Average  Revenue Per Unit.  ARPU summarizes the average monthly revenue per
customer.  ARPU is computed by dividing service revenue and roaming revenues for
the period by the average subscribers for the period.

     The following summarizes ARPU for the twelve months ended December 31:

                                                    2002            2001
                                              -------------   --------------
        Service revenues
           Recurring.....................     $         40    $          43
           Minute sensitive..............               12               14
           Features and other............                3               (1)
                                              -------------   --------------
             Total service revenues......               55               56
                                              -------------   --------------

        Roaming revenues.................               20               27
                                              -------------   --------------
               ARPU......................     $         75    $          83
                                              -------------   --------------

     Recurring service ARPU has declined as more customers activated or migrated
to  service  plans in the  $29.99  to $39.99  monthly  recurring  charge  range.
Additionally,  recent service plans are offering more minutes at a lower monthly
charge due to increased  competition in the wireless industry.  These additional
minutes have driven down the ARPU received when  customers use more minutes than
their plan allows.  We anticipate  this trend to continue on voice-only  service
plans,  but we  anticipate  higher  service  ARPU in the  future as  subscribers
activate on data and voice  plans,  which offer more  features,  but at a higher
monthly  charge.  ARPU from  features and other has increased as we are offering
fewer  promotional  credits and have charged more contract  termination  fees in
2002 as a result of higher deactivation and churn rates.

     The  reduction in the  reciprocal  roaming rate has caused a decline in the
roaming  ARPU.  On April  27,  2001,  Sprint  and its  affiliates  announced  an
agreement  on a new  Sprint  PCS  roaming  rate;  the  reciprocal  roaming  rate
decreased from $0.20 per minute to $0.15 per minute  effective June 1, 2001, and
decreased  further to $0.12 per minute effective October 1, 2001. The reciprocal
roaming rate changed to $0.10 per minute on January 1, 2002. Sprint has notified
the Company that it intends to reduce the reciprocal  roaming rate to $0.058 per
minute of use in 2003.  Based upon 2002 historical  roaming data, a reduction in
the  reciprocal  roaming  rate to $0.058  per minute  would  have  substantially
reduced roaming  revenue and expense.  Had the lower rate been in effect for all
of 2002, roaming revenue would have been approximately 40-50% lower.

RESULTS OF OPERATIONS

     Revenues.  Subscriber  revenues for the year ended December 31, 2002,  were
approximately  $152.2 million,  compared to approximately  $77.7 million for the
year ended  December  31,  2001,  an  increase of $74.5  million.  The growth in
subscriber  revenues is primarily the result of the growth in our customer base.
We had  approximately  270,900  customers  at  December  31,  2002,  compared to
approximately  194,100 at December 31, 2001. Our customer base has grown because
we have launched additional markets and increased our sales force.

     Roaming revenues increased from approximately $38.5 million during the year
ended  December  31, 2001,  to  approximately  $55.8  million for the year ended
December 31, 2002, an increase of $17.3 million. This increase resulted from the
continued  expansion  of our  service  territory  as well as  expanding  roaming
agreements with wireless carriers.

     PCS  equipment  revenues  consist  of  handsets  and  accessories  sold  to
customers  through  our stores and  through our direct  sales  force.  Equipment
revenues for the year ended December 31, 2002, were  approximately $7.8 million,


                                       38


compared to  approximately  $7.1  million for the year ended  December 31, 2001,
representing an increase of  approximately  $700,000.  The increase in equipment
revenues  is the result of an  increase  in the number of  handsets  sold by our
stores and direct sales force, somewhat offset by a lower sales price per unit.

     Cost of PCS and other equipment sales. Cost of equipment  includes the cost
of handsets  and  accessories  sold by our stores and direct  sales force to our
customers.  Cost  of  equipment  for the  year  ended  December  31,  2002,  was
approximately  $19.2 million,  compared to  approximately  $14.9 million for the
year ended  December 31, 2001, an increase of $4.3 million.  The increase in the
cost of  equipment is the result of the growth in our  wireless  customers.  For
competitive and marketing reasons,  we have sold handsets to our customers below
our cost and expect to continue  to sell  handsets at a price below our cost for
the foreseeable future.

     Cost of service.  Cost of service  includes costs associated with operating
our network,  including site rent,  utilities,  engineering  personnel and other
expenses  related to operations.  Cost of service also includes  interconnection
expenses,  customer care, Sprint charges, Sprint PCS roaming fees and non-Sprint
roaming  fees.  We pay Sprint PCS roaming fees to Sprint PCS when our  customers
use Sprint PCS' network outside of our territory.  We pay non-Sprint PCS roaming
fees to other wireless service providers when our customers use their networks.

     Also  included  in cost of service  are costs  incurred  under our  network
services agreement with the Alliances. In the third quarter of 2001, Horizon PCS
negotiated  an  amendment  to its  agreement  with the  Alliances  and a related
amendment to its Sprint agreements.  Under the Alliances amendment,  Horizon PCS
is obligated to pay a minimum monthly fee for a stated minimum  period.  Horizon
PCS expects to incur lower overall fees under this new  arrangement  at expected
usage  levels as  compared  to the  previous  agreement  that was based on a per
minute fee.  The  Alliances  are also  obligated  to upgrade  their  networks to
provide 3G technology.

     Sprint provides  back-office  and other services to Horizon PCS.  Recently,
Sprint has sought to increase service fees in connection with its development of
3G-related back-office systems and platforms.  Horizon PCS, along with the other
Sprint affiliates, is currently disputing the validity of Sprint's right to pass
through this fee to the affiliates.  If this dispute is resolved  unfavorably to
Horizon PCS, then Horizon PCS will incur additional expenses, which could have a
material adverse impact on its liquidity and financial  results.  As of December
31,  2002,  Horizon  PCS has been billed by Sprint for 3G  development  costs of
approximately  $600,000,  which the Company has not recorded or paid due to this
dispute.

     Horizon PCS' cost of service for the twelve months ended December 31, 2002,
was approximately  $166.9 million,  compared to approximately $100.3 million for
the twelve months ended  December 31, 2001, an increase of  approximately  $66.6
million. This increase reflects an increase in roaming expense and long distance
charges of approximately  $16.7 million and the increase in costs incurred under
our  network  services  agreement  with the  Alliances  of  approximately  $13.7
million,  both as a result  of our  subscriber  growth  during  2001  and  2002.
Additionally,  at December  31,  2002,  our network  covered  approximately  7.4
million people versus  approximately 6.9 million people at December 31, 2001. As
a result,  cost of service in 2002 was higher  than 2001 due to the  increase in
network  operations  expense,  including tower lease expense,  circuit costs and
payroll  expense,  of approximately  $22.3 million.  Growth in our customer base
resulted  in  increased  customer  care,  activations,  and  billing  expense of
approximately   $11.2   million   and   other   variable   expenses,   including
interconnection  and national platform expenses,  of approximately $2.7 million.
Overall,  the  average  monthly  cost  of  providing  service  per  the  average
subscriber on our network  decreased from $72 to $60 for the twelve months ended
December 31, 2001 and 2002,  respectively,  as we have  increased our subscriber
base.  In the  aggregate,  we expect to have  substantial  increases  in 2003 in
charges from Sprint, both as a result of volume and pricing increases.

     Selling and marketing  expenses.  Selling and marketing expenses consist of
costs  associated  with  operating  our  retail  stores,   including  marketing,
advertising,  payroll and sales commissions.  Selling and marketing expense also
includes  commissions  paid to  national  and  local  third  party  distribution
channels  and  subsidies on handsets  sold by third  parties for which we do not
record  revenue.  Selling and  marketing  expenses rose to $52.6 million for the
year ended  December  31,  2002,  compared  to $49.0  million for the year ended
December 31,  2001,  an increase of $3.6  million.  This  increase  reflects the
increase  in the  costs of  operating  our 44  retail  stores,  6 of which  were
launched during 2002. The costs include an increase in marketing and advertising
in our sales  territory of $6.5  million,  the increase in  commissions  paid to
third  parties of $1.4  million and is offset by the  decrease in  subsidies  on
handsets sold by third parties of $4.3 million.  We expect selling and marketing
expense to increase in the aggregate as we compete to add customers.

     General  and  administrative  expenses.  General and  administrative  costs
include  the Sprint  management  fee  (which is 8% of  "collected  revenues"  as
described  under the "Sprint PCS  Agreements"  above),  a provision for doubtful


                                       39


accounts  receivable and costs related to corporate support functions  including
costs  associated with functions  performed for us by Horizon Services under our
services  agreement.  These services  include finance and accounting  functions,
computer  access  and  administration,  consulting,  human  resources  and other
administrative services. Horizon Services' costs for these functions are charged
to us using a standard FCC cost allocation methodology.  Under this methodology,
all costs that can be specifically  identified to us are directly charged to us,
and all costs that are specifically  identified to other subsidiaries of Horizon
Telcom are charged to them.  Costs  incurred by Horizon  Services that cannot be
specifically identified to a company for which Horizon Services provides service
are  apportioned  among the Horizon  Telcom  subsidiaries  based on  appropriate
measures.  Because of the economies of scale  inherent in a centralized  service
company,  we believe  we are able to receive  these  services  less  expensively
through this arrangement than if we provided them ourselves.

     General and  administrative  expenses for the twelve months ended  December
31, 2002,  were  approximately  $35.7 million  compared to  approximately  $21.5
million in 2001,  an increase  of  approximately  $14.2  million.  The  increase
reflects an increase in the  provision  for doubtful  accounts of  approximately
$9.1 million,  primarily  due to the write-off of NDASL and ClearPay  customers,
and an increase in the Sprint management fee of approximately $6.1 million, as a
result of higher  subscriber  revenues  in 2002,  offset by a decrease  in other
general expenses of approximately $1.0 million.

     Non-cash  compensation  expense.  For both the twelve months ended December
31, 2002 and 2001,  Horizon PCS  recorded  stock-based  compensation  expense of
approximately $400,000 and $1.0 million,  respectively.  The expense recorded in
2001 includes approximately $700,000 related to the distribution of 7,249 shares
of Horizon Telcom stock to employees of Horizon PCS and  approximately  $300,000
for stock options granted.  Stock-based compensation expense will continue to be
recognized  through the  conclusion  of the vesting  period for these options in
2005. The annual  non-cash  compensation  expense  expected to be recognized for
these stock options is  approximately  $620,000 in 2003,  $193,000 in 2004,  and
$71,000 in 2005.

     Loss on sale of property  and  equipment.  During the twelve  months  ended
December 31, 2002, we incurred a loss of  approximately  $600,000 related to the
sale of network equipment and corporate owned vehicles.  These sales resulted in
proceeds of approximately  $1.6 million.  The vehicles were subsequently  leased
back from the purchaser.

     Depreciation  and  amortization  expense.   Depreciation  and  amortization
expenses  increased by  approximately  $21.8 million to a total of approximately
$40.3  million  during the twelve months ended  December 31, 2002.  The increase
reflects  the  continuing  construction  of our  wireless  network  as we funded
approximately $63.1 million of capital expenditures during 2002.

     During 2002, the Company  launched  switches in Tennessee and  Pennsylvania
and  disconnected  some switching  equipment in Chillicothe,  Ohio. As a result,
approximately  $6.2 million of switching  equipment  is  considered  an impaired
asset as defined by SFAS No. 144.  Accordingly,  depreciation  and  amortization
expense  for the year ended  December  31,  2002,  includes  approximately  $3.5
million of expense related to accelerated depreciation on the impaired asset.

     Amortization  expense of the  intangible  asset  related to the Bright PCS'
acquisition was  approximately  $1.7 million during the years ended December 31,
2002 and 2001. Goodwill amortization was approximately  $389,000 during the year
ended December 31, 2001.  Goodwill  amortization ceased as of December 31, 2001,
with the adoption of SFAS No. 142.

     Amortization  expense also includes  amortization  of an  intangible  asset
recorded in September  2000  related to the new markets  granted to us by Sprint
PCS in September 2000. We agreed to grant warrants to Sprint PCS in exchange for
the right to provide service in additional markets.  The warrants will be issued
to Sprint PCS at the  earlier of an initial  public  offering  of the  Company's
common stock or July 31, 2003. The intangible  asset is being amortized over the
remaining term of the Sprint PCS management agreement,  resulting in $752,000 of
amortization  expense per year.  Amortization expense related to this intangible
asset was approximately $752,000 for the years ended December 31, 2002 and 2001.


                                       40


     Impairment of goodwill and impact of acquisition-related deferred taxes. On
December  31, 2002 the Company  performed  the annual  valuation  assessment  of
goodwill. As a result of this valuation the Company recorded goodwill impairment
of approximately $13.2 million,  which eliminates the entire balance of goodwill
at December 31, 2002.

     Interest  expense,  net.  Interest  expense for the year ended December 31,
2002, was approximately  $60.6 million,  compared to approximately $27.4 million
in 2001.  The  increase  in  interest  expense  was a result  of our  additional
indebtedness. Interest on the outstanding balance of our secured credit facility
accrues at LIBOR plus a specified margin. On June 29, 2002, we agreed to several
changes in the secured  credit  facility  including a 25 basis point increase in
the margin on the annual  interest rate. At December 31, 2002, the interest rate
on the $105.0 million term loan A borrowed under our secured credit facility was
5.40%,  while the  interest  rate on the $50.0  million  term loan B was  6.33%.
Interest  expense on the  secured  credit  facility  was $9.3  million  and $4.8
million during the year ended December 31, 2002 and 2001, respectively.

     We accrue  interest  at a rate of 14.00%  annually  on our  discount  notes
issued in September 2000 and will pay interest  semi-annually  in cash beginning
in  October  2005.  Unaccreted  interest  expense  on  the  discount  notes  was
approximately  $108.7  million at December  31,  2002.  Interest  expense on the
discount notes was approximately $27.2 million and $23.8 million during the year
ended December 31, 2002 and 2001, respectively.

     On June 15, 2002,  we began  making  semi-annual  interest  payments on our
senior  notes  issued in  December  2001 at an annual  rate of 13.75%.  Interest
expense  accrued on the senior notes was  approximately  $24.1  million and $1.5
million during the years ended December 31, 2002 and 2001,  respectively.  Under
the terms of the senior notes, cash to cover the first four semi-annual interest
payments was placed in an escrow account.

     Interest expense also includes  approximately $2.8 million and $1.1 million
during the year ended December 31, 2002 and 2001, respectively,  of amortization
from the deferred  financing  fees related to our secured credit  facility,  our
discount notes and our senior notes.  Also  contributing to interest expense was
approximately  $1.6 million and $2.8 million during the year ended December 2002
and 2001,  respectively,  in commitment  fees paid on the unused  portion of our
secured credit facility.

     Capitalized  interest during the year ended December 31, 2002 and 2001, was
approximately $4.4 million and $6.6 million, respectively.

     Preferred stock dividend.  Horizon PCS' convertible  preferred stock pays a
stock dividend at the rate of 7.5% per annum, payable semi-annually,  commencing
May 1,  2001.  The  dividends  are paid with  additional  shares of  convertible
preferred  stock.  Through  December  31,  2002,  we have  issued an  additional
4,345,092  shares  of  convertible  preferred  stock in  payment  of  dividends,
including  1,060,201  shares on May 1, 2002 and 1,099,958  shares on November 1,
2002.

     Interest income, net. Interest income for the year ended December 31, 2002,
was approximately  $3.0 million compared to approximately  $5.1 million in 2001.
This decrease was due primarily to a lower average  balance of cash  investments
during  2002,  as  compared  to the  same  period  in  2001  and  due to a lower
short-term interest rate environment in 2002.

     Income taxes.  Until  September  26, 2000,  Horizon PCS was included in the
consolidated  Federal  income tax  return of Horizon  Telcom.  We  provided  for
Federal  income  taxes  on a pro  rata  basis,  consistent  with a  consolidated
tax-sharing  agreement.  As a result  of the sale of the  convertible  preferred
stock on  September  26,  2000,  Horizon PCS is not able to  participate  in the
tax-sharing  agreement.  Additionally,  Horizon PCS is not able to recognize any
net operating loss benefits until it generates  taxable income.  Horizon PCS did
not record any income tax benefit for the twelve months ended  December 31, 2002
or 2001,  because of the  uncertainty of generating  future taxable income to be
able to recognize current net operating loss carryforwards.

     Net loss.  Horizon PCS' net loss for the twelve  months ended  December 31,
2002, was approximately  $182.4 million compared to approximately $116.8 million
for the twelve months ended December 31, 2001. The increase in Horizon PCS' loss
reflects the continued  expenses  related to launching its wireless  markets and
building  its  wireless  customer  base,  as well as the  factors  discussed  in
"Business  -  Current   Developments"   and   "Business   -  Wireless   Personal


                                       41


Communications  Services  -  Current  Operating  Environment  and  Our  Business
Strategy." We expect Horizon PCS to incur  significant  operating  losses and to
generate  significant  negative cash flow from operating activities due to these
factors.

LANDLINE TELEPHONE SERVICES SEGMENT AND ALL OTHER SERVICES

     The following  discussion details the results of operations of our landline
telephone  services segment and all other services not assigned to a segment for
the last fiscal quarter.

RESULTS OF OPERATIONS

     Revenues.  Network access revenue  increased by approximately  $1.3 million
for the twelve months ended December 31, 2002, to  approximately  $21.5 million.
The Company saw lower revenue from pooled interexchange  carriers,  offset by an
increase  of  approximately  $2.1  million  related  to  amounts  that  had been
previously  set aside to settle future over earnings  claims by other  carriers.
The over  earnings  claims  amount was  reversed  due to a ruling in 2002 by the
United   States   Court  of  Appeals   that   deals  with  a  similar   landline
telecommunications  company and its related carrier access rates.  Long distance
charges decreased by approximately $300,000 due to lower usage by our customers,
as usage for long  distance  continues to shift to wireless  devices.  Directory
advertising  revenue and other  related  telephone  services  each  decreased by
approximately $300,000.

     Internet access and other revenues  increased by approximately $1.4 million
to $8.7 million for the twelve months ended  December 31, 2002.  Other  revenues
were  impacted by  increased  VDSL  revenue as we continue to build our customer
base,  which was somewhat offset by lower  bright.net  dial-up  Internet service
subscribers.  We believe a number of these lost dial-up  customers have switched
to high-speed VDSL service.

     Cost of PCS and other equipment  sales.  Cost of goods sold for Chillicothe
Telephone and Horizon Technology primarily consists of business system sales and
customer  maintenance  expenses.  Cost of goods sold for landline  telephone and
other services was essentially  flat,  decreasing by  approximately  $100,000 to
$600,000 for the twelve  months ended  December 31, 2002 as compared to the same
period in 2001.

     Cost of services.  Cost of services  include  customer  care  support,  and
network-related costs, including switching, access and circuit expenses. Cost of
services also  includes  expenses  related to the  installation  of  Chillicothe
Telephone's VDSL service.

     Cost of  services  for the twelve  months  ended  December  31,  2002,  was
approximately  $16.3 million,  compared to  approximately  $14.9 million for the
twelve  months  ended  December  31,  2001,  an increase of  approximately  $1.4
million.  Approximately  $900,000 of the increase  was related to the  continued
installation and programming  expenses  associated with our VDSL service,  while
Horizon  Technology's  Internet service,  Brightnet,  experienced an increase in
access  expense of  approximately  $500,000 due  primarily to increased  circuit
charges.

     Selling and marketing  expenses.  Selling and marketing expenses consist of
costs  associated  with  local  marketing  and  advertising  programs  including
marketing for VDSL.  Selling and marketing  expenses for landline  telephone and
other related services was  approximately  $1.6 million,  for each of the twelve
months ending December 31, 2002 and 2001.

     General and administrative  expenses.  General and administrative  expenses
include the costs related to corporate support functions.  These include finance
functions,  billing and collections,  accounting  services,  computer access and
administration,  executive,  supervisory,  consulting, customer relations, human
resources and other administrative services. General and administrative expenses
decreased  by  approximately  $500,000 to  approximately  $21.0  million for the
twelve months ended December 31, 2002, primarily due to a decrease in legal fees
and other general expenses.

     Non-cash  compensation  expense.   Non-cash  compensation  expense  is  the
amortization of the value of stock options granted in November 1999. Stock-based
compensation  expense will continue to be recognized  through the  conclusion of
the vesting  period for these  options in 2005.  Non-cash  compensation  expense
decreased slightly in 2002 due to a reduction in vesting percentages in 2002.



                                       42


     Loss on disposal of assets. During 2002, Horizon Technology incurred a loss
of approximately $16,000 related to the disposal of computer related equipment.

     Depreciation  and  amortization  expense.   Depreciation  and  amortization
expenses for landline  telephone and other services  increased by  approximately
$1.4 million to a total of  approximately  $9.0 million during the twelve months
ended December 31, 2002. The increase  reflects the continuing  expansion of our
plant to provide VDSL  service.  We expect to continue  this  expansion in 2003,
resulting in further increases in depreciation expense.

     Interest  expense,  net.  Interest  expense  for the  twelve  months  ended
December 31, 2002, was  approximately  $2.8 million,  compared to  approximately
$2.1  million for the twelve  months ended  December  31, 2001.  The increase in
interest  expense was a result of our  additional  debt  outstanding  during the
twelve months ended  December 31, 2002,  compared to the same period in 2001. We
expect further  increases in interest expense in 2003 due to anticipated  higher
average debt levels.

     In August 2002,  Chillicothe  Telephone issued  $30,000,000 of 6.64% Senior
Notes.  A  portion  of the  proceeds  was used to  retire  the line of credit on
September 28, 2002.  Interest expense on the 2002 Senior Notes was approximately
$800,000 for the twelve months ended December 31, 2002.  The remaining  proceeds
of  approximately  $3.0  million  were  used  primarily  for  general  corporate
purposes.  Interest  expense on the retired  line of credit and the retired 1993
Senior  Notes was  approximately  $1.3  million and $1.5  million for the twelve
months  ended  December  31, 2002 and 2001,  respectively.  Interest  expense on
Chillicothe  Telephone's  1998 Senior Notes was  approximately  $800,000 in both
2002 and 2001. Capitalized  construction interest was approximately $100,000 and
$200,000, for the years ended 2002 and 2001, respectively.

     Interest  income,  net. The landline  telephone  service  segment  recorded
approximately  $100,000 of other expense in the twelve months ended December 31,
2002.  In 2001,  income  of  approximately  $100,000  was  recorded  related  to
non-operating corporate activity.

     Income tax expense. Income tax expense for the twelve months ended December
31, 2002, was approximately  $1.2 million compared to approximately $1.8 million
in 2001, reflecting lower net income before tax in 2002.

    Minority  interest in loss.  As part of the  acquisition  of Bright PCS, the
former members of Bright PCS have  approximately an 8% ownership in Horizon PCS,
excluding the impact of the possible  conversion of convertible  preferred stock
and exercise of options and warrants. Horizon Telcom accounts for this ownership
by recording the portion of net loss  attributable to the minority  shareholders
as  minority  interest  in  loss  in  the  accompanying  condensed  consolidated
statements of operations.  Horizon Telcom recognized  approximately $1.0 million
in  2001  related  to the  minority  interest.  There  will  not be any  further
allocations  to  minority  interests  until  such time as  Horizon  PCS  becomes
profitable  and any  unallocated  losses to minority  interests  are offset with
income in future periods.


                                       43


RESULTS OF OPERATIONS  FOR THE YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR
ENDED DECEMBER 31, 2000

     The  following  table  details  the  consolidated  statements  of income by
operating segment for the twelve months ended December 31, 2001 and 2000.


                                                                                      
                                                               For the Year Ended, December 31,
                                                         ------------------------------------------------------
                                                               Wireless Personal        Landline Telephone
                                                           Communications Services      And Other Services
         (Dollars in thousands)                          -------------------------   --------------------------
         OPERATING REVENUES:                                 2001         2000           2001          2000
                                                         ------------ ------------   ------------  ------------
            PCS subscriber and roaming..............     $   115,906  $    26,111    $        --   $        --
            PCS equipment...........................           7,106        3,061             --            --
            Basic local and long-distance service...              --           --         19,586        20,320
            Network access..........................              --           --         20,198        17,276
            Equipment systems sales, information
              services, Internet access and other...              --           --          7,344         7,232
                                                         ------------ ------------   ------------  ------------
              Total operating revenues.............          123,012       29,172         47,128        44,828
                                                         ------------ ------------   ------------  ------------

         OPERATING EXPENSES:
            Cost of PCS and other equipment sales .           14,871        9,775            688           722
            Cost of services.......................          100,257       27,452         14,911        14,019
            Selling and marketing..................           48,993       18,026          1,553         1,601
            General and administrative.............           21,505        7,457         21,457        18,180
            Non-cash compensation..................            1,044          636            105           217
            Loss on disposal of assets.............            1,297           --             --            --
            Depreciation and amortization..........           18,519        6,134          7,630         6,924
                                                         ------------ ------------   ------------  ------------
              Total operating expenses.............          206,486       69,480         46,344        41,663
                                                         ------------ ------------   ------------  ------------

         OPERATING INCOME (LOSS)...................          (83,474)     (40,308)           784         3,165
                                                         ------------ ------------   ------------  ------------

         NONOPERATING INCOME (EXPENSE):
            Interest expense, net..................          (27,434)     (10,317)        (2,131)       (1,876)
            Subsidiary preferred stock dividends...          (10,930)      (2,782)            --            --
            Interest income, net...................            5,054        4,559            110           175
                                                         ------------ ------------   ------------  ------------
              Total nonoperating expense...........          (33,310)      (8,540)        (2,021)       (1,701)
                                                         ------------ ------------   ------------  ------------

         INCOME (LOSS) BEFORE INCOME TAX EXPENSE
            AND MINORITY INTEREST..................         (116,784)     (48,848)        (1,237)        1,464

         INCOME TAX (EXPENSE) BENEFIT..............               --        2,983         (1,783)       (2,087)

         MINORITY INTEREST IN LOSS.................               --           --            984         2,301
                                                         ------------ ------------   ------------  ------------

         GAIN (LOSS) BEFORE EXTRAORDINARY ITEM.....               --      (45,865)        (2,036)        1,678
                                                         ------------ ------------   ------------  ------------

         EXTRAORDINARY ITEM........................               --         (486)            --            --
                                                         ------------ ------------   ------------  ------------

         NET INCOME (LOSS).........................      $  (116,784) $   (46,351)   $    (2,036)  $     1,678
                                                         ============ ============   ============  ============



WIRELESS PERSONAL COMMUNICATIONS SERVICES SEGMENT

     The following  discussion  details key operating metrics and the results of
operations for our wireless  personal  communications  service  segment over the
past twelve  months.  Our  wireless  personal  communications  segment  consists
entirely of the operations of Horizon PCS.


                                       44


SPRINT AGREEMENTS

     Amounts  recorded  relating  to the Sprint  Agreements  for the years ended
December 31, 2001 and 2000, are approximately as follows:




TOTAL REVENUES AND EXPENSES PROVIDED BY              YEAR ENDED DECEMBER 31,
SPRINT AGREEMENTS                                     2001             2000
- ---------------------------------------------    --------------   --------------
Roaming revenue..............................    $  37,734,000    $   7,662,000
                                                 ==============   ==============

Cost of Service:
  Roaming....................................    $  27,007,000    $   5,180,000
  Billing and customer care..................       10,475,000          960,000
  Long Distance..............................        6,640,000          574,000
                                                 --------------   --------------
    Total cost of service....................       44,122,000        6,714,000
  Selling and marketing......................        1,460,000          322,000
  General and administrative  Affiliation fee        5,923,000        1,302,000
                                                 --------------   --------------
    Total expense............................    $  51,505,000    $   8,338,000
                                                 ==============   ==============


KEY METRICS - HORIZON PCS

     Customer  Additions.   As  of  December  31,  2001,  we  provided  personal
communication service directly to approximately 194,100 customers.  For the year
ended  December  31, 2001 and 2000,  Horizon PCS net  subscribers  increased  by
approximately  127,700 and 52,700  customers,  respectively.  Gross  activations
during  2001  were  153%  higher  than 2000 due in part to  changes  in  deposit
requirements for new low credit quality subscribers.

     Cost Per Gross  Addition.  CPGA was $339 for the year  ended  December  31,
2001,  compared to $373 for the year ended  December 31, 2000.  This decrease is
primarily the result of more gross activations in 2001 compared to 2000.

     Churn.  Churn for the year is an average of the twelve  months in the year.
Churn for the year  ended  December  31,  2001,  was 2.4%  relatively  flat when
compared to 2.6% for the year ended December 31, 2000.

     Average Revenue Per Unit. The following  summarizes ARPU for the year ended
December 31:

                                                2001              2000
                                          ----------------   ---------------
   Service revenues
      Recurring.......................... $         43        $        38
      Minute sensitive...................           14                 13
      Features and other*................           (1)                --
                                          ----------------   ---------------
        Total service revenues...........           56                 51
                                          ================    ==============

   Roaming revenues......................           27                 24
                                          ----------------    --------------
          ARPU........................... $         83        $        75
                                          ----------------    --------------
- ----------------------
* Excludes  impact of a  non-recurring  adjustment  to access revenue.

     Recurring service ARPU increased as more customers activated or migrated to
service plans carrying higher monthly recurring charges.

RESULTS OF OPERATIONS

     Revenues.  Subscriber  revenues for the year ended December 31, 2001,  were
$77.7  million,  compared to $17.7 million for the year ended December 31, 2000,
an increase of $60.0 million. The growth in subscriber revenues is primarily the


                                       45


result  of the  growth  in our  customer  base.  We  had  approximately  194,100
customers at December 31, 2001, compared to approximately 66,400 at December 31,
2000.  Our customer base has grown because we have launched  additional  markets
and increased our sales force.  ARPU excluding  roaming increased in 2001 to $56
from $51 in 2000, as customers  chose plans carrying a higher monthly  recurring
charge.

     Roaming revenues increased from $8.4 million during the year ended December
31, 2000, to $38.5 million for the year ended  December 31, 2001, an increase of
$30.1  million.  ARPU including  roaming  increased from $75 to $83 for the year
ended  December 31, 2000,  and December 31, 2001,  respectively.  This  increase
primarily  resulted  from the  continued  build-out  of our  network,  including
highways covering northwest Ohio, northern Indiana and Pennsylvania.

     Equipment  revenues  consist of handsets and accessories  sold to customers
through our stores and through our direct  sales force.  Equipment  revenues for
the year ended  December 31, 2001,  were $7.1 million,  compared to $3.1 million
for the year ended December 31, 2000,  representing an increase of $4.0 million.
The increase in equipment revenues is the result of an increase in the number of
handsets sold by our stores and direct sales force,  somewhat  offset by a lower
sales price per unit.

     Cost of PCS and other  equipment  sales.  Cost of equipment  for the twelve
months ended December 31, 2001,  was  approximately  $14.9 million,  compared to
approximately  $9.8 million for the twelve  months ended  December 31, 2000,  an
increase of approximately $5.1 million. The increase in the cost of equipment is
the  result of the growth in our  wireless  customers,  partially  offset by the
decreasing unit cost of the handsets.  For competitive and marketing reasons, we
have sold  handsets  to our  customers  below our cost and expect to continue to
sell handsets at a price below our cost for the foreseeable future.

     Cost of service.  Cost of service for the twelve months ended  December 31,
2001, was approximately $100.3 million,  compared to approximately $27.4 million
for the twelve  months ended  December 31,  2000,  an increase of  approximately
$72.9 million. This increase reflects the increase in roaming expense, including
long distance  charges,  of approximately  $29.9 million;  the increase in costs
incurred  under our wireless  network  services  agreement with the Alliances of
approximately  $12.4  million;  the  increase  in wireless  network  operations,
including  tower  lease  expense,   circuit  costs  and  payroll   expense,   of
approximately $17.6 million;  increased customer care, activations,  and billing
expense of  approximately  $9.6  million;  and the  increase  in other  variable
expenses,   including   interconnection  and  national  platform  expenses,   of
approximately $3.4 million.

     Selling and  marketing  expenses.  Selling and  marketing  expenses rose to
approximately  $49.0  million for the twelve  months  ended  December  31, 2001,
compared to  approximately  $18.0 million in 2000, an increase of  approximately
$31.0 million. This increase reflects the increase in the costs of operating our
38 retail stores, including marketing and advertising in our sales territory, of
approximately $17.6 million, the increase in subsidies on handsets sold by third
parties of approximately $10.1 million,  and the increase in commissions paid to
third parties of approximately $3.3 million.  We expect selling and marketing to
increase in the aggregate as we expand our coverage,  launch additional a stores
and add customers.

     General and administrative  expenses.  General and administrative  expenses
for the twelve months ended December 31, 2001, were approximately  $21.5 million
compared to  approximately  $7.5 million in 2000,  an increase of  approximately
$14.0 million.  The increase  reflects an increase in the provision for doubtful
accounts  receivable of  approximately  $5.0 million,  an increase in the Sprint
management fee of  approximately  $4.6 million as a result of higher  subscriber
revenues in 2001,  increased  professional fees,  including  non-recurring costs
related to pursuing strategic business  alternatives of $1.3 million,  increased
headcount,  professional services and other general expenses, including property
and franchise taxes, of $3.1 million.

     Non-cash  compensation  expense.  For the twelve months ended  December 31,
2001  and  2000,  Horizon  PCS  recorded  stock-based  compensation  expense  of
approximately  $1.0 million and $600,000  respectively.  The expense recorded in
2001 includes approximately $700,000 related to the distribution of 7,249 shares
of Horizon  Telcom  stock to  employees  of Horizon PCS and  $300,000  for stock
options granted. The expense in 2000 relates to the amortization of the value of
stock options granted in 1999 and 2000.

    Depreciation  and  amortization   expense.   Depreciation  and  amortization
expenses  increased by $12.4  million to a total of $18.5  million in 2001.  The


                                       46


increase  reflects  the  continuing  construction  of our  network  as we funded
approximately  $116.6 million of capital  expenditures during 2001. In addition,
because  our  acquisition  of  Bright  PCS  was  accounted  for  as  a  purchase
transaction,  amortization  has increased as a result of amortizing  the related
goodwill and intangible assets. Amortization expense of the intangible asset was
$1.7 million and $868,000 during 2001 and 2000,  respectively.  Related goodwill
amortization was $389,000 and $198,000 in 2001 and 2000, respectively.  Goodwill
amortization ceased as of December 31, 2001, with the adoption of SFAS No. 142.

     Amortization  expense also includes  amortization  of an  intangible  asset
recorded  in  September  2000  related to the new PCS  markets  granted to us by
Sprint in September of 2000. We agreed to grant  warrants to purchase  shares of
Horizon PCS' common stock to Sprint in exchange for the right to provide service
in additional  markets.  The warrants will be issued to Sprint at the earlier of
an initial  public  offering of Horizon PCS' common stock or July 31, 2003.  The
intangible  asset is being  amortized  over the remaining term of the Sprint PCS
management  agreement,  resulting in $752,000 of amortization  expense per year.
Amortization expense related to this intangible asset was approximately $800,000
and $200,000 for the years ended December 31, 2001 and 2000, respectively.

     Loss on disposal of assets.  During the twelve  months  ended  December 31,
2001,  Horizon PCS incurred a loss of approximately  $1.3 million related to the
upgrade of network equipment to 3G technology.  The loss represents the net book
value of the assets disposed of, less proceeds received for the equipment.

     Interest  expense,  net.  Interest  expense for the year ended December 31,
2001,  was $27.4  million,  compared to $10.3  million in 2000.  Interest on the
outstanding  balance  of our  secured  credit  facility  accrues at LIBOR plus a
specified  margin. On June 29, 2001, we agreed to several changes in the secured
credit facility including a 25 basis point increase in the annual interest rate.
At December 31, 2001,  the interest  rate on the amount  borrowed on our secured
credit facility was 6.16%.  Interest  expense on the secured credit facility was
$4.8 million and $1.2 million during 2001 and 2000, respectively.

     We accrue  interest  at a rate of 14.00%  per annum on our  discount  notes
through October 1, 2005, and will pay interest semi-annually in cash thereafter.
Unaccreted interest expense on the discount notes was $135.9 million at December
31,  2001.  Interest  expense on the discount  notes was $23.8  million and $5.1
million during 2001 and 2000, respectively.

     On June 15, 2002,  we begin  making  semi-annual  interest  payments on our
senior  notes  issued in  December  2001 at an annual  rate of 13.75%.  Interest
expense  accrued on the senior  notes was $1.5 million  during  2001.  Under the
terms of the senior  notes,  cash to cover the first four  semi-annual  interest
payments was placed in an escrow account.

     Interest expense also includes  approximately $1.1 million and $1.0 million
in 2001 and 2000, respectively, of amortization from the deferred financing fees
related to our secured credit facility, our discount notes and our senior notes.
Also  contributing  to the  increase  in interest  expense  during 2001 was $2.8
million in commitment  fees we paid on the unused  portion of our secured credit
facility.

     The increase in interest expense as a result of our additional indebtedness
was somewhat offset by capitalized  interest  related to our network  build-out.
Capitalized  interest  during 2001 and 2000 was  approximately  $6.6 million and
$1.5 million, respectively.

     Preferred stock dividend.  Horizon PCS' convertible  preferred stock pays a
stock dividend at the rate of 7.5% per annum, payable  semi-annually  commencing
May 1,  2001.  The  dividends  are paid with  additional  shares of  convertible
preferred  stock.  On May 1, 2001,  Horizon PCS issued an  additional  1,163,051
shares of preferred  stock in payment of the stock  dividends  through April 30,
2001,  and on  November 1, 2001,  we issued an  additional  1,021,882  shares of
preferred stock in payment of the stock dividends through October 31, 2001.

     Interest income.  Interest income for the year ended December 31, 2001, was
$5.0 million.  Interest  income was generated from the short-term  investment of
cash proceeds from our private  equity sales,  discount notes and drawings under
the secured credit facility, all completed on September 26, 2000.  Additionally,
in  conjunction  with our offering of $175.0 million in senior notes in December
2001, we were required to escrow approximately $48.7 million of the proceeds (in
an interest bearing account) for the first four interest  payments due under the
notes' terms. We recorded $69,000 of interest income on the escrow funds.


                                       47



     Income taxes.  Until  September  26, 2000,  Horizon PCS was included in the
consolidated  federal income tax return of Horizon Telcom.  Horizon PCS provided
for federal  income taxes on a pro-rata  basis,  consistent  with a consolidated
tax-sharing  agreement.  As a result  of the sale of  Horizon  PCS'  convertible
preferred  stock  on  September  26,  2000,  Horizon  PCS  will  not be  able to
participate  in the tax sharing  agreement  nor will they be able to utilize any
net operating loss benefits until they start to generate taxable income. Horizon
PCS did not record any income tax benefit for the twelve  months ended  December
31, 2001 because of the  uncertainty  of generating  future taxable income to be
able to recognize current net operating losses.

     Extraordinary  loss.  As a result of the  September  26, 2000,  financings,
Horizon PCS retired its long-term debt payable to financial  institutions.  As a
result of the debt extinguishments, Horizon PCS expensed the unamortized portion
of the  related  financing  costs,  as well as fees  associated  with  the  debt
extinguishments.  These fees and expenses amounted to approximately $748,000 and
are shown on the statement of operation net of a tax benefit of $262,000.

     Net loss.  Horizon PCS' net loss for the twelve  months ended  December 31,
2001, was approximately  $116.8 million compared to approximately  $46.4 million
for the twelve months ended December 31, 2000. The increase in Horizon PCS' loss
reflects the  continued  expenses  related to launching its markets and building
its customer base.

LANDLINE TELEPHONE SERVICES SEGMENT AND ALL OTHER SERVICES

     The following  discussion details the results of operations of our landline
telephone  services segment and all other services not assigned to a segment for
the twelve months ended December 31, 2001 and 2000.

RESULTS OF OPERATIONS

     Revenues.  Basic local and long-distance  service revenue decreased for the
twelve  months  ended  December  31, 2001,  by  approximately  $700,000 to $19.6
million  as  the  Company  continues  to  see  substantially   lower  usage  for
long-distance  service.  We expect  this trend to continue  for the  foreseeable
future,  as more customers use wireless  devices where long distance is included
for one monthly fee.  Network access revenues  increased by  approximately  $2.9
million to $20.2  million for the year ended  December 31, 2001,  as compared to
2000. This increase was due to increased usage of our network.

     Other  revenues were  impacted by increased  VDSL revenue as we continue to
build  our  customer  base,  offset  somewhat  by  decreased  revenues  from our
bright.net  Internet  services.  Our Internet  access services saw a decrease in
customers during 2001, resulting in lower overall revenues.

     Cost of PCS and other equipment  sales.  Cost of goods sold was essentially
flat for the twelve months ended  December 31, 2001 and 2000,  at  approximately
$700,000.

     Cost of services. Cost of services for the twelve months ended December 31,
2001, was approximately  $14.9 million,  compared to approximately $14.0 million
for the twelve  months ended  December 31,  2000,  an increase of  approximately
$900,000.  This  increase was a result of increased  costs  associated  with the
start  up,  continued  installation  and  expansion  of our VDSL  service  as we
continue to build out the network and increase the subscriber base.

     Selling  and  marketing  expenses.  Selling  and  marketing  expenses  were
essentially  flat, at  approximately  $1.6 million for each of the twelve months
ended December 31, 2001 and 2000.

     General and administrative  expenses.  General and administrative  expenses
increased to  approximately  $21.5 million for the twelve months ended  December
31, 2001,  compared to  approximately  $18.2  million for 2000. Of the increase,
$1.5 million was related to an increase in billing support services, information
technology and Horizon Technology's  administrative services, while $1.8 million
was  related  to  increased  headcount  and  professional  services  at  Horizon
Services, needed to support Horizon PCS' growth.



                                       48


     Non-cash   compensation   expense.   This   compensation   expense  is  the
amortization of the value of stock options granted in November 1999.

     Depreciation  and  amortization  expense.   Depreciation  and  amortization
expenses increased by approximately $700,000 to a total of $7.6 million in 2001.
The  increase  reflects  the  continuing  construction  of  our  network  as  we
additionally  funded  approximately  $16.0  million for VDSL and the  continuous
upgrade of our landline network to optical fiber cabling.

     Interest  expense,  net.  Interest  expense  for the  twelve  months  ended
December 31, 2001, was  approximately  $2.1 million,  compared to  approximately
$1.9  million for the twelve  months ended  December  31, 2000.  The increase in
interest  expense was a result of our  additional  debt  outstanding  during the
twelve months ended December 31, 2001, compared to the same period in 2000.

     Interest  expense on the retired line of credit and the retired 1993 Senior
Notes was  approximately  $1.5  million in 2001 and  $900,000 in 2000.  Interest
expense on Chillicothe  Telephone's 1998 Senior Notes was approximately $800,000
in 2002 and 2001.  For the year ended December 31, 2000,  Chillicothe  Telephone
recognized  other  interest  expense of  approximately  $500,000  related to its
outstanding line of credit.  Capitalized construction interest was approximately
$200,000  and  $300,000,  in 2001 and 2000  respectively.  Amortization  of debt
issuance costs was approximately $19,000 in both 2001 and in 2000.

     Interest  income,   net.  The  landline   telephone   service  segment  had
approximately  $100,000 of income for the twelve months ended  December 31, 2001
compared  to  approximately   $400,000  of  income  in  2000.  The  decrease  of
approximately  $300,000 was related to lower amounts of interest income that was
recognized in 2001.

     Income tax expense. Income tax expense for the twelve months ended December
31, 2001, was approximately  $1.8 million compared to approximately $2.0 million
in 2000, reflecting lower net income before taxes.

     Minority  interest in loss. As part of the  acquisition  of Bright PCS, the
former members of Bright PCS have  approximately an 8% ownership in Horizon PCS,
excluding the impact of the possible  conversion of convertible  preferred stock
and exercise of options and warrants. Horizon Telcom accounts for this ownership
by recording the portion of net loss  attributable to the minority  shareholders
as  minority  interest  in  loss  in  the  accompanying  condensed  consolidated
statements of operations.  There will not be any further allocations to minority
interests until such time as Horizon PCS becomes  profitable and any unallocated
losses to minority interests are offset with income in future periods.

LIQUIDITY AND CAPITAL RESOURCES

     As of December 31, 2002,  Horizon PCS was in compliance  with its covenants
with regards to its outstanding debt.  However,  Horizon PCS believes that it is
probable  that it will  violate one or more of its  covenants  under its secured
credit facility in 2003. The failure to comply with a covenant would be an event
of default  under  Horizon  PCS'  secured  credit  facility,  and would give the
lenders the right to pursue remedies.  These remedies could include acceleration
of amounts due under the  facility.  If the lenders  elected to  accelerate  the
indebtedness  under the facility,  this would also represent a default under the
indentures  for our senior notes and discount notes (see "Note 11" in the "Notes
to Consolidated  Financial  Statements")  and would give Sprint certain remedies
under our Consent  and  Agreement  with  Sprint.  See "The  Sprint  Agreements."
Horizon PCS does not have sufficient  liquidity to repay all of the indebtedness
under these obligations.  Horizon PCS's independent  auditors report dated March
4, 2003 states that these  matters  have  substantial  doubt about  Horizon PCS'
ability to continue as a going concern.

     In addition,  without the  additional  borrowing  capacity under the senior
credit  facility,  significant  modifications  in the amounts  charged by Sprint
under  the  management  agreements,  significant  modifications  in the  amounts
charged  by  the  Alliances  under  the  Network  Service   Agreement  and/or  a
restructuring  of their  capital  structure,  Horizon  PCS likely  does not have
sufficient  liquidity to fund its  operations  so that it can pursue its desired
business plan and achieve positive cash flow from operations.

     Horizon PCS plans to take the following steps (some of which it has already
commenced)  within  the next six  months to  achieve  compliance  under its debt
facilities and to fund its operations:


                                       49



     o    Entering into  negotiations  with Sprint to adjust the amounts charged
          by Sprint to the Company  under the Sprint  management  agreements  to
          improve Horizon PCS' cash flow from operations.

     o    Entering into  negotiations or arbitration  with the lenders under the
          senior credit facility to modify the debt covenants, and if necessary,
          to obtain  waivers  and/or a  forbearance  agreement  with  respect to
          defaults under the senior credit facility.

     o    Entering into  negotiations with the lenders under their senior credit
          facility to obtain the right to borrow  under the $95 million  line of
          credit and to modify the repayment terms of this facility.

     o    If the lenders under the senior credit facility  accelerate the senior
          debt,   negotiating   a   waiver   or   forbearance   agreement   with
          representatives  of the  holders of their  senior  notes and  discount
          notes.

     o    Entering  into  negotiations  with the Alliances to adjust the amounts
          charged by  Alliances to Horizon PCS under the network  agreements  to
          improve Horizon PCS' cash flow from operations.

     o    Pursuing means to reduce  operating  expenses by critically  analyzing
          all expenses and entering into pricing negotiations with key vendors.

     Horizon PCS would need to be  successful in these efforts to be in position
to execute its business  plan and achieve  positive  cash flow.  Horizon PCS can
give no assurance  that it will be  successful  in these  efforts.  In its early
discussions  with Sprint,  Sprint has indicated  reluctance in modifying the fee
structure as needed under the first item listed above.

     Horizon PCS has engaged Berenson & Company,  an investment banking firm, to
assist in its efforts to renegotiate or restructure  its equity,  debt and other
contractual obligations.

     If  Horizon  PCS is  unable  to  restructure  its  current  debt and  other
contractual obligations as discussed above, it would need to:

     O    obtain financing to satisfy or refinance its current obligations;

     O    find a purchaser  or strategic  partner for Horizon  PCS'  business or
          otherwise dispose of its assets; or

     O    seek bankruptcy protection.

Financing Overview

     In  1996,  Horizon  Telcom  was  formed  as  part  of a  reorganization  of
Chillicothe  Telephone and several of its affiliates.  Since that time,  Horizon
Telcom has met its needs for capital primarily by borrowing, by selling selected
businesses and assets, and by funds generated from operations.  In 2000, Horizon
Telcom  formed  Horizon  PCS, to which it  transferred  its  subsidiary  Horizon
Personal Communications. In June 2000, Horizon PCS acquired the remaining 74% of
Bright PCS.  Horizon PCS also entered into several major financing  transactions
in September 2000 and December 2001.

     On September 26, 2000, an investor group led by Apollo Management purchased
$126.5  million  of  Horizon  PCS'  convertible  preferred  stock  in a  private
placement. Concurrent with the closing, the holder of Horizon PCS' $14.1 million
short-term  convertible  note  (including  accrued  interest  of  $1.1  million)
converted the note into the same  convertible  preferred  stock purchased by the
investor group.

     On  September  26,  2000,  Horizon PCS  received  $149.7  million  from the
issuance  of $295.0  million of senior  discount  notes due October 1, 2010 (the
"discount notes"). The discount notes accrete in value until October 1, 2005, at
a rate of 14.00% compounded semi-annually.  The discount notes do not require us
to pay cash interest until the fifth year after they are issued,  at which point


                                       50


we will pay semi-annual interest until maturity.  The discount notes are general
unsecured  obligations  and are  guaranteed by our existing and future  domestic
restricted  subsidiaries.  The guarantees are senior subordinated obligations of
our  existing and future  domestic  restricted  subsidiaries.  The rights of the
holders of our discount notes to receive payments pursuant to the guarantees are
subordinated  in right of payment  to the  holders  of our  existing  and future
senior  indebtedness,  including  our $250.0  million  secured  credit  facility
described below.

     Also on September 26, 2000, Horizon PCS received $50.0 million as part of a
$225.0  million  secured  credit  facility  with a bank group led by First Union
National  Bank.  The  borrowing  capacity of the  secured  credit  facility  was
increased  to $250.0  million in  November  2000.  The secured  credit  facility
consists of the following two loans:

     O    a $155.0 million term loan, available in a $50.0 million tranche and a
          $105.0 million  tranche,  under which we may borrow to finance (i) the
          direct cost of the  construction  and operation of a regional  digital
          wireless  telecommunications  network on the Sprint PCS  system;  (ii)
          transaction  costs and expenses;  and (iii) working  capital and other
          general corporate purposes; and

     O    a $95.0 million  revolving credit facility,  the proceeds of which may
          be used to fund working capital.

     The $50.0  million  tranche was drawn on  September  26,  2000,  and had an
interest rate of 6.33% at December 31, 2002. As required,  we drew the remaining
$105.0 million  tranche in March,  2002. The interest rate on the $105.0 million
tranche was 5.40% at December 31, 2002. The revolving credit facility is subject
to restrictions and may not be used if we violate loan covenants.

     On December 7, 2001,  Horizon PCS received $175.0 million from the issuance
of unsecured senior notes (the "senior notes") due on June 15, 2011. Interest is
paid semi-annually on June 15 and December 15 at 13.75% annually,  with interest
payments commencing June 15, 2002. Approximately $48.7 million of the offering's
proceeds  were  placed in an escrow  account to fund the first four  semi-annual
interest  payments.  The first of these  payments were made on June 15, 2002 and
December 15, 2002.  The senior notes were subject to an exchange  offer that was
completed in 2002.

     The following  table presents the estimated  future  outstanding  long-term
debt at the end of each year and future required annual  principal  payments for
each year then ended  associated  with our  financing  based on our  contractual
level of long-term indebtedness:



                                                                                        

(Dollars in millions)                                      Years Ending December 31,
                                     -------------------------------------------------------------------
                                         2003          2004          2005          2006         2007       Thereafter
                                     ------------  ------------  ------------  -----------  ------------  -----------
Horizon PCS:
Secured credit facility,
  due 2008.......................    $    155.0    $    146.7    $    126.5    $     99.7   $     71.6    $     --
     Variable interest rate (1) .           5.70%         5.70%         5.70%         5.70%        5.70%        5.70%
     Principal payments..........    $     --      $      8.3    $     20.2    $     26.8   $     28.1    $    71.6
Discount notes, due 2010 (2).....    $    217.5    $    253.1    $    283.7    $    286.1   $    288.5    $     --
     Fixed interest rate.........          14.00%        14.00%        14.00%        14.00%       14%          14.00%
     Principal payments..........    $     --      $     --      $     --      $     --     $     --      $   295.0
Senior notes, due 2011...........    $    175.0    $    175.0    $    175.0    $    175.0   $    175.0    $     --
     Fixed interest rate.........          13.75%        13.75%        13.75%        13.75%       13.75%       13.75%
     Principal payments..........    $     --      $     --      $     --      $     --     $    --       $   175.0

Chillicothe Telephone:
1998 Senior notes, due 2018 (3)..    $     12.0    $     12.0    $     12.0    $     12.0   $     12.0    $     --
     Fixed interest rate.........           6.72%         6.72%         6.72%         6.72%        6.72%        6.72%
     Principal payments..........    $     --      $     --      $     --      $     --     $     --      $     12.0
2002 Senior notes, due 2012 (4)..    $     30.0    $     30.0    $     30.0    $     30.0   $     30.0    $     --
     Fixed interest rate.........           6.64%         6.64%         6.64%         6.64%        6.64%         6.64%
     Principal payments..........    $     --      $     --      $     --      $     --     $     --      $     30.0



                                       51



     ----------------------
     (1)  Interest rate on the secured credit  facility  equals the LIBOR plus a
          margin that varies from 400 to 450 basis points. At December 31, 2002,
          $50.0 million was effectively fixed at 8.53% through two interest rate
          swaps discussed in "Item 3.  Quantitative and Qualitative  Disclosures
          About  Market  Risk." The  nominal  interest  rate is assumed to equal
          5.70% for all periods  ($50.0  million at 6.33% and $105.0  million at
          5.40%).

     (2)  Face  value of the  discount  notes  is  $295.0  million.  End of year
          balances presented here are net of the discount and net of the related
          warrant value and assume accretion of the discount as interest expense
          at an annual rate of 14.00%.

     (3)  On November 12, 2002,  Chillicothe  Telephone amended and restated its
          1998  $12,000,000  senior  notes due 2018.  The  interest  rate on the
          amended notes will be 6.72%, an increase of 10 basis points,  with the
          same maturity date as the 1998 Senior Notes.

     (4)  In August 2002,  Chillicothe  Telephone  issued  $30,000,000 of 6.64%,
          10-year  Senior  notes due in full July 1, 2012.  The  proceeds of the
          offering  were used to retire both the  short-term  line of credit and
          the non-current portion of the 1993 Senior Notes.

     Horizon Telcom,  Chillicothe  Telephone,  Horizon  Technology,  and Horizon
Services  are  not  obligated  in any  form  to  assist  Horizon  PCS  in  their
negotiations  nor are they obligated to compensate any of Horizon PCS' creditors
should  Horizon  PCS  default on any debt  agreements.  While  Horizon PCS faces
several liquidity issues, the liquidity of Horizon Telcom independent of Horizon
PCS is more  favorable.  Cash and working  capital for  Horizon  Telcom,  net of
Horizon PCS, is  approximately  $8.8 million and  approximately  $13.2  million,
respectively. We feel that this level of working capital is adequate to maintain
Horizon Telcom's operations for the foreseeable  future.  Horizon Telcom, net of
Horizon PCS, generated  approximately  $15.4 of cash flow from operations during
2002.

     Statement  of Cash  Flows.  At  December  31,  2002,  we had  cash and cash
equivalents  of  approximately  $94.9  million,  including  Horizon PCS' deposit
requirements  discussed  below,  and  working  capital of  approximately  $100.8
million. At December 31, 2001, we had cash and cash equivalents of approximately
$127.2 million and working capital of approximately $104.4 million.  Horizon PCS
was also  required to escrow funds  sufficient  to cover the first four interest
payments on the senior notes.  These funds are  presented as restricted  cash on
the  consolidated  balance sheet.  The decrease in cash and cash  equivalents of
approximately $32.3 million is primarily attributable to the funding of our loss
from  continuing  operations  of  approximately  $186.1  million (this loss also
includes  certain  non-cash  charges)  and funding our capital  expenditures  of
approximately  $73.9 million  during 2002,  offset by the $105.0 million draw on
Horizon PCS' secured credit facility.

     Net cash used in operating  activities for the twelve months ended December
31, 2002, was approximately  $63.4 million.  This reflects the continuing use of
cash for our operations to build our customer base, including but not limited to
providing  service in our markets and the costs of acquiring new customers.  The
net loss of  approximately  $186.1 million was partially  offset by increases to
depreciation,  non-cash interest expense and the provision for doubtful accounts
receivable, offset by increases to accounts receivable. We expect to continue to
see negative cash flows from operations for 2003.

     Net cash used in investing  activities was approximately  $72.3 million for
2002,  reflecting the continuing build-out of the Horizon PCS network as well as
the deployment of capital necessary to offer VDSL service. At December 31, 2002,
we operated  approximately  828 cell sites in our PCS network (an additional 510
cell sites were operated by the Alliances in our  territories).  This represents
an addition of  approximately  224 sites during the twelve months ended December
31,  2002.  In  addition  to the  sites,  we have  increased  the  number of PCS
switching  stations in our territory and have increased our number of PCS retail
stores from 38 at the end of 2001,  to 44 at December 31, 2002. We expect future
capital  expenditures  to be much less than 2002 as we focus more on operational
and maintenance of our network and less on build out and expansion.

     Net cash  provided by  financing  activities  for 2002,  was  approximately
$103.5  million  consisting  primarily of $105.0  million draw Horizon PCS' term
loan A required under the secured  credit  facility.  We incurred  approximately
$2.3 million of deferred financing fees related to the amendment of Horizon PCS'
covenants  under  its  secured  credit  facility.  In August  2002,  Chillicothe
Telephone issued  $30,000,000 of 6.64%, 10 year Senior notes due in full July 1,
2012 ("2002  Senior  Notes").  The proceeds of the offering  were used to retire
both the short-term line of credit with Huntington National Bank ($18,400,000 at
repayment) and the non-current  portion of the 1993 Senior Notes  ($6,000,000 at
repayment).  The  remaining  funds  were used for  general  corporate  purposes.
Chillicothe Telephone incurred approximately $300,000 of deferred financing fees
related to this offering.

     On November 12, 2002,  Chillicothe  Telephone amended and restated its 1998
$12,000,000  senior notes due 2008.  The interest  rate on the amended  notes is
6.72%, an increase of 10 basis points,  with the same maturity dates as the 1998
Senior Notes. Chillicothe Telephone refinanced its 1998 Senior Notes in order to
align the debt  covenants  of those notes with the  covenants of the 2002 Senior


                                       52


Notes, which are less restrictive than the covenants of the original 1998 Senior
Notes.

     Debt  Covenants.  Horizon PCS' secured credit facility  includes  financial
covenants  that must be met each quarter.  Horizon PCS did not meet the covenant
for EBITDA for the first  quarter of 2002.  As a result of higher than  expected
gross and net additions to Horizon PCS subscribers for the quarter,  Horizon PCS
incurred  additional  expenses  to add those  customers.  Although  Horizon  PCS
believes  it  will  ultimately  benefit  from  the  revenues  generated  by  new
subscribers,   Horizon  PCS  incurs  one-time   expenses   associated  with  new
subscribers,  including  commissions,  handset  subsidies,  set up costs for the
network  and  marketing  expenses.  As a  result,  these  new  subscriber  costs
negatively affected EBITDA during the period of the addition of new subscribers,
which led to  non-compliance  with the EBITDA  covenant for the first quarter of
2002.

     On June 27,  2002,  Horizon  PCS  entered  into a fourth  amendment  to its
secured  credit  facility  with its bank group.  The amendment  adjusts  certain
financial  covenants  and  increases  the margin on the base interest rate by 25
basis points to LIBOR plus 400 to 450 basis points, while also providing for the
payment of fees to the  banking  group,  an increase  in  post-default  interest
rates, a new financial  covenant  regarding minimum  available cash,  additional
prepayment  requirements,  restrictions  on Horizon  PCS'  borrowings  under the
remaining  $95.0 million line of credit and deposit  requirements  on the $105.0
million borrowed under the secured credit facility in March 2002.

     The following table details the maximum amount  available to be borrowed on
the line of credit under  Horizon PCS'  secured  credit  facility for the period
then ended:


                                                            Maximum amount
                                                           available to be
                                                              borrowed
                                                           ---------------
December 31, 2002....................................                  --
March 31, 2003.......................................                  --
June 30, 2003........................................      $   16,000,000
September 30, 2003...................................          26,000,000
December 31, 2003....................................          33,000,000
March 31, 2004.......................................          52,000,000
April 1, 2004........................................          95,000,000

     The following table details the minimum balance requirements placed on cash
and cash  equivalents  under the amended  terms of Horizon PCS'  secured  credit
facility:

                                                            Deposit balance
                                                               requirement
                                                           -----------------
December 31, 2002.....................................      $   55,000,000
January 1, 2003, through February 15, 2003............          33,000,000
February 16, 2003, through March 31, 2003.............          11,000,000
April 1, 2003, through May 15, 2003...................           5,500,000

     As of December  31,  2002,  Horizon PCS was in  compliance  with all of the
applicable  covenants,  as  amended.  However as  described  above,  the Company
believes it is probable  Horizon PCS will  violate one or more of its  covenants
during 2003.

     Chillicothe Telephone's 1998 Senior Notes contain a covenant that restricts
the amount of investments that Chillicothe Telephone may make in loans, stock or
other securities of another company.  For the covenant  reporting  quarter ended
June 30, 2002,  Chillicothe Telephone failed to comply with the covenant related
to these restricted investments, which constitutes an event of default under the
note purchase  agreement.  Additionally the 1993 Senior Notes contain a covenant
that  restricts the amount of  Chillicothe  Telephone's  funded debt. Due to the
issuance of the 2002 Senior Notes, the proceeds of which were used to retire the
non-current  portion of the 1993 Senior Notes,  coupled with the current portion
of the 1993  Senior  Notes,  Chillicothe  Telephone  failed to comply  with this
covenant at September 30, 2002. A waiver of  non-compliance  on the intercompany
investment covenant violation on the 1998 Senior Notes was obtained on August 8,


                                       53


2002, and a waiver of  non-compliance  on the funded debt covenant  violation on
the 1998  Senior  Notes was  obtained  on August 14,  2002.  Both  waivers  were
extended on September 12, 2002.  Also on August 14, 2002,  the 1993 Senior Notes
were amended to provide for the issuance of the 2002 Senior Notes.

     The  following  table  summarizes   contractual   principal  maturities  of
long-term debt outstanding (which is recorded net of unaccreted  interest on the
balance sheet) and minimum  payments  required under operating  leases and other
long-term commitments as of December 31, 2002:



                                                               

                              Long-Term
                              Debt and                        Alliances
                               Current        Operating        Network
Year                         Maturities        Leases         Agreement          Total
                            -------------  -------------   --------------   --------------
2003......................  $          --  $  18,646,000   $   38,600,000   $   57,246,000
2004......................      8,250,000     16,799,000               --       25,049,000
2005......................     20,187,500     13,571,000               --       33,758,500
2006......................     26,750,000      8,419,000               --       35,169,000
2007......................     28,062,500      3,440,000                        31,502,500
Thereafter (1)............    583,750,000      7,027,000               --      590,777,000
                            -------------  -------------   --------------   --------------
   Total..................  $ 667,000,000  $  67,902,000   $   38,600,000   $  773,502,000
                            =============  =============   ==============   ==============



- ----------------
(1)  Note:  should  Horizon PCS violate a covenant and be declared in default of
     its  credit  agreements,   the  amount  of  Horizon  PCS'  long-term  debt,
     $541,750,000, would be a current liability.

     Credit  Ratings.  At December  31, 2002,  the discount  notes were rated by
Standard  and Poors  ("S&P") as "CCC+" with a negative  outlook,  which means an
obligation  "is  currently  vulnerable  to  nonpayment  and  is  dependent  upon
favorable business,  financial,  and economic conditions for the obligor to meet
its financial  commitment on the obligation.  In the event of adverse  business,
financial,  or  economic  conditions,  the  obligor  is not  likely  to have the
capacity to meet its financial  commitment on the  obligation."  At December 31,
2002,  Moody's Investors  Services  ("Moody's") rated the notes as "C," which is
Moody's lowest bond rating. The CUSIP on the discount notes is 44043UAC4.

     At December 31,  2002,  the senior notes were rated by S&P as "CCC+" with a
negative outlook.  At December 31, 2002,  Moody's rated the senior notes as "C",
which is Moody's lowest bond rating. The CUSIP on the senior notes is 44043UAH3.

     Funding Requirements. At December 31, 2002, Horizon PCS had a $95.0 million
line of credit, with certain restrictions  discussed above,  committed under our
secured  credit  facility.  However,  if Horizon PCS violates its debt covenants
this line will not be available. We believe the increase in churn and subsequent
write-offs  of  involuntary  NDASL  deactivations  combined  with a slow down in
activation  growth during the second and third quarters of 2002 has extended the
time it will take to reach positive EBITDA.

     EBITDA  is  not  a  measure  of  financial   performance  under  accounting
principles  generally accepted in the United States of America and should not be
considered  alternatives  to net income (loss) as measures of  performance or to
cash flows as a measure of liquidity.

     For the year ended  December 31, 2003,  we  anticipate  our annual  funding
needs will be approximately  $90.0 million,  including  projected operating cash
losses,  cash  interest  payments and capital  expenditures.  The terms of their
respective  credit  agreements  prohibit  or  severely  restrict  the ability of
Chillicothe  Telephone and Horizon PCS to provide  funds to their  affiliates in
the event the affiliate  experiences a shortfall.  The actual funds  required to
build-out and upgrade our wireless network and to fund operating losses, working
capital needs and other capital needs may vary materially from our estimates and
additional  funds may be required because of unforeseen  delays,  cost overruns,
unanticipated  expenses,  regulatory  changes,  engineering  design  changes and
required  technological  upgrades and other technological  risks.  Additionally,
Sprint is planning to continually  upgrade their nationwide  wireless network to
deploy  higher  data-rate  speeds,  which may  require  us to outlay  additional
capital  expenditures  in future  years  that have not been  determined  at this
point.  Should  the  Company  be  required  to  upgrade  its  network to provide


                                       54


additional  3G  services  that meet  Sprint's  standards,  we may need to obtain
additional financing to fund those capital expenditures.

     If we are unable to obtain any  necessary  additional  financing,  or if we
incur further  restrictions  on the  availability of our current funding to meet
the covenants  imposed  under our credit  facilities or Horizon PCS is unable to
complete  its network  upgrades  and  build-out  as  required by the  management
agreements,  Sprint may terminate our  agreements;  we will no longer be able to
offer Sprint PCS products and services.  In this event,  Sprint may purchase our
operating  assets or capital  stock under terms defined in our  agreements  with
Sprint.  Also,  any delays in our  build-out  may result in penalties  under our
Sprint agreements, as amended.

     Other factors that would impact liquidity are:

     O    we may not be able to sustain our growth or obtain sufficient  revenue
          to  achieve  and  sustain   positive  cash  flow  from  operations  or
          profitability;

     O    we may  experience  a higher  churn rate,  which could result in lower
          revenue;

     O    new  customers  may be of lower  credit  quality,  which may require a
          higher provision for doubtful accounts;

     O    increased competition causing declines in ARPU;

     O    our  failure to comply  with  restrictive  financial  and  operational
          covenants under the secured credit facility; and

     O    our upgrade to 3G services,  due to which we have incurred significant
          capital expenditures, may not be successful in the marketplace and may
          not result in incremental revenue.

     Income from  ongoing  operations  and EBITDA are not  measures of financial
performance  under generally  accepted  accounting  principles and should not be
considered  alternatives  to net income (loss) as measures of  performance or to
cash flows as a measure of liquidity.

REGULATORY DEVELOPMENTS

     See "Local Telephone Services - Regulation of Chillicothe Telephone's Local
Exchange  Carrier  Business" and "Wireless  Personal  Communications  Services -
Regulation of the Wireless Telecommunications Industry" under "ITEM 1. Business"
for  discussions of regulatory  developments  that could have a future impact on
us.

SEASONALITY

     Our  local  and  long-distance   telephone,   Internet  and  data  services
businesses  are not  subject to  seasonal  influences.  Our  wireless  telephone
business  is subject to  seasonality  because the  wireless  industry is heavily
dependent on calendar fourth quarter results.  Among other things, that industry
relies on  significantly  higher  customer  additions  and handset  sales in the
calendar  fourth  quarter as compared to the other three  calendar  quarters.  A
number of factors contribute to this trend, including:

     O    the  increasing  use of retail  distribution,  which is more dependent
          upon the year-end holiday shopping season;

     O    the timing of new product and service announcements and introductions;

     O    competitive pricing pressures; and

     O    aggressive marketing and promotions.



                                       55


INFLATION

     We believe that inflation has not had and will not have an adverse material
effect on our results of operations.

RECENT ACCOUNTING PRONOUNCEMENTS

     In December 2002, the Financial  Accounting Standards Board ("FASB") issued
SFAS  No.  148,  "Accounting  for  Stock-Based  Compensation  -  Transition  and
Disclosure - an amendment of FASB  Statement No. 123." This  Statement  provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee  compensation.  In addition,  this
Statement  requires  prominent  disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee  compensation
and the effect of the method used on reported  results.  The Company adopted the
disclosure  requirements  of SFAS No. 148 on December 31, 2002, but continues to
account for stock compensation costs in accordance with APB Opinion No. 25.

     In June 2002 the Financial  Accounting Standards Board ("FASB") issued SFAS
No. 146,  "Accounting for Costs  Associated  with Exit or Disposal  Activities."
This Statement addresses financial accounting and reporting for costs associated
with exit or disposal  activities by requiring that expenses related to the exit
of an  activity  or disposal  of  long-lived  assets be  recorded  when they are
incurred and  measurable.  Prior to SFAS No. 146,  these charges were accrued at
the time of commitment to exit or dispose of an activity. The Company will adopt
SFAS 146 on January 1, 2003, and it is not expected to have a material effect on
the Company's financial position, results of operations or cash flows.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No.  4,  44  and  64,   Amendment  of  FASB  Statement  No.  13,  and  Technical
Corrections."  SFAS No. 145 addresses the  accounting  for gains and losses from
the  extinguishments  of debt,  economic  effects and  accounting  practices  of
sale-leaseback   transactions  and  makes  technical   corrections  to  existing
pronouncements.  The Company will adopt SFAS No. 145 on January 1, 2003,  and it
is not expected to have a material effect on the Company's  financial  position,
results of operations or cash flows.

     In June  2001,  the  FASB  issued  SFAS  No.  143,  "Accounting  for  Asset
Retirement  Obligations."  This  statement  addresses  financial  accounting and
reporting for obligations associated with the retirements of tangible long-lived
assets  and  the  associated  asset  retirement   costs.  It  applies  to  legal
obligations associated with the retirement of long-lived assets that result from
the  acquisition,  construction,  development  and  the  normal  operation  of a
long-lived  asset.  The Company will adopt this statement  effective  January 1,
2003,  and  it is not  expected  to  have a  material  effect  on the  Company's
financial position, results of operations or cash flows. Management is currently
in the process of evaluating its impact.

                                  RISK FACTORS

     You should  carefully  consider the risks described below in evaluating our
businesses.

RISKS RELATED TO CHILLICOTHE TELEPHONE, LONG DISTANCE AND INTERNET BUSINESS

     The  information  set forth  under  this  heading  describes  risk  factors
relating  to the  business  of our  wholly-owned  subsidiaries  the  Chillicothe
Telephone  Company,  Horizon  Technology and Horizon Services.  References under
this heading to "we," "us" and "our" are to those subsidiaries.

SIGNIFICANT COMPETITION IN TELECOMMUNICATIONS  SERVICES IN OUR MARKETS MAY CAUSE
US TO LOSE CUSTOMERS, OR INCUR LOWER NETWORK ACCESS SERVICE MINUTES OF USE.

     We face, or will face,  significant  competition in the markets in which we
currently provide local telephone,  long distance,  data and Internet  services.
Many of our competitors  are  substantially  larger and have greater  financial,
technical and marketing resources than we do. In particular,  larger competitors
have  certain  advantages  over us, which could cause us to lose  customers  and
impede our ability to attract new customers, including:

                                       56


     O    long-standing   relationships   and  greater  name   recognition  with
          customers;

     O    financial,   technical,   marketing,  personnel  and  other  resources
          substantially greater than ours;

     O    more capital to deploy services; and

     O    potential to lower prices of competitive services.

     These  factors  place  us  at  a  disadvantage   when  we  respond  to  our
competitors' pricing strategies,  technological  advances and other initiatives.
Additionally,  our competitors may develop services that are superior to ours or
that achieve greater market acceptance.

     We face  competition  from other  current and  potential  market  entrants,
including:

     O    domestic and international  long distance  providers seeking to enter,
          re-enter or expand entry into our local communications marketplace;

     O    other domestic and international competitive communications providers,
          resellers, cable television companies and electric utilities; and

     O    providers of broadband and Internet services.

     A  continuing  trend toward  combinations  and  strategic  alliances in the
communications  industry could give rise to significant  new  competitors.  This
could  cause  us to lose  customers  and  impede  our  ability  to  attract  new
customers.

A RESTRUCTURING  OF HORIZON PCS MAY CAUSE A SUBSTANTIAL  REDUCTION IN THE NATURE
AND VALUE OF HORIZON TELCOM'S OWNERSHIP INTEREST IN HORIZON PCS.

     There  is a  substantial  risk  that  Horizon  Telcom  would  lose all or a
substantial  portion of the value of its investment in Horizon PCS in connection
with any restructuring of Horizon PCS. While Horizon Telcom may retain an equity
interest in a  restructuring  of Horizon PCS, it is possible that Horizon Telcom
will lose  voting  control of Horizon  PCS and will lose all of the value of its
investment  in Horizon  PCS in  connection  with any  restructuring.  See "Risks
Related To Horizon PCS."

THE RESTRUCTURING OF HORIZON PCS MAY HAVE ADVERSE EFFECTS ON HORIZON TELCOM.

     Horizon  Telcom  has  agreements  and  relationships  with  third  parties,
including suppliers, subscribers and vendors that are integral to conducting its
day to day operations.  A restructuring of Horizon PCS in or out of a bankruptcy
proceeding  could have a material  adverse  affect on the  perception of Horizon
Telcom  and the  Horizon  Telcom  business  and  its  prospects  in the  eyes of
subscribers,  employees,  suppliers,  creditors  and vendors.  These persons may
perceive that there is increased risk in doing business with Horizon Telcom as a
result of Horizon PCS' restructuring.  Some of these persons may terminate their
relationships with Horizon Telcom which would make it more difficult for Horizon
Telcom to conduct is business.

IN THE EVENT THAT THE SERVICES  AGREEMENT BETWEEN HORIZON TELCOM AND HORIZON PCS
IS  TERMINATED  FOR ANY  REASON,  HORIZON  TELCOM  MAY NOT BE ABLE TO REDUCE ITS
GENERAL  AND  ADMINISTRATIVE  COSTS IN AN AMOUNT  SUFFICIENT  TO  SUBSIDIZE  THE
PORTION OF THE COMBINED COMPANY'S COSTS CURRENTLY BORNE BY HORIZON PCS.

     On a net basis, we estimate that Horizon PCS will incur  approximately $5.3
million of charges from Horizon  Services (a  subsidiary  of Horizon  Telcom) in
fiscal 2003. If the services agreement between Horizon Telcom and Horizon PCS is
terminated  for any  reason,  Horizon  Telcom  and its  subsidiaries  (excluding
Horizon  PCS) will lose this source of revenue and will be required to lower its
costs and expenses to meet its  business  plan.  Horizon  Telcom may have little
notice of any such  termination.  A failure to reduce these expenses in a timely
manner could adversely affect Horizon Telcom's  liquidity,  financial  condition
and results of operations.



                                       57


WE MAY  NOT BE  ABLE TO  SUCCESSFULLY  INTEGRATE  NEW  TECHNOLOGIES  OR  RESPOND
EFFECTIVELY TO CUSTOMER REQUIREMENTS.

     The communications  industry is subject to rapid and significant changes in
technology,  frequent new service introductions and evolving industry standards.
We  cannot  predict  the  effect  of  these  changes  on  us  or  our  industry.
Technological  developments may reduce the  competitiveness  of our networks and
require unbudgeted upgrades or the procurement of additional products that could
be  expensive  and  time  consuming.   If  we  fail  to  adapt  successfully  to
technological  changes or obsolescence or fail to obtain access to important new
technologies,  we could lose  customers and be limited in our ability to attract
new customers.

IF OUR BACK OFFICE AND CUSTOMER CARE SYSTEMS ARE UNABLE TO MEET THE NEEDS OF OUR
CUSTOMERS, WE MAY LOSE CUSTOMERS.

     Sophisticated back office processes and information  management systems are
vital  to  our  anticipated   growth  and  our  ability  to  achieve   operating
efficiencies.  Horizon PCS is  dependent  on  third-party  vendors for  billing,
service and customer  support  systems.  We cannot assure you that these systems
will perform as expected as we increase our number of customers. If they fail to
perform as expected,  we could lose  customers.  The following could prevent our
back office and customer care systems from meeting the needs of our customers:

     O    failure of third-party  vendors to deliver  products and services in a
          timely manner at acceptable costs;

     O    our failure to identify key information and processing needs;

     O    our failure to integrate products or services effectively;

     O    our failure to upgrade systems as necessary; or

     O    our failure to attract and retain qualified systems support personnel.

     Furthermore,  as our suppliers revise and upgrade their hardware,  software
and equipment  technology,  we could encounter  difficulties in integrating this
new  technology  into our business or find that such new hardware,  software and
technology is not  appropriate for our business.  In addition,  our right to use
such hardware,  software and  technology  depends upon license  agreements  with
third  party  vendors.  Vendors  may  cancel or elect not to renew some of these
agreements, which may adversely affect our business.

BECAUSE WE OPERATE IN A HEAVILY REGULATED INDUSTRY,  CHANGES IN REGULATION COULD
HAVE A SIGNIFICANT EFFECT ON OUR REVENUES AND COMPLIANCE COSTS.

     We are  subject to  significant  regulation  that could  change in a manner
adverse to us. We operate in a heavily regulated  industry,  and the majority of
our revenues generally have been supported by regulations, including in the form
of support for the  provision  of telephone  services in rural  areas.  Laws and
regulations  applicable  to us and  our  competitors  may  be,  and  have  been,
challenged in the courts,  and could be changed by Congress or regulators at any
time. In addition, any of the following have the potential to have a significant
impact on us:

    RISK OF LOSS OR REDUCTION OF NETWORK ACCESS CHARGE  REVENUES.  Approximately
    8% of the  Company's  total  revenues for the year ended  December 31, 2002,
    came  from  network  access  charges,  which  are  paid to us by  intrastate
    carriers  and  interstate   long  distance   carriers  for  originating  and
    terminating  calls in the  regions  we serve.  The  amount of access  charge
    revenues  that we receive is calculated  based on guidelines  set by federal
    and state regulatory  bodies,  and such guidelines could change at any time.
    The FCC continues to reform the federal access charge  system.  States often
    mirror these federal rules in establishing  intrastate access charges. It is
    unknown at this time how  changes to the FCC's  access  charge  regime  will
    affect us.  Federal  policies  being  implemented  by the FCC strongly favor
    access  charge  reform,  and our revenues from this source could be at risk.
    Regulatory developments of this type could adversely affect our business.

    RISK OF LOSS OR REDUCTION OF UNIVERSAL SERVICE SUPPORT. We receive Universal
    Service  Support  Fund,  or USSF,  revenues  to support the high cost of our
    operations  in  rural   markets.   In  2002  USSF  revenues   accounted  for
    approximately 3% of total revenues.  If Chillicothe Telephone were unable to
    receive support from the Universal  Service Support Fund, or if such support
    was reduced,  Chillicothe Telephone would be unable to operate as profitably
    as before such reduction.

                                       58


    In addition,  potential  competitors  generally cannot,  under current laws,
    receive the same universal service support enjoyed by Chillicothe Telephone.
    Chillicothe Telephone therefore enjoys a competitive advantage, which could,
    however, be removed by regulators at any time. The Telecommunications Act of
    1996 (the "Telecom  Act")  provides that  competitors  could obtain the same
    support  as we do if the PUCO  determines  that  granting  such  support  to
    competitors  would be in the  public  interest.  If such  universal  service
    support were to become available to potential  competitors,  we might not be
    able  to  compete  as  effectively  or  otherwise  continue  to  operate  as
    profitably  in our  Chillicothe  Telephone  markets.  Any shift in universal
    service regulation could, therefore, have an adverse effect on our business.

    The method for  calculating the amount of such support could change in 2002.
    It is unclear whether the chosen  methodology  will  accurately  reflect the
    costs incurred by Chillicothe Telephone, and whether it will provide for the
    same amount of universal service support that Chillicothe  Telephone enjoyed
    in the past. The outcome of any of these proceedings or other legislative or
    regulatory changes could affect the amount of universal service support that
    we receive, and could have an adverse effect on our business.

    RISK OF LOSS OF PROTECTED STATUS UNDER  INTERCONNECTION  RULES.  Chillicothe
    Telephone  takes  the  position  that it does not have to  comply  with more
    burdensome   requirements  in  the  Telecom  Act  governing  the  rights  of
    competitors to interconnect to our traditional telephone companies' networks
    due to our status as a rural telephone  company.  If state regulators decide
    that  it is  in  the  public's  interest  to  impose  these  interconnection
    requirements on us, more competitors  could enter our traditional  telephone
    markets  than  are  currently   expected  and  we  could  incur   additional
    administrative  and  regulatory  expenses as a result of such newly  imposed
    interconnection requirements.

    RISKS  POSED  BY  COSTS  OF  REGULATORY   COMPLIANCE.   Regulations   create
    significant compliance costs for us. Our subsidiary that provides intrastate
    services is also generally subject to certification, tariff filing and other
    ongoing  regulatory  requirements by state  regulators.  Challenges to these
    tariffs by regulators  or third parties could cause us to incur  substantial
    legal and administrative expenses.

REGULATORY CHANGES IN THE TELECOMMUNICATIONS INDUSTRY INVOLVE UNCERTAINTIES, AND
THE RESOLUTION OF THESE  UNCERTAINTIES  COULD  ADVERSELY  AFFECT OUR BUSINESS BY
FACILITATING  GREATER  COMPETITION  AGAINST US, REDUCING  POTENTIAL  REVENUES OR
RAISING OUR COSTS.

     The Telecom Act provides for significant changes in the  telecommunications
industry,  including the local  telecommunications and long distance industries.
This  federal  statute and the related  regulations  remain  subject to judicial
review and  additional  rulemakings  of the FCC,  thus  making it  difficult  to
predict  what effect the  legislation  will have on us, our  operations  and our
competitors.   Several   regulatory  and  judicial   proceedings  have  recently
concluded, are underway or may soon be commenced,  that address issues affecting
our operations and those of our competitors, which may cause significant changes
to our industry. We cannot predict the outcome of these developments, nor can we
assure that these changes will not have a material adverse effect on us.

RISKS RELATED TO HORIZON PCS

     The  information  set forth  under  this  heading  describes  risk  factors
relating  to  the  business  of  our  majority-owned   subsidiary  Horizon  PCS.
References under this heading to "we," "us" and "our" are to Horizon PCS.

WE DO NOT HAVE SUFFICIENT  CASH AND CASH  COMMITMENTS TO ENABLE US TO PURSUE OUR
DESIRED BUSINESS PLAN TO ACHIEVE POSITIVE CASH FLOW.

     Our business and prospects have been significantly  adversely affected by a
number of factors.  These factors include the general economic  recession in the
U.S.,  the  significant  slow down in subscriber  acquisition  over the past two
quarters throughout most of the wireless telecommunications industry, aggressive
pricing  competition which has developed within the wireless  telecommunications
industry,  the greater than  expected  churn which we have  suffered and several
factors which arise from our relationship  with Sprint. As a result of these and
other factors,  we likely will not have sufficient cash and cash  commitments to
enable us to pursue our desired business plan to achieve positive cash flow.

                                       59


     As a result of this situation,  we have embarked on a number of initiatives
to attempt to:

     O    reduce operating expenses;

     O    reduce churn;

     O    negotiate a modification in the fees we pay to Sprint;

     O    negotiate  or  otherwise  achieve  a  reduction  in the fees we pay to
          NTELOS;

     O    negotiate  modifications  to the  covenants  and payment  terms of our
          senior secured facility; and

     O    negotiate  the  right  to  obtain  funding  under  our  $95.0  million
          revolving line of credit under our senior secured facility.

     There can be no  assurance  that we will achieve any of these goals or that
we will be able to  develop a  business  plan which is  reasonably  designed  to
achieve positive cash flow.

     Because  of the  status  of the  financing  market  for  telecommunications
companies,  we believe  that it is  unlikely  that we could  raise a  sufficient
amount of financing to cure our anticipated cash shortfall.

     We have retained Berenson & Company,  a financial  advisory firm, to assist
us in analyzing and  developing  our business  plan, in addressing our strategic
relationships with Sprint and NTELOS and in considering potential restructurings
of our capital structure.

WE ANTICIPATE THAT, DURING 2003, HORIZON PCS WILL BECOME IN NON-COMPLIANCE  WITH
ONE OR MORE OF THE FINANCIAL COVENANTS UNDER ITS SENIOR SECURED FACILITY.

     Our secured  credit  facility  provides for aggregate  borrowings of $250.0
million of which $155.0  million was  borrowed as of December 31, 2002.  Horizon
PCS' secured credit facility includes financial  covenants that must be met each
quarter.

     We anticipate that, during 2003, we will become in non-compliance  with one
or more of the financial  covenants under our senior secured facility.  This may
occur as soon as the  determination of our covenant  compliance as of the end of
the  first  quarter  of 2003.  If we do so, we will not have the right to borrow
under our revolving line of credit. In addition,  the banks would have the right
to accelerate the  indebtedness  under the senior secured facility and to pursue
remedies.  In the event  that the  lenders  under the  senior  secured  facility
accelerate our indebtedness,  such acceleration  would cause an event of default
under the indentures for our senior discount notes and our senior notes.

    Horizon PCS did not meet the  covenant  for EBITDA for the first  quarter of
2002. On June 27, 2002, Horizon PCS obtained a waiver of the non-compliance with
the EBITDA  covenant for the first quarter of 2002 and entered into an amendment
of the secured credit facility.  The amended facility  primarily adjusts certain
financial  covenants  and  increases the margin on the base interest by 25 basis
points,  while also providing for the payment of fees to the banking  group,  an
increase in  post-default  interest  rates, a new financial  covenant  regarding
minimum  available cash,  additional  prepayment  requirements,  restrictions on
Horizon PCS'  borrowings  under the  remaining  $95.0 million  revolving  credit
facility  and deposit  requirements  on the $105.0  million  borrowed  under the
secured credit facility in March 2002.

OUR SUBSTANTIAL  INDEBTEDNESS  COULD ADVERSELY  AFFECT OUR FINANCIAL  HEALTH AND
PREVENT US FROM FULFILLING OUR LONG-TERM DEBT OBLIGATIONS.

     As of December 31, 2002,  our total debt  outstanding  was $625.0  million,
comprised of $155.0 million borrowed under our secured credit  facility,  $175.0
million due under our senior  notes issued in December  2001 and $295.0  million
represented  by our discount  notes (which are reported on our balance  sheet at
December 31, 2002, net of a discount of approximately $108.7 million).

                                       60


     Our  substantial  debt  will  have  a  number  of  important  consequences,
including the following:

     O    we may not have sufficient funds to pay interest on, and principal of,
          our debt;

     O    we have to dedicate a  substantial  portion of any positive  cash flow
          from  operations  to the payment of interest on, and principal of, our
          debt, which will reduce funds available for other purposes;

     O    we may  not be able  to  obtain  additional  financing  for  currently
          unanticipated  capital  requirements,  capital  expenditures,  working
          capital requirements and other corporate purposes;

     O    some  borrowings  likely will be at variable rates of interest,  which
          will result in higher  interest  expense in the event of  increases in
          market interest rates;

     O    due to the liens on substantially all of our assets and the pledges of
          equity  ownership of our  subsidiaries  that secure our secured credit
          facility, our lenders may control our assets upon a default;

     O    our debt increases our  vulnerability  to general adverse economic and
          industry conditions;

     O    our debt  limits our  flexibility  in planning  for,  or reacting  to,
          changes in our business and the industry in which we operate; and

     O    our debt  places  us at a  competitive  disadvantage  compared  to our
          competitors that have less debt.

TO SERVICE OUR INDEBTEDNESS,  WE WILL REQUIRE A SIGNIFICANT  AMOUNT OF CASH. OUR
ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.

     Our ability to make payments on and to refinance our  indebtedness,  and to
fund our network  build-out,  anticipated  operating  losses and working capital
requirements will depend on our ability to generate cash in the future. This, to
a certain  extent,  is  subject  to general  economic,  financial,  competitive,
legislative, regulatory and other factors that are beyond our control.

     We cannot be certain that our business will generate  sufficient  cash flow
from  operations  or that future  borrowings  will be  available to us under our
secured  credit  facility  in an  amount  sufficient  to  enable  us to pay  our
indebtedness or to fund our other liquidity  needs. We may need to refinance all
or a portion of our indebtedness, including the notes, on or before maturity. We
may not be able to refinance any of our indebtedness on commercially  reasonable
terms, or at all.

IF WE FAIL TO PAY OUR DEBT,  OUR LENDERS MAY SELL OUR LOANS TO SPRINT PCS GIVING
SPRINT PCS THE RIGHTS OF A CREDITOR TO FORECLOSE ON OUR ASSETS.

     If the  lenders  accelerate  the  amounts  due  under  our  secured  credit
facility,  Sprint has the right to purchase our obligations  under that facility
and become a senior lender.  To the extent Sprint  purchases these  obligations,
Sprint's interests as a creditor could conflict with ours.  Sprint's rights as a
senior lender would enable it to exercise  rights with respect to our assets and
Sprint's  continuing  relationship in a manner not otherwise permitted under the
Sprint PCS agreements.

IF WE FAIL TO COMPLETE THE  BUILD-OUT OF OUR NETWORK,  SPRINT PCS MAY  TERMINATE
THE SPRINT  PCS  AGREEMENTS  AND WE WOULD NO LONGER BE ABLE TO OFFER  SPRINT PCS
PRODUCTS AND SERVICES FROM WHICH WE GENERATE SUBSTANTIALLY ALL OUR REVENUES.

     Our long-term affiliation  agreements with Sprint, which we refer to as the
Sprint PCS agreements, require us to build and operate the portion of the Sprint
PCS network  located in our  territory in  accordance  with  Sprint's  technical
specifications  and coverage  requirements.  The  agreements  also require us to
provide  minimum network  coverage to the population  within each of the markets
that make up our territory by specified dates.

                                       61


     Under our original Sprint PCS agreements,  we were required to complete the
build-out in several of our markets in Pennsylvania and New York by December 31,
2000. Sprint and HPC agreed to an amendment of the build-out requirements, which
extended the dates by which we were to launch coverage in several  markets.  The
amended Sprint PCS agreement provides for monetary penalties to be paid by us if
coverage is not launched by these extended  contract  dates.  The amounts of the
penalties  depends on the  market  and  length of delay in  launch,  and in some
cases,  whether  the  shortfall  relates to an  initial  launch in the market or
completion of the remaining build-out. The penalties must be paid in cash or, if
both Horizon PCS and Sprint agree, in shares of Horizon PCS stock.

     Under the amended Sprint PCS agreement,  portions of the New York, Sunbury,
Williamsport,  Oil City, Dubois,  Erie,  Meadville,  Sharon,  Olean,  Jamestown,
Scranton,  State College,  Stroudsburg,  Allentown and  Pottsville  markets were
required to be completed and launched by October 31, 2001.  Although we launched
service in portions of each of these  markets,  we did not  complete  all of the
build-out requirements.  We notified Sprint PCS in November 2001 that it was our
position that the reasons for the delay constitutes events of "force majeure" as
described  in the Sprint PCS  agreements  and that,  consequently,  no  monetary
penalties or other remedies were applicable.  The delay was primarily caused due
to delays in  obtaining  the  required  backhaul  services  from local  exchange
carriers  and zoning  and other  approvals  from  governmental  authorities.  On
January 30, 2002,  Sprint  notified us that,  as a result of these force majeure
events,  it does not consider our  build-out  delay to be a breach of the Sprint
PCS agreement.  We agreed to use commercially reasonable efforts to complete the
build-out by June 30, 2002.  Although we have not been able to complete  some of
the sites in some markets due to  continuing  force majeure  issues,  we believe
that we are in substantial compliance with our build-out requirements.

     We will  require  additional  expenditures  of  significant  funds  for the
continued development,  construction,  testing,  deployment and operation of our
network.  These  activities  are  expected to place  significant  demands on our
managerial, operational and financial resources. A failure to meet our build-out
requirements for any of our markets, or to meet Sprint's technical requirements,
would  constitute a breach of the Sprint PCS agreements that could lead to their
termination if not cured within the applicable cure period. If Sprint terminates
these  agreements,  we will no longer be able to offer  Sprint PCS  products and
services.

IF SPRINT PCS TERMINATES THE SPRINT PCS  AGREEMENTS,  THE BUY-OUT  PROVISIONS OF
THOSE AGREEMENTS MAY DIMINISH THE VALUATION OF OUR COMPANY.

     Provisions  of the Sprint PCS  agreements  could affect our  valuation  and
decrease our ability to raise  additional  capital.  If Sprint  terminates these
agreements,  the Sprint PCS  agreements  provide  that Sprint may  purchase  our
operating  assets or capital  stock for 80% of the  "Entire  Business  Value" as
defined by the agreement.  If the termination is due to our breach of the Sprint
PCS  agreements,  the percent is reduced to 72% instead of 80%. Under our Sprint
PCS agreements,  the Entire Business Value is generally the fair market value of
our  wireless  business  valued on a going  concern  basis as  determined  by an
independent appraiser and assumes that we own the FCC licenses in our territory.
In  addition,  the Sprint PCS  agreements  provide  that Sprint must approve any
change of control of our ownership  and consent to any  assignment of the Sprint
PCS  agreements.  Sprint also has a right of first  refusal if we decide to sell
our operating assets in our Bright PCS markets.  We are also subject to a number
of  restrictions  on the transfer of our  business  including a  prohibition  on
selling our company or our operating assets to a number of identified and yet to
be identified  competitors of Sprint. These and other restrictions in the Sprint
PCS agreements may limit the  marketability  of and reduce the price a buyer may
be willing to pay for the Company and may operate to reduce the Entire  Business
Value of the Company.

THE  TERMINATION  OF OUR  STRATEGIC  AFFILIATION  WITH SPRINT PCS OR SPRINT PCS'
FAILURE TO  PERFORM  ITS  OBLIGATIONS  UNDER THE  SPRINT  PCS  AGREEMENTS  WOULD
SEVERELY RESTRICT OUR ABILITY TO CONDUCT OUR BUSINESS.

     Because  Sprint owns the FCC  licenses  that we use in our  territory,  our
ability to offer Sprint PCS products and services on our network is dependent on
the Sprint PCS agreements  remaining in effect and not being terminated.  Sprint
may terminate the Sprint PCS agreements for breach by us of any material  terms.
We also depend on Sprint's  ability to perform its obligations  under the Sprint
PCS  agreements.  The termination of the Sprint PCS agreements or the failure of
Sprint to perform its obligations under the Sprint PCS agreements would severely
restrict our ability to conduct our wireless digital communications business.

                                       62


IF THE WEST  VIRGINIA PCS  ALLIANCE  AND  VIRGINIA PCS ALLIANCE  FAIL TO PROVIDE
THEIR NETWORK TO US IN THEIR MARKETS,  OR IF OUR NETWORK SERVICES AGREEMENT WITH
THE  ALLIANCES  IS  OTHERWISE  TERMINATED,  WE WILL LOST THE  ABILITY TO USE THE
ALLIANCES' NETWORK.

     West Virginia PCS Alliance and Virginia PCS Alliance,  which we refer to as
the  Alliances,  are two related,  independent  PCS  providers  whose network is
managed by  NTELOS.  On March 4, 2003,  NTELOS and  certain of its  subsidiaries
filed  voluntarily  petitions  for  reorganization  under Chapter 11 of the U.S.
Bankruptcy  Code in the  U.S.  Bankruptcy  Court  for the  Eastern  District  of
Virginia.  The results of NTELOS'  restructuring  could have a material  adverse
impact on our  operations.  Pursuant to bankruptcy  law, the Alliances  have the
right to assume or reject  the  network  services  agreement.  If the  Alliances
reject  the  network  services  agreement,  we will lose the  ability to provide
service to our subscribers in Virginia and West Virginia  through the Alliances'
Network,  and  Sprint  may take the  position  that we would be in breach of our
management agreements with Sprint.

     Prior to the Alliances'  bankruptcy  filing,  Horizon had asserted that the
Alliances had overcharged Horizon approximately $4,799,000 for charges that were
neither  authorized nor  contemplated by the network  services  agreement.  As a
result  of the  Alliances'  bankruptcy  filing,  Horizon  was at risk  that  any
subsequent  payments that it would make for services under the network  services
agreement could impair its setoff or recoupment rights with respect to its claim
for a repayment of the unauthorized charges.  Consequently,  Horizon declined to
make a scheduled  payment of $3 million to the  Alliances  on March 11, 2003 for
services  rendered by the  Alliances in January 2003 and, on that date,  filed a
motion in the Alliances' bankruptcy case to protect its rights.

     On March 12, 2003, the Alliances  telecopied to Horizon a letter  notifying
Horizon of the failure to make payment on the January 2003 invoice, which letter
purported to be a ten-business day notice under the network  services  agreement
that  would give the  Alliances  the right to  terminate  the  agreement  at the
conclusion of such ten-day period.

     On March 24, 2003,  Horizon and the  Alliances  entered into a  Stipulation
which  provided  that  Horizon  would pay the  January  2003 and  February  2003
invoices,  the bankruptcy court would provide procedural protection of Horizon's
claim,  the Alliances  would  withdraw the default  notice and the parties would
move forward to settle or arbitrate the merits of Horizon's  claim. On March 26,
2003, the Court in the NTELOS bankruptcy case approved the Stipulation.

     Under our network services agreement, the Alliances provide us with the use
of and  access to key  components  of their  network  in most of our  markets in
Virginia  and West  Virginia.  We directly  compete  with the  Alliances  in the
markets  where we use their  network.  If the  Alliances  fail to  maintain  the
standards for their network as set forth in our network services  agreement with
them or  otherwise  fail to provide  their  network for our use,  our ability to
provide wireless services in these markets may be adversely affected, and we may
not be able to provide  seamless  service  for our  customers.  If we breach our
obligations  to the  Alliances,  or if the  Alliances  otherwise  terminate  the
network services agreement, we will lose our right to use the Alliances' network
to provide service in these markets.

IF OTHER SPRINT  NETWORK  PARTNERS HAVE FINANCIAL  DIFFICULTIES,  THE SPRINT PCS
NETWORK COULD BE DISRUPTED

     Sprint's  national  network  is  a  combination  of  networks.   The  large
metropolitan  areas are owned and  operated by Sprint,  and the areas in between
them are  owned  and  operated  by  Sprint  network  partners,  all of which are
independent  companies  like we are. We believe that most,  if not all, of these
companies have incurred  substantial  debt to pay the large cost of building out
their networks.  If other network partners  experience  financial  difficulties,
Sprint's  PCS network  could be  disrupted.  If Sprint's  agreements  with those
network partners are like ours,  Sprint would have the right to exercise various
remedies.  In such event,  there can be no assurance  that Sprint or the network
partner could restore the disrupted service in a timely and seamless manner.

     One of the  network  partners,  iPCS,  Inc.,  recently  filed a chapter  11
bankruptcy  petition.  In connection  with its bankruptcy  filing,  iPCS filed a
Complaint  against  Sprint  Corporation  and Sprint PCS alleging that Sprint PCS
breached its management  agreement and services  agreement with iPCS, seeking an
equitable  accounting of alleged  overcharges and underpayments by Sprint PCS to
iPCS, and seeking specific performance of (i) Sprint PCS' obligation to purchase
the  operating  assets  of iPCS by  virtue of iPCS'  purported  exercise  of its
contractual "put" right as a result of the alleged material  breaches,  and (ii)
Sprint's  obligation to pay an increased share of Collected  Revenue as a result
of iPCS' lenders issuing a notice of  acceleration.  Finally,  iPCS alleges that
Sprint  Corporation  is  liable  on  each of the  claims  because  it  allegedly
controls,  authorizes,  directs and/or  ratifies the conduct of Sprint PCS under


                                       63


the  management  agreement and services  agreement.  Because we believe that the
iPCS claims  allege  conduct  under  agreements  which are similar to our Sprint
agreements,  we are  reviewing the iPCS lawsuit to determine the extent to which
the factual and legal  assertions of iPCS have  similarities to our relationship
with Sprint.

IF SPRINT PCS DOES NOT COMPLETE THE  CONSTRUCTION OF ITS NATIONWIDE PCS NETWORK,
WE MAY NOT BE ABLE TO ATTRACT AND RETAIN CUSTOMERS, WHICH WOULD ADVERSELY AFFECT
OUR REVENUES.

     Sprint's PCS network may not provide nationwide coverage to the same extent
as its  competitors'  networks,  which  could  adversely  affect our  ability to
attract  and retain  customers.  Sprint is  creating a  nationwide  PCS  network
through its own construction efforts and those of its affiliates. Today, neither
Sprint  nor any other PCS  provider  offers  service in every area of the United
States.  Sprint has entered  into  affiliation  agreements  similar to ours with
companies  in  other  territories  pursuant  to  its  nationwide  PCS  build-out
strategy.  Our business and results of operations depend on Sprint PCS' national
network and, to a lesser extent, on the networks of its other affiliates. Sprint
and its PCS affiliate program are subject,  in varying degrees, to the economic,
administrative,  logistical,  regulatory  and  other  risks  described  in  this
document. Sprint and its other affiliates' PCS operations may not be successful,
which in turn could adversely affect our ability to generate revenues.

OUR REVENUES MAY BE LESS THAN WE  ANTICIPATE  WHICH COULD  MATERIALLY  ADVERSELY
AFFECT OUR LIQUIDITY, FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     Revenue growth is primarily  dependent on the size of our subscriber  base,
average  monthly  revenues per user and roaming  revenue.  During the year ended
December  31,  2002,  we  experienced  slower net  subscriber  growth rates than
planned,  which we believe is due in large part to  increased  churn,  declining
rates of wireless  subscriber  growth in general,  the re-imposition of deposits
for most  sub-prime  credit  subscribers  during the last half of the year,  the
current economic  slowdown and increased  competition.  Other carriers also have
reported slower subscriber growth rates compared to prior periods.  We have seen
a  continuation  of  competitive  pressures in the  wireless  telecommunications
market  causing  some major  carriers  to offer  plans with  increasingly  large
bundles of minutes of use at lower  prices  which may  compete  with the calling
plans we  offer,  including  the  Sprint  calling  plans we  support.  While our
business plan anticipates  lower subscriber  growth,  it assumes average monthly
revenues per user will remain relatively stable. Increased price competition may
lead to lower average monthly revenues per user than we anticipate. In addition,
the lower reciprocal roaming rate that Sprint has announced for 2003 will reduce
our roaming  revenue,  which may not be offset by the  reduction  in our roaming
expense.  If our  revenues  are less  than we  anticipate,  it could  materially
adversely affect our liquidity, financial condition and results of operation.

WE ARE  DEPENDENT  UPON  SPRINT PCS' BACK OFFICE  SERVICES  AND ITS  THIRD-PARTY
VENDORS' BACK OFFICE  SYSTEMS.  PROBLEMS WITH THESE  SYSTEMS,  OR TERMINATION OF
THESE ARRANGEMENTS, COULD DISRUPT OUR BUSINESS AND POSSIBLY INCREASE OUR COSTS.

     Because Sprint  provides our back office systems such as billing,  customer
care and  collections,  our operations could be disrupted if Sprint is unable to
maintain and expand its back office services,  or to efficiently outsource those
services  and  systems  through  third-party  vendors.  The rapid  expansion  of
Sprint's business will continue to pose a significant  challenge to its internal
support systems.  Additionally,  Sprint has relied on third-party  vendors for a
significant number of important functions and components of its internal support
systems and may  continue to rely on these  vendors in the future.  We depend on
Sprint's  willingness  to continue to offer these  services to us and to provide
these services at competitive costs. We paid Sprint  approximately $20.6 million
for these services  during 2002. The Sprint PCS  agreements  provide that,  upon
nine months'  prior written  notice,  Sprint may elect to terminate any of these
services.  If Sprint  terminates  a service  for which we have not  developed  a
cost-effective  alternative,   our  operating  costs  may  increase  beyond  our
expectations and restrict our ability to operate successfully.

     Further,  our ability to replace Sprint in providing  back office  services
may  be  limited.  While  the  services  agreements  allow  the  Company  to use
third-party  vendors to provide certain of these services instead of Sprint, the
high startup costs and necessary  cooperation  associated with  interfacing with
Sprint's system may significantly  limit our ability to use back office services
provided by anyone other than Sprint.  This could limit our ability to lower our
operating costs.

                                       64


WE DEPEND ON OTHER  TELECOMMUNICATIONS  COMPANIES  FOR SOME  SERVICES  THAT,  IF
DELAYED,  COULD  DELAY OUR  PLANNED  NETWORK  BUILD-OUT  AND DELAY OUR  EXPECTED
INCREASES IN CUSTOMERS AND REVENUES.

     We depend on other  telecommunications  companies to provide facilities and
transport  to  interconnect  portions  of our network and to connect our network
with the landline telephone system.  American Electric Power,  Ameritech,  AT&T,
Verizon and Sprint (long  distance) are our primary  suppliers of facilities and
transport. Without these services, we could not offer Sprint PCS services to our
customers  in some  areas.  From  time to time,  we have  experienced  delays in
obtaining  facilities  and  transport  from  some  of  these  companies,  and in
obtaining local telephone numbers for use by our customers,  which are sometimes
in short supply,  and we may continue to experience  delays and interruptions in
the  future.  Delays in  obtaining  facilities  and  transport  could  delay our
build-out  and capacity  plans and our  business  may suffer.  Delays could also
result in a breach of our Sprint PCS agreements,  subjecting these agreements to
potential termination by Sprint.

MATERIAL  RESTRICTIONS  IN OUR DEBT  INSTRUMENTS MAY MAKE IT DIFFICULT TO OBTAIN
ADDITIONAL  FINANCING OR TAKE OTHER NECESSARY ACTIONS TO REACT TO CHANGES IN OUR
BUSINESS.

     The indenture  governing the senior notes contains  various  covenants that
limit our  ability  to engage in a variety of  transactions.  In  addition,  the
indenture  governing our discount  notes and the secured  credit  agreement both
impose  additional  material  operating and financial  restrictions on us. These
restrictions,  subject to  ordinary  course of  business  exceptions,  limit our
ability to engage in some transactions, including the following:

     O    designated types of mergers or consolidations;

     O    paying dividends or other distributions to our stockholders;

     O    making investments;

     O    selling assets;

     O    repurchasing our common stock;

     O    changing lines of business;

     O    borrowing additional money; and

     O    transactions with affiliates.

     In addition,  our secured credit facility  requires us to maintain  certain
ratios, including:

     O    leverage ratios;

     O    an interest coverage ratio; and

     O    a fixed charges ratio,

     and to satisfy certain tests, including tests relating to:

     O    minimum covered population;

     O    minimum number of PCS subscribers in our territory;

     O    minimum total revenues; and

     O    minimum EBITDA.

                                       65


     These  restrictions  could  limit our  ability  to obtain  debt  financing,
repurchase  stock,  refinance or pay  principal  or interest on our  outstanding
debt,  consummate  acquisitions  for  cash or debt or react  to  changes  in our
operating environment. An event of default under the secured credit facility may
prevent the  Company and the  guarantors  of the senior  notes and the  discount
notes from paying those notes or the guarantees of those notes.

THE TERMS OF THE CONVERTIBLE PREFERRED STOCK MAY AFFECT OUR FINANCIAL RESULTS.

     The  terms of the  convertible  preferred  stock  give the  holders  of the
preferred stock the following principal rights:

     O    to initially designate two members of our board of directors,  subject
          to reduction based on future percentage ownership;

     O    to  approve  or   disapprove   fundamental   corporate   actions   and
          transactions;

     O    to  receive  dividends  in  the  form  of  additional  shares  of  our
          convertible  preferred stock, which may increase and accelerate upon a
          change in control; and

     O    to require us to redeem the convertible preferred stock in 2005.

     If we  become  subject  to  the  repurchase  right  or  change  of  control
redemption  requirements under the convertible preferred stock while our secured
credit facility, our discount notes or the senior notes are outstanding, we will
be  required  to seek the  consent  of the  lenders  under  our  secured  credit
facility,  the holders of the discount notes and the holders of the senior notes
to repurchase or redeem the convertible preferred stock, or attempt to refinance
the secured credit facility, the discount notes and the senior notes. If we fail
to obtain  these  consents,  there will be an event of  default  under the terms
governing our secured credit facility.  In addition,  if we do not repurchase or
redeem  the  convertible  preferred  stock and the  holders  of the  convertible
preferred  stock  obtain a judgment  against us, any  judgment in excess of $5.0
million would constitute an event of default under the indentures  governing the
discount notes and the senior notes.

IF WE  BREACH  OUR  AGREEMENT  WITH  SBA  COMMUNICATIONS  CORP.  ("SBA"),  OR IT
OTHERWISE  TERMINATES  ITS  AGREEMENT  WITH US,  OUR RIGHT TO  PROVIDE  WIRELESS
SERVICE FROM MOST OF OUR CELL SITES WILL BE LOST.

     We lease cell sites from SBA. We rely on our  contract  with SBA to provide
us with  access to most of our cell  sites and to the  towers  located  on these
sites. If SBA were to lose its underlying  rights to these sites, our ability to
provide  wireless  service  from these sites would end,  subject to our right to
cure defaults by SBA. If SBA terminates our agreement as a result of our breach,
we will lose our right to provide wireless services from most of our cell sites.

WE MAY HAVE DIFFICULTY OBTAINING  INFRASTRUCTURE  EQUIPMENT AND HANDSETS,  WHICH
COULD RESULT IN DELAYS IN OUR NETWORK  BUILD-OUT,  DISRUPTION OF SERVICE OR LOSS
OF CUSTOMERS.

     If we cannot acquire the equipment required to build or upgrade our network
in a timely manner, we may be unable to provide wireless communications services
comparable to those of our competitors or to meet the requirements of the Sprint
PCS agreements.  Manufacturers  of this equipment could have  substantial  order
backlogs.  Accordingly,  the lead-time for the delivery of this equipment may be
longer than  anticipated.  In  addition,  the  manufacturers  of specific  types
handsets may have to  distribute  their limited  supply of products  among their
numerous  customers.  Some  of our  competitors  purchase  large  quantities  of
communications  equipment  and  may  have  established  relationships  with  the
manufacturers of this equipment.  Consequently, they may receive priority in the
delivery  of this  equipment.  If we do not obtain  equipment  or  handsets in a
timely  manner,  we  could  suffer  delays  in the  build-out  of  our  network,
disruptions in service and a reduction in customers.



                                       66


SPRINT'S  VENDOR  DISCOUNTS  MAY  BE  DISCONTINUED,  WHICH  COULD  INCREASE  OUR
EQUIPMENT  COSTS AND REQUIRE MORE CAPITAL THAN WE HAD  PROJECTED TO BUILD-OUT OR
UPGRADE OUR NETWORK.

     We intend to  continue  to  purchase  our  infrastructure  equipment  under
Sprint's vendor agreements that include significant volume discounts.  If Sprint
were unable to continue to obtain vendor discounts for its affiliates,  the loss
of  vendor  discounts  could  increase  our  equipment  costs  for  our  network
build-out.

CONFLICTS WITH SPRINT MAY NOT BE RESOLVED IN OUR FAVOR, WHICH COULD RESTRICT OUR
ABILITY TO MANAGE OUR  BUSINESS AND PROVIDE  SPRINT PCS  PRODUCTS AND  SERVICES,
ADVERSELY AFFECTING OUR RELATIONSHIPS WITH OUR CUSTOMERS,  INCREASE OUR EXPENSES
OR DECREASE OUR REVENUES.

     Under the Sprint PCS agreements, Sprint has a substantial amount of control
over the conduct of our business.  Conflicts between us may arise, and as Sprint
owes us no duties  except  as set  forth in the  Sprint  PCS  agreements,  these
conflicts may not be resolved in our favor.  The conflicts and their  resolution
may harm our business. For example:

     O    Sprint may price its national  plans based on its own  objectives  and
          may set price  levels and  customer  credit  policies  that may not be
          economically sufficient for our business;

     O    Sprint may  increase  the prices we pay for our back office  services;
          and

     O    Sprint may make decisions that adversely  affect our use of the Sprint
          and Sprint PCS brand names, products or services.

WE MAY NOT BE ABLE TO COMPETE WITH LARGER,  MORE ESTABLISHED  WIRELESS PROVIDERS
WHO HAVE RESOURCES TO  COMPETITIVELY  PRICE THEIR  PRODUCTS AND SERVICES,  WHICH
COULD IMPAIR OUR ABILITY TO ATTRACT AND RETAIN CUSTOMERS.

     Our ability to compete will depend in part on our ability to anticipate and
respond  to  various  competitive   factors  affecting  the   telecommunications
industry,  including  new services that may be  introduced,  changes in consumer
preferences,  demographic  trends,  economic  conditions  and  discount  pricing
strategies by competitors. In each market, we compete with at least two cellular
providers that have had their  infrastructure in place and have been operational
for a number  of  years.  They  may have  significantly  greater  financial  and
technical  resources than we do, they could offer attractive pricing options and
they may have a wider variety of handset  options.  We expect existing  cellular
providers  will continue to upgrade their systems and provide  expanded  digital
services to compete with the Sprint PCS products and services we offer.  Many of
these  wireless  providers  generally  require  their  customers  to enter  into
long-term  contracts,  which  may  make  it  more  difficult  for us to  attract
customers away from them.

     We will  also  compete  with  several  PCS  providers  and  other  existing
communications  companies in our markets and expect to compete with new entrants
as the FCC licenses additional  spectrum to mobile services providers.  A number
of our cellular, PCS and other wireless competitors have access to more licensed
spectrum  than the  amount  licensed  to  Sprint  in most of our  territory  and
therefore will be able to provide  greater network call volume capacity than our
network to the extent that network  usage begins to reach or exceed the capacity
of our licensed spectrum.  Our inability to accommodate increases in call volume
could result in more dropped or disconnected calls. In addition, any competitive
difficulties that Sprint may experience could also harm our competitive position
and success.

     We anticipate  that market prices for two-way  wireless  voice services and
products   generally   will  continue  to  decline  as  a  result  of  increased
competition.  Consequently we may be forced to increase spending for advertising
and promotions.  Increased  competition also may lead to continued  increases in
customer churn. Those trends could cause further delays in our expected dates to
achieve positive EBITDA.

WE MAY NOT BE ABLE TO OFFER COMPETITIVE ROAMING  CAPABILITY,  WHICH COULD IMPAIR
OUR ABILITY TO ATTRACT AND RETAIN CUSTOMERS.

     We rely  on  agreements  with  competitors  to  provide  automatic  roaming
capability  to our PCS  customers in many of the areas of the United  States not
covered by the Sprint PCS network,  which primarily serves  metropolitan  areas.
Some competitors may be able to offer coverage in areas not served by the Sprint
PCS  network  or may be able to offer  roaming  rates  that are lower than those
offered by Sprint and its PCS affiliates. Some of our competitors are seeking to


                                       67


reduce access to their networks through actions pending with the FCC.  Moreover,
the engineering standard for the dominant air interface upon which PCS customers
roam is  currently  being  considered  for  elimination  by the FCC as part of a
streamlining  proceeding.  If the FCC eliminates  this standard,  our Sprint PCS
customers may have difficulty roaming in some markets.

THERE IS NO UNIFORM SIGNAL TRANSMISSION TECHNOLOGY AND IF WE DECIDE TO USE OTHER
TECHNOLOGIES  IN THE FUTURE,  THIS  DECISION  COULD  SUBSTANTIALLY  INCREASE OUR
EQUIPMENT EXPENDITURES TO REPLACE THE TECHNOLOGY USED ON OUR NETWORK.

     The wireless  telecommunications industry is experiencing evolving industry
standards.  We have employed code division  multiple  access (CDMA)  technology,
which is the digital wireless  communications  technology selected by Sprint PCS
for its  network.  CDMA may not  provide  the  advantages  expected by us and by
Sprint  PCS.  In  addition  to  CDMA,  there  are  two  other  principal  signal
transmission  technologies,  time division  multiple access, or TDMA, and global
systems  for mobile  communications,  or GSM.  These three  signal  transmission
technologies are not compatible with each other. If one of these technologies or
another  technology  becomes the  preferred  industry  standard,  we may be at a
competitive  disadvantage  and  competitive  pressures may require Sprint PCS to
change its digital  technology which, in turn, may require us to make changes at
substantially increased costs.

WE MAY NOT RECEIVE AS MUCH SPRINT PCS ROAMING  REVENUE AS WE ANTICIPATE  AND OUR
NON-SPRINT PCS ROAMING REVENUE IS LIKELY TO BE LOW.

     We are paid a fee from Sprint or a Sprint PCS  affiliate  for every  minute
that a Sprint PCS  subscriber  based outside of our territory  uses our network.
Similarly, we pay a fee to Sprint PCS or a Sprint PCS affiliate for every minute
that our  customers  use the Sprint  PCS  network  outside  our  territory.  Our
customers may use the Sprint PCS network  outside our territory more  frequently
than we anticipate,  and Sprint PCS subscribers  based outside our territory may
use our network less frequently than we anticipate.  As a result, we may receive
less Sprint PCS roaming revenue in the aggregate, than we previously anticipated
or we may have to pay more  Sprint PCS  roaming  fees in the  aggregate  than we
anticipate.  The fee for each Sprint PCS roaming  minute used was decreased from
$0.20 per minute  before  June 1, 2001,  to $0.15 per minute  effective  June 1,
2001, and further  decreased to $0.12 per minute effective  October 1, 2001. The
Sprint PCS roaming rate was changed to $0.10 per minute in 2002. After 2002, the
rate will be changed to "a fair and reasonable  return."  Sprint has notified us
that it intends to reduce the  reciprocal  roaming  rate to $0.058 per minute of
use in 2003. As a result,  we may receive less Sprint PCS roaming revenue in the
aggregate,  than we  previously  anticipated.  Furthermore,  we do not expect to
receive substantial non-Sprint PCS roaming revenue.

IF SPRINT PCS CUSTOMERS ARE NOT ABLE TO ROAM INSTANTANEOUSLY OR EFFICIENTLY ONTO
OTHER WIRELESS NETWORKS, WE MAY SUFFER A REDUCTION IN OUR REVENUES AND NUMBER OF
CUSTOMERS.

     The Sprint PCS network  operates at a different  frequency  and uses or may
use a different  signal  transmission  technology  than many analog cellular and
other digital systems. To access another provider's analog cellular, TDMA or GSM
digital  system when outside the territory  served by the Sprint PCS network,  a
Sprint  PCS  customer  is  required  to  utilize a  dual-band/dual-mode  handset
compatible with that provider's system. Generally,  because  dual-band/dual-mode
handsets incorporate two radios rather than one, they are more expensive, larger
and heavier than single-band/single-mode handsets. Sprint's PCS network does not
allow for call  hand-off  between the Sprint PCS  network  and another  wireless
network, so a customer must end a call in progress on the Sprint PCS network and
initiate a new call when outside the territory served by the Sprint PCS network.
In addition,  the quality of the service provided by a network provider during a
roaming call may not approximate  the quality of the service  provided by Sprint
PCS.  The price of a roaming  call may not be  competitive  with prices of other
wireless  companies for roaming calls,  and Sprint  customers may not be able to
use Sprint PCS advanced features, such as voicemail notification, while roaming.
These  roaming  issues may cause us to suffer a reduction  in our  revenues  and
number of customers.

PARTS OF OUR TERRITORIES  HAVE LIMITED  LICENSED  SPECTRUM,  WHICH MAY ADVERSELY
AFFECT THE QUALITY OF OUR SERVICE.

     In the majority of our markets,  Sprint has licenses  covering 20 MHz or 30
MHz of spectrum.  However,  Sprint has licenses covering only 10 MHz in parts of
our  territory  covering  approximately  3.8  million  residents  out of a total
population of over 10.2 million  residents.  In the future,  as our customers in
those areas increase in number,  this limited licensed  spectrum may not be able


                                       68


to accommodate  increases in call volume and may lead to increased dropped calls
and may limit our ability to offer enhanced services.

NON-RENEWAL  OR  REVOCATION  BY  THE  FCC  OF  THE  SPRINT  PCS  LICENSES  WOULD
SIGNIFICANTLY  HARM OUR  BUSINESS  BECAUSE WE WOULD NO LONGER  HAVE THE RIGHT TO
OFFER WIRELESS SERVICE THROUGH OUR NETWORK.

     We are dependent on Sprint's PCS licenses, which are subject to renewal and
revocation  by the FCC.  Sprint's PCS licenses in many of our  territories  will
expire as early as 2005 but may be renewed for additional  ten-year terms. There
may be opposition to renewal of Sprint's PCS licenses upon their  expiration and
the  Sprint  PCS  licenses  may not be  renewed.  The FCC has  adopted  specific
standards  to apply to PCS license  renewals.  For  example,  if Sprint does not
demonstrate  to  the  FCC  that  Sprint  has  met  the  five-year   construction
requirements for each of its PCS licenses,  it can lose those licenses.  Failure
to comply with these  standards in our territory  could cause the  imposition of
fines on Sprint by the FCC or the  revocation  or  forfeiture  of the Sprint PCS
licenses for our territory,  which would  prohibit us from providing  service in
our markets.

IF THE SPRINT PCS AGREEMENTS DO NOT COMPLY WITH FCC REQUIREMENTS, SPRINT PCS MAY
TERMINATE  THE SPRINT PCS  AGREEMENTS,  WHICH COULD  RESULT IN OUR  INABILITY TO
PROVIDE SERVICE.

     The FCC  requires  that  licensees  like Sprint  maintain  control of their
licensed spectrum and not delegate control to third-party  operators or managers
like us.  Although the Sprint PCS  agreements  reflect an  arrangement  that the
parties  believe  meets the FCC  requirements  for licensee  control of licensed
spectrum, we cannot be certain the FCC will agree with us. If the FCC determines
that the Sprint PCS  agreements  need to be modified  to  increase  the level of
licensee  control,  we have agreed with Sprint to use our best efforts to modify
the Sprint PCS agreements to comply with applicable law. If we cannot agree with
Sprint to modify the  Sprint  PCS  agreements,  they may be  terminated.  If the
Sprint PCS agreements are terminated, we would no longer be a part of the Sprint
PCS network and we would have extreme difficulty in conducting our business.

WE MAY NEED MORE CAPITAL THAN WE CURRENTLY  ANTICIPATE TO COMPLETE THE BUILD-OUT
AND UPGRADE OF OUR NETWORK,  AND A DELAY OR FAILURE TO OBTAIN ADDITIONAL CAPITAL
COULD DECREASE OUR REVENUES.

     The completion of our network build-out will require  substantial  capital.
Additional funds would be required in the event of:

     O    significant departures from our current business plan;

     O    unforeseen delays, cost overruns, unanticipated expenses; or

     O    regulatory, engineering design and other technological changes.

     For example,  it is possible that we will need substantial funds if we find
it necessary or desirable to overbuild the territory  currently  served  through
our  arrangements  with  the  Alliances.  Due to our  highly  leveraged  capital
structure,  additional financing may not be available or, if available,  may not
be obtained on a timely basis or on terms acceptable to us or within limitations
permitted  under our  existing  debt  covenants.  Failure  to obtain  additional
financing,  should  the  need  for it  develop,  could  result  in the  delay or
abandonment of our development and expansion plans, and we may be unable to fund
our ongoing operations.

BECAUSE SPRINT HAS RECENTLY REQUIRED US TO UPGRADE OUR NETWORK TO PROVIDE "THIRD
GENERATION" TECHNOLOGY, WE WILL FACE ADDITIONAL CAPITAL EXPENSES.

     The wireless  industry is seeking to implement new "third  generations," or
"3G", technology. Sprint has selected a version of 3G technology (1XRTT) for its
own networks and required us to upgrade our network to provide  those  services.
Sprint  launched  the new 3G  technology  in August  2002 under the  brand,  PCS
Vision.  We  participated in that launch along with other Sprint PCS affiliates.
We  still  have   additional   expenditures   pending  to   complete   the  full
implementation of 3G in all of our markets. If other wireless carriers implement
their 3G upgrades on a more rapid timetable,  or on a more cost efficient basis,
or on a more  advanced  technology  basis,  we will  likely  suffer  competitive
disadvantages  in our  markets.  While there are  potential  advantages  with 3G


                                       69


technology,  such as increased network capacity and additional  capabilities for
wireless  data  applications,   the  technology  has  not  been  proven  in  the
marketplace and has the risks inherent in other technological innovations.

     Recently,  Sprint has sought to increase  service fees during the remainder
of 2002 and beyond in connection with its development of 3G-related  back-office
systems and  platforms.  Horizon  PCS,  along with the other PCS  affiliates  of
Sprint,  are currently  disputing the validity of Sprint's right to pass through
this fee to Horizon PCS. If this dispute is resolved unfavorably to Horizon PCS,
then Horizon PCS will incur additional expenses.

UNAUTHORIZED  USE OF OUR  NETWORK  AND OTHER  TYPES OF FRAUD  COULD  DISRUPT OUR
BUSINESS AND INCREASE OUR COSTS.

     We will likely  incur costs  associated  with the  unauthorized  use of our
network,  including  administrative and capital costs associated with detecting,
monitoring  and reducing the incidence of fraud.  Fraud impacts  interconnection
costs, capacity costs, administrative costs, fraud prevention costs and payments
to other carriers for unbillable  fraudulent  roaming.  Although we believe that
Sprint has  implemented  appropriate  controls to  minimize  the effect to us of
fraudulent usage, our efforts may not be successful.

EXPANDING OUR TERRITORY MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

     As part of our business  strategy,  we may expand our territory through the
grant of  additional  markets from Sprint PCS or through  acquisitions  of other
Sprint PCS affiliates.  We will evaluate  strategic  acquisitions  and alliances
principally  relating to our current operations.  These transactions may require
the approval of Sprint PCS and commonly involve a number of risks, including:

     O    difficulty assimilating acquired operations and personnel;

     O    diversion of management attention;

     O    disruption of ongoing business;

     O    inability to retain key personnel;

     O    inability to successfully  incorporate acquired assets and rights into
          our service offerings;

     O    inability to maintain  uniform  standards,  controls,  procedures  and
          policies; and

     O    impairment of relationships with employees, customers or vendors.

     Failure to overcome these risks or any other problems  encountered in these
transactions could have a material adverse effect on our business. In connection
with these  transactions,  we may also issue  additional  equity  securities and
incur additional debt.

THE SPRINT  AGREEMENTS  AND OUR RESTATED  CERTIFICATE OF  INCORPORATION  INCLUDE
PROVISIONS  THAT MAY  DISCOURAGE,  DELAY OR RESTRICT  ANY SALE OF OUR  OPERATING
ASSETS OR COMMON STOCK TO THE POSSIBLE DETRIMENT OF OUR NOTEHOLDERS.

     The Sprint PCS agreements restrict our ability to sell our operating assets
and common  stock.  Generally,  Sprint  must  approve a change of control of our
ownership and consent to any assignment of the Sprint PCS agreements. The Sprint
PCS  agreements  also give Sprint a right of first  refusal if we decide to sell
the  operating  assets of our Bright PCS markets to a third party.  In addition,
provisions of our restated  certificate of  incorporation  could also operate to
discourage, delay or make more difficult a change in control of our company. For
example, our restated certificate of incorporation provides for:

     O    two classes of common stock,  with our class B common stock having ten
          votes per share;

     O    the issuance of preferred stock without stockholder approval; and



                                       70


     O    a classified board, with each board member serving a three-year term.

     The  restrictions  in the Sprint PCS  agreements  and the provisions of our
restated certificate of incorporation could discourage any sale of our operating
assets or common stock.

WE MAY  EXPERIENCE A HIGH RATE OF CUSTOMER  TURNOVER,  WHICH WOULD  INCREASE OUR
COSTS OF OPERATIONS AND REDUCE OUR REVENUE AND POTENTIALLY  CAUSE A VIOLATION OF
THE COVENANTS UNDER HPCS' SECURED CREDIT FACILITY.

     Our strategy to minimize  customer  turnover,  commonly known as churn, may
not be  successful.  As a result  of  customer  turnover,  we lose  the  revenue
attributable  to these  customers  and  increase the costs of  establishing  and
growing our customer  base.  The PCS industry has  experienced  a higher rate of
customer turnover as compared to cellular industry averages. We have experienced
an increase in churn during 2002, primarily caused by NDASL customers' inability
to pay for services  billed.  Current and future  strategies to reduce  customer
churn may not be successful.

     The rate of customer turnover is affected by the following factors, several
of which are not within our ability to address:

     O    credit worthiness of customers;

     O    extent of network coverage;

     O    reliability  issues such as blocked  calls,  dropped calls and handset
          problems;

     O    non-use of phones;

     O    change of employment;

     O    a lack of affordability;

     O    price competition;

     O    Sprint's PCS customer credit policies;

     O    customer care concerns; and

     O    other competitive factors.

     A high rate of customer  turnover could  adversely  affect our  competitive
position,  results  of  operations  and our costs of,  or  losses  incurred  in,
obtaining new customers, especially because we subsidize some of the cost of the
handsets purchased by our customers.

OUR ALLOWANCE FOR DOUBTFUL ACCOUNTS MAY NOT BE SUFFICIENT TO COVER UNCOLLECTIBLE
ACCOUNTS.

     On an ongoing basis, we estimate the amount of customer receivables that we
may not collect to reflect  the  expected  loss on such  accounts in the current
period.  However,  our allowance for doubtful accounts may underestimate  actual
unpaid receivables for various reasons, including:

     O    adverse changes in our churn rate exceeding our estimates;

     O    adverse changes in the economy  generally  exceeding our expectations;
          or

     O    unanticipated changes in Sprint PCS' products and services.

                                       71


     If our allowance for doubtful  accounts is  insufficient to cover losses on
our receivables, our business, financial position or results of operations could
be materially adversely affected.

BECAUSE THE WIRELESS  INDUSTRY HAS  EXPERIENCED  HIGHER  CUSTOMER  ADDITIONS AND
HANDSET  SALES IN THE FOURTH  CALENDAR  QUARTER AS  COMPARED  TO THE OTHER THREE
CALENDAR  QUARTERS,  A FAILURE BY US TO ACQUIRE  SIGNIFICANTLY MORE CUSTOMERS IN
THE FOURTH QUARTER COULD HAVE A DISPROPORTIONATE  NEGATIVE EFFECT ON OUR RESULTS
OF OPERATIONS.

     The wireless industry is historically  dependent on fourth calendar quarter
results. Our overall results of operations could be significantly  reduced if we
have a worse than expected fourth calendar quarter for any reason, including the
following:

     O    our inability to match or beat pricing plans offered by competitors;

     O    our failure to adequately  promote Sprint PCS' products,  services and
          pricing plans;

     O    our inability to obtain an adequate supply or selection of handsets;

     O    a  downturn  in the  economy  of  some  or all of the  markets  in our
          territory; or

     O    a generally poor holiday shopping season.

REGULATION BY GOVERNMENT AGENCIES MAY INCREASE OUR COSTS OF PROVIDING SERVICE OR
REQUIRE US TO CHANGE OUR SERVICES, WHICH COULD IMPAIR OUR FINANCIAL PERFORMANCE.

     The  licensing,  construction,  use,  operation,  sale and  interconnection
arrangements  of wireless  telecommunications  systems are  regulated to varying
degrees by the FCC, the Federal Aviation  Administration  and,  depending on the
jurisdiction,  state and  local  regulatory  agencies  and  legislative  bodies.
Adverse  decisions  regarding these  regulatory  requirements  could  negatively
impact our operations and our cost of doing business.

USE OF HAND-HELD  PHONES MAY POSE HEALTH RISKS,  REAL OR PERCEIVED,  WHICH COULD
RESULT IN THE  REDUCED USE OF OUR  SERVICES OR  LIABILITY  FOR  PERSONAL  INJURY
CLAIMS.

     Media reports have suggested that radio  frequency  emissions from wireless
handsets may be linked to various health  problems,  including  cancer,  and may
interfere with various  electronic  medical devices,  including hearing aids and
pacemakers.  Concerns  over radio  frequency  emissions  may  discourage  use of
wireless handsets or expose us to potential  litigation.  Any resulting decrease
in demand for our services,  or costs of  litigation  and damage  awards,  could
impair our ability to profitably operate our business.

REGULATION BY GOVERNMENT OR POTENTIAL LITIGATION RELATING TO THE USE OF WIRELESS
PHONES WHILE DRIVING COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS

     Some studies have  indicated  that some  aspects of using  wireless  phones
while driving may impair  drivers'  attention in certain  circumstances,  making
accidents  more likely.  These  concerns  could lead to  litigation  relating to
accidents,  deaths  or  serious  bodily  injuries,  or to  new  restrictions  or
regulations on wireless phone use, any of which also could have material adverse
effects  on our  results  of  operations.  A number  of U.S.  states  and  local
governments  are  considering or have recently  enacted  legislation  that would
restrict or prohibit the use of a wireless  handset  while driving a vehicle or,
alternatively,  require the use of a hands-free  telephone.  Legislation of this
sort, if enacted, would require wireless service providers to provide hands-free
enhanced services, such as voice activated dialing and hands-free speaker phones
and headsets,  so that they can keep generating  revenue from their subscribers,
who make many of their  calls  while on the road.  If we are  unable to  provide
hands-free  services  and products to our  subscribers  in a timely and adequate
fashion,  the volume of  wireless  phone usage would  likely  decrease,  and our
ability to generate revenues would suffer.



                                       72


ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We do not engage in commodity  futures trading  activities and do not enter
into  derivative  financial  instruments  for trading  purposes.  We also do not
engage in  transactions  in foreign  currencies  that would  expose us to market
risk.

     In the normal course of business,  our  operations  are exposed to interest
rate  risk on our  secured  credit  facility.  Our  primary  interest  rate risk
exposures  relate to i) the interest rate on our  financing,  ii) our ability to
refinance our discount notes at maturity at market rates, and iii) the impact of
interest rate movements on our ability to meet interest expense requirements and
meet financial covenants under our debt instruments.

     In the first quarter of 2001,  Horizon PCS entered into a two-year interest
rate swap,  effectively  fixing $25.0 million of term loan B borrowed  under the
secured credit facility.  In the third quarter of 2001, Horizon PCS entered into
another  two-year  interest rate swap,  effectively  fixing the remaining  $25.0
million of term loan B. The table below  compares  current  market  rates on the
balances subject to the swap agreements:

     (Dollars in millions)                     At December 31, 2002
                                     --------------------------------------
                                        Balance     Market rate   Swap rate
                                     ------------  ------------- ----------
     Swap 1.....................         $25.0         6.33%          9.40%
     Swap 2.....................         $25.0         6.33%          7.65%

     Since  our swap  interest  rates  are  currently  greater  than the  market
interest rates on our underlying  debt,  our results from  operations  currently
reflect a higher  interest  expense  than had we not  hedged  our  position.  At
December  1,  2002,  the  Company  recorded   approximately  $395,000  in  other
comprehensive losses related to the swap on the balance sheet.

     While we cannot predict our ability to refinance existing debt, we continue
to evaluate our interest rate risk on an ongoing  basis.  If we do not renew our
swaps,  or, if we do not hedge  incremental  variable-rate  borrowings under our
secured credit  facility,  we will increase our interest rate risk,  which could
have a  material  impact  on our  future  earnings.  As of  December  31,  2002,
approximately  83% of our long-term  debt is fixed rate or is variable rate that
has been swapped under fixed-rate hedges, thus reducing our exposure to interest
rate risk.  Currently,  a 100 basis  point  increase  in  interest  rates  would
increase our interest expense approximately $1.1 million.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Our financial  statements and supplementary  data required by this item are
submitted  as a  separate  section  of this  annual  report  on Form  10-K.  See
"Financial Statements" commencing on page F-1.

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

     On June 27, 2002, Horizon Telcom and its subsidiary, Horizon PCS, dismissed
Arthur Andersen LLP  ("Andersen")  as its principal  accountant and engaged KPMG
LLP as its principal accountant.  This change in accountants was reported in the
Current  Reports  on Form 8-K filed on June 27,  2002,  by  Horizon  Telcom  and
Horizon PCS.


                                       73


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS

     The following are the  directors and executive  officers of Horizon  Telcom
during 2002 or as of the date hereof:


                                                                   
NAME                                                   AGE               POSITION
- ----                                                ---------            --------
Robert McKell......................................    79                Chairman of the Board, Director
Thomas McKell......................................    67                President, Director of Horizon Telcom;
                                                                         President of Chillicothe Telephone
Peter M. Holland...................................    37                Vice President of Finance, Treasurer and
                                                                         CFO of Horizon Telcom; Chief Financial
                                                                         Officer of Horizon PCS
Jack E. Thompson...................................    69                Secretary, Director
William A. McKell..................................    42                Chairman of the Board, President and Chief
                                                                         Executive Officer of Horizon PCS
Phoebe H. McKell...................................    56                President of Horizon Services; President of
                                                                         Horizon Technology
Joseph S. McKell...................................    77                Director
David McKell.......................................    75                Director
Helen M. Sproat....................................    70                Director
John E. Herrnstein.................................    65                Director
Joseph G. Kear.....................................    79                Director
Jerry B. Whited....................................    53                Director
Donald L. McNeal...................................    65                Director


     ROBERT  MCKELL has served as Chairman of the Board of  Directors of Horizon
Telcom since its inception in 1996 and of Chillicothe  Telephone since 1988. Mr.
McKell has 56 years of telecommunications  experience and received a Bachelor of
Science in Electrical Engineering.

     THOMAS MCKELL has served as the President and a Director of Horizon  Telcom
since its inception in 1996 and of The Chillicothe Telephone Company since 1988.
Mr. McKell has 47 years of telecommunications experience and received a Bachelor
of Science in Electrical Engineering.

     PETER M. HOLLAND has served as Vice  President of Finance and  Treasurer of
Horizon Telcom since  November  1999. He has also served as the Chief  Financial
Officer of Horizon PCS since its  inception  in April 2000 and has served as the
Chief Financial  Officer and a director of Horizon  Telcom's other  subsidiaries
since November  1999. Mr. Holland has been a member of the management  committee
of Bright PCS since its formation in September  1999.  Mr. Holland has nearly 15
years of  telecommunications  experience.  From May 1996 to December  1999,  Mr.
Holland  was a principal  and owner of The  Pinnacle  Group  located in Langley,
Washington.   Pinnacle  provides  strategic  business  planning  and  regulatory
consulting services to independent  wireless and wireline  companies,  including
Horizon PCS. Prior to joining Pinnacle in May 1996, Mr. Holland was a manager in
Nextel  Communications'  Business Development and Corporate Strategy groups. Mr.
Holland  started  his  career  in   telecommunications   with  Ernst  &  Young's
telecommunications  consulting group and was a Certified Public Accountant.  Mr.
Holland  received his  Bachelor of Business  Administration  with an  accounting
concentration from Pacific Lutheran University.

     JACK E. THOMPSON has been  Secretary  and Director of Horizon  Telcom since
its inception in 1996 and of Chillicothe  Telephone since May 1982. He served as
chief  financial  officer of Horizon  Telcom from its inception to May 2000, and
was  treasurer  of  Chillicothe  Telephone  from May 1982  until May  2000.  Mr.
Thompson has 36 years of telecommunications experience.

                                       74


     WILLIAM A. MCKELL has served as Chairman of the Board,  President and Chief
Executive  Officer  of  Horizon  PCS since its  inception  in April 2000 and has
served as  President,  Chief  Executive  Officer  and  Chairman  of the Board of
Horizon  Personal  Communications  since May 1996 and as President of Bright PCS
since  its   formation  in  September   1999.   Mr.   McKell  has  15  years  of
telecommunications  experience.  Mr. McKell served as Vice  President of Network
Services  from January 1996 to April 1996 and Director of Network  Services from
August 1994 to December 1995 for The Chillicothe  Telephone Company.  Mr. McKell
is a graduate of Ohio Northern University.

     PHOEBE H. MCKELL has served as the President of Horizon  Services since its
inception in 1996.  Ms.  McKell has 24 years of  telecommunications  experience.
From 1999 until  February 20, 2003, she also was a director of Horizon PCS. From
1989 to 1996, she was Director of Administration  for The Chillicothe  Telephone
Company.  Ms.  McKell has served as  President of Horizon  Technology  since its
inception.

     JOSEPH S. MCKELL has been a director of Horizon  Telcom since its inception
in 1996 and a director of  Chillicothe  Telephone  since  1983.  Mr.  McKell,  a
physician,  has  practiced  medicine  in  Chillicothe,  Ohio for more than forty
years.

     DAVID MCKELL has been a director of Horizon  Telcom since its  inception in
1996 and a director of Chillicothe Telephone for 37 years. He is now retired.

     HELEN M. SPROAT has been a director of Horizon  Telcom since its  inception
in 1996 and a director of The Chillicothe  Telephone Company since 1988. She has
owned and  managed  Hidden Hill  Gallery,  Springboro,  Ohio,  for more than six
years.

     JOHN E.  HERRNSTEIN  has  been a  director  of  Horizon  Telcom  since  its
inception in 1996, and a director of Chillicothe  Telcom since 1981. He has been
a registered representative and financial consultant for AG Edwards & Sons, Inc.
a securities brokerage firm for more than six years.

     JOSEPH G. KEAR has been a director of Horizon Telcom since its inception in
1996,  and of  Chillicothe  Telephone for 37 years.  Mr. Kear, an attorney,  has
practiced law in Chillicothe, Ohio for the past 54 years. He is now a partner at
Kear-Motes  law firm, a firm which was organized in January 2001.  Prior to that
time,  he  practiced  law  as  a  sole  practitioner.  Mr.  Kear  submitted  his
resignation to the board of directors on December 6, 2002.

     JERRY B. WHITED was  appointed as a director of Horizon  Telcom in November
of 2001.  Mr.  Whited is a partner in the CPA firm of Whited,  Seigneur,  Sams &
Rahe. Mr. Whited serves on various  boards and  committees for local  non-profit
organizations,  including the  Bicentennial  Commission,  Chillicothe  Community
Foundation,  Ohio University  Chillicothe  Coordinating Council,  Adena Hospital
Finance  Committee,  the  Chillicothe  Chamber of Commerce,  and has  previously
served as president of the  Chillicothe  Rotary Club.  Mr. Whited also currently
serves  on the  Board of  Directors  for  Citizens  National  Bank.  Mr.  Whited
graduated from Bowling Green State University.

     DONALD L. MCNEAL was appointed as a director of Horizon  Telcom in November
of 2002.  Mr. McNeal worked his entire  business  career in the Human  Resources
Department with The Mead Corporation, retiring as vice president of Mead's Human
Resources  School and Office  Products  Division in 1992. He graduated  from The
Ohio State  University in 1959 and then served as a captain in the United States
Air Force.

     Robert McKell,  Thomas McKell, David McKell and Joseph McKell are brothers.
Helen Sproat is their sister.  Phoebe  McKell is the daughter of Robert  McKell.
William McKell is the son of Thomas McKell.

BOARD OF DIRECTORS

     There are  presently  nine  members  of the board of  directors.  Following
election, directors serve for a term of one year, or until their successors have
been elected and qualified,  and are  compensated at the discretion of the board
of directors.  Executive  officers are ordinarily  elected annually and serve at
the discretion of the board of directors.

                                       75


DIRECTOR COMPENSATION

     Directors  who  are  not  otherwise  employed  by  Horizon  Telcom  or  its
subsidiaries receive $2,350 per quarter as director compensation. Robert McKell,
Thomas McKell, and Jack Thompson receive $50 per quarter. Compensation and Audit
committee  chairmen receive an additional  $1,500 per quarter for their services
while other committee members receive $1,000 per quarter.

BOARD COMMITTEES

     We currently have an audit committee which is responsible for  recommending
to the  board of  directors  the  engagement  of our  independent  auditors  and
reviewing with the independent auditors the scope and results of the audits, our
internal  accounting  controls,  audit practices and the  professional  services
furnished  by  the  independent  auditors.  The  audit  committee  is  currently
comprised of two members, Messrs. Whited and Herrnstein.  The board of directors
intends to identify  and elect a third  member to the audit  committee  at their
annual meeting in May of 2003.

     We also currently have a compensation  committee,  which is responsible for
reviewing and approving all compensation  arrangements for our officers,  and is
also  responsible  for  administering  the stock option plan.  The  compensation
committee is currently comprised of two members.

ITEM 11.  EXECUTIVE COMPENSATION

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section  16(a) of the  Exchange  Act requires  Horizon  Telcom's  executive
officers,  directors and persons who  beneficially  own more than 10% of Horizon
Telcom's stock  ("reporting  persons") to file initial  reports of ownership and
reports of changes in ownership with the SEC. Executive officers,  directors and
greater than 10%  beneficial  owners are required by SEC  regulations to furnish
Horizon Telcom with copies of all Section 16(a) forms they file.

     Based  solely on its review of copies of forms  received  by it pursuant to
Section  16(a) of the Exchange  Act or written  representations  from  reporting
persons,  Horizon  Telcom  believes that with respect to 2002, all Section 16(a)
filing requirements applicable to its executive officers,  directors and greater
than 10%  beneficial  owners  were  complied  with,  except  that the  following
insiders each filed a late Form 5 to report one late transaction;  Messrs Whited
and Gates.



                                       76



     The  following  table  presents  summary  information  with  respect to the
compensation paid to our Chief Executive Officer and our four other highest paid
executive  officers  whose salary and bonus  exceeded  $100,000  during the year
ended December 31, 2002:



                                                                                           
                                                                                          LONG-TERMS
                                                                                         COMPENSATION
                                                             ANNUAL COMPENSATION          SECURITIES
                                                         -----------------------------    UNDERLYING        ALL OTHER
NAME AND PRINCIPAL POSITION                                SALARY ($)     BONUS ($)       OPTIONS (#)     COMPENSATION
- ---------------------------                              ------------    -------------   -------------    -------------

Thomas McKell................................     2002      226,557           --              --             11,406 (1)
    President of Horizon Telcom; President of     2001      207,733           --              --             10,148 (2)
      Chillicothe Telephone                       2000      207,312           --              --              8,789 (3)

William A. McKell............................     2002      207,500          50,103           --             13,075 (4)
    Chairman of the Board, President and          2001      195,833          65,935           --            116,885 (5)
      CEO of Horizon PCS                          2000      154,167          21,458           --             12,497 (6)

Peter M. Holland.............................     2002      181,562          43,819           --             12,676 (7)
    Vice President of Finance,                    2001      170,833          57,479           --            129,032 (8)
      Treasurer and CFO of Horizon                2000      150,000          20,625           --             11,971 (9)
      Telcom; CFO of Horizon PCS

Alan Morse...................................     2002      150,000          36,627        200,000           10,193 (10)
    Chief Operating Officer of Horizon PCS        2001         --             --              --                     --
                                                  2000         --             --              --                     --

Joseph E. Corbin.............................     2002      129,688          33,752           --              8,631 (11)
    Vice President, Engineering/Operations        2001      121,667          44,428           --            126,797 (12)
      of  Horizon PCS                             2000      105,000          14,438           --             20,254 (13)


- ------------------------
(1)  Includes a yearly car  allowance  of $9,140  and a 401(k)  contribution  of
     $2,266.
(2)  Includes a yearly car  allowance  of $8,071  and a 401(k)  contribution  of
     $2,077.
(3)  Includes a yearly car  allowance  of $7,189  and a 401(k)  contribution  of
     $1,600.
(4)  Includes a yearly car  allowance  of $9,368  and a 401(k)  contribution  of
     $3,707.
(5)  Includes an award of Horizon  Telcom  shares valued at $100,900 at the date
     of the award,  a yearly car allowance of $10,985 and a 401(k)  contribution
     of $5,000.
(6)  Includes a yearly car  allowance  of $7,784  and a 401(k)  contribution  of
     $4,713.
(7)  Includes a yearly car  allowance  of $8,103  and a 401(k)  contribution  of
     $4,573.
(8)  Includes an award of Horizon  Telcom  shares valued at $116,000 at the date
     of the award, a yearly car allowance of $7,892 and a 401(k) contribution of
     $5,140.
(9)  Includes a yearly car  allowance  of $7,578  and a 401(k)  contribution  of
     $4,393.
(10) Includes a yearly car  allowance  of $6,443  and a 401(k)  contribution  of
     $3,750.
(11) Includes a yearly car allowance of 8,631.
(12) Includes an award of Horizon  Telcom  shares valued at $116,000 at the date
     of the award, a yearly car allowance of $7,839 and a 401(k) contribution of
     $2,958.
(13) Includes a yearly car  allowance  of $9,981  and a 401(k)  contribution  of
     $10,273.

     None of the named  executive  officers  received stock options from Horizon
Telcom in 2002.


                                       77


     Grant of Options. During 2002, options were granted to Alan Morse. No stock
appreciation rights (SARs) have been granted by the Company. The following table
sets forth information regarding the grants of options in 2002:



                  OPTION/SAR GRANTS IN LAST FISCAL YEAR (2002)

                                                                                      
                              NUMBER OF                                                     POTENTIAL REALIZABLE
                              SECURITIES        % OF TOTAL                                VALUE AT ASSUMED ANNUAL
                              UNDERLYING       OPTIONS/SARS                              RATES OF APPRECIATION FOR
                               OPTIONS/         GRANTED TO      EXERCISE                        OPTION TERM
                                SARS           EMPLOYEES IN      PRICE     EXPIRATION    ---------------------------
           NAME              GRANTED (#)       FISCAL YEAR       ($/SH)       DATE         5%($)          10%($)
 -------------------------  ---------------  ----------------- ----------- ------------  ---------------------------
 Alan Morse...............     200,000             100%          $5.60       3/01/12      $704,362      $1,784,992


EMPLOYMENT AGREEMENTS

     Horizon PCS entered into employment agreements with Mr. McKell, Mr. Holland
and Mr. Morse, Horizon PCS' Chief Executive Officer, Chief Financial Officer and
Chief Operating Officer,  respectively. The employment agreements provide for an
annual  base  salary of $200,000  to Mr.  McKell,  $175,000  to Mr.  Holland and
$180,000 to Mr. Morse  beginning in 2002. In addition to their base salary,  Mr.
McKell,  Mr. Holland and Mr. Morse are eligible to receive an annual bonus up to
40% of their base salary. In addition, Mr. McKell, Mr. Holland and Mr. Morse are
eligible to participate in all of Horizon PCS' employee benefit plans.

     The employment  agreements provide that Mr. McKell's,  Mr. Holland's or Mr.
Morse's  employment may be terminated  with or without cause,  as defined in the
agreements. If Mr. McKell, Mr. Holland or Mr. Morse is terminated without cause,
he is  entitled to receive 24 months of base  salary,  the vesting of all of his
stock  options  on the date of  termination  and 24 months of health  and dental
benefits. Under the employment agreements, Mr. McKell, Mr. Holland and Mr. Morse
have agreed to a restriction on their present and future  employment.  They have
agreed not to compete in the  business  of  wireless  telecommunications  either
directly or indirectly  within our markets while employed by us and for a period
of twelve months after termination of employment.

HORIZON TELCOM 1999 STOCK OPTION PLAN

     The 1999 Stock Option Plan has been  adopted by our board of directors  and
stockholders.  The option plan  permits the  granting  of both  incentive  stock
options and  nonqualified  stock options to employees.  The aggregate  number of
shares of common stock that may be issued  pursuant to options granted under the
option plan is 10,000 shares,  including both shares of class A common stock and
shares of class B common stock,  subject to  adjustments in the event of certain
changes in the  outstanding  shares of common stock. In 1999, we granted options
to purchase  950 shares of class B common  stock at an exercise  price of $60.00
per share. No additional options were granted in 2001 or 2002.

     The option  plan will be  administered  by our board of  directors  or by a
compensation  committee  appointed  by our  board of  directors,  which  will be
authorized,  subject to the  provisions of the option plan, to grant options and
establish   rules  and   regulations  as  it  deems  necessary  for  the  proper
administration  of the  option  plan  and to make  whatever  determinations  and
interpretations it deems necessary or advisable.

     An  incentive  option  may not have an  exercise  price  less than the fair
market value of the common stock on the date of grant or an exercise period that
exceeds ten years from the date of grant. In the case of option holders that own
more than 10% of Horizon  Telcom's  stock,  the exercise  price for an incentive
option  cannot be less than 110% of the fair market value of the common stock on
the date of grant and the exercise period cannot exceed five years from the date
of grant.  Incentive options are also subject to other limitations,  which allow
the option holder to qualify for favorable tax treatment.  Nonqualified  options
may have an  exercise  price of less  than,  equal to or  greater  than the fair
market value of the underlying common stock on the date of grant but are limited
to an exercise period of no longer than ten years.

                                       78


     The board of directors or the  compensation  committee  will  determine the
persons to whom options will be granted and the terms,  provisions,  limitations
and performance  requirements of each option granted,  and the exercise price of
an option.

     An  option  will not be not  transferable  except by will or by the laws of
descent or distribution or unless determined otherwise by our board of directors
or the compensation committee.

     The plan provides that all stock issued under the plan will be subject to a
right of first  refusal  in favor of  Horizon  Telcom.  Under the right of first
refusal,  each  holder of stock  issued  under the plan must  offer the stock to
Horizon Telcom prior to selling it to a third party.  If Horizon Telcom declines
to purchase the stock,  the  stockholder  may sell the stock to the third party,
but the stock will remain  subject to the Horizon Telcom right of first refusal.
The  right of first  refusal  shall  cease to apply  upon the  completion  of an
underwritten   initial  public  offering  of  Horizon   Telcom's  capital  stock
registered under the Securities Act.

    The plan contains  provisions  that give the  compensation  committee or our
board of directors or the acquiring  entity's  board of directors  discretion to
take  specified  actions if Horizon  Telcom is acquired,  unless the  individual
option grants provide otherwise.  Those actions can include the authorization to
purchase  option  grants  from  plan   participants,   or  make  adjustments  or
modifications to outstanding  options granted to protect and maintain the rights
and interests of the plan  participants  or, upon notice to  optionees,  require
that all  options  must be  exercised  within  a  specified  number  of days and
thereafter the option will terminate.  The board may provide for acceleration of
options upon the  occurrence  of events  specified in the option  agreement.  To
date,  all  individual  option  grants  have  provided  that  the  options  will
accelerate and become fully exercisable upon an acquisition of Horizon Telcom.

HORIZON PCS 2000 STOCK OPTION PLAN

     The Horizon PCS Stock Option Plan has been adopted by Horizon PCS' board of
directors  and  stockholders.  That  option plan  permits  the  granting of both
incentive  stock  options  and  nonqualified  stock  options to  employees.  The
aggregate  number  of  shares of common  stock  that may be issued  pursuant  to
options granted under the option plan is 7,500,000 shares of Horizon PCS class A
common stock and 4,196,883  shares of Horizon PCS class B common stock,  subject
to  adjustments  in the event of certain  changes in the  outstanding  shares of
common stock. On December 1, 1999,  Horizon PCS'  subsidiary,  Horizon  Personal
Communications,  granted  options to  purchase  3,588,000  shares of its class B
common stock with an exercise price of $0.1414 per share to 13 individuals under
its 1999 Stock  Option  Plan.  After  Horizon  PCS was  incorporated,  it issued
options to replace those initial  options,  on the same economic  terms adjusted
for the fact that Horizon Personal Communications was a subsidiary. After taking
into account the adjustment, Horizon PCS issued 4,196,883 substituted options on
its class B common stock at an exercise price of $0.1209.  In 2000,  Horizon PCS
granted options to purchase  116,971 shares of Horizon PCS' class A common stock
at an  exercise  price of $5.88 per share.  In March  2002,  Horizon PCS granted
options to purchase  200,000  shares of Horizon  PCS' class A common stock at an
exercise price of $5.60 per share.

     The Horizon PCS option plan will be  administered by its board of directors
or a compensation  committee appointed by its board of directors,  which will be
authorized,  subject to the  provisions of the option plan, to grant options and
establish   rules  and   regulations  as  it  deems  necessary  for  the  proper
administration  of the  option  plan  and to make  whatever  determinations  and
interpretations it deems necessary or advisable.

     An  incentive  option  may not have an  exercise  price  less than the fair
market value of the common stock on the date of grant or an exercise period that
exceeds ten years from the date of grant. In the case of option holders that own
more than 10% of Horizon PCS' stock,  the exercise price for an incentive option
cannot be less than 110% of the fair  market  value of the  common  stock on the
date of grant and the exercise  period cannot exceed five years from the date of
grant. Incentive options are also subject to other limitations,  which allow the
option holder to qualify for favorable tax treatment.  Nonqualified  options may
have an exercise  price of less than,  equal to or greater  than the fair market
value of the underlying  common stock on the date of grant but are limited to an
exercise  period  of no  loner  than  ten  years.  However,  we will  not  grant
non-qualified  options with an exercise price less than 85% of fair market value
of the common stock on the date of the grant.

                                       79


     The board of directors or the  compensation  committee  will  determine the
persons to whom options will be granted and the terms,  provisions,  limitations
and performance  requirements of each option granted,  and the exercise price of
an option.

     An  option  will not be not  transferable  except by will or by the laws of
descent or distribution or unless determined otherwise by our board of directors
or the compensation committee.

     Unless previously exercised,  a vested option granted under the Horizon PCS
option plan will terminate automatically:

     O    twelve months after the employee's termination of employment by reason
          of disability or death; and

     O    three months after an employee's termination of employment for reasons
          other than disability or death.

     The plan  contains  provisions  that  give  the  Horizon  PCS  compensation
committee  or board of directors or the  acquiring  entity's  board of directors
discretion  to take  specified  actions if Horizon PCS is  acquired,  unless the
individual  option  grants  provide  otherwise.  Those  actions  can include the
authorization  to  purchase  option  grants  from  plan  participants,  or  make
adjustments  or  modifications  to  outstanding  options  granted to protect and
maintain the rights and  interests of the plan  participant  or  accelerate  the
vesting of  outstanding  options.  To date,  all  individual  option grants have
provided that the options will accelerate and become fully  exercisable  upon an
acquisition of Horizon PCS.

     The Horizon PCS board of  directors  has  undertaken  not to grant  options
(other than under the 2000 Stock Option Plan) with a term of longer than 5 years
until the class A common stock is listed on either the New York Stock  Exchange,
the American Stock Exchange, or the NASDAQ National Market.

     Additionally,  none of our named executive officers exercised stock options
in the fiscal year ended  December  31,  2002.  The  following  table sets forth
information  concerning the number and value of unexercised options held by each
of our named executive officers on December 31, 2002. There was no public market
for our common stock as of December 31, 2002. Accordingly, the fair market value
on  December  31,  2002,  is  based  on  the  valuation  analysis  performed  in
conjunction with SFAS 142, was assumed to be less than $0.12 per share.



                 AGGREGATED OPTION EXERCISES IN FISCAL YEAR 2002
                          FISCAL YEAR-END OPTION VALUES

                                                                                   
                                                NUMBER OF SECURITIES               VALUE OF UNEXERCISED
                                               UNDERLYING UNEXERCISED                  IN-THE-MONEY
                                               OPTIONS AT YEAR END (#)          OPTIONS AT YEAR END ($) (1)
  NAME                                       EXERCISABLE      UNEXERCISABLE     EXERCISABLE      UNEXERCISABLE
  ----                                       -----------      -------------     -----------      -------------
  Thomas McKell.........................               --                --      $       --        $       --
  William A.McKell......................        1,008,866*          907,980*             --                --
  Peter M. Holland......................        1,008,866*          907,980*             --                --
  Alan G. Morse.........................               --           200,000*             --                --
  Joseph E. Corbin......................          153,011*           35,310*             --                --


- -------------
* Represents  options to purchase Horizon PCS class A common stock.
(1)  Based on an assumed value of $100.00 per share of Horizon  Telcom stock and
     $5.39 per share for Horizon PCS stock.

PENSION PLAN

     This table shows the estimated  annual benefits  payable upon retirement at
age 65 in the  September  1,  2002 plan year  under  The  Chillicothe  Telephone
Company Salaried Employees' Pension Plan and Trust Agreement, a non-contributory
qualified  defined  benefit  plan.  Benefits  from  the plan  are  payable  upon
retirement in monthly installments for the life of the participant.



                                       80





                                                                                         
                        ----------------------------------------------------------------------------------------------
                                                              YEARS OF SERVICE
                        ----------------------------------------------------------------------------------------------
REMUNERATION                     15                20                  25                30                  35

       $125,000              18,750              25,000              31,250             37,500             43,750
        150,000              22,500              30,000              37,500             45,000             52,500
        175,000              26,250              35,000              43,750             52,500             61,250
        200,000              30,000              40,000              50,000             60,000             70,000
        225,000              30,000              40,000              50,000             60,000             70,000
        250,000              30,000              40,000              50,000             60,000             70,000
        300,000              30,000              40,000              50,000             60,000             70,000
        400,000              30,000              40,000              50,000             60,000             70,000
        450,000              30,000              40,000              50,000             60,000             70,000
        500,000              30,000              40,000              50,000             60,000             70,000


     The  remuneration  shown  above is the annual  equivalent  of an average of
monthly  rates of pay.  The  benefits  shown  above  are based on the sum of the
highest five  consecutive  monthly  rates of pay in effect on each July 1 during
the final ten plan years divided by five.  The benefit  stated in the table will
not be reduced by Social Security or other amounts received by a participant.

     For the  September 1, 2002 plan year,  the July 1, 2001 monthly rate of pay
is  limited  to  $16,667,  which is  equivalent  to an annual  pay of  $200,000.
Compensation in excess of this amount will not be taken into account for benefit
calculation  purposes.  Along these lines, years of benefit service in excess of
40 years will not be taken into account for benefit calculation purposes.

     The minimum benefit for the plan is $35.00 per month times years of benefit
service. This minimum does not apply for any of the benefits listed in the table
above.

     The pension plan was amended on December 24, 2002. This amendment increased
the compensation limit to $200,000 allowing for the cost-of -living  adjustments
in future years.  This  amendment  also changed the  definition of the mortality
table used for calculation of lump sum distributions.

     The number of years of credited  service  certain  executive  officers have
accrued under the pension plan as of the most recent fiscal year end are:

      NAME                    YEARS OF SERVICE
- -----------------------    -----------------------
Thomas McKell                          46.5
Robert McKell                          56.1
William A. McKell                      12.6
Jack E. Thompson                       34.0
Phoebe McKell                          24.3

     Thomas  McKell is an  active  employee,  but he is  currently  eligible  to
retire.  Mr.  Thompson is retired and  receives  retirement  benefits  under the
pension  plan.  Horizon  PCS  employees  do not now  participate  in this  plan,
although  several  current  employees of Horizon PCS who formerly were employees
eligible to participate,  including William McKell, have vested pension benefits
under this plan.

INDEMNIFICATION OF OFFICERS AND DIRECTORS

HORIZON TELCOM

     The regulations of Horizon Telcom provide for  indemnification  of officers
and directors, as described below:

     Actions Not by the Company.  Horizon Telcom shall  indemnify any person who
was or is a  party,  or is  threatened  to be made a party,  to any  threatened,
pending,  or completed  action,  suit, or proceeding,  whether civil,  criminal,
administrative, or investigative, other than an action by or in the right of the
Company,  by reason  of the fact  that he is or was a  director  or  officer  of
Horizon  Telcom or is or was  serving  at the  request  of  Horizon  Telcom as a


                                       81


director,  officer,  partner,  or trustee of another  corporation,  domestic  or
foreign,  nonprofit or for profit,  partnership,  joint venture,  trust or other
enterprise,  against expenses,  including attorneys' fees, judgments,  fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action,  suit, or proceeding if he acted in good faith and in a manner
he  reasonably  believed  to be in or not opposed to the best  interests  of the
Company,  and  with  respect  to  any  criminal  action  or  proceeding,  had no
reasonable  cause to believe his conduct was unlawful.  The  termination  of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo  contendere  or its  equivalent,  shall  not,  of  itself  create a
presumption  that the person did not act in good faith and in a manner  which he
reasonably  believed  to be in or not  opposed  to  the  best  interests  of the
Company,  and  with  respect  to  any  criminal  action  or  proceeding,  he had
reasonable cause to believe that his conduct was unlawful.

     Actions by the Company.  Horizon Telcom shall  indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending, or
completed  action or suit by or in the  right of  Horizon  Telcom  to  procure a
judgment  in its favor by reason  of the fact  that he is or was a  director  or
officer of the Company, or is or was serving at the request of Horizon Telcom as
a director,  officer,  partner, or trustee of another  corporation,  domestic or
foreign,  nonprofit or for profit,  partnership,  joint venture, trust, or other
enterprise against expenses,  including attorneys' fees, actually and reasonably
incurred by him in  connection  with the defense or settlement of such action or
suit if he acted in good faith and in a manner he  reasonably  believed to be in
or  not  opposed  to  the  best  interests  of  the  Company,   except  that  no
indemnification  shall be made in respect of any claim,  issue,  or matter as to
which such  person  shall have been  adjudged  to be liable  for  negligence  or
misconduct in the performance of his duty to Horizon Telcom unless,  and only to
the extent that, the court of common pleas, or the court in which such action or
suit  was  brought,   shall  determine  upon  application   that,   despite  the
adjudication  of liability,  but in view of all the  circumstances  of the case,
such person is fairly and reasonably  entitled to indemnity for such expenses as
the court of common pleas or such other court shall deem proper.

     Indemnification  for Expenses.  To the extent that a person  indemnified by
right or at the option of Horizon  Telcom under the above bylaw  provisions  has
been  successful  on the merits or otherwise  in defense of any action,  suit or
proceeding  referred to in said sections,  or in defense of any claim,  issue or
matter therein, he shall be indemnified against expenses,  including  attorneys'
fees, actually and reasonably incurred by him in connection therewith.

     Determination of  Indemnification.  Any  indemnification  under these bylaw
provisions,  unless ordered by a court,  shall be made by Horizon Telcom only as
authorized in the specific case upon a determination that indemnification of the
indemnified  person  is  proper  in the  circumstances  because  he has  met the
applicable standard of conduct set forth in the bylaws. Such determination shall
be made (a) by a majority  vote of a quorum  consisting  of directors of Horizon
Telcom who were not and are not parties to or  threatened  with any such action,
suit, or proceeding,  or (b) if such a quorum is not obtainable or if a majority
vote of a quorum of disinterested  directors so directs, in a written opinion by
independent  legal counsel,  other than an attorney or a firm having  associated
with it an attorney who has been retained by or who has  performed  services for
Horizon Telcom or any person to be  indemnified,  within the past five years, or
(c) by the  shareholders,  or (d) by the court of  common  pleas or the court in
which such action,  suit, or proceeding was brought.  Any determination  made by
the  disinterested  directors  under clause (a) or by independent  legal counsel
under clause (b) shall be promptly  communicated to the person who threatened or
brought  the  action or suit by or in the right of the  Company,  and within ten
days after  receipt of such  notification,  such person  shall have the right to
petition the court of common pleas or the court in which such action or suit was
brought to review the reasonableness of such determination.

     Advances of Expenses.  Expenses,  including  attorneys'  fees,  incurred in
defending  any  action,  suit,  or  proceeding  referred  to in the above  bylaw
provisions may be paid by Horizon Telcom in advance of the final  disposition of
such action,  suit, or proceeding as authorized by the board of directors in the
specific case upon receipt of an undertaking by or on behalf of the  indemnified
person to repay such amount, unless it shall ultimately be determined that he is
entitled to be  indemnified  by Horizon  Telcom as authorized in the above bylaw
provisions.  No holder shall have the right to question  such  expenses  paid so
long  as  the  board  of  directors   has   authorized   such  payment  and  the
aforementioned  undertaking has been received by the Company;  provided that the
restriction  contained  in this  sentence  shall not be  construed to restrict a
shareholder's right to question the reasonableness of the ultimate determination
of indemnification as described above under "Determination of Indemnification."

                                       82


     Indemnification Not Exclusive.  The indemnification  provided by the bylaws
shall  not be  deemed  exclusive  of any other  rights  to which  those  seeking
indemnification  may be entitled under the articles,  or any agreement,  vote of
shareholders  or  disinterested  directors,  statute  (as  now  existing  or  as
hereafter enacted or amended),  or otherwise,  both as to action in his official
capacity  and as to action in another  capacity  while  holding  such office and
shall continue as to a person who has ceased to be a director, officer, partner,
trustee,  or other  indemnified  capacity  and shall inure to the benefit of the
heirs, executors, and administrators of such a person.

     Insurance.  Horizon  Telcom is authorized  under the bylaws to purchase and
maintain  insurance  on behalf of any person who is or was a director,  officer,
trustee,  employee, or agent of the Company, or is or was serving at the request
of Horizon Telcom as a director,  officer, partner, trustee,  employee, or agent
of  another  corporation,   domestic  or  foreign,   nonprofit  or  for  profit,
partnership,  joint venture,  trust, or other  enterprise  against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not Horizon Telcom has the obligation or power to
indemnify  him  against  such  liability  under the bylaws.  Horizon  Telcom has
purchased such insurance covering the officers and directors.

     Definitions.  As used in the bylaws,  references to "Company"  includes all
constituent  corporations in a consolidation  or merger and the new or surviving
corporation,  so that any person  who is or was a director  or officer of such a
constituent corporation, or is or was serving at the request of such constituent
corporation  as a director,  officer,  partner,  trustee,  or other  indemnified
capacity of another corporation,  domestic or foreign,  nonprofit or for profit,
partnership,  joint venture, trust, or other enterprise, shall stand in the same
position under this section with respect to the new or surviving  corporation as
he would if he had served the new or surviving corporation in the same capacity.

HORIZON PCS

     Horizon PCS' certificate of  incorporation  limits the liability of Horizon
PCS'  directors to the maximum  extent  permitted by Delaware law.  Horizon PCS'
certificate  of  incorporation  provides  that Horizon PCS shall  indemnify  our
directors  and  executive  officers  and may  indemnify  its other  officers and
employees  and agents and other agents to the fullest  extent  permitted by law.
Horizon PCS' certificate of incorporation also permits it to secure insurance on
behalf of any  officer,  director,  employee  or other  agent for any  liability
arising out of actions in his or her official capacity.

     Horizon PCS intends to enter into agreements to indemnify its directors and
officers in addition  to  indemnification  provided  for in its  certificate  of
incorporation.  These  agreements  will indemnify its directors and officers for
certain expenses,  including  attorneys' fees,  judgments,  fines and settlement
amounts incurred by any of these persons in any action or proceeding,  including
any action by Horizon PCS or in its right, arising out of that person's services
as a director or officers of Horizon PCS, any  subsidiary of Horizon PCS, or any
other  company or enterprise  to which the person  provides  services at Horizon
PCS' request.  In addition,  Horizon PCS has directors' and officers'  insurance
providing  indemnification for certain of its directors,  officers and employees
for these types of  liabilities.  Horizon PCS  believes  that these  provisions,
agreements and insurance are necessary to attract and retain qualified directors
and officers.

     At present,  there is no pending  litigation  or  proceeding  involving any
director,  officer,  employee or agent of Horizon PCS where indemnification will
be required  or  permitted.  We are not aware of any  threatened  litigation  or
proceeding that might result in a claim for indemnification.

                                       83


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

     Section  16(a) of the  Exchange  Act requires  Horizon  Telcom's  executive
officers,  directors and persons who  beneficially  own more than 10% of Horizon
Telcom's stock  ("reporting  persons") to file initial  reports of ownership and
reports of changes in ownership with the SEC. Executive officers,  directors and
greater than 10%  beneficial  owners are required by SEC  regulations to furnish
Horizon Telcom with copies of all Section 16(a) forms they file.

     Based  solely on its review of copies of forms  received  by it pursuant to
Section  16(a) of the Exchange  Act or written  representations  from  reporting
persons,  Horizon  Telcom  believes that with respect to 2001, all Section 16(a)
filing requirements applicable to its executive officers,  directors and greater
than 10% beneficial  owners were complied with, except that Mr. Whited filed one
late Form 3 and Mr. Gates failed to file a Form 3 prior to his  resignation as a
director.

     The  following  table  sets  forth  information  regarding  the  beneficial
ownership of our voting securities, as of December 31, 2002 by:

     O    each person who, to our knowledge,  is the  beneficial  owner of 5% or
          more of a class of our outstanding common stock;

     O    each of our directors;

     O    each of the executive officers; and

     O    all executive officers and directors as a group.

     Beneficial  ownership is determined  in  accordance  with Rule 13d-3 of the
Exchange  Act.  A person is deemed to be the  beneficial  owner of any shares of
common stock if that person has or shares voting power or investment  power with
respect to the common stock, or has the right to acquire beneficial ownership at
any time within 60 days of the date of the table. "Voting power" is the power to
vote or  direct  the  voting of shares  and  "investment  power" is the power to
dispose or direct the disposition of shares.



                                                                                            
                                             CLASS A COMMON STOCK (1)                  CLASS B COMMON STOCK (1)
                                       -------------------------------------     -------------------------------------
NAME AND ADDRESS (2)                         NUMBER             PERCENT               NUMBER             PERCENT
- --------------------                         ------             -------               ------             -------

Robert McKell ...................             2,019              2.2%                  4,463              1.6%
Thomas McKell (3)................             7,638              8.4%                 22,620              8.3%
Peter M. Holland (4).............               290                *                      --                *
Jack E. Thompson (5).............               423                *                   1,368                *
William A. McKell (6)............             1,274              1.4%                  3,000              1.1%
Phoebe H. McKell (7).............             2,625              2.9%                  7,969              2.9%
Joseph S. McKell (8).............             8,993              9.9%                 26,979              9.9%
David McKell (9).................             9,294             10.3%                 27,882             10.3%
Helen M. Sproat (10).............             6,165              6.8%                 17,375              6.4%
John E. Herrnstein (11)..........               105                *                     438                *
Joseph G. Kear (12)..............               230                *                     784                *
Jerry B. Whited..................                --               --                      --               --
Donald L. McNeal.................                --               --                     500                *

All Executive Officers and Directors
  as a Group (13 persons) (13)...            39,056             43.1%                113,378             41.7%

- ---------------------
* Less than one percent.



                                       84


(1)  Holders of class A common stock are entitled to one vote per share. Holders
     of class B common  stock do not have  voting  rights,  except as  otherwise
     required by law.
(2)  The  address  for  Horizon  Telcom,  Inc.  and each  executive  officer and
     director is 68 E. Main Street, Chillicothe, Ohio 45601-0480.
(3)  Includes  6,623 shares of class A common stock and 19,575 shares of class B
     common stock held by a trust. Mr. McKell shares voting and investment power
     over these  shares.  A separate  trust owns 1,015  shares of class A common
     stock and 3,045 shares of class B common  stock.  Mr.  McKell's wife shares
     voting and  investment  power  over  these  shares.  Mr.  McKell  disclaims
     beneficial ownership of the shares owned by his wife.
(4)  Includes 290 shares of class A stock received as a bonus during 2001.
(5)  Includes  213  shares  of class A common  stock  and 639  shares of class B
     common  stock  owned  by Mr.  Thompson's  spouse.  Mr.  Thompson  disclaims
     beneficial ownership of these shares.  Includes 57 shares of class B common
     stock   issuable   upon  exercise  of  stock  options  that  are  presently
     exercisable or exercisable within 60 days of the date hereof.
(6)  Includes  435  shares of class A common  stock and 1,305  shares of class B
     common stock held by Mr.  McKell's  spouse and their  children.  Mr. McKell
     disclaims  beneficial  ownership  of those  shares.  Includes 259 shares of
     class A stock and 750 shares of class B common  stock  received  as a bonus
     during 2001.
(7)  Includes 80 shares of class A common stock and 240 shares of class B common
     stock  held  by  Ms.  McKell's  spouse.  Ms.  McKell  disclaims  beneficial
     ownership  of these  shares.  Includes  57 shares  of class B common  stock
     issuable upon exercise of stock options that are presently  exercisable  or
     exercisable within 60 days of the date hereof.
(8)  Includes  415  shares of class A common  stock and 1,245  shares of class B
     common stock owned by Dr. McKell's spouse. Dr. McKell disclaims  beneficial
     ownership of these shares.
(9)  These shares are owned by a Trust.  Dr. McKell shares voting and investment
     powers over these shares.  Dr.  McKell  disclaims  beneficial  ownership of
     these shares.
(10) Includes  385  shares of class A common  stock and 1,155  shares of class B
     common stock held by Ms. Sproat's spouse.  Ms. Sproat disclaims  beneficial
     ownership of these shares.
(11) Includes 94 shares of class B common stock  issuable upon exercise of stock
     options that are presently exercisable or exercisable within 60 days of the
     date hereof.
(12) Includes 57 shares of class B common stock  issuable upon exercise of stock
     options that are presently exercisable or exercisable within 60 days of the
     date hereof.
(13) Includes 264 shares of class B common stock issuable upon exercise of stock
     options that are presently exercisable or exercisable within 60 days of the
     date hereof.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

SERVICE AGREEMENTS WITH HORIZON TELCOM SUBSIDIARIES

     HPC  and  Bright  PCS,  wholly-owned  subsidiaries  of  our  majority-owned
subsidiary  Horizon  PCS,  have entered  into  service  agreements  with Horizon
Services, Inc., and a separate services agreement with Horizon Technology, Inc.,
Horizon Services and Horizon Technology,  Inc. (formerly United  Communications,
Inc.).   Horizon   Services  and  Horizon   Technology  are  both   wholly-owned
subsidiaries of Horizon Telcom.

     Under the  agreement  with  Horizon  Services,  Horizon  Services  provides
services to HPC and Bright PCS including insurance functions,  billing services,
accounting  services,  computer  access  and  other  customer  relations,  human
resources,  and other  administrative  services  that HPC and  Bright  PCS would
otherwise be required to undertake on their own. These agreements have a term of
three years, with the right to renew the agreement for additional one-year terms
each year  thereafter.  Horizon PCS has the right to  terminate  each  agreement
during its term by providing 90 days written notice to Horizon Services. Horizon
Services may terminate the agreement  prior to its  expiration  date only in the
event that Horizon PCS breaches its obligations under the services agreement and
the breach is not cured within 90 days after Horizon PCS receives written notice
of breach from Horizon  Services.  Horizon Services is entitled to the following
compensation from HPC for services provided:

     O    direct labor charges at cost; and

     O    expenses and costs which are directly  attributable  to the activities
          covered by the agreement on a direct allocation basis.

     The agreement  provides that Horizon  Services'  obligations do not relieve
HPC of any of its rights and  obligations  to their  customers and to regulatory
authorities having jurisdiction over them. Additionally,  Horizon Services, upon
request,  is required to provide  HPC with access to Horizon  Services'  records
with respect to the provision of services, and Horizon Services is also required
to  provide  regular  reports  to  Horizon  Personal  Communications,  as it may
request.  Horizon Services received  compensation from HPC of approximately $5.2


                                       85


million,  $6.2 million and $4.4  million in the years ending  December 31, 2002,
2001  and  2000,  respectively.  As of  December  31,  2002,  Horizon  PCS had a
receivable from Horizon  Services of  approximately  $8,000.  As of December 31,
2002, Horizon PCS did not have a receivable from Horizon Telcom.

     HPC, a subsidiary of Horizon PCS,  entered into a services  agreement  with
Horizon Technology, Inc., a wholly-owned subsidiary of Horizon Telcom. Under the
services  agreement,  HPC  provided  services  to Horizon  Technology  including
customer   activation  and   deactivation,   customer  care  support  and  other
administrative  services  that  Horizon  Technology  would  otherwise  have been
required to undertake on its own. Under the agreement,  Horizon  Technology paid
HPC $4,000 each month of the term of the services agreement.  This agreement was
terminated  in August 2001.  Horizon  Technology  paid a total of $32,000 to HPC
during 2001.

OFFICE LEASE

     Horizon PCS leases its  principal  office  space,  the space for one of its
retail  locations  and the  space for  certain  equipment  from The  Chillicothe
Telephone  Company,  a wholly owned  subsidiary of Horizon  Telcom.  The monthly
rental payments under the lease are $10,000.  Under this lease, Horizon PCS paid
The Chillicothe Telephone Company $120,000,  $120,000 and $97,500 in 2002, 2001,
and  2000,  respectively.  We  believe  that the lease was made on terms no less
favorable  to Horizon PCS than would have been  obtained  from a  non-affiliated
third party.  The lease term expires in May 2005.  Horizon PCS has the option to
renew the lease for an  additional  two year period.  It is the  expectation  of
management that the lease will be renewed.

STOCK GRANT

     In 2001,  Horizon PCS  distributed  the remaining 2% of the Horizon  Telcom
stock that it owned to a group of its officers and key  employees in the form of
a bonus.  Recipients  included  William A.  McKell,  who  received 259 shares of
Horizon Telcom's class A common stock and 750 shares of Horizon Telcom's class B
common stock,  Peter M. Holland,  Monesa S. Skocik and Joseph E. Corbin who each
received 290 shares of Horizon  Telcom's  class A common stock and 870 shares of
Horizon Telcom's class B common stock.

TAX-SHARING AGREEMENT

     In 1997,  Horizon  Telcom  entered into a  tax-sharing  agreement  with its
subsidiaries,  including  Horizon Personal  Communications  (now a subsidiary of
Horizon PCS). This agreement  provides that Horizon Telcom and its  subsidiaries
will file a  consolidated  tax return as long as they are  eligible to do so and
that  subsidiaries  will be paid for the amount of their  taxable net  operating
losses used by Horizon Telcom to offset taxable income. During 2000, Horizon PCS
had taxable net income of $18.6 million and paid an aggregate of $2.2 million to
Horizon  Telcom  under  the  agreement.  Due  to  the  sale  by  Horizon  PCS of
convertible preferred stock in September 2000, Horizon PCS is no longer included
in the consolidated  tax return of Horizon Telcom.  This change in tax status is
referred to as a tax  deconsolidation.  The tax-sharing  agreement provides that
Horizon  Telcom will  indemnify  Horizon PCS to the extent of any  aggregate tax
liability in excess of $11.5 million related to the tax  deconsolidation and the
dividend of the Horizon Telcom stock.  As of December 31, 2001 Horizon PCS had a
receivable from Horizon Telcom of approximately $484,000.

ITEM 14.  CONTROLS AND PROCEDURES

     Our Chief Executive Officer and Chief Financial Officer are responsible for
establishing and maintaining "disclosure controls and procedures" (as defined in
the  Securities  Exchange Act of 1934 Rules  13a-14(c)  and  15d-14(c))  for the
Company.  With the  participation  of management,  the Company's Chief Executive
Officer and Chief Financial Officer evaluated the Company's  disclosure controls
and  procedures  within 90 days preceding the filing date of this annual report.
Based upon this  evaluation,  the Chief  Executive  Officer and Chief  Financial
Officer  concluded  that the Company's  disclosure  controls and  procedures are
effective  in ensuring  that  material  information  required to be disclosed is
included  in the  reports  that  it  files  with  the  Securities  and  Exchange
Commission.

     Under Horizon PCS' agreements with Sprint, Sprint provides Horizon PCS with
billing, collections, customer care and other back office services. As a result,
Sprint  remits  approximately  96% of Horizon  PCS'  revenues to Horizon PCS. In
addition,  approximately  43% of cost of service in  Horizon  PCS'  consolidated
financial  statements relate to charges for services provided under Horizon PCS'
agreements  with Sprint such as billing,  customer care,  roaming  expense,  and
long-distance. Horizon PCS, as a result, necessarily relies on Sprint to provide

                                       86


accurate,  timely and sufficient  data and  information  to properly  record its
revenues,  expenses and accounts receivable which underlie a substantial portion
of its  periodic  financial  statements  and other  financial  disclosures.  The
relationship  with Sprint is  established  by Horizon  PCS'  agreements  and its
flexibility to use a service provider other than Sprint is limited.

     Because of Horizon  PCS'  reliance  on Sprint  for  financial  information,
Horizon  PCS must depend on Sprint to design  adequate  internal  controls  with
respect to the processes  established  to provide this data and  information  to
Horizon PCS and Sprint's other network partners.  To address this issue,  Sprint
engages  its  independent  auditors  to perform a periodic  evaluation  of these
controls and to provide a "Report on Controls  Placed in Operation  and Tests of
Operating  Effectiveness for Affiliates" under guidance provided in Statement of
Auditing  Standards No. 70. These  reports are provided  annually to Horizon PCS
and covers Horizon PCS' entire fiscal year.

     There were no significant changes in the Company's internal controls or, to
the  knowledge of the  management  of the Company,  in other  factors that could
significantly affect these controls subsequent to the evaluation date.


                                       87


                                    PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(A) THE  FOLLOWING  DOCUMENTS  ARE FILED AS PART OF THIS  ANNUAL  REPORT ON FORM
10-K:

     1. Financial Statements

          Reports of Independent Public Accountants, Consolidated Balance Sheets
          as  of  December  31,  2002  and  2001,   Consolidated  Statements  of
          Operations  for the Years  Ended  December  31,  2002,  2001 and 2000,
          Consolidated  Statements  of  Stockholders'  Equity  (Deficit) for the
          Years Ended December 31, 2002, 2001 and 2000,  Consolidated Statements
          of Cash Flows for the Years Ended  December 31,  2002,  2001 and 2000,
          and Notes to Consolidated Financial Statements.

     2. Exhibits

          See the Index to Exhibits  immediately  preceding  the exhibits  filed
     with this Report.

(B) REPORTS ON FORM 8-K:

     There were no Reports on Form 8-K filed by the Registrant during the fourth
quarter of 2002.



                                       88


       Horizon Telcom, Inc., Certification for Annual Report on Form 10-K


I, Thomas McKell, certify that:

1. I have reviewed this annual report on Form 10-K of Horizon Telcom, Inc.;

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

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

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

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

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

     c) presented in this annual report our conclusions  about the effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date;

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

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

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

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


Date: March 25, 2003                    /s/  Thomas McKell
                                        -------------------------------------
                                        Thomas McKell
                                        President and Chief Executive Officer




                                       89




       Horizon Telcom, Inc., Certification for Annual Report on Form 10-K


I, Peter M. Holland, certify that:

1. I have reviewed this annual report on Form 10-K of Horizon Telcom, Inc.;

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

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

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

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

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

     c) presented in this annual report our conclusions  about the effectiveness
of the  disclosure  controls and  procedures  based on our  evaluation as of the
Evaluation Date;

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

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

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

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



Date: March 25, 2003                          /s/  Peter M. Holland
                                              --------------------------
                                              Peter M. Holland
                                              Chief Financial Officer



                                       90




                                   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.

HORIZON TELCOM, INC.

By: /s/ Thomas McKell                             March 25, 2003
   -----------------------------
   Thomas  McKell  President,
   Director; President of
   Chillicothe Telephone

Date:    March 25, 2003

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.




                                                                     
              NAME                             TITLE                              DATE
              ----                             -----                              ----

/s/ Thomas McKell
- -------------------------------
Thomas McKell                       President, Director; President of      March 25, 2003
(Principal Executive Officer)       Chillicothe Telephone


/s/ Peter M. Holland
- -------------------------------
Peter M. Holland                    Vice President of Finance, Chief       March 25, 2003
                                    Financial Officer and Treasurer

/s/ Robert McKell
- -------------------------------
Robert McKell                       Chairman of the Board, Director        March 25, 2003

/s/ Jack E. Thompson
- -------------------------------
Jack E. Thompson                    Secretary, Director                    March 25, 2003

/s/ Joseph S. McKell
- -------------------------------
Joseph S. McKell                    Director                               March 25, 2003

/s/ David McKell
- -------------------------------
David McKell                        Director                               March 25, 2003

/s/ Helen M. Sproat
- -------------------------------
Helen M. Sproat                     Director                               March 25, 2003

/s/ John E. Herrnstein
- -------------------------------
John E. Herrnstein                  Director                               March 25, 2003

/s/ Jerry B. Whited
- -------------------------------
Jerry B. Whited                     Director                               March 25, 2003


- -------------------------------
Donald L. McNeal                    Director                               March __, 2003





                                       91



                               INDEX TO EXHIBITS

EXHIBIT NO.         DESCRIPTION
- -----------         -----------

3.1(c)              Articles of Incorporation of Horizon Telcom, Inc.

3.2(c)              Bylaws of Incorporation of Horizon Telcom, Inc.

4.1(c)              Form of Stock Certificate.

4.2(b)              Indenture  dated as of September  26, 2000  between  Horizon
                    PCS, Inc.,  Horizon Personal  Communications,  Inc.,  Bright
                    Personal  Communications  Services, LLC and Wells Fargo Bank
                    Minnesota, National Association.

4.3(b)              A/B  Exchange  Registration  Rights  Agreement  made  as  of
                    September  26,  2000 by and  among  Horizon  PCS,  Inc.  and
                    Donaldson,  Lufkin &  Jenrette  Securities  Corporation  and
                    First Union Securities, Inc.

4.4(b)              Form of Registered Note (included in Exhibit 4.2).

4.5(b)              Note Guarantee of Horizon Personal Communications, Inc.

4.6(b)              Note Guarantee of Bright Personal  Communications  Services,
                    LLC.

4.7                 Indenture  dated  December 7, 2001 by and among Horizon PCS,
                    Inc., as Issuer, Horizon Personal Communications,  Inc., and
                    Bright Personal Communications Services, LLC, as Guarantors,
                    and Wells Fargo Bank  Minnesota,  National  Association,  as
                    Trustee  (incorporated  by  reference  to Exhibit No.  10.45
                    filed with the Registration Statement on Form S-1 of Horizon
                    PCS, Inc. (File No. 333-51240)).

10.1(b)             Form of Employment  Agreement,  dated September 26, 2000, by
                    and between Horizon PCS, Inc. and William A. McKell.

10.2(b)             Form of Employment  Agreement,  dated September 26, 2000, by
                    and between Horizon PCS, Inc. and Peter M. Holland.

10.3(b)+            Sprint PCS Management  Agreement  between  Sprint  Spectrum,
                    L.P., SprintCom,  Inc. and Horizon Personal  Communications,
                    Inc., dated June 8, 1998.

10.3.1(b)           Letter  Agreement dated July 3, 2000 between Sprint Spectrum
                    L.P., and Horizon Personal Communications, Inc.

10.3.2              Addendum VI to Sprint PCS Management  Agreement  between the
                    Registrant  and Sprint  PCS,  Inc.  (incorporated  herein by
                    reference  to the  Registrant's  Current  Report on Form 8-K
                    filed on August 24, 2001).

10.3.3+             Addendum  V  to  Sprint  PCS  Management  Agreement  between
                    Horizon  PCS  and  Sprint  PCS,  Inc.  as of  June  1,  2001
                    (incorporated   by   reference   Exhibit   10.3.3   to   the
                    Registrant's  Quarterly  Report on Form 10-Q for the quarter
                    ended June 30, 2002).

10.4(b)+            Sprint PCS Services  Agreement  between Sprint Spectrum L.P.
                    and Horizon  Personal  Communications,  Inc.,  dated June 8,
                    1998.

10.5(b)             Sprint Trademark and Service Mark License  Agreement between
                    Sprint  Communications  Company,  L.P. and Horizon  Personal
                    Communications, Inc., dated June 8, 1998.



                                       92




EXHIBIT NO.         DESCRIPTION
- -----------         -----------

10.6(b)             Sprint Spectrum Trademark and Service Mark License Agreement
                    between   Sprint   Spectrum   L.P.   and  Horizon   Personal
                    Communications, Inc., dated June 8, 1998.

10.7(b)+            Sprint PCS Management  Agreement between  Wirelessco,  L.P.,
                    SprintCom,  Inc., Sprint Spectrum,  L.P. and Bright Personal
                    Communications Services, LLC, dated October 13, 1999.

10.8(b)             Sprint PCS Services Agreement between Sprint Spectrum,  L.P.
                    and Bright  Personal  Communications  Services,  LLC,  dated
                    October 13, 1999.

10.9(b)             Sprint Trademark and Service Mark License  Agreement between
                    Sprint  Communications  Company,  L.P.  and Bright  Personal
                    Communications Services, LLC, dated October 13, 1999.

10.10(b)            Sprint Spectrum Trademark and Service Mark License Agreement
                    between   Sprint   Spectrum,   L.P.   and  Bright   Personal
                    Communications Services, LLC, dated October 13, 1999.

10.19(b)+           Network Services  Agreement by and between West Virginia PCS
                    Alliance,  L.C.,  Virginia  PCS  Alliance,  L.C. and Horizon
                    Personal Communications, Inc., dated August 12, 1999.

10.19.1(c)          First Amendment to Network Services Agreement by and between
                    West  Virginia PCS  Alliance,  L.C.,  Virginia PCS Alliance,
                    L.C. and Horizon Personal Communications,  Inc., dated as of
                    June 18, 2000.

10.19.2             Amendment  to Network  Services  Agreement  by and among the
                    Registrant,  West Virginia PCS  Alliance,  L.C. and Virginia
                    PCS Alliance,  L.C. (incorporated herein by reference to the
                    Registrant's  Current Report on Form 8-K filed on August 24,
                    2001).

10.21(b)+           PCS CDMA Product  Supply  Contract by and between  Motorola,
                    Inc. and Horizon Personal Communications, Inc.

10.25(b)            Horizon PCS, Inc. 2000 Stock Option Plan.

10.25.1(c)          Horizon Telcom, Inc. 1999 Stock Option Plan.

10.26(b)+           Site  Development  Agreement by and between Horizon Personal
                    Communications,  Inc. and SBA Towers, Inc., dated August 17,
                    1999.

10.27(b)+           Master Site  Agreement  by and between SBA Towers,  Inc. and
                    Horizon Personal Communications, Inc., dated July 1999.

10.28(b)+           Master  Design  Build   Agreement  by  and  between  Horizon
                    Personal  Communications,  Inc. and SBA Towers,  Inc., dated
                    August 17, 1999.

10.29(b)+           Master Site  Agreement  by and between SBA Towers,  Inc. and
                    Bright Personal Communications  Services, LLC, dated October
                    1, 1999.

10.30(b)+           Master Design Build Agreement by and between Bright Personal
                    Communications  Services,  LLC and SBA Towers,  Inc.,  dated
                    October 1, 1999.

10.31(b)            Services  Agreement,  dated  May 1,  2000,  between  Horizon
                    Personal Communications, Inc. and Horizon Services, Inc.

10.32(b)            Lease  Agreement,  dated May 1, 2000 between The Chillicothe
                    Telephone Company and Horizon Personal Communications, Inc.


                                       93




EXHIBIT NO.         DESCRIPTION
- -----------         -----------

10.33(b)            Services  Agreement,  dated  May  1,  2000  between  Horizon
                    Personal  Communications,  Inc.  and United  Communications,
                    Inc.

10.34(b)            Form of Horizon PCS, Inc. Indemnification Agreement.

10.35(b)            Amended and Restated Tax Allocation  Agreement  dated May 1,
                    2000 by and among  Horizon  Telcom,  Inc.,  The  Chillicothe
                    Telephone Company,  Horizon Personal  Communications,  Inc.,
                    United  Communications,  Inc.,  Horizon Services,  Inc., and
                    Horizon PCS, Inc.

10.35.1(b)          First  Amendment to the Amended and Restated Tax  Allocation
                    Agreement  dated  as of  September  26,  2000  by and  among
                    Horizon  Telcom,  Inc., The Chillicothe  Telephone  Company,
                    Horizon    Personal     Communications,     Inc.,     United
                    Communications,  Inc.,  Horizon Services,  Inc., and Horizon
                    PCS, Inc.

10.37(b)            Securities  Purchase  Agreement  dated September 26, 2000 by
                    and among  Horizon PCS,  Inc.,  Apollo  Investment  Fund IV,
                    L.P.,  Apollo  Overseas  Partners IV, L.P.,  Ares  Leveraged
                    Investment Fund,  L.P., Ares Leveraged  Investment Fund, II,
                    L.P. and First Union Capital Partners, LLC.

10.38(b)            Investors  Rights and Voting  Agreement  dated September 26,
                    2000 by and among Horizon PCS, Inc.,  Apollo Investment Fund
                    IV, L.P.,  Apollo Overseas Partners IV, L.P., Ares Leveraged
                    Investment  Fund,  L.P., Ares Leveraged  Investment Fund II,
                    L.P. and First Union Capital Partners, LLC.

10.39(b)            Registration  Rights  Agreement  dated September 26, 2000 by
                    and among  Horizon PCS,  Inc.,  Apollo  Investment  Fund IV,
                    L.P.,  Apollo  Overseas  Partners IV, L.P.,  Ares  Leveraged
                    Investment  Fund,  L.P., Ares Leveraged  Investment Fund II,
                    L.P. and First Union Capital Partners, LLC.

10.40(b)            Credit  Agreement,  dated as of September  26, 2000,  by and
                    among  Horizon  Personal  Communications,  Inc.,  and Bright
                    Personal  Communications  Services,  LLC,  Horizon PCS, Inc.
                    (the "Parent") and certain  Subsidiaries of the Parent,  the
                    several banks and other  financial  institutions as may from
                    time to time become parties to this  Agreement,  First Union
                    National  Bank,  as   Administrative   Agent,   Westdeutsche
                    Landesbank  Girozentrale,  as Syndication Agent and Arranger
                    and Fortis Capital Corp., as Documentation Agent.

10.40.1(b)          First Amendment to Credit  Agreement and  Assignment,  dated
                    November   20,   2000,   by  and  among   Horizon   Personal
                    Communications,  Inc.  and  Bright  Personal  Communications
                    Services,  LLC, Horizon PCS, Inc. (the "Parent") and certain
                    Subsidiaries of the Parent,  Existing Lenders,  New Lenders,
                    First  Union   National  Bank,  as   Administrative   Agent,
                    Westdeutsche Landesbank  Girozentrale,  as Syndication Agent
                    and Arranger,  and Fortis  Capital Corp.,  as  Documentation
                    Agent.

10.40.2             Second Amendment to Credit  Agreement and Assignment,  dated
                    June 29, 2001, by and among Horizon Personal Communications,
                    Inc.  and  Bright  Personal  Communications  Services,  LLC,
                    Horizon PCS, Inc. (the "Parent") and certain Subsidiaries of
                    the  Parent,  Existing  Lenders,  New  Lenders,  First Union
                    National  Bank,  as   Administrative   Agent,   Westdeutsche
                    Landesbank Girozentrale,  as Syndication Agent and Arranger,
                    and  Fortis   Capital   Corp.,   as   Documentation   Agent.
                    (Incorporated by reference to the same exhibit number in the
                    Form 8-K filed by Horizon PCS, Inc. on July 3, 2001).



                                       94




EXHIBIT NO.         DESCRIPTION
- -----------         -----------

10.40.3             Third  Amendment to Credit  Agreement and Waiver dated as of
                    November   26,   2001   by  and   among   Horizon   Personal
                    Communications,  Inc.,  and Bright  Personal  Communications
                    Services,  LLC, Horizon PCS, Inc. (the "Parent") and certain
                    Subsidiaries  of the  Parent,  the  several  banks and other
                    financial  institutions  as may  from  time to  time  become
                    parties to the  Agreement,  First Union  National  Bank,  as
                    Administrative Agent,  Westdeutsche Landesbank Girozentrale,
                    as Syndication  Agent and Arranger and Fortis Capital Corp.,
                    as Documentation Agent (incorporated by reference to Exhibit
                    10.40.3 filed with the  Registrant's  Current Report on Form
                    8-K filed on November 28, 2001).

10.40.4             Waiver  Agreement  dated May 9,  2002 by and  among  Horizon
                    Personal  Communications,   Inc.  (the  "Company"),   Bright
                    Personal  Communications  Services,  LLC,  an  Ohio  limited
                    liability  company  ("Bright")  (each  of  the  Company  and
                    Bright,  individually  a "Borrower"  and  collectively,  the
                    "Borrowers"), Horizon PCS, Inc., a Delaware corporation (the
                    "Parent"),  those  Subsidiaries  of the Parent listed on the
                    signature   pages   hereto   (together   with  the   Parent,
                    individually   a   "Guarantor"    and    collectively    the
                    "Guarantors";  the Guarantors,  together with the Borrowers,
                    individually a "Credit Party" and  collectively  the "Credit
                    Parties"),  the lenders party hereto (the "Lenders"),  First
                    Union   National   Bank,   as   Administrative   Agent  (the
                    "Administrative     Agent"),     Westdeutsche     Landesbank
                    Girozentrale,   as  Syndication   Agent  and  Arranger  (the
                    "Syndication   Agent"),   and  Fortis  Capital   Corp.,   as
                    Documentation    Agent    (the    "Documentation     Agent")
                    (incorporated   by   reference   Exhibit   10.40.3   to  the
                    Registrant's  Quarterly  Report on Form 10-Q for the quarter
                    ended March 31, 2002).

10.40.5             Second  Waiver  Agreement  dated as of June 7, 2002,  by and
                    among  Horizon  Personal  Communications,  Inc.,  and Bright
                    Personal  Communications  Services,  LLC,  Horizon PCS, Inc.
                    (the "Parent") and certain  Subsidiaries of the Parent,  the
                    several banks and other  financial  institutions as may from
                    time to time become  parties to the  Agreement,  First Union
                    National  Bank,  as   Administrative   Agent,   Westdeutsche
                    Landesbank  Girozentrale,  as Syndication Agent and Arranger
                    and  Fortis   Capital   Corp.,   as   Documentation   Agent.
                    (incorporated  by  reference  to  the  Registrant's  Current
                    Report on Form 8-K filed on June 10, 2002).

10.40.6             Fourth  Amendment to Credit Agreement and Waiver dated as of
                    June 27, 2002 by and among Horizon Personal  Communications,
                    Inc.,  and Bright  Personal  Communications  Services,  LLC,
                    Horizon PCS, Inc. (the "Parent") and certain Subsidiaries of
                    the   Parent,   the  several   banks  and  other   financial
                    institutions  as may from time to time become parties to the
                    Agreement, Wachovia Bank, National Association (successor to
                    First  Union  National  Bank),  as   Administrative   Agent,
                    Westdeutsche Landesbank  Girozentrale,  as Syndication Agent
                    and  Arranger and Fortis  Capital  Corp.,  as  Documentation
                    Agent (incorporated by reference to the Registrant's Current
                    Report on Form 8-K filed on June 27, 2002).

10.40.7             Consent  and  Agreement  for  Benefit  of  Holders of Senior
                    Security  Facility  dated as of September  26, 2000,  by and
                    among  Horizon  Personal  Communications,  Inc.  and  Bright
                    Personal  Communications  Services,  LLC,  Horizon PCS, Inc.
                    (the  "Parent")  and  certain  subsidiaries  of the  Parent,
                    Existing Lenders, New Lenders, First Union National Bank, as
                    Administrative Agent,  Westdeutsche Landesbank Girozentrale,
                    as Syndication Agent and Arranger, and Fortis Capital Corp.,
                    as  Documentation  Agent  (incorporated  by reference to the
                    Annual  Report on Form 10-K for the year ended  December 31,
                    2002 of Horizon PCS, Inc. (File No. 333-51240)).

10.41(b)            Warrant  Agreement  dated as of  September  26, 2000 between
                    Horizon PCS, Inc. and Wells Fargo Bank  Minnesota,  National
                    Association.

10.42(b)            Warrant  Registration  Rights Agreement made as of September
                    26, 2000 by and among  Horizon  PCS,  Inc.,  and  Donaldson,
                    Lufkin & Jenrette  Securities  Corporation  and First  Union
                    Securities, Inc.



                                       95


EXHIBIT NO.         DESCRIPTION
- -----------         -----------

10.43(c)            Note Purchase  Agreement dated November 1, 1993 by and among
                    The Chillicothe  Telephone Company,  Northern Life Insurance
                    Company and Northwestern National Life Insurance Company.

10.43.1(c)          Amendment  dated as of  January  1,  1997 by and  among  The
                    Chillicothe  Telephone  Company,   Northern  Life  Insurance
                    Company and Northwestern National Life Insurance Company.

10.44(c)            Note  Purchase  Agreement  dated  as of June 1,  1998 by and
                    among  The  Chillicothe  Telephone  Company,  American  Life
                    Insurance Company, and the State Life Insurance Company.

10.44.1(c)          First Amendment to Note Purchase Agreement dated as of April
                    1,  1999 by and  among The  Chillicothe  Telephone  Company,
                    American United Life Insurance  Company,  and the State Life
                    Insurance Company.

10.45(c)            Business Loan  Agreement  dated as of March 16, 2001 between
                    The  Chillicothe   Telephone   Company  and  the  Huntington
                    National Bank.

10.46               Pledge and Escrow  Agreement  dated  December 7, 2001 by and
                    among  Horizon PCS,  Inc.,  Bright  Personal  Communications
                    Services,   LLC,   Wells  Fargo  and   Minnesota,   National
                    Association,  as Escrow Agent  (incorporated by reference to
                    Exhibit No. 10.43 filed with the  Registration  Statement on
                    Form S-1 of Horizon PCS, Inc. (File No. 333-51240)).

10.46.1             Registration  Rights Agreement dated December 7, 2001 by and
                    among Horizon PCS, Inc.,  Horizon  Personal  Communications,
                    Inc.,  Bright  Personal  Communications  Services,  LLC, and
                    Credit   Suisse  First  Boston   Corporation,   First  Union
                    Securities,  Inc.,  Bear,  Stearns & Co.,  Inc.  and  Lehman
                    Brothers,  Inc.  (incorporated  by  reference to Exhibit No.
                    10.44 filed with the  Registration  Statement on Form S-1 of
                    Horizon PCS, Inc. (File No. 333-51240)).

10.47               Employment  Agreement between Horizon PCS, Inc., and Alan G.
                    Morse  (incorporated  by reference  to Exhibit  10.47 to the
                    Quarterly  Report on Form 10-Q of Horizon PCS,  Inc. for the
                    quarter ended June 30, 2002 (File No. 333-51240)).

10.48               Waiver Agreement between The Chillicothe  Telephone Company,
                    American  United Life  Insurance  Company and The State Life
                    Insurance  Company dated as of August 8, 2002  (Incorporated
                    by reference to the  Registrant's  Quarterly  Report on Form
                    10-Q  for  the  quarter   ended  June  30,  2002  (File  No.
                    000-32617)).


10.49(d)            Senior Note  Purchase  agreement for  $30,000,000  at 6.64%,
                    between The  Chillicothe  Telephone  Company,  The  Variable
                    Annuity  Life  Insurance  Company,   AIG  Annuity  Insurance
                    Company,  and Modern Woodmen of America,  dated as of August
                    1, 2002.

10.50(d)            Amended and Restated Note Purchase Agreement for $12,000,000
                    at  6.72%,   between  The  Chillicothe   Telephone  Company,
                    American  United Life  Insurance  Company and The State Life
                    Insurance Company, dated as of November 1, 2002.

10.51(d)            Waiver Agreement between The Chillicothe  Telephone Company,
                    American  United Life  Insurance  Company and The State Life
                    Insurance Company dated as of August 14, 2002.

10.52(d)            Amendment   Agreement  between  The  Chillicothe   Telephone
                    Company,  Northern Life Insurance Company and Reliastar Life
                    Insurance Company dated as of August 14, 2002.

10.53(d)            Waiver Extension Agreement between The Chillicothe Telephone
                    Company,  The American United Life Insurance Company and The
                    State Life Insurance Company dated as of September 12, 2002.



                                       96

EXHIBIT NO.         DESCRIPTION
- -----------         -----------

10.54               Waiver Agreement between The Chillicothe  Telephone Company,
                    American  United Life  Insurance  Company and The State Life
                    Insurance  Company dated as of August 8, 2002  (Incorporated
                    by reference to Exhibit 10.48 to the Registrant's  Quarterly
                    Report on Form 10-Q for the quarter ended September 30, 2002
                    (File No. 000-32617)).

16.1                Letter   from   Arthur   Andersen   dated   June  27,   2002
                    (Incorporated  by  reference  to  the  Registrant's  Current
                    Report  on  Form  8-K  filed   June  28,   2002   (File  No.
                    000-32617)).

21(a)               Subsidiaries of the Company.

23(a)               Consent of KPMG LLP.
99.1(a)             Certification,  under Section 906 of the  Sarbanes-Oxley Act
                    of 2002.
99.2(a)             Certification,  under Section 906 of the  Sarbanes-Oxley Act
                    of  2002.

- ---------------------
(a)  Filed herewith.
(b)  Incorporated  by reference to the Exhibit of the same number filed with the
     Registration  Statement  on  Form  S-4  of  Horizon  PCS,  Inc.  (File  No.
     333-51238).
(c)  Incorporated  by reference to the Exhibit of the same number filed with the
     Registrant's  Registration  Statement on Form 10 (File No. 000-32617).
(d)  Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
     for the  quarter  ended  September  30,  2002 (File No.  000-32617).
+    The Registrant  requested  confidential  treatment for certain  portions of
     this  exhibit  pursuant  to Rule  406 of the  Securities  Act of  1933,  as
     amended, in connection with the previously filed Registration  Statement on
     Form S-1 of Horizon PCS, Inc. (File No.  333-37516),  except Exhibit 10.3.3
     for which confidential treatment has been requested under Rule 24b-2 of the
     Securities Exchange Act of 1934 in connection with this filing.




                                       97



                              HORIZON TELCOM, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                                 
                                                                                    PAGE

Independent Auditor's Report....................................................     F-2

Report of Independent Public Accountants........................................     F-3

Consolidated Balance Sheets as of December 31, 2002 and 2001....................     F-4

Consolidated Statements of Operations for the Years Ended
  December 31, 2002, 2001 and 2000..............................................     F-6

Consolidated Statements of Stockholders' Equity (Deficit)
  for the Years Ended December 31, 2002, 2001 and 2000..........................     F-7

Consolidated Statements of Cash Flows for the Years Ended
  December 31, 2002, 2001 and 2000..............................................     F-8

Notes to Consolidated Financial Statements, as of December 31, 2002 and 2001,
  and for the Years Ended December 31, 2002, 2001 and 2000......................    F-10



                                      F-1



                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholders
Horizon Telcom, Inc.:

     We have  audited the  accompanying  consolidated  balance  sheet of Horizon
Telcom,  Inc.  and  subsidiaries  as of  December  31,  2002,  and  the  related
consolidated  statements of operations,  stockholders' equity (deficit) and cash
flows for the year then ended. These consolidated  financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  consolidated  financial  statements  based on our  audit.  The
consolidated  balance  sheet of Horizon  Telcom,  Inc.  and  subsidiaries  as of
December  31,  2001,  and the related  consolidated  statements  of  operations,
stockholders'  equity  (deficit) and cash flows for the years ended December 31,
2001 and 2000 were audited by other auditors who have ceased  operations.  Those
auditors expressed an unqualified opinion on those financial statements,  before
the revision  described in Note 6 to the financial  statements,  in their report
dated February 12, 2002 (except with respect to the matter  discussed in Horizon
Telcom's 2001 Form 10-K, Note 20, as to which the date is March 27, 2002).

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

     As discussed in Note 1 to the consolidated financial statements, management
of the Company's  subsidiary,  Horizon PCS,  Inc.,  believes that it is probable
that Horizon PCS, Inc.  will violate one or more of its debt  covenants in 2003,
resulting in the ability of the lenders to demand payment of all or a portion of
its outstanding  debt ($516.3  million at December 31, 2002).  Horizon PCS, Inc.
represents  approximately 82% of total consolidated  revenues for the year ended
December 31, 2002 and 81% of the total consolidated assets at December 31, 2002.
Although  the  ultimate  impact of  Horizon  PCS not being able to meet its debt
covenants in 2003 is  presently  unknown,  as  discussed  in Note 1,  management
believes that it will not have a significant  adverse effect on the liquidity of
Horizon  Telcom,   Inc.  and  its  other   subsidiaries   through  fiscal  2003.
Management's plans are also described in Note 1.

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

     As discussed above, the consolidated  balance sheet of Horizon Telcom, Inc.
and  subsidiaries  as  of  December  31,  2001,  and  the  related  consolidated
statements of operations,  stockholders' equity (deficit) and cash flows for the
years ended  December 31, 2001 and 2000 were audited by other  auditors who have
ceased operations.  As described in Note 6, these financial statements have been
revised to  include  the  transitional  disclosures  required  by  Statement  of
Financial  Accounting  Standards No. 142, Goodwill and Other Intangible  Assets,
which was  adopted by the  Company as of January 1, 2002.  In our  opinion,  the
disclosures for 2001 and 2000 in Note 6 are  appropriate.  However,  we were not
engaged to audit, review, or apply any procedures to the 2001 and 2000 financial
statements of Horizon Telcom,  Inc. and subsidiaries  other than with respect to
such  disclosures  and,  accordingly,  we do not express an opinion or any other
form of assurance on the 2001 and 2000 financial statements taken as a whole.

/s/ KPMG LLP
Columbus, Ohio
March 4, 2003



                                      F-2



THE  FOLLOWING  REPORT OF ARTHUR  ANDERSEN,  LLP  ("ANDERSEN")  IS A COPY OF THE
REPORT  PREVIOUSLY  ISSUED BY  ANDERSEN  ON  FEBRUARY  12,  2002.  THE REPORT OF
ANDERSEN IS INCLUDED IN THIS ANNUAL REPORT ON FORM 10-K PURSUANT TO RULE 2-02(E)
OF REGULATIONS  S-X. AFTER  REASONABLE  EFFORTS THE COMPANY HAS NOT BEEN ABLE TO
OBTAIN A REISSUED  REPORT  FROM  ANDERSEN.  ANDERSEN  HAS NOT  CONSENTED  TO THE
INCLUSION  OF ITS REPORT IN THIS  ANNUAL  FORM 10-K.  BECAUSE  ANDERSEN  HAS NOT
CONSENTED  TO THE  INCLUSION  OF ITS  REPORT IN THIS  ANNUAL  REPORT,  IT MAY BE
DIFFICULT FOR SHAREHOLDERS TO SEEK REMEDIES  AGAINST ANDERSEN AND  SHAREHOLDERS'
ABILITY TO SEEK RELIEF AGAINST ANDERSEN MAY BE IMPAIRED.


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the  Board  of  Directors  and  Stockholders  of  Horizon  Telcom,  INC.  AND
SUBSIDIARIES:

     We have audited the  accompanying  consolidated  balance  sheets of HORIZON
TELCOM,  INC. (an Ohio corporation) AND SUBSIDIARIES as of December 31, 2001 and
2000,  and  the  related  consolidated  statements  of  operations,  changes  in
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 2001. These consolidated  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

     In our opinion,  the consolidated  financial  statements  referred to above
present  fairly,  in all material  respects,  the financial  position of Horizon
Telcom,  INC. and Subsidiaries as of December 31, 2001 and 2000, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period  ended  December  31,  2001  in  conformity  with  accounting  principles
generally accepted in the United States.

     Our audit was made for the  purpose  of  forming  an  opinion  on the basic
financial  statements  taken as a whole.  The  schedule  listed  in the index to
consolidated  financial  statements is presented for purposes of complying  with
the  Securities  and  Exchange  Commission's  rules and is not part of the basic
financial  statements.   This  schedule  has  been  subjected  to  the  auditing
procedures  applied in the audit of the basic  financial  statements and, in our
opinion,  fairly states in all material  respects the financial data required to
be set forth therein in relation to the basic  financial  statements  taken as a
whole.



                         /s/ ARTHUR ANDERSEN LLP


Columbus,  Ohio,
February 12, 2002 (except with respect to the matter discussed
in Horizon  Telcom's 2001 Form 10-K,  Note 20,
as to which the date is March 27, 2002)


                                      F-3




HORIZON TELCOM, INC. AND SUBSIDIARIES

Consolidated Balance Sheets
As of December 31, 2002 and 2001
- --------------------------------------------------------------------------------


                                                                                               
                                                                                         2002              2001
                                                                                   ---------------   ---------------
ASSETS
- ------
CURRENT ASSETS:
   Cash and cash equivalents (includes $55,000,000 on deposit in accordance with
     covenant amendment in 2002)..............................................     $    94,948,351   $   127,154,227
   Restricted cash............................................................          24,063,259        24,597,222
   Accounts receivable - subscriber, less allowance for doubtful accounts of
     approximately $2,654,000 in 2002 and $2,662,000 in 2001..................          20,560,658        15,276,422
   Accounts receivable - interexchange carriers, access charge pools and other,
     less allowance for doubtful accounts of approximately $214,000 in 2002 and
     $478,000 in 2001.........................................................           5,974,702         5,690,390
   Inventories................................................................           6,336,877         6,512,026
   Investments, available-for-sale, at fair value.............................             745,860         3,537,720
   Prepaid expenses and other.................................................           4,998,044         2,403,905
                                                                                   ----------------   ---------------
         Total current assets.................................................         157,627,751       185,171,912
                                                                                   ----------------   ---------------

OTHER ASSETS:
   Intangibles, net...........................................................          40,381,201        42,840,534
   Restricted cash............................................................                  --        24,062,500
   Debt issuance costs, net...................................................          20,365,415        20,584,960
   Deferred PCS activation expense............................................           6,092,645         3,808,618
   Goodwill, net..............................................................                  --         7,191,180
   Prepaid pension costs and other............................................           5,361,994         4,976,942
                                                                                   ----------------   ---------------
         Total other assets...................................................          72,201,255       103,464,734
                                                                                   ----------------   ---------------

PROPERTY, PLANT AND EQUIPMENT, NET ...........................................         315,921,107       289,277,220
                                                                                   ----------------   ---------------
              Total assets....................................................     $   545,750,113   $   577,913,866
                                                                                   ===============   ================






(Continued on next page)



                                       F-4




HORIZON TELCOM, INC. AND SUBSIDIARIES

Consolidated Balance Sheets (Continued)
As of December 31, 2002 and 2001
- --------------------------------------------------------------------------------


                                                                                               
                                                                                         2002              2001
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                    ----------------   ---------------
- ----------------------------------------------
CURRENT LIABILITIES:
   Accounts payable...........................................................     $    24,827,065    $   30,268,185
   Payable to Sprint..........................................................           9,910,262        10,244,529
   Deferred PCS revenue.......................................................           5,308,457         3,712,734
   Accrued taxes..............................................................           6,514,707         4,886,100
   Accrued interest, payroll and other accrued liabilities....................          10,237,300        10,502,250
   Lines of credit............................................................                  --        19,167,338
   Current maturities of long-term debt.......................................                  --         2,000,000
                                                                                   ----------------   ---------------
         Total current liabilities............................................          56,797,791        80,781,136
                                                                                   ----------------   ---------------

LONG-TERM DEBT AND OTHER LIABILITIES:
   Long-term debt.............................................................         558,284,349       402,055,643
   Deferred income taxes, net.................................................          15,234,409         4,632,157
   Postretirement benefit obligation..........................................           6,526,991         5,490,015
   Deferred PCS activation revenue............................................           6,092,645         3,808,618
   Other long-term liabilities................................................          11,075,183        12,273,617
                                                                                   ----------------   ---------------
         Total long-term debt and other liabilities...........................         597,213,577       428,260,050
                                                                                   ----------------   ---------------
           Total liabilities..................................................         654,011,368       509,041,186
                                                                                   ----------------   ---------------

CONVERTIBLE PREFERRED STOCK OF SUBSIDIARY.....................................         157,105,236       145,349,043

COMMITMENTS AND CONTINGENCIES (Note 15)

STOCKHOLDERS' EQUITY (DEFICIT):
   Common stock - class A, no par value, 200,000 shares authorized, 99,726
     shares issued and 90,552 shares outstanding, stated at $4.25 per share...             423,836           423,836
   Common stock - class B, no par value, 500,000 shares authorized, 299,450
     and 299,301  shares  issued at December  31, 2002 and 2001,
     respectively, and 271,926 and 271,777 shares outstanding at
     December 31, 2002 and 2001, respectively, stated at $4.25 per share......           1,272,662         1,272,029
   Treasury stock - 36,698 shares in 2002 and 2001, at cost...................          (5,504,700)       (5,504,700)
   Accumulated other comprehensive income (loss), net.........................             (67,307)        1,332,044
   Additional paid-in capital.................................................          72,197,212        72,188,904
   Deferred stock compensation................................................            (666,721)       (1,079,610)
   Retained deficit...........................................................        (333,021,473)     (145,108,866)
                                                                                   ----------------   ---------------
           Total stockholders' equity (deficit)...............................        (265,366,491)      (76,476,363)
                                                                                   ----------------   ----------------
              Total liabilities and stockholders' equity (deficit)............     $   545,750,113    $   577,913,866
                                                                                   ================   ================



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


                                      F-5



HORIZON TELCOM, INC. AND SUBSIDIARIES

Consolidated Statements of Operations
For the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


                                                                                            
                                                                    2002               2001               2000
                                                               ----------------   ----------------   ----------------
OPERATING REVENUES:
   Wireless Personal Communications Services revenue.....      $   207,978,059    $   115,905,619    $    26,110,404
   PCS equipment sales...................................            7,846,573          7,105,457          3,061,021
   Basic local, long-distance and other landline.........           18,702,184         19,586,373         20,320,299
   Network access........................................           21,523,193         20,198,336         17,275,754
   Equipment systems sales, information services,
     Internet access and other ..........................            8,656,812          7,344,231          7,232,164
                                                               ----------------   ----------------   ----------------
       Total operating revenues..........................          264,706,821        170,140,016         73,999,642
                                                               ----------------   ----------------   ----------------

OPERATING EXPENSES:
   Cost of PCS and other equipment sales.................           19,796,010         15,559,164         10,497,130
   Cost of services (exclusive of items shown
     separately below)...................................          183,200,584        115,168,420         41,471,586
   Selling and marketing.................................           54,248,493         50,545,921         19,626,803
   General and administrative (exclusive of items shown
     separately below)...................................           56,613,033         42,961,821         25,636,741
   Non-cash compensation expense.........................              412,889          1,149,179            852,718
   Loss on sale of property and equipment................              647,634          1,296,833                 --
   Depreciation and amortization.........................           49,303,211         26,148,564         13,057,587
   Impairment of goodwill and impact of
     acquisition-related deferred taxes..................           13,222,180                 --                 --
                                                               ----------------   ----------------   ----------------
       Total operating expenses..........................          377,444,034        252,829,902        111,142,565
                                                               ----------------   ----------------   ----------------

OPERATING LOSS...........................................         (112,737,213)       (82,689,886)       (37,142,923)
                                                               ----------------   ----------------   ----------------

NONOPERATING INCOME (EXPENSE):
   Interest expense, net.................................          (63,369,224)       (29,565,953)       (12,193,821)
   Subsidiary preferred stock dividends..................          (11,756,253)       (10,929,852)        (2,782,048)
   Interest income, net..................................            2,922,479          5,164,372          4,734,949
                                                               ----------------   ----------------   ----------------
       Total nonoperating income (expense)...............          (72,202,998)       (35,331,433)       (10,240,920)
                                                               ----------------   ----------------   ----------------

LOSS BEFORE INCOME TAX (EXPENSE) BENEFIT
  AND MINORITY INTEREST..................................         (184,940,211)      (118,021,319)       (47,383,843)

INCOME TAX (EXPENSE) BENEFIT.............................           (1,160,192)        (1,783,166)           895,576

MINORITY INTEREST IN LOSS................................                   --            983,883          2,301,344
                                                               ----------------   ----------------   ----------------

LOSS BEFORE EXTRAORDINARY ITEM...........................         (186,100,403)      (118,820,602)       (44,186,923)

EXTRAORDINARY LOSS, NET OF TAX BENEFIT
  OF $261,863 in 2000....................................                   --                 --           (486,323)
                                                               ----------------   ----------------   ----------------

NET LOSS.................................................      $  (186,100,403)   $  (118,820,602)   $   (44,673,246)
                                                               ================   ================   ================

Basic and diluted loss per share before extraordinary item     $       (513.48)   $       (329.59)   $       (127.62)
Basic and diluted loss per share from extraordinary item.                   --                 --              (1.41)
                                                               ----------------   ----------------   ----------------
Basic and diluted net loss per share.....................      $       (513.48)   $       (329.59)   $       (129.03)
                                                               ================   ================   ================
Weighted-average common shares outstanding ..............              362,429            360,508            346,237
                                                               ================   ================   ================


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



                                       F-6




HORIZON TELCOM, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity (Deficit)
For the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


                                                                                              

                                                           Accumulated                                                    Total
                       class A    class B                     Other        Additional     Deferred      Retained      Stockholders
                       Common     Common     Treasury      Comprehensive     Paid-in     Stock Option   Earnings         Equity
                       Stock      Stock       Stock           Income         Capital     Compensation   (Deficit        (Deficit)
                      ---------  ---------  ------------   -------------  -------------  ------------ --------------  --------------
Balance,
December 31, 1999..    423,836   1,271,506           --              --      2,311,801    (2,177,897)    25,864,506      27,693,752
                      ---------  ---------  ------------   -------------  -------------  ------------ --------------  --------------
 Acquisition of
  treasury stock...         --          --  (11,835,000)             --             --            --             --     (11,835,000)
 Acquisition of
  Bright PCS.......         --          --    4,786,800              --     44,512,732            --             --      49,299,532
 Issuance of
  warrants.........         --          --           --              --     33,600,647            --             --      33,600,647
 Stock option
  compensation
  expense..........         --          --           --              --        178,710       674,008             --         852,718
 Exercise of
  stock options....         --         523           --              --          6,857            --             --           7,380
 Stock dividends
  paid.............         --          --      473,100              --      1,037,666            --     (1,529,072)        (18,306)
 Tax on exchange
  of stock.........         --          --           --              --     (3,696,000)           --              --     (3,696,000)
 Tax on dividend...         --          --           --              --       (363,183)           --     (4,256,817)     (4,620,000)
 Dividends paid....         --          --           --              --             --            --     (1,793,038)     (1,793,038)
 Stock dividends
  received.........         --          --      (49,862)             --             --            --              --        (49,862)
 Minority interest
  adjustment.......         --          --           --              --     (5,000,653)           --      1,866,491      (3,134,162)
 Net loss..........         --          --           --              --             --            --    (44,673,246)    (44,673,246)
                        ------- ----------  ------------   -------------  -------------  ------------ --------------  --------------
Balance,
December 31, 2000..    423,836   1,272,029   (6,624,962)             --     72,588,577    (1,503,889)   (24,521,176)     41,634,415
                       -------  ----------  ------------   -------------  -------------  ------------ --------------  --------------

 Stock option
  compensation
  expense..........         --          --           --              --             --        424,279             --        424,279
 Stock distribution
  to employees.....         --          --    1,124,573              --       (399,673)            --             --        724,900
 Treasury stock
  received as a
  dividend.........         --          --       (4,311)             --             --             --             --         (4,311)
 Dividends paid....         --          --           --              --             --             --    (1,767,088)     (1,767,088)
 Comprehensive
   Income (Loss):..
   Net loss........         --          --           --              --             --             --  (118,820,602)   (118,820,602)
   Unrealized gain
    on securities
    available-for-sale,
    net of taxes
    of $1,117,825..         --          --           --       2,169,895             --             --             --      2,169,895
   Unrealized loss
    on hedging
    activities,
    net of tax.....         --          --           --        (837,851)            --             --             --       (837,851)
                     ---------  ----------  ------------   -------------  -------------  ------------ -------------   --------------
    Total comprehensive
     income (loss).         --          --           --       1,332,044             --            --   (118,820,602)   (117,488,558)
                                ----------  ------------   -------------  -------------  ------------ --------------  --------------
Balance,
December 31, 2001..   $423,836  $1,272,029  $(5,504,700)   $  1,332,044   $ 72,188,904   $(1,079,610) $(145,108,866)   $(76,476,363)
                      ========= ==========  ============   =============  =============  ============ =============   ==============

 Stock option
   compensation
   expense.........         --          --           --              --             --       412,889            --          412,889
 Exercise of
   stock options...         --         633           --              --          8,308            --            --            8,941
 Dividends paid....         --          --           --              --             --            --    (1,812,204)      (1,812,204)
 Comprehensive
   Income (Loss):..
    Net loss.......         --          --           --              --             --            --  (186,100,403)    (186,100,403)
    Unrealized loss
       on securities
       available-for-
       sale, net of
       taxes of
       $949,232....         --          --           --      (1,842,627)            --            --             --      (1,842,627)
   Unrealized gain
     on hedging
     activities,
     net of tax....         --          --           --         443,276             --            --             --         443,276
                     ---------  ----------- ------------   -------------  -------------  ------------ -------------  ---------------
    Total
      comprehensive
      income loss..         --          --           --      (1,399,351)            --            --   (186,100,403)   (187,499,754)
                     ---------  ----------- ------------   -------------  -------------  ------------ -------------  ---------------
 Balance,
  December 31, 2002   $423,836  $1,272,662  $(5,504,700)  $     (67,307)   $72,197,212   $  (666,721) $(333,021,473)  $(265,366,491)
                     =========  =========== ============  ==============  =============  ============ ============== ===============



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



                                      F-7


HORIZON TELCOM, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
For the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------



                                                                                         

                                                                     2002              2001             2000
                                                               ---------------   ---------------  ---------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................................     $  (186,100,403)  $  (118,820,602) $   (44,673,246)
                                                               ----------------  ---------------- ----------------
Adjustments to reconcile net loss to net cash provided by
   (used in) operating activities, net of effect of
   acquisition:
   Depreciation and amortization..........................          49,303,211        26,148,564       13,057,587
   Impairment of goodwill and impact of acquisition related
     deferred taxes.......................................          13,222,180                --               --
   Extraordinary loss, net................................                  --                --          486,323
   Deferred federal income taxes..........................          11,551,485           218,870         (261,786)
   Deferred investment tax credits........................                  --           (55,527)         (69,635)
   Non-cash compensation expense..........................             412,889         1,149,179          852,718
   Non-cash interest expense..............................          28,023,852        19,363,149        5,635,498
   Loss on disposal of property, plant and equipment......             647,634         1,296,833           21,277
   Non-cash preferred stock dividend of subsidiary........          11,756,253        10,929,852        2,782,048
   Minority interest in subsidiary........................                  --          (983,883)      (2,301,344)
   Provision for bad debt expense.........................          16,077,356         7,344,007        2,487,170
   Loss on hedging activities.............................              48,536           176,322               --
   Decrease (Increase) in certain assets:
     Accounts receivable..................................         (21,645,904)      (16,981,192)      (8,387,769)
     Inventories..........................................             175,149           244,763       (2,707,991)
     Taxes applicable to future years, prepayments,
       investments and other..............................          (2,514,270)        2,984,911       (2,864,492)
   Increase (Decrease) in certain liabilities:
     Accounts payable.....................................          (5,441,120)        2,397,069       10,529,126
     Payable to Sprint....................................            (334,267)               --               --
     Accrued liabilities and deferred PCS service revenue.          25,330,341         2,833,892        6,911,554
     Other accrued liabilities............................           1,606,073         4,432,226       18,086,085
     Postretirement benefit obligation....................           1,036,976         1,791,042          495,872
   Change in other assets and liabilities, net............          (6,559,042)       (1,252,091)        (558,907)
                                                               ----------------  ---------------- ----------------
       Total adjustments..................................         122,697,332        62,037,986       44,193,334
                                                               ----------------  ---------------- ----------------
         Net cash used in operating activities............
                                                                   (63,403,071)      (56,782,616)        (479,912)
                                                               ----------------  ---------------- ----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net.................................         (73,905,456)     (132,506,210)    (101,491,729)
Increase in restricted cash...............................                  --       (48,659,722)              --
Proceeds from sale of fixed assets........................           1,642,781                --          834,000
Proceeds from redemption of RTFC certificates.............                  --         2,895,646               --
Net cash acquired in acquisition of Bright PCS............                  --                --        4,926,803
Investment in joint venture...............................                  --                --       (1,032,000)
                                                               ----------------  ---------------- ----------------
         Net cash provided used in investing
             activities...................................     $   (72,262,675)  $  (178,270,286) $   (96,762,926)
                                                               ----------------  ---------------- ----------------

(Continued on next page)


                                      F-8


HORIZON TELCOM, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Continued)
For the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------



                                                                                         
                                                                     2002              2001             2000
                                                               ----------------  ---------------- ----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Borrowings on long-term debt...........................     $   135,000,000   $   181,400,000  $   185,321,607
   Repayments on long-term debt...........................         (27,167,337)       (2,000,000)              --
   Exercise of stock options..............................               8,941                --            7,380
   Issuance of preferred stock............................                  --                --      126,500,000
   Deferred financing fees................................          (2,569,530)       (7,433,469)     (15,410,327)
   Stock issuance costs...................................                  --                --       (9,161,242)
   Treasury stock received as dividend....................                  --            (4,311)              --
   Dividends paid.........................................          (1,812,204)       (1,767,088)      (1,793,038)
                                                               ----------------  ---------------- ----------------
         Net cash provided by financing activities........         103,459,870       170,195,132      285,464,380
                                                               ----------------  ---------------- ----------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......         (32,205,876)      (64,857,770)     188,221,542
CASH AND CASH EQUIVALENTS, beginning of year..............         127,154,227       192,011,997        3,790,455
                                                               ----------------  ---------------- ----------------
CASH AND CASH EQUIVALENTS, end of year....................     $    94,948,351   $   127,154,227  $   192,011,997
                                                               ================  ================ ================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
  Cash paid during the year for:
   Interest, net of amounts capitalized...................     $    35,179,498   $     8,705,947  $     4,330,600
   Income taxes (refund)..................................          (2,954,948)        2,125,000        9,078,515



SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

     Horizon  PCS  paid   $11,636,969   and   $11,775,917   in  2002  and  2001,
respectively,  of dividends on convertible  preferred  stock. The dividends were
paid in additional shares of convertible  preferred stock of Horizon PCS. During
2002 and 2001, Horizon PCS accrued $2,055,267 and $1,935,983,  respectively,  to
be paid in 2003 and 2002, respectively.

     The purchase of the  Company's  common stock in 2000 (Note 17) was financed
through a $13,000,000,  one-year,  unsecured 13% senior subordinated  promissory
note to a third  party  lender.  The lender  converted  100% of the  outstanding
principal and interest into Horizon PCS'  convertible  preferred stock valued at
$14,066,611 (Note 16).

     The proceeds from the issuance of Horizon PCS' discount  notes in 2000 have
been allocated to long-term debt and the value of the warrants  ($20,245,000  or
$5.32 per share) have been allocated to additional paid-in capital (Note 12).

     During 2000  Horizon PCS agreed to grant to Sprint PCS  warrants to acquire
2,510,460 shares of Horizon PCS' class A common stock, valued at $13,356,000, in
exchange for the right to service PCS markets in additional  areas. The warrants
will be issued to Sprint at the earlier of an initial public offering of Horizon
PCS' common stock or July 31, 2003 (Note 18).

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



                                      F-9


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 1 - LIQUIDITY

     As of December 31, 2002, Horizon PCS, Inc. ("Horizon PCS"), a subsidiary of
Horizon  Telcom  and a  registrant  that  files  separate  statements  with  the
Securities and Exchange  Commission,  was in compliance  with its covenants with
regards to all outstanding  debt  (approximately  $516.3 million at December 31,
2002).  However,  the Company believes that it is probable that Horizon PCS will
violate one or more of its covenants  under the secured credit facility in 2003.
Horizon PCS, represents approximately 82% of total consolidated revenues for the
year  ended  December  31,  2002 and 81% of the  total  consolidated  assets  at
December  31, 2002.  The failure to comply with a covenant  would be an event of
default under the secured credit facility,  and would give the lenders the right
to  pursue   remedies   against   Horizon  PCS.  These  remedies  could  include
acceleration  of  amounts  due under the  facility.  If the  lenders  elected to
accelerate  the  amounts  due under the  facility,  this would also  represent a
default under the  indentures for the senior notes and discount notes (Note 12).
As a result,  Horizon PCS'  independent  auditors'  report  states these matters
raise  substantial  doubt  about  Horizon  PCS'  ability to  continue as a going
concern.  The consolidated  financial  statements do not include any adjustments
that might result from the outcome of this uncertainty.  Please refer to Horizon
PCS' 2002 10-K filing for more details.

     Horizon PCS is currently in the process of  negotiating  various terms with
its creditors.  Horizon Telcom,  Chillicothe Telephone,  Horizon Technology, and
Horizon  Services are not  obligated in any form to assist  Horizon PCS in their
negotiations  nor are they obligated to compensate any of Horizon PCS' creditors
should Horizon PCS default on any debt agreements. Defaults of covenants on debt
agreements of Horizon PCS will not result in defaults in any debt  agreements or
other  contractual  obligation  of  Horizon  Telcom or any of its  subsidiaries.
Should  Horizon PCS be  unsuccessful  in their  discussions,  the Company  could
potentially  revise the ownership  structure in Horizon PCS. Should ownership of
our voting  rights  fall below 50% or  otherwise  lose  control of Horizon  PCS,
Horizon PCS may not be included in the  consolidated  results of Horizon Telcom.
This  would have a  significant  impact on the  presentation  of  operations  of
Horizon Telcom.

     To address the liquidity issues at Horizon PCS,  management has embarked on
a number of initiatives to attempt to:

          o    reduce operating expenses;

          o    reduce churn;

          o    negotiate a modification in the fees Horizon PCS pays to Sprint;

          o    negotiate a reduction in the fees Horizon PCS pays to NTELOS;

          o    negotiate  modifications  to the covenants in the senior  secured
               facility; and

          o    negotiate  the right to obtain  funding  under Horizon PCS' $95.0
               million  revolving  line  of  credit  under  its  senior  secured
               facility.

     Horizon  PCS' ability to raise  funding at this time may be dependent  upon
other factors including,  without limitation,  market conditions, and such funds
may not be  available  or be  available  on  acceptable  terms.  There can be no
assurance  that Horizon PCS will achieve  these goals or that it will be able to
develop a business  plan which is reasonably  designed to achieve  positive cash
flow.

     Horizon PCS has engaged  Berenson and Company,  an investment  banking firm
(the  "Advisor") to assist in its efforts to renegotiate or restructure its debt
and other contractual obligations.  Horizon PCS has agreed in principle with the
Advisor to have the Advisor  formulate  financial and other  strategic  business
alternatives.  We  cannot  guarantee  that the  Advisor  will be  successful  in
preparing and executing successful strategies.


                                      F-10



HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS ORGANIZATION AND PRINCIPLES OF CONSOLIDATION

     The accompanying  consolidated  financial statements reflect the operations
of the Company and its subsidiaries.  All material intercompany transactions and
balances have been eliminated in consolidation.

     On April 26, 2000,  Horizon Telcom,  Inc., formed Horizon PCS, Inc. On June
27, 2000, Horizon Telcom,  Inc.,  transferred 100% ownership of Horizon Personal
Communications,  Inc. (HPC) to Horizon PCS in exchange for 53,806,200  shares of
stock of Horizon PCS. This transfer was  accounted  for as a  reorganization  of
companies  under common control in a manner similar to  pooling-of-interests  in
the consolidated  financial  statements.  HPC will continue to exist and conduct
business as a wholly-owned subsidiary of Horizon PCS.

     The Company is a facilities-based  telecommunications carrier that provides
a variety of voice and data services to commercial,  residential/small  business
and local market segments. The Company provides landline telephone service, VDSL
television  service and Internet  access  services to the southern  Ohio region,
principally in and surrounding Chillicothe,  Ohio. The Company also provides PCS
operations to a twelve-state  region in the Midwest,  including  Ohio,  Indiana,
Pennsylvania,  Virginia and West  Virginia,  as an affiliate of Sprint PCS (Note
3).

ESTIMATES

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

CASH AND CASH EQUIVALENTS

     Cash and cash equivalents include cash on hand, money market accounts, U.S.
treasury  bills,  corporate  bonds and  investments  in  commercial  paper  with
original maturities of three months or less.

     The breakout of cash and cash  equivalents at December 31, 2002 is detailed
below:

                                                          2002
                                                   ----------------
Cash on hand...................................    $    20,454,044
Auction rate certificates......................          5,850,000
Money market accounts..........................            140,221
U.S. treasury bills............................            349,696
Corporate bonds and commercial paper...........         68,154,390
                                                   ----------------
    Cash and cash equivalents..................    $    94,948,351
                                                   ================



                                      F-11


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RESTRICTED CASH

     In connection  with Horizon PCS' December 2001 offering of  $175,000,000 of
senior notes due in 2011 (Note 12), approximately  $48,660,000 of the offering's
proceeds  were  placed in an escrow  account  to be used  toward  the first four
semi-annual  interest payments due under the terms of the notes. During 2002,the
Company paid approximately $24,596,000, representing the first two installments.
The remaining two payments have been  classified as short-term  and will be paid
in 2003. The funds are invested in a government  security money market  account.
Interest earned on the escrow funds totaled  approximately  $673,000 in 2002 and
$69,000 in 2001.

INVENTORIES

     Inventories  consist of equipment  held for resale,  materials and supplies
and  installation-related  work in progress  held by  Chillicothe  Telephone and
Horizon PCS. Chillicothe  Telephone  inventories include the cost (determined by
the first-in,  first-out  method) of equipment to be used in the installation of
telephone  systems,  as well as costs related to direct sales orders in process.
Horizon PCS' inventories  consist of handsets and related  accessories which are
carried  at the lower of cost  (determined  by the  weighted-average  method) or
market (replacement cost).

     Inventories consist of the following at December 31:

                                                     2002              2001
                                               ---------------   ---------------
    Equipment held for resale................   $    4,204,296   $     3,964,383
    Materials, supplies and work in progress.        2,132,581         2,547,643
                                               ---------------   ---------------
        Total inventories...................    $    6,336,877   $     6,512,026
                                               ===============   ===============

INVESTMENTS

     The  classification  of  investments  in  debt  and  equity  securities  is
determined by management at the date individual  investments  are acquired.  The
classification  of those securities and the related  accounting  policies are as
follows:

     Available-for-sale  securities  are debt and  equity  securities  which the
Company intends to hold for an indefinite period of time, but not necessarily to
maturity. Any decision to sell a security classified as available-for-sale would
be based on various factors,  including changes in market conditions,  liquidity
needs and similar  criteria.  Available-for-sale  securities are carried at fair
value as determined by quoted  market  prices with  unrealized  gains and losses
reported in other comprehensive income.

     Trading securities are debt and equity securities which the Company intends
to purchase and sell  frequently  and has the intent to sell in the near future.
Trading  securities are carried at fair value with unrealized  holding gains and
losses reported in the statement of operations.

     Other  investments  in  which  the  Company  does  not  have a  significant
ownership  and  for  which  there  is no  ready  market  are  carried  at  cost.
Information  regarding these and all other investments is reviewed  periodically
for  evidence  of  impairment  in value and "other than  temporary"  declines in
value.

                                      F-12


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

PROPERTY, PLANT AND EQUIPMENT

     Property,  plant and equipment,  including  improvements that extend useful
lives, are stated at cost (Note 9) while  maintenance and repairs are charged to
operations as incurred.  Construction work in progress includes expenditures for
the purchase of capital equipment, construction and items such as direct payroll
and related benefits and interest capitalized during  construction.  The Company
capitalizes  interest  pursuant to Statement of Financial  Accounting  Standards
("SFAS")  No. 34  "Capitalization  of Interest  Cost." The  Company  capitalized
interest of  approximately  $4,541,000,  $6,813,000 and $1,731,000 for the years
ended December 31, 2002, 2001 and 2000, respectively.

ACCOUNTING FOR RATE REGULATION

     Chillicothe   Telephone  is  subject  to  rate  regulation.   SFAS  No.  71
"Accounting for the Effects of Certain Types of Rate  Regulation"  provides that
rate-regulated  public  utilities  account for  revenues and expenses and report
assets and  liabilities  consistent with the economic effect of the way in which
regulators  establish rates.  Chillicothe  Telephone  follows the accounting and
reporting  requirements of SFAS No. 71. As of December 31, 2002, the Company has
recorded  regulatory  assets  and  liabilities  of  approximately   $63,000  and
$321,000,   respectively.  As  of  December  31,  2001,  regulatory  assets  and
liabilities were approximately $331,000 and $303,000, respectively.

DEPRECIATION

     Chillicothe  Telephone  provides for depreciation  under the  straight-line
method using rates based on the estimated  service lives of the various  classes
of  property.   Horizon  PCS,  Services  and  Horizon   Technology  provide  for
depreciation  and  amortization  under  the  straight-line  method  based on the
estimated  service lives of the various  classes of property.  Estimated  useful
lives are as follows:

                                                           YEARS
                                                           -----
         Network assets..................................   5-15
         Switching equipment.............................    5-8
         Computer and telecommunications equipment.......    3-5
         Furniture, vehicles and office equipment........    3-5

     Amounts  included as  depreciation  expense that relate to cost of services
were approximately $41,167,000,  $19,803,000 and $10,100,000 for the years ended
December 31, 2002, 2001 and 2000, respectively.

     In  2001,  the  Public  Utilities  Commission  of  Ohio  ("PUCO")  approved
Chillicothe Telephone's application to increase annual depreciation rates and to
amortize  an  estimated   depreciation   reserve   deficiency  of  approximately
$1,029,000 over a five-year period beginning  January 1, 2001.  Amortization and
recovery of the depreciation  reserve deficiency was approximately  $206,000 for
both 2002 and 2001.

     In 1998,  Chillicothe  Telephone  retired  its  1210  digital  switch  upon
completion of the conversion to a new EWSD digital switch. The PUCO approved the
Company's  application to amortize the remaining  undepreciated cost of the 1210
digital switch of  approximately  $1,344,000 over a five-year  period  beginning
April 1,  1998.  Amortization  and  recovery  of the  switch  was  approximately
$268,000 in both 2002 and 2001, and $269,000 in 2000. The remaining  unamortized
balance was approximately $63,000 and $330,000 as of December 31, 2002 and 2001,
respectively,  and is included in other assets on the accompanying  consolidated
balance sheets.


                                      F-13


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

DEBT ISSUANCE COSTS

     In  connection  with the issuance of long-term  debt (Note 12), the Company
has incurred  approximately  $24,441,000  in deferred  financing  costs  through
December 31, 2002,  including  approximately  $2,570,000 during 2002. These debt
issuance costs are amortized  using the effective  interest method over the term
of the  underlying  obligation,  ranging from eight to ten years.  For the years
ended December 31, 2002, 2001 and 2000, approximately $2,789,000, $1,139,000 and
$726,000  of  amortization  of debt  issuance  costs was  included  in  interest
expense.

GOODWILL

     On January 1, 2002, the Company  adopted SFAS No. 142,  "Goodwill and other
intangible  assets"  (Note 6). Prior to January 1, 2002,  the Company  amortized
goodwill on a straight line basis over a 20 year period. Under SFAS No. 142, the
Company ceased  amortization of goodwill and conducted an impairment test of the
goodwill balance.  As of January 1, 2002, the goodwill balance was deemed not to
be impaired. However, the December 31, 2002 goodwill balance was deemed impaired
and was  written off during the fourth  quarter of 2002.  See Note 6 for further
details on the impairment of goodwill.

IMPAIRMENT OF LONG-LIVED ASSETS

     Long-lived  assets such as property,  plant and  equipment,  and  purchased
intangibles subject to amortization, are reviewed for impairment whenever events
or changes in  circumstances  indicate that the carrying  amount of an asset may
not be recoverable.  Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to estimated undiscounted future
cash flows expected to be generated by the asset.  If the carrying  amount of an
asset  exceeds  its  estimated  future  cash  flows,  an  impairment  charge  is
recognized  by the amount by which the carrying  amount of the asset exceeds the
fair value of the asset.  Assets to be disposed of are  reported at the lower of
the carrying amount or fair value less costs to sell, and depreciation ceases.

     Goodwill  and  intangible  assets not  subject to  amortization  are tested
annually for impairment. An impairment loss is recognized to the extent that the
carrying amount exceeds the asset's fair value (Note 6).

     During 2002,  Horizon PCS launched  switches in Tennessee and  Pennsylvania
and  disconnected  some switching  equipment in Chillicothe,  Ohio. As a result,
approximately  $6.2 million of switching  equipment  is  considered  an impaired
asset as defined by SFAS No. 144  "Accounting  for the Impairment or Disposal of
Long-Lived Assets."  Accordingly,  depreciation and amortization expense for the
year ended December 31, 2002,  includes  approximately  $3.5 million  related to
accelerated depreciation on the impaired asset. The total amount of depreciation
recorded to date on this equipment is approximately  $5.8 million.  The residual
book value of $400,000  approximates  fair market  value at December  31,  2002,
based  on  quoted  market  prices  and  is  included  in  other  assets  in  the
accompanying balance sheet.

DERIVATIVE FINANCIAL INSTRUMENTS

     The Company utilizes  derivative  financial  instruments to reduce interest
rate  risk and not for  trading  or  speculative  purposes.  Interest  rate swap
agreements  are used to hedge the  exposure of the  variable  interest  rates of
certain  notes  payable and are designed as cash flow hedges.  The interest rate
swap agreements  involve the periodic  exchange of payments without the exchange
of the notional  amount upon which the payments  are based.  The related  amount
payable to or receivable  from  counter-parties  is included as an adjustment to
accrued  interest.  The  carrying  amount of the  interest  swap  agreements  is
included in accrued  liabilities,  with the changes in carrying amounts recorded
as an adjustment to other comprehensive income, a component of retained deficit.
The Company also  formally  assesses,  both at the hedge's  inception  and on an
ongoing basis, whether the derivatives that are used in hedging transactions are
highly  effective in  offsetting  changes in fair values or cash flows of hedged
items. When it


                                      F-14


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

is determined  that a derivative  is not highly  effective as a hedge or that it
has  ceased to be a highly  effective  hedge,  the  Company  discontinues  hedge
accounting prospectively.

REVENUE RECOGNITION

     Horizon  PCS  records  equipment  revenue  from  the sale of  handsets  and
accessories to subscribers in its retail stores and to local distributors in its
territories  upon  delivery.  The Company does not record  equipment  revenue on
handsets  and  accessories  purchased  from  or  sold  by  national  third-party
retailers or directly from Sprint by  subscribers  in its  territory.  After the
handset has been purchased,  the subscriber purchases a service package, revenue
from which is  recognized  monthly as service is  provided  and is  included  in
subscriber  revenue,  net of credits related to the billed revenue.  The Company
believes the equipment revenue and related cost of equipment associated with the
sale of wireless  handsets and accessories is a separate  earnings  process from
the sale of wireless services to subscribers.  For industry competitive reasons,
the Company sells wireless handsets at a loss.  Because such arrangements do not
require a customer to subscribe to the Company's  wireless  services and because
the Company sells wireless handsets to existing customers at a loss, the Company
accounts for these transactions  separately from agreements to provide customers
wireless service.

     Horizon  PCS'  accounting  policy for the  recognition  of  activation  fee
revenue is to record the  revenue  over the  periods  such  revenue is earned in
accordance with the current  interpretations  of SEC Staff  Accounting  Bulletin
("SAB") No. 101,  "Revenue  Recognition in Financial  Statements."  Accordingly,
activation fee revenue and direct  customer  activation  expense is deferred and
will be recorded over the average life for those  customers (30 months) that are
assessed an activation  fee. The Company  recognized  approximately  $2,992,000,
$695,000  and $47,000 of both  activation  fee revenue and  customer  activation
expense during 2002, 2001 and 2000, respectively, and had deferred approximately
$6,093,000  and  $3,809,000  of  activation  fee  revenue  and  direct  customer
activation expense at December 31, 2002 and 2001, respectively.

     A  management  fee  of  8%  of  collected  PCS  revenues  from  Sprint  PCS
subscribers based in Horizon PCS' territory, is accrued as services are provided
and remitted to Sprint PCS and recorded as general and  administrative  expense.
Revenues  generated  from the sale of  handsets  and  accessories,  inbound  and
outbound  Sprint PCS roaming fees, and roaming  services  provided to Sprint PCS
customers who are not based in Horizon PCS'  territory are not subject to the 8%
affiliation  fee.  Expense  related to the  management  fees  charged  under the
agreement was approximately $12,027,000, $5,923,000 and $1,302,000 for the years
ended December 31, 2002, 2001 and 2000 respectively.

     The landline  telephone  services operating segment consists of basic local
and  long-distance  toll,  network access services and other  telephone  service
revenue. All revenue is recognized monthly as service is provided.

     Intra-LATA,  (Local Access and Transport Area) (i.e.,  the area of southern
Ohio,  including  Columbus  originally  covered by area code 614),  basic  local
exchange and  long-distance  service revenue  consists of flat rate services and
measured  services  billed  to  customers  utilizing   Chillicothe   Telephone's
telephone  network.  Long  distance  intraLATA/interstate  revenue  consists  of
message services that terminate beyond the basic service area of the originating
wire center.

     Network  access revenue  consists of revenue  derived from the provision of
exchange  access services to an  interexchange  carrier or to an end user beyond
the exchange  carrier's network.  Other revenue includes  directory  advertising
related to a telephone directory published annually.


                                      F-15


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

     Other revenues include Internet access  services,  equipment  systems sales
and information services.  Internet access revenues are monthly service fees and
other charges  billed to customers of Horizon  Technology's  bright.net  dial-up
Internet  service.  Equipment  systems sales and information  services  revenues
consist of sales made by  Chillicothe  Telephone to various  businesses or other
residential customers for equipment used on the telephone system.

     Chillicothe  Telephone  is  an  independent  local  exchange  carrier  that
provides  local  telephone  service  within  ten  local  exchanges.  Chillicothe
Telephone   follows  an  access   charge   system  as  ordered  by  the  Federal
Communications   Commission   ("FCC")  and  PUCO  in  1984.  The  access  charge
methodology  provides  a  means  whereby  local  exchange  carriers,   including
Chillicothe  Telephone,  provide their customers access to the facilities of the
long-distance  carriers and charge long-distance carriers for interconnection to
local facilities.

     The PUCO  issued an  Opinion  and Order  effective  January  1,  1988,  for
reporting  intra-LATA  (Local Access and  Transport  Area) toll  revenues.  This
methodology is defined as the Originating  Responsibility  Plan with a Secondary
Carrier Option  (ORP-SCO).  This plan calls for one or more primary  carriers in
each LATA with other local exchange carriers acting as secondary  carriers.  The
secondary  carriers  provide the primary carrier with access to local facilities
and are  compensated  based upon  applicable  intra-LATA  access charge tariffs.
Chillicothe Telephone is a primary carrier. Intra-LATA toll revenue is reflected
in basic and  long-distance  service  revenue on the  accompanying  consolidated
statements  of  operations,  and is  recognized  as such  services are provided.
Estimated unbilled amounts are accrued at the end of each month.

     Chillicothe   Telephone  recognizes  revenue  for  billing  and  collection
services  performed  on behalf of certain  interexchange  carriers.  Chillicothe
Telephone is reimbursed for this service based on the number of messages  billed
on behalf of the  interexchange  carrier.  The  revenues  from this  service are
recognized in the same period the services are provided.  Chillicothe  Telephone
also recognizes  advertising  revenues from its telephone  directory.  Telephone
directory  customers  sign an annual  contract  which is billed in twelve  equal
installments.  The revenue  derived from  directory  advertising  is  recognized
equally  over the  twelve-month  period of the  directory,  consistent  with the
ratemaking  treatment.  These  items  are  recorded  in  other  revenues  on the
accompanying consolidated statements of operations.

     Chillicothe  Telephone  recognizes revenues on the completed contract basis
for the installation of  telecommunication  and other related  equipment.  These
revenues are reported as equipment system sales on the accompanying consolidated
statements of operations.  Maintenance  revenues are recognized over the life of
the contract,  and recorded as other revenues on the  accompanying  consolidated
statements of operations.

     Horizon  Technology is an FCC-licensed  radio common carrier that primarily
provides Internet access services and resells long-distance service. Revenues on
equipment sales were  recognized at the time of sale.  Revenues for the Internet
and long distance services are recognized monthly as service is rendered.

MINORITY INTEREST

     As part of the acquisition of Bright Personal  Communication  Services, LLC
("Bright PCS") (Note 5), the former members of Bright PCS have  approximately an
8%  ownership  in Horizon  PCS.  The  Company  accounts  for this  ownership  by
recording  the  portion  of net  income  (loss)  attributable  to  the  minority
shareholders  (a  loss  of  $983,883  and  $2,301,344   during  2001  and  2000,
respectively)  as  minority  interest  in  earnings  (loss) in the  accompanying
consolidated  statements of  operations.  The minority  interest's  share in the
Company's losses during 2001 reduced the minority interest's accounting basis to
zero. There will be no further  allocations to minority interest until such time
as  Horizon  PCS  becomes  profitable  and any  unallocated  losses to  minority
interest are offset with income in future periods.


                                      F-16


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ADVERTISING COSTS

     Costs  related  to  advertising  and  other  promotional  expenditures  are
expensed as  incurred.  Advertising  costs  totaled  approximately  $11,851,000,
$10,780,000 and $4,645,000 for the years ended December 31, 2002, 2001 and 2000,
respectively.

STOCK-BASED COMPENSATION

     The  Company  applies  the  intrinsic   value-based  method  of  accounting
prescribed by Accounting  Principles  Board ("APB") Opinion No. 25,  "Accounting
for Stock  Issued to  Employees,"  and related  interpretations  including  FASB
Interpretation  No. 44,  "Accounting  for Certain  Transactions  involving Stock
Compensation an  interpretation  of APB Opinion No. 25" issued in March 2000, to
account  for its fixed  plan stock  options.  Under  this  method,  compensation
expense is recorded on the date of grant only if the current market price of the
underlying  stock exceeded the exercise  price.  SFAS No. 148,  "Accounting  for
Stock-Based  Compensation  -  Transition  and  Disclosure - an amendment of FASB
Statement No. 123" established  accounting and disclosure  requirements  using a
fair  value-based  method of accounting for  stock-based  employee  compensation
plans.  As allowed by SFAS No. 148, the Company has elected to continue to apply
the intrinsic  value-based method of accounting described above, and has adopted
the disclosure requirements of SFAS No. 148. The following table illustrates the
effect on net  income if the  fair-value-based  method  had been  applied to all
outstanding and unvested awards in each period.



                                                                                     

                                                                2002               2001              2000
                                                         ---------------     ---------------  ---------------
      Net Loss
        As reported....................................  $ (186,100,403)     $ (118,820,602)  $  (44,673,246)
      Add: Stock-based employee compensation expense
      included in reported net loss....................         412,889           1,149,179          852,718
      Deduct: Total stock-based employee compensation
      expense determined under fair value based method
      for all awards...................................      (1,175,131)         (1,813,939)      (1,586,635)
                                                         ---------------     --------------   --------------
        Pro forma net loss.............................    (186,862,645)       (119,485,362)     (45,407,163)
                                                         ===============     ===============  ===============
      Basic and diluted loss per share
        As reported....................................  $      (513.48)            (329.59)  $      (129.03)
        Pro forma......................................         (515.58)            (331.44)         (131.14)
                                                         ===============     ===============  ===============



     The Company  accounts for equity  instruments  issued to  non-employees  in
accordance  with the  provisions of SFAS No. 148 and Emerging  Issues Task Force
("EITF") Issue No. 96-18,  "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring,  or in  Conjunction  with Selling,  Goods or
Services."  All  transactions  in which goods or services are the  consideration
received for the issuance of equity  instruments  are accounted for based on the
fair  value  of the  consideration  received  or the fair  value  of the  equity
instrument issued,  whichever is more reliably measurable.  The measurement date
of the fair value of the equity  instrument issued is the earlier of the date on
which the  counter-party's  performance  is  complete or the date on which it is
probable that performance will occur.

SITE BONUSES

     Horizon PCS has received approximately $8,000,000 (of which,  approximately
$740,000  was  received in 2001) for site  bonuses  from SBA,  which  constructs
towers leased by Horizon PCS. The Company  defers and amortizes the site bonuses
over the life of the respective lease.  During 2002, 2001 and 2000,  Horizon PCS
recorded  approximately  $941,000,  $916,000 and  $320,000,  respectively,  as a
reduction to lease expense.


                                      F-17


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INCOME TAXES

     Income  taxes are  accounted  for under  the  asset and  liability  method.
Deferred  tax  assets  and   liabilities  are  recognized  for  the  future  tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases and operating loss and tax credit  carryforwards.  Deferred tax assets and
liabilities  are measured  using enacted tax rates  expected to apply to taxable
income in the years in which  those  temporary  differences  are  expected to be
recovered  or settled.  The effect on deferred tax assets and  liabilities  of a
change in tax rates is  recognized  in income in the period  that  includes  the
enactment date.

CONCENTRATION OF CREDIT RISK

     The  Company  maintains  cash and cash  equivalents  in an  account  with a
financial  institution  in excess of the amount  insured by the Federal  Deposit
Insurance Corporation.  The financial institution is one of the largest banks in
the United States and management  does not believe there is  significant  credit
risk associated with deposits in excess of federally insured amounts.

     Restricted  cash is invested in short-term  government  money market funds.
The Company does not believe there is significant  credit risk  associated  with
the  funds  as  the  underlying  securities  are  issued  by the  U.S.  Treasury
Department.

     The  Company  maintains  accounts  with  nationally  recognized  investment
managers.  Such  deposits  are not  insured  by the  Federal  Deposit  Insurance
Corporation.  Management  does not  believe  there is  significant  credit  risk
associated with these uninsured deposits.

     Other  financial  instruments  that  potentially  subject  the  Company  to
concentrations  of credit risk  consist  primarily of accounts  receivable  from
subscribers.  Management  believes  the risk is  limited  due to the  number  of
customers comprising the Company's customer base and its geographic diversity.

     A significant amount of Horizon PCS' financial transactions result from its
relationship  with  Sprint.  Additionally,  Sprint holds  approximately  four to
eleven days of Horizon PCS' subscriber lockbox receipts prior to remitting those
receipts  to the Horizon PCS  weekly.  The  Company  does not record  these cash
receipts until Sprint recruits them.

NET LOSS PER SHARE

     The Company  computes net loss per common share in accordance with SFAS No.
128,  "Earnings  per  Share" and SAB No. 98.  Basic and  diluted  loss per share
before  extraordinary  item is computed by  dividing  loss before  extraordinary
item, for each period, by the weighted-average  outstanding common shares. Basic
and  diluted  net loss per share is  computed  by  dividing  net loss,  for each
period,  by the  weighted-average  outstanding  common shares.  No conversion of
common stock equivalents (options,  warrants or convertible securities) has been
assumed in the calculations since the effect would be antidilutive. As a result,
the number of  weighted-average  outstanding common shares as well as the amount
of net loss per  share are the same for  basic  and  diluted  net loss per share
calculations  for all  periods  presented.  There are  three  items  that  could
potentially  dilute basic earnings per share in the future.  These items include
the common stock options (Note 19), the stock  purchase  warrants  (Note 18) and
the  convertible  preferred stock (Note 16). These items will be included in the
diluted earnings per share calculation when dilutive.


                                      F-18


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS

     In December 2002, the Financial  Accounting Standards Board ("FASB") issued
SFAS  No.  148,  "Accounting  for  Stock-Based  Compensation  -  Transition  and
Disclosure - an amendment of FASB  Statement No. 123." This  Statement  provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee  compensation.  In addition,  this
Statement  requires  prominent  disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee  compensation
and the effect of the method used on reported  results.  The Company adopted the
disclosure  requirements  of SFAS No. 148 as of December 31, 2002, but continues
to account for stock  compensation  costs in accordance  with APB Opinion No. 25
(Note 19).

     In June 2002, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 146,  "Accounting for Costs  Associated  with Exit or Disposal  Activities."
This Statement addresses financial accounting and reporting for costs associated
with exit or disposal  activities by requiring that expenses related to the exit
of an  activity  or disposal  of  long-lived  assets be  recorded  when they are
incurred and  measurable.  Prior to SFAS No. 146,  these charges were accrued at
the time of commitment to exit or dispose of an activity. The Company will adopt
SFAS 146 on January 1, 2003, and it is not expected to have a material effect on
the Company's financial position, results of operations or cash flows.

     In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No.  4,  44  and  64,   Amendment  of  FASB  Statement  No.  13,  and  Technical
Corrections."  SFAS No. 145 addresses the  accounting  for gains and losses from
the  extinguishments  of debt,  economic  effects and  accounting  practices  of
sale-leaseback   transactions  and  makes  technical   corrections  to  existing
pronouncements.  The Company will adopt SFAS No. 145 on January 1, 2003,  and it
is not expected to have a material effect on the Company's  financial  position,
results of operations or cash flows.

     In June  2001,  the  FASB  issued  SFAS  No.  143,  "Accounting  for  Asset
Retirement  Obligations."  This  statement  addresses  financial  accounting and
reporting for obligations associated with the retirements of tangible long-lived
assets  and  the  associated  asset  retirement   costs.  It  applies  to  legal
obligations associated with the retirement of long-lived assets that result from
the  acquisition,  construction,  development  and  the  normal  operation  of a
long-lived  asset. The Company will adopt this statement on January 1, 2003, and
it is not  expected  to  have a  material  effect  on  the  Company's  financial
position, results of operations and cash flows.

RECLASSIFICATIONS

     Certain prior year amounts have been  reclassified to conform with the 2002
presentation.

UNION REPRESENTATION

     At December  31, 2002,  Horizon  Telcom had  approximately  15% of its work
force represented by a union. The current union contract is due to expire in the
fourth quarter of 2003. The company  considers  relations with all its employees
to be good.


                                      F-19


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 3 - WIRELESS PERSONAL COMMUNICATIONS SERVICES

     In October  1996,  the FCC  conditionally  granted  Horizon PCS licenses to
provide wireless personal communications services in various parts of Ohio, West
Virginia and Kentucky (a total of five licenses). The FCC financed the licenses.
According to FCC rules,  the licenses were  conditional upon the full and timely
payment of the licenses'  cost. The licenses were subject to a requirement  that
Horizon PCS constructs and operates  facilities that offer coverage to a defined
population  within the relevant  license areas within a defined period.  Horizon
PCS began the engineering and design phase in 1996 and began the construction of
the personal  communications  network in early 1997. Horizon PCS began providing
digital, wireless personal communications services in August 1997.

     In 1997,  the FCC offered  four  options to certain PCS license  holders to
change  the  payment  terms  of the  FCC  financed  debt.  These  options  were:
continuing with the current  installment  plan (status quo);  return half of the
spectrum  from  any or  all of the  licenses  in  exchange  for a  proportionate
reduction  in debt  (disaggregation);  turning in all  licenses in exchange  for
total debt forgiveness (amnesty);  or prepay for as many licenses as Horizon PCS
can afford at face value while  returning  other  licenses in exchange  for debt
forgiveness (prepayment).

     During 1998,  the Company  elected to return all of the spectrum  from four
licenses and half of the spectrum from the fifth license. In connection with the
return of the spectrum,  the Company  entered into  management  agreements  with
Sprint PCS, the PCS group of Sprint  Corporation,  during 1998. These agreements
provide the Company with the exclusive right to build, own and manage a wireless
voice and data  services  network  in  certain  markets  located  in Ohio,  West
Virginia, Kentucky, Virginia, Tennessee and Maryland under the Sprint PCS brand.
Horizon PCS is required to build-out  the wireless  network  according to Sprint
PCS specifications. The term of the agreements is 20 years with three successive
10-year  renewal  periods  unless  terminated  by either party under  provisions
outlined in the management  agreements.  The management  agreements commenced in
June 1998, but payments of the management fee did not commence until Horizon PCS
converted  to a  fully  branded  Sprint  PCS  affiliate  in  October  1999.  The
management agreements included  indemnification  clauses between the Company and
Sprint PCS to indemnify  each party against  claims  arising from  violations of
laws  or the  management  agreements,  other  than  liabilities  resulting  from
negligence or willful misconduct of the party seeking to be indemnified.

     In May 2000, Horizon PCS expanded its management agreement with Sprint PCS.
This allows Horizon PCS to have the exclusive  right to build,  own and manage a
wireless voice and data services network in markets located in Pennsylvania, New
York, Ohio and New Jersey.

     The Sprint PCS agreements  require Horizon PCS to interface with the Sprint
PCS  wireless  network  by  building  Horizon  PCS'  network  to  operate on PCS
frequencies  licensed to Sprint PCS in the 1900 MHz range.  Under the Sprint PCS
agreements, Horizon PCS has agreed to:

          o    construct  and  manage a network  in Horizon  PCS'  territory  in
               compliance  with  Sprint PCS' PCS  licenses  and the terms of the
               management agreement;

          o    distribute,  during the term of the management agreement,  Sprint
               PCS' products and services;

          o    conduct  advertising  and  promotion  activities  in Horizon PCS'
               territory; and

          o    manage that  portion of Sprint  PCS'  customer  base  assigned to
               Horizon PCS' territory.

     The management agreement specifies the terms of the Sprint PCS affiliation,
including the required network build-out plan. Horizon PCS has agreed to operate
its  network  to  provide  for a seamless  handoff  of a call  initiated  in its
territory  to a  neighboring  Sprint PCS  network.  The  Sprint  PCS  management
agreements  require Horizon PCS to complete specified portions of its markets by
specified dates.


                                      F-20


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 3 - WIRELESS PERSONAL COMMUNICATIONS SERVICES (CONTINUED)

     Horizon PCS must comply with Sprint PCS' program requirements for technical
standards,  customer service standards,  national and regional  distribution and
national   accounts   programs  to  the  extent  that  Sprint  PCS  meets  these
requirements.

     A  failure  to meet the  build-out  requirements  for any of  Horizon  PCS'
markets,  or to meet Sprint PCS'  technical  requirements,  would  constitute  a
breach of the Sprint PCS agreements that could lead to their  termination if not
cured  within a cure  period of 30 to 180 days,  depending  on the nature of the
breach. If Sprint PCS terminates these agreements, Horizon PCS will no longer be
able to offer  Sprint PCS products and  services.  Additionally,  Sprint PCS may
purchase  Horizon PCS' operating  assets or capital stock for 72% of the "entire
business  value," as defined in the  management  agreements.  As of December 31,
2002,  Horizon PCS was in  compliance  with these  requirements  or has obtained
appropriate waivers from Sprint PCS.

NOTE 4 - SEGMENT INFORMATION

     The Company is organized around the differences in products and services it
offers.  Under  this  organizational  structure,  the  Company  operates  in two
reportable  business  segments  as defined by SFAS No. 131,  "Disclosures  about
Segments of an Enterprise and Related  Information." These segments are wireless
personal  communications  services and landline telephone services. The wireless
personal  communications  services segment includes three major revenue streams:
PCS  subscriber  revenues,  PCS roaming  revenues and PCS equipment  sales.  The
landline telephone  services segment includes four major revenue streams:  basic
local service, long-distance service, network access and other related telephone
service.

     Other business  activities of the Company include Internet access services,
equipment systems sales, and other miscellaneous revenues, which do not meet the
definition of a reportable  segment under SFAS No. 131. Amounts related to these
business   activities   are  included  below  under  the  heading  "All  other."
Unallocated   administrative   expenses  represent  general  and  administrative
expenses incurred at a corporate level. All other assets represent common assets
not identified to an operating segment.

     The Company  evaluates the  performance  of the segments based on operating
earnings before the allocation of  administrative  expenses.  Information  about
interest income and expense and income taxes is not provided on a segment level.
The accounting policies of the segments are the same as described in the summary
of significant accounting policies.


                                      F-21


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 4 - SEGMENT INFORMATION (CONTINUED)

     The following  table includes  revenue,  intercompany  revenues,  operating
earnings (loss),  depreciation and amortization expense and capital expenditures
for the years ended December 31, 2002,  2001 and 2000, and assets as of December
31, 2002 and 2001, for each segment and reconciling  items necessary to total to
amounts reported in the financial statements:



                                                                                      

                                                                             NET REVENUES
                                                      ----------------------------------------------------------
                                                             2002                2001                2000
                                                      -----------------    ----------------    -----------------
   Wireless personal communications services....       $   215,824,632     $   123,011,076     $     29,171,425
   Landline telephone services..................            40,225,377          39,784,709           37,596,053
   All other....................................             8,656,812           7,344,231            7,232,164
                                                      -----------------    ----------------    -----------------
     Total net revenue..........................       $   264,706,821     $   170,140,016     $     73,999,642
                                                      =================    ================    =================

                                                                         INTERCOMPANY REVENUES
                                                      ----------------------------------------------------------
                                                             2002                2001                2000
                                                      -----------------    ----------------    -----------------
   Wireless personal communications services....       $       212,969     $       292,628     $         22,514
   Landline telephone services..................             1,356,589           1,331,912              644,321
   All other....................................               474,679             165,615               15,261
                                                      -----------------    ----------------    -----------------
     Total intercompany revenue.................       $     2,044,237     $     1,790,155     $        682,096
                                                      =================    ================    =================

                                                                       OPERATING EARNINGS (LOSS)
                                                      ----------------------------------------------------------
                                                             2002                2001                2000
                                                      -----------------    ----------------    -----------------
   Wireless personal communications services....       $  (113,045,622)    $   (83,475,002)    $    (40,308,311)
   Landline telephone services..................            15,411,463          16,120,785           15,113,485
   All other....................................            (3,751,250)         (2,931,280)          (1,536,540)
   Unallocated administrative expenses..........           (11,351,804)        (12,404,389)         (10,411,557)
                                                      -----------------    ----------------    -----------------
     Total operating loss.......................       $  (112,737,213)    $   (82,689,886)    $    (37,142,923)
                                                      =================    ================    =================

                                                                     DEPRECIATION AND AMORTIZATION
                                                      ----------------------------------------------------------
                                                             2002                2001                2000
                                                      -----------------    ----------------    -----------------
   Wireless personal communications services....       $    40,271,034     $    18,518,948     $      6,134,458
   Landline telephone services..................             6,841,399           6,294,037            6,313,846
   All other....................................             2,190,778           1,335,579              609,283
                                                      -----------------    ----------------    -----------------
     Total depreciation and amortization........       $    49,303,211     $    26,148,564     $     13,057,587
                                                      =================    ================    =================

                                                                         CAPITAL EXPENDITURES
                                                      ----------------------------------------------------------
                                                             2002                2001                2000
                                                      -----------------    ----------------    -----------------
   Wireless personal communications services....       $    63,082,910     $   116,574,323     $     83,562,958
   Landline telephone services..................             7,442,794           9,364,038           11,202,539
   All other....................................             3,379,752           6,567,849            6,726,232
                                                      -----------------    ----------------    -----------------
     Total capital expenditures, net............       $    73,905,456     $   132,506,210     $    101,491,729
                                                      =================    ================    =================

                                                                      ASSETS
                                                      -------------------------------------
                                                             2002                2001
                                                      -----------------    ----------------
   Wireless personal communications services....       $   443,116,762     $   480,754,022
   Landline telephone services..................            83,258,131          90,951,437
   All other....................................            19,375,220           6,208,407
                                                      -----------------    ----------------
     Total assets...............................       $   545,750,113     $   577,913,866
                                                      =================    ================



                                      F-22


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 4 - SEGMENT INFORMATION (CONTINUED)

     Net  operating  revenues  by product and  services  were as follows for the
years ended December 31:



                                                                                      
                                                            2002                2001                2000
                                                      -----------------    ----------------    -----------------
   Wireless personal communications services:
     PCS subscriber revenues...................        $   152,196,485     $    77,365,343     $     17,702,302
     PCS roaming revenues......................             55,781,574          38,540,276            8,408,102
     PCS equipment sales.......................              7,846,573           7,105,457            3,061,021
                                                      -----------------    ----------------    -----------------
      Total wireless personal communications
        services...............................            215,824,632         123,011,076           29,171,425
                                                      -----------------    ----------------    -----------------

   Landline telephone services:
     Basic local service.......................        $    14,483,197     $    14,510,003     $     14,413,686
     Long-distance toll........................              1,153,767           1,476,034            2,512,901
     Network access services...................             21,523,193          20,198,336           17,275,754
     Other related telephone services..........              3,065,220           3,600,336            3,393,712
                                                      -----------------    ----------------    -----------------
      Total landline telephone services........             40,225,377          39,784,709           37,596,053
                                                      -----------------    ----------------    -----------------

   Other:
     Internet access services..................              3,113,522           3,130,885            3,625,452
     Equipment systems sales...................              1,259,455           1,393,413            1,503,094
     Other miscellaneous revenues..............              4,283,835           2,819,933            2,103,618
                                                      -----------------    ----------------    -----------------
      Total other..............................              8,656,812           7,344,231            7,232,164
                                                      -----------------    ----------------    -----------------
      Total operating revenues.................        $   264,706,821     $   170,140,016     $     73,999,642
                                                      =================    ================    =================


NOTE 5 - ACQUISITIONS

     During 1999, Horizon PCS entered into a joint venture agreement through the
purchase  of 25.6% of Bright  Personal  Communications  Services,  LLC  ("Bright
PCS").  The  investment  was  accounted for under the equity  method.  The joint
venture  was   established  in  October  1999  to  provide   wireless   personal
communications services in Ohio, Indiana and Michigan.

     On June 27, 2000, Horizon PCS acquired the remaining 74.4% of Bright PCS in
exchange for  approximately  8% of Horizon PCS' class B common stock  (4,678,800
shares valued at approximately $34,000,000) and approximately 40% of the Horizon
Telcom,  Inc.  common  stock  owned by  Horizon  PCS  (31,912  shares  valued at
approximately $15,300,000) (Note 17). This acquisition was treated as a purchase
for accounting purposes.  The consolidated  statements of operations include the
results of Bright PCS from June 28, 2000.

     In conjunction with this transaction,  Horizon PCS also acquired the Bright
PCS  management  agreement  with  Sprint PCS and,  with it, the right to operate
using Sprint PCS licenses in the Bright PCS markets.  Horizon PCS has recognized
an intangible  asset totaling  $33,000,000  related to this licensing  agreement
which is being  amortized  over 20 years,  the  initial  term of the  underlying
management agreement. Amortization commenced in June 2000.


                                      F-23


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 5 - ACQUISITIONS (CONTINUED)

     The  purchase  price  exceeded  the fair  market  value  of the net  assets
acquired by approximately $7,778,000. The resulting goodwill was being amortized
on a  straight-line  basis over 20 years.  Amortization  commenced in June 2000.
Amortization  expense  for the years  ended  December  31,  2001 and  2000,  was
$389,000 and $198,000,  respectively.  Accumulated  amortization of goodwill was
approximately $587,000 at December 31, 2002. The Company adopted SFAS No. 142 on
January 1, 2002. As a result of the adoption, goodwill amortization ceased as of
December  31, 2001,  and the Company is now  required to complete an  impairment
test  of  the  remaining  goodwill  balance  annually  (or  more  frequently  if
impairment  indicators  arise).  On December 31, 2002 the Company  completed its
annual  impairment  test of goodwill and recorded an  impairment  charge for the
full amount of unamortized goodwill as a result of this acquisition. As required
by SFAS 109,  goodwill  should be increased for the deferred  taxes arising from
assets recorded in excess of their tax basis for an  acquisition.  This amounted
to $6,031,000 for this  acquisition and  accordingly the goodwill  impairment of
$13,232,180 included such amounts.

NOTE 6 - GOODWILL AND INTANGIBLE ASSETS

     During 1999, the Company entered into a joint venture agreement through the
purchase of 25.6% of Bright  PCS. On June 27,  2000,  the Company  acquired  the
remaining  74.4% of Bright  PCS.  The  total  purchase  price was  approximately
$49,300,000  and was treated as a purchase  method  acquisition  for  accounting
purposes.  The purchase  price  exceeded the fair market value of the net assets
acquired by approximately $7,778,000.  The resulting goodwill was amortized on a
straight-line basis over 20 years until December 31, 2001.

     The  Company  adopted  SFAS No. 142 on January 1, 2002.  As a result of the
adoption,  goodwill amortization ceased as of December 31, 2001, and the Company
was required to complete an impairment test on its remaining goodwill balance as
of the date of adoption.  The Company  completed the first step required by SFAS
No. 142 and  determined  the  goodwill  remaining  at  January 1, 2002,  was not
impaired.

     On December 31, 2002, Horizon PCS performed the annual valuation assessment
of goodwill.  This valuation determined that the carrying amount of the goodwill
exceeded the fair value of the assets. As a result the Company recorded goodwill
impairment of  $13,222,180,  related to the impairment of goodwill and impact of
acquisition-related deferred taxes. The impairment eliminated the entire balance
of goodwill as of December 31, 2002.  Fair value was measured based on projected
discounted  future  operating  cash flows using a discount rate  reflecting  the
Company's average cost of funds.

     The following pro forma disclosure  reconciles net loss available to common
stockholders,  as  presented  on the  accompanying  consolidated  statements  of
operations, excluding the effect of goodwill amortization:



                                                                                      
                                                                           YEAR ENDED DECEMBER 31,
                                                          -------------------------------------------------------
                                                                 2002               2001               2000
                                                          ----------------  ------------------  -----------------
Reported net loss..................................       $  (186,100,403)  $    (118,820,602)  $   (44,673,246)
Goodwill amortization..............................                    --             388,887           197,685
                                                          ----------------  ------------------  -----------------
    Adjusted net loss..............................          (186,100,403)       (118,431,715)      (44,475,561)

Basic and diluted net loss per share...............               (513.48)            (329.59)          (129.03)
Goodwill amortization..............................                    --                1.08              0.57
                                                          ----------------  ------------------  -----------------
    Adjusted basic and diluted net loss per share..               (513.48)            (328.51)          (128.46)


    In  conjunction  with  the  acquisition  discussed  in Note 5,  the  Company
recognized an intangible asset totaling approximately $33,000,000 related to the
licensing  agreement  which will be amortized  on a straight  line basis over 20
years, the initial term of the underlying management agreement. In addition, the
Company  agreed to grant  Sprint  warrants to acquire  shares of common stock in
exchange for the right to service  additional  PCS markets.  These warrants were
recorded as an intangible asset of approximately  $13,356,000  (Note 18) and are
being  amortized  on a  straight  line basis over  approximately  18 years.  The
breakout of these intangible assets is detailed below:

                                      F-24


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 6 - GOODWILL AND INTANGIBLE ASSETS (CONTINUED)



                                                                                          

                                                           SPRINT  LICENSES                    SPRINT WARRANTS
                                                 ----------------------------------  -------------------------------
                                                       2002              2001              2002             2001
                                                 ----------------  ----------------  ---------------  --------------
Gross intangible value....................        $  33,000,000    $  33,000,000      $ 13,355,647     $ 13,355,647
Amortized expense recognized..............           (1,706,897)      (1,706,897)         (752,436)        (752,436)
Beginning accumulated amortization........           (2,574,569)        (867,672)         (940,544)        (188,108)
                                                  --------------   ---------------    ---------------  -------------
  Net intangible value....................        $  28,718,534    $  30,425,431      $ 11,662,667     $ 12,415,103
                                                  ===============  ===============    ===============  =============


     Estimated  amortization  expense  for the next five years is  approximately
$2,459,000 each year.

NOTE 7 - INVESTMENTS

     The Company  holds  93,000  shares of common stock in  Verisign,  Inc.,  as
marketable equity securities  classified as  available-for-sale  at December 31,
2002.  The fair value of the shares at December 31, 2002 and 2001,  was $745,860
and  $3,537,720,  respectively.  The cost of the  investment  was  $250,000.  An
unrecognized  loss of $1,842,627,  net of tax of $949,232,  has been recorded in
other comprehensive income at December 31, 2002, offsetting an unrecognized gain
of  $2,169,895  (net of related tax of  $1,117,825)  recorded for the year ended
December 31, 2001.

     As part of the term loan  facility  for the  construction  of the  personal
communications  network  (Note 12),  Horizon PCS was required to purchase  Rural
Telephone  Finance   Cooperative's   (RTFC,  the  lender)  subordinated  capital
certificates  with each draw on the loan. The balance of these  certificates  at
December 31, 2000, was approximately $2,896,000.  The certificates were redeemed
in March 2001 for  approximately  $2,896,000  with no recognized gain or loss on
the redemption.


                                      F-25


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 8- ACCOUNTS RECEIVABLE ALLOWANCE

     Estimates  are used in  determining  our  allowance  for doubtful  accounts
receivable,  which is based on a percentage of our accounts  receivable by aging
category.  The percentage is derived by considering  our historical  collections
and write-off  experience,  current aging of our accounts  receivable and credit
quality trends, as well as Sprint's credit policy.  The breakout of the activity
recorded to the allowance for accounts receivable is detailed below:



                                                                                       
                                              BALANCE AT
                                             BEGINNING OF       CHARGED TO        DEDUCTIONS       BALANCE AT
               DESCRIPTION                      PERIOD            EXPENSE             (1)          END OF PERIOD
- ----------------------------------------     --------------    --------------    --------------    --------------
                                                                   (dollars in thousands)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
  RECEIVABLE-SUBSCRIBERS
Year Ended December 31, 2000............     $         911     $       1,891     $      (1,001)    $        1,801
                                             ==============    ==============    ==============    ==============

Year Ended December 31, 2001............     $       1,801     $       6,936     $      (6,075)    $        2,662
                                             ==============    ==============    ==============    ==============

Year Ended December 31, 2002............     $       2,662     $      15,544     $     (15,552)    $        2,654
                                             ==============    ==============    ==============    ==============

ALLOWANCE FOR DOUBTFUL ACCOUNTS
  RECEIVABLE-INTEREXCHANGE CARRIERS
  AND OTHER
Year Ended December 31, 2000............     $          67     $          25     $          (2)    $           90
                                             ==============    ==============    ==============    ==============

Year Ended December 31, 2001............     $          90     $         408     $         (20)    $          478
                                             ==============    ==============    ==============    ==============

Year Ended December 31, 2002............     $         478     $         533     $        (797)    $          214
                                             ==============    ==============    ==============    ==============
- -----------------


(1)  Represents  amounts  written  off during the  period,  less  recoveries  of
     amounts previously written off.

NOTE 9 - PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment consists of the following at December 31:



                                                                        
                                                                   2002             2001
                                                             ---------------  ---------------
     Network assets......................................... $   293,825,031  $   220,849,771
     Switching equipment....................................      63,294,413       35,253,986
     Land and buildings.....................................      15,856,491       15,223,363
     Computer and telecommunications equipment..............      13,369,767       14,292,341
     Furniture, vehicles and office equipment...............      12,518,760       12,477,119
                                                             ---------------  ---------------
       Property, plant and equipment in-service, at cost....     398,864,462      298,096,580
     Accumulated depreciation...............................     (99,376,895)     (68,604,457)
                                                             ---------------  ---------------
          Property, plant and equipment in-service, net.....     299,487,567      229,492,123
     Construction work in progress..........................      16,433,540       59,785,097
                                                             ---------------  ---------------
               Total property, plant and equipment, net..... $   315,921,107  $   289,277,220
                                                             ===============  ===============


     During  2002 and 2001,  Horizon  PCS  retired  certain  network  assets and
replaced  them with  equipment  required to upgrade the network.  As a result of
these  retirements,  the Company  recorded a loss on  disposal  of $631,417  and
$1,296,834, respectively.


                                      F-26


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 10 - SPRINT AGREEMENTS

     Under the  Sprint  Agreements,  Sprint  provides  the  Company  significant
support  services such as billing,  collections,  long distance,  customer care,
network operations support,  inventory logistics support,  use of the Sprint and
Sprint PCS brand names, national advertising,  national distribution and product
development.  Additionally,  the Company derives substantial roaming revenue and
expenses when Sprint's and Sprint's network  partners' PCS wireless  subscribers
incur  minutes  of use in the  Company's  territories  and  when  the  Company's
subscribers  incur minutes of use in Sprint and other Sprint  network  partners'
PCS territories.  These  transactions  are recorded in roaming revenue,  cost of
service,  cost of equipment  and selling and marketing  expense  captions in the
accompanying consolidated statements of operations.  Cost of service and roaming
transactions  include,  long distance charges,  roaming expense and the costs of
services  such  as  billing,   collections,   and  customer  service  and  other
pass-through  expenses.  Cost of  equipment  transactions  relate  to  inventory
purchased by the Company from Sprint  under the Sprint  Agreements.  Selling and
marketing  transactions  relate to subsidized  costs on handsets and commissions
paid  by the  Company  under  Sprint's  national  distribution  program.  The 8%
management  fee is  included  in general and  administrative.  Amounts  recorded
relating to the Sprint  Agreements  for the years ended  December 31, 2002,  are
approximately as follows:

           TOTAL REVENUES AND EXPENSES PROVIDED BY
                       SPRINT AGREEMENTS                           2002
     ------------------------------------------------------- ---------------
     Roaming revenue....................................     $    51,688,000
                                                             ===============

     Cost of Service:
     Roaming.............................................    $    40,883,000
     Billing and customer care...........................         20,587,000
     Long distance.......................................         10,470,000
                                                             ---------------
       Total cost of service..............................        71,940,000
     Selling and marketing................................         2,566,000
     General and administrative:
     Management fee......................................         12,027,000
                                                             ---------------
       Total expense.....................................    $    86,533,000
                                                             ===============

     The Sprint  Agreements  require  the Company to  maintain  certain  minimum
network performance  standards and to meet other performance  requirements.  The
Company was in compliance in all material  respects with these  requirements  at
December 31, 2002.

NOTE 11 - LINES OF CREDIT

     On December 15, 2002,  Chillicothe Telephone entered into an agreement with
Huntington  National Bank for a line of credit that provides maximum  borrowings
of $15,000,000,  payable on demand.  Interest accrues on the outstanding balance
at a fluctuating rate tied to LIBOR and is due and payable monthly.  At December
31, 2002, the interest rate on the line of credit was 2.92%.  As of December 31,
2002, Chillicothe Telephone had not used this line of credit. The line of credit
contains several covenants  requiring minimum tangible net worth, a fixed charge
coverage ratio, a funded debt to consolidated total  capitalization ratio and an
interest coverage ratio. As of December 31, 2002,  Chillicothe  Telephone was in
compliance with these covenants.

     During  2000,   Chillicothe   Telephone  entered  into  an  agreement  with
Huntington  National Bank for a line of credit that provides maximum  borrowings
of  $15,000,000,  payable on demand.  On March 16, 2001,  Chillicothe  Telephone
increased this line of credit to  $30,000,000.  On August 14, 2002, this line of
credit  expired when it was repaid in full with proceeds  from the  $30,000,000,
6.64% senior notes (Note 12).


                                      F-27


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 11 - LINES OF CREDIT (CONTINUED)

     On September  26, 2000,  the Company  entered  into a  $95,000,000  line of
credit that expires on September 30, 2008, as part of its senior  secured credit
facility  agreement  (Note 12). As of  December  31,  2002,  the Company had not
borrowed on this line of credit.

     As  discussed  in Note 12 below,  Horizon PCS did not meet the covenant for
earnings before  interest,  taxes,  depreciation  and amortization for the first
quarter of 2002.  Horizon PCS  obtained a waiver of  non-compliance  and entered
into an amendment of the secured credit facility.  This amendment restricted the
maximum amount available to be borrowed for certain periods (Note 15).

NOTE 12 - LONG-TERM DEBT

     The components of long-term debt outstanding are as follows:



                                                                                  

                                                      INTEREST RATE AT       DECEMBER 31,     DECEMBER, 31,
                                                      DECEMBER 31, 2002          2002            2001
                                                      ------------------  ---------------- ----------------
          Horizon PCS:
          Discount notes...........................     14.00%            $ 295,000,000    $  295,000,000
          Senior notes.............................     13.75%              175,000,000       175,000,000
          Secured credit facility-term loan A......      5.40%              105,000,000                --
          Secured credit facility-term loan B......      6.33%               50,000,000        50,000,000
        Chillicothe Telephone:
          2002 Senior Notes........................      6.64%               30,000,000                --
          1998 Senior Notes........................      6.72%               12,000,000        12,000,000
          1993 Senior Notes........................      6.72%                       --         8,000,000
                                                                         ---------------    --------------
             Long-term debt, par value.............                         667,000,000       540,000,000
          Less: Unaccreted interest portion of
               Horizon PCS discount notes..........                        (108,715,651)     (135,944,357)
          Less: Current maturities.................                                  --        (2,000,000)
                                                                         ---------------   ---------------
               Total long-term debt................                         558,284,349       402,055,643



     On December 7, 2001, Horizon PCS received $175,000,000 from the issuance of
unsecured  senior notes (the "senior  notes") due on June 15, 2011.  Interest is
paid semi-annually on June 15 and December 15 at an annual rate of 13.75%,  with
interest  payments  commencing June 15, 2002.  Approximately  $48,660,000 of the
offering's  proceeds  was  placed in an escrow  account  to fund the first  four
semi-annual interest payments.  The senior notes may be redeemed at Horizon PCS'
election on or after  December 15, 2006,  at  redemption  prices  defined in the
senior note agreement. Additionally, on or before December 15, 2004, Horizon PCS
may  redeem up to 35% of the  aggregate  principal  amount of the  senior  notes
originally  issued at a  redemption  price of 113.75%,  plus  accrued and unpaid
interest to the date of redemption with the proceeds of certain equity offerings
as long as 65% of the  aggregate  principal  amount  originally  issued  remains
outstanding after that redemption.

     On September 26, 2000, Horizon PCS received  $149,680,050 from the issuance
of $295,000,000  of unsecured  senior discount notes due on October 1, 2010 (the
"discount notes"). The discount notes accrete in value until October 1, 2005, at
a rate of 14% compounded  semi-annually.  Cash interest on the notes will become
payable on April 1 and October 1 of each year,  beginning on April 1, 2006.  The
discount  notes may be redeemed at Horizon PCS'  election on or after October 1,
2005, at redemption prices defined in the discount note agreement. Additionally,
on or before October 1, 2003,  Horizon PCS may redeem up to 35% of the aggregate
principal amount of the discount notes  originally  issued at a redemption price
of 114%,  plus accrued and unpaid  interest to the date of redemption,  with the
proceeds of certain equity  offerings as long as 65% of the aggregate  principal
amount originally issued remains outstanding after that redemption. The discount
notes  include  warrants to purchase  3,805,500  shares of Horizon  PCS' class A
common stock at $5.88 per share. The warrants represent the right to purchase an
aggregate of  approximately  4.0% of the issued and outstanding  common stock of
Horizon PCS on a



                                      F-28


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 12 - LONG-TERM DEBT (CONTINUED)

     fully diluted basis,  assuming the exercise of all outstanding  options and
warrants  to  purchase  common  stock  and  the  conversion  of the  convertible
preferred  stock into shares of Horizon PCS' class A common stock (Note 16). The
proceeds from the issuance of the discount notes was allocated to long-term debt
and the value of the warrants  ($20,245,000 or $5.32 per share) was allocated to
additional paid-in capital.  The fair value of the warrants was estimated on the
date  of the  grant  using  the  Black-Scholes  option-pricing  model  with  the
following  weighted  average  assumptions:  expected  dividend  yield of 0.0%, a
risk-free interest rate of 6.5%, expected life of 10 years (equal to the term of
the warrants) and a volatility of 95%.

     On September 26, 2000, and concurrent  with the issuance of the convertible
preferred  stock (Note 16) and the discount notes described  above,  Horizon PCS
entered into a senior secured credit  facility (the "secured  credit  facility")
with a financial  institution  to provide an  aggregate  commitment,  subject to
certain  conditions,  of up to  $250,000,000  (including a  $95,000,000  line of
credit  described in Note 11, a $50,000,000  term note and a  $105,000,000  term
note) expiring on September 30, 2008. The secured credit facility bears interest
at various floating rates,  which  approximate one to six month LIBOR rates plus
400 to 450 basis points.  The secured  credit  facility is  collateralized  by a
perfected  security  interest in substantially  all of Horizon PCS' tangible and
intangible  current and future  assets,  including an assignment of Horizon PCS'
affiliation  agreements with Sprint PCS and a pledge of all of the capital stock
of Horizon PCS and its  subsidiaries.  At December  31,  2002,  the  outstanding
balance on the secured  credit  facility  was  $155,000,000.  Horizon PCS pays a
commitment fee of 1.375% on the unused portion of the $250,000,000 note. Amounts
recorded relating to this commitment fee expense for the year ended December 31,
2002, are as follows:

                                                                    2002
                                                              ---------------
          Secured credit facility - term loan A.........      $       325,000
          Line of credit................................            1,324,000
                                                              ---------------
              Total commitment fee expense..............      $     1,649,000
                                                              ===============

     The senior  notes,  discount  notes and  secured  credit  facility  contain
various  financial  covenants.  Among other  restrictions,  the most restrictive
covenants  relate to maximum  capital  expenditures,  minimum EBITDA  ("earnings
before interest,  taxes, depreciation and amortization")  requirements,  maximum
financial  leverage ratios and minimum  revenues.  There are also limitations on
restricted payments,  asset sales, additional debt issuance and equity issuance.
In June 2001,  December  2001 and June 2002,  Horizon  PCS  amended  its secured
credit facility with the bank group.  These  modifications  amended and restated
certain financial covenants.

     In August 2002,  Chillicothe  Telephone issued  $30,000,000 of 6.64% senior
notes  ("2002  Senior  Notes")  due in full July 1, 2012.  The  proceeds  of the
offering were used to retire both the short-term  line of credit with Huntington
National Bank and the non-current portion of Chillicothe Telephone's 1993 Senior
Notes ("1993 Senior Notes").  The 1993 Senior Notes were issued in November 1993
- - $6,000,000 and $4,000,000 to insurance  companies.  The 1993 Senior Notes were
set to make annual  principle  payments of  $2,000,000,  which began in 2001 and
were to continue  through 2005. The current portion of the 1993 Senior Notes was
repaid on November 1, 2002. The remaining funds were used for general  corporate
purposes.

     On November 12, 2002,  Chillicothe  Telephone amended and restated its 1998
$12,000,000  senior notes due 2018.  The interest  rate on the amended  notes is
6.72%,  an increase of 10 basis points,  with the same maturity date as the 1998
Senior Notes. Chillicothe Telephone refinanced its 1998 Senior Notes in order to
align the debt  covenants  of those notes with the  covenants of the 2002 Senior
Notes, which are less restrictive then the covenants of the original 1998 Senior
Notes.  Annual principal payments of $1,200,000 begin in 2009 and continue until
2018.  The interest rate on the  outstanding  balance at December 31, 2002,  was
6.72%.


                                      F-29


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 12 - LONG-TERM DEBT (CONTINUED)

     The 2002 and 1998 Senior Notes contain  various  financial  covenants,  the
most  restrictive  covenants  being  the  minimum  net  worth  requirement,  the
limitation of funded debt requirement and the restricted  intercompany  payments
and investment requirements.  As of December 31, 2002, Chillicothe Telephone was
in compliance with such covenants.

     Scheduled  maturities of long-term  debt  outstanding at December 31, 2002,
are as follows:

                 YEAR                                      AMOUNT
                                                      --------------
        2003.......................................              --
        2004.......................................   $   8,250,000
        2005.......................................      20,187,500
        2006.......................................      26,750,000
        2007.......................................      28,062,500
        Thereafter.................................     583,750,000
                                                      --------------
          Total maturities of long-term debt.......     667,000,000
        Less: current maturities...................              --
        Less: Unaccreted interest portion of
          long-term debt...........................    (108,715,651)
                                                      --------------
            Total long-term debt...................   $ 558,284,349
                                                      ==============

     As of December 31, 2002,  Horizon PCS had $95.0 million committed under the
Company's  secured credit facility in the form of a line of credit at a variable
interest  rate equal to the London  Interbank  Offered Rate  ("LIBOR")  plus 400
basis points (Notes 11 and 15).

     Horizon PCS' secured credit facility includes financial covenants that must
be met each quarter.  The Company did not meet the covenant for earnings  before
interest,  taxes, depreciation and amortization ("EBITDA") for the first quarter
of 2002. As a result of higher than expected  gross and net additions to Horizon
PCS subscribers for that quarter,  the Company incurred  additional  expenses to
add those customers.  Although the Company ultimately benefits from the revenues
generated by new subscribers,  the Company incurs one-time  expenses  associated
with new subscribers, including commissions, handset subsidies, set up costs for
the network and marketing  expenses.  As a result,  these new  subscriber  costs
negatively  affect EBITDA in the short-term during the period of the addition of
new subscribers,  which led to  non-compliance  with the EBITDA covenant for the
first quarter of 2002.

     On June 27, 2002, the Company obtained a waiver of the non-compliance  with
the EBITDA  covenant for the first quarter of 2002 and entered into an amendment
of the secured credit facility.  The amended facility  primarily adjusts certain
financial  covenants  and  increases  the margin on the base interest rate by 25
basis points, while also providing for the payment of fees to the banking group,
an increase in post-default  interest rates, a new financial  covenant regarding
minimum available cash, additional prepayment requirements,  restrictions on the
Company's  borrowings  committed  under the remaining  $95.0  million  revolving
credit  facility  and  deposit  requirements  on the use of the  $105.0  million
borrowed under the secured credit facility in March 2002 (Note 15).

     As of December 31,  2002,  Horizon PCS was in  compliance  with the amended
covenants  under each  agreement,  therefore,  debt was classified as long-term.
However as described in Note 1, Horizon PCS believes it is probable that it will
violate one or more of its  covenants  during  2003.  If Horizon PCS  violates a
covenant,  is  declared to be in default of the credit  agreement,  and does not
cure the default, then the debt will be reclassified to current liabilities.


                                      F-30


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 13 - INCOME TAXES

     The  Company's  Federal  income  tax  expense  (benefit)  consists  of  the
following for the years ended December 31:


                                                      

                                                             2002              2001             2000
                                                       ----------------  ---------------- ----------------
   Current........................................      $   (2,126,867)   $    1,433,572   $     (564,155)
   Deferred.......................................           3,316,349           405,121         (261,786)
   Investment tax credit..........................             (29,290)          (55,527)         (69,635)
                                                       ----------------  ---------------- ----------------
     Income tax expense (benefit) before
       extraordinary item.........................           1,160,192         1,783,166         (895,576)

   Extraordinary loss:
     Current payable..............................                  --                --         (261,863)
                                                       ----------------  ---------------- ----------------
         Total tax expense (benefit)..............     $     1,160,192   $     1,783,166  $    (1,157,439)
                                                       ================  ================ ================


     The income tax expense from continuing operations varies from the statutory
rate as follows for the years ended December 31:


                                                                                 

                                                              2002               2001              2000
                                                       ----------------  ---------------- ----------------
   Tax at statutory rate applied to pretax book loss    $  (62,879,672)  $ (40,127,248)   $  (16,110,507)
   Increase (decrease) in tax from:
     Investment tax credit..........................           (29,290)        (55,527)          (69,635)
     Change in valuation allowance..................        53,399,909      37,163,536         2,385,097
     Goodwill impairment............................         4,495,519              --                --
     Non-deductible goodwill amortization...........                --         444,227           302,968
     Tax on interest on warrants....................                --         695,627           177,210
     Non-deductible interest........................         2,221,649              --                --
     Stock option compensation......................                --         241,044           171,571
     Tax on excess loss account.....................                --              --        11,463,395
     Non-deductible subsidiary dividend.............         3,997,126       3,716,150           945,896
     Other, net.....................................           (45,049)       (294,643)         (161,571)
                                                       ----------------  ---------------- ----------------
       Total tax expense (benefit)..................    $    1,160,192    $  1,783,166     $    (895,576)
                                                       ================  ================ ================


                                      F-31



HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 13 - INCOME TAXES (CONTINUED)

     Deferred  income  taxes  result  from  temporary  differences  between  the
financial  reporting and tax basis amounts of existing  assets and  liabilities.
The  source  of these  differences  and tax  effect  of each are as  follows  at
December 31:



                                                                   
                                                             2002              2001
                                                       ----------------  ----------------
         Deferred income tax assets:
           Uncollectible accounts..................    $       879,910   $     1,030,600
           Accrued vacation........................            627,803           472,708
           Pensions and other retirement benefits..          2,409,408         1,106,912
           Net operating loss carryforward.........         99,465,755        36,089,387
           Deferred gain on sale of fixed assets...            932,068         1,274,886
           Deferred income.........................          1,716,405         2,285,961
           Interest expense........................         14,690,303         9,523,013
           Unrealized loss on hedging activity.....            210,607           284,869
           Other...................................          3,222,002                --
                                                       ----------------  ----------------
             Total deferred income tax assets......        124,154,261        52,068,336
                                                       ----------------  ----------------

         Deferred income tax liabilities:
           Property and equipment..................        (32,251,907)      (14,498,936)
           Unrealized gain on securities...........           (168,593)       (1,117,825)
           Sprint PCS Licenses.....................         (6,273,286)               --
           Other...................................         (5,355,002)       (1,496,497)
                                                       ----------------  ----------------
             Total deferred income tax liabilities.        (44,048,788)      (17,113,258)
                                                       ----------------  ----------------

               Deferred income taxes, net..........         80,105,473        34,955,078
               Less: valuation allowance...........        (95,339,882)      (39,587,235)
                                                       ----------------  ----------------

                 Total deferred income taxes, net..    $   (15,234,409)  $    (4,632,157)
                                                       ================  ================


     Until  September  26, 2000,  Horizon PCS was  included in the  consolidated
Federal income tax return of the Horizon Telcom  affiliated  group.  Horizon PCS
provided  for  Federal  income  taxes on a  pro-rata  basis,  consistent  with a
consolidated tax sharing  agreement.  As a result of the sale of the convertible
preferred  stock,  Horizon  PCS is not able to  participate  in the tax  sharing
agreement nor the filing of a  consolidated  Federal  income tax return with the
Horizon Telcom  affiliated  group.  Thus,  Horizon PCS filed a separate  Federal
income tax return for the period  after  deconsolidation  through  December  31,
2000, and will file a separate return for all subsequent periods.

     In  assessing  the  Company's  ability  to  realize  deferred  tax  assets,
management  considers whether it is more likely than not that some or all of the
assets will not be  realized.  Management  considers,  among other  things,  the
scheduled  reversal of deferred  tax assets and  liabilities  and  estimates  of
future  taxable  income in making this  assessment.  The Company has  provided a
valuation  allowance of $95,339,882  and $39,587,235 as of December 31, 2002 and
2001, respectively, against the deferred tax assets of Horizon PCS.

     Horizon PCS has generated net operating  losses ("NOL") that may be used to
offset future taxable income. Each year's NOL has a maximum  carryforward period
of twenty years.  Horizon PCS' ability to use its NOL carryforwards is dependent
on the future taxable  income of Horizon PCS. At December 31, 2002,  Horizon PCS
has NOL carryforwards of approximately $293,000,000, expiring in 2021 thru 2022.
The future tax benefit of these NOL  carryforwards of approximately  $99,000,000
has been recorded as a deferred tax asset. As a result of Horizon PCS' operating
losses and its deconsolidation  from the Horizon Telcom affiliated group for tax
purposes, Horizon PCS does not expect to record future tax benefits of operating
losses or other  deferred  tax assets until such time as its  operations  become
profitable and, accordingly, has recognized valuation allowance of $95,339,882.

                                      F-32


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 13 - INCOME TAXES (CONTINUED)

     The Company's  consolidated  income tax benefit for the year ended December
31, 2000, was  $1,157,439.  This benefit was primarily a result of the Company's
net loss offset by the  recognition  by Horizon PCS of an excess loss account on
the tax  deconsolidation  from the Horizon Telcom affiliated group and valuation
reserves established against deferred tax assets of Horizon PCS.

     In connection  with Horizon PCS'  acquisition of Bright PCS (Note 5), a tax
of  $3,696,000  was  generated  based on the  excess  of the  fair  value of the
Company's  stock  over  Horizon  PCS' cost  basis in the  stock.  The tax on the
exchange of the stock was charged  directly to equity and not recorded as income
tax expense.

     Horizon PCS generated a tax of  $4,256,818 on the stock  dividend of 10% of
the Horizon  Telcom stock held by Horizon PCS. The tax on the stock dividend was
charged  directly to equity and not  recorded  as an income tax  expense  during
2000.

NOTE 14 - PENSION PLANS AND OTHER RETIREMENT BENEFITS

     The Company has two trusteed  pension plans covering  certain  salaried and
hourly  employees.  The Company's funding policy is to be in compliance with the
Employee  Retirement  Income Security Act guidelines.  The plan's assets consist
primarily of investments in common stocks,  bonds,  notes,  cash equivalents and
life insurance  policies.  The Company  applies the  accounting and  measurement
practices  prescribed by SFAS No. 87, "Employers'  Accounting For Pensions," and
the  disclosure  requirements  of SFAS No. 132,  "Employers'  Disclosures  about
Pensions and Other Postretirement Benefits."

     In  addition,  the Company  provides  coverage of  postretirement  medical,
prescription  drug,  telephone  service and life insurance  benefits to eligible
retirees  whose  status at  retirement  from  active  employment  qualifies  for
postretirement benefits. Coverage of postretirement benefits is also provided to
totally and permanently  disabled  active  employees whose status at disablement
qualifies for postretirement  benefits as a retiree from active employment.  The
Company also provides coverage of  postretirement  dental and vision benefits to
certain  enhanced  retirees.   No  future  retirees  will  receive  coverage  of
postretirement  dental  and  vision  benefits.  Certain  eligible  retirees  are
required  to  contribute  toward the cost of coverage  under the  postretirement
health care and  telephone  service  plans.  No  contribution  is  required  for
coverage under the postretirement life insurance benefits plan.

     The Company applies the accounting and measurement  practices prescribed by
SFAS No. 106,  "Employers'  Accounting  for  Postretirement  Benefits Other Than
Pensions," and the disclosure requirements of SFAS No. 132. As permitted by SFAS
No. 106,  the Company has  elected to amortize  the  accumulated  postretirement
benefit obligations existing at the date of adoption (the transition obligation)
over a twenty-year  period.  The  unrecognized  prior service cost is also being
amortized over a twenty-year period.


                                      F-33


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 14 - PENSION PLANS AND OTHER RETIREMENT BENEFITS (CONTINUED)

     The pension and  postretirement  plans  discussed  above are  maintained by
Horizon  Telcom,  Inc.  Each  subsidiary  is charged  for each plan based on its
employee  participation  in the  respective  plans.  The  funding  status of the
consolidated plans as of December 31, 2002 and 2001, is as follows:



                                                                                     

                                                              PENSION BENEFITS            OTHER BENEFITS
                                                         -------------------------- -------------------------
                                                             2002         2001          2002         2001
                                                         ------------ ------------- ------------ ------------
                                                                            (IN THOUSANDS)
   CHANGE IN BENEFIT OBLIGATION
   Benefit obligation, beginning of year.............    $    15,133  $     14,235  $    10,410  $     5,624
     Service cost....................................            477           390          584          359
     Interest cost...................................          1,077         1,044          651          609
     Actuarial loss..................................          1,325            34          977        4,111
     Benefits paid...................................           (715)         (570)        (328)        (293)
     Change in plan provisions.......................             --            --           --           --
                                                         ------------ ------------- ------------ ------------
   Benefit obligation, end of year...................         17,297        15,133       12,294       10,410


   CHANGE IN PLAN ASSETS
   Fair value of plan assets, beginning of year......         18,599        19,380           --           --
     Actual return on plan assets....................         (1,658)         (229)          --           --
     Employer contributions..........................             18            18          328          293
     Benefits paid...................................           (715)         (570)        (328)        (293)
                                                         ------------ ------------- ------------ ------------
   Fair value of plan assets, end of year............         16,244        18,599           --           --
                                                         ------------ ------------- ------------ ------------
   Funded status.....................................         (1,053)        3,466      (12,294)     (10,410)
     Unrecognized transition obligation..............            (35)          (35)       2,763        2,994
     Unrecognized prior service cost.................            950         1,043        1,942        2,154
     Unrecognized actuarial (gain) or loss...........          4,795           (20)         483         (494)
                                                         ------------ ------------- ------------ ------------
   Prepaid (accrued) benefit cost....................    $     4,657  $      4,454  $    (7,106) $    (5,756)
                                                         ------------ ------------- ------------ ------------


   WEIGHTED AVERAGE ASSUMPTION AT DECEMBER 31:
   Discount rate.....................................          6.75%         7.25%         6.50%        6.50%
   Expected return on plan assets....................          8.50%        10.00%           --           --
   Rate of compensation increase.....................          4.00%         4.00%           --           --



     The  assumed  medical  benefit  cost  trend  rate  used  in  measuring  the
accumulated  postretirement  benefit obligation was 10.0% in 2002, 8.0% in 2001,
and 7.0% in 2000, declining gradually to 5.0% for all periods presented. For the
over 65 retirees and their spouses,  the assumed medical benefit cost trend rate
was 10.0% in 2002,  7.0% in 2001 and 6.5% in 2000,  declining  gradually to 5.0%
for all periods  presented.  The assumed  dental and vision  benefit  cost trend
rates used in measuring the accumulated  postretirement  benefit obligation were
5.8% in 2002, 6.0% in 2001, 2000,  declining  gradually to 5.0% for retirees and
their spouses.  The telephone  service  benefit cost trend rate for retirees and
their  spouses  in 2002,  2001,  and 2000 was  estimated  at 5.0% for all future
years.


                                      F-34


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 14 - PENSION PLANS AND OTHER RETIREMENT BENEFITS (CONTINUED)


                                                                                   

                                                      PENSION BENEFITS                  OTHER BENEFITS
                                              --------------------------------  -------------------------------
                                                 2002       2001       2000       2002       2001       2000
                                              ----------  ---------  ---------  ---------  ---------  ---------
                                                                       (IN THOUSANDS)
   COMPONENTS OF NET PERIODIC BENEFIT COST:
     Service cost.........................     $    476   $    390   $    343   $    584   $    359   $    163
     Interest cost........................        1,077      1,044      1,015        651        608        399
     Expected return on plan assets.......       (1,357)    (1,907)    (1,785)        --         --         --
     Amortization of transition obligation           --         --         --        230        230        230
     Amortization of prior service cost...           93         93         73        212        212         --
     Recognized net actuarial loss........            1        (22)       (50)        --       (100)      (128)
                                              ----------  ---------  ---------  ---------  ---------  ---------
       Net periodic benefit cost..........     $    290   $   (402)  $   (404)  $  1,677   $  1,309   $    664
                                              ==========  =========  =========  ========== =========  =========


     Assumed  health  care cost  trend  rates have a  significant  effect on the
amounts  reported for the health care plans.  A  one-percentage-point  change in
assumed  health  care cost trend  rates  would have the  following  effects  (in
thousands):



                                                                                  
                                                                      1-PERCENTAGE-     1-PERCENTAGE-
                                                                          POINT             POINT
                                                                        INCREASE          DECREASE
                                                                      -------------     -------------
                                                                               (IN THOUSANDS)
Effect on total of service and interest cost components.............    $       284       $     (222)
Effect on postretirement benefit obligation.........................          2,213           (1,844)



     Effective   January  1,  2001,   the  Company   merged  all  three  defined
contribution  plans into a new defined  contribution  plan covering all eligible
employees  of  the  Company  and  its   subsidiaries.   The  plan  provides  for
participants  to defer up to 19% of annual  compensation,  as defined  under the
plan,  as  contributions  to the  plan.  The  Company  matches  a  participant's
contribution  based on the subsidiary that employs the participant.  Horizon PCS
matches  50% of each  participant's  salary  deferral up to a maximum of 6% of a
participant's   compensation.   All  other   subsidiaries   match  25%  of  each
participant's  salary  deferral  up  to a  maximum  of  4%  of  a  participant's
compensation. The Company's contribution to this plan was approximately $486,000
for 2002 and  $425,000 for 2001,  and is included in general and  administrative
expenses in the consolidated  statements of operations.  Contributions under the
prior defined contribution plans for 2000 was approximately $203,000.

NOTE 15 - COMMITMENTS AND CONTINGENCIES

SPRINT 3G DEVELOPMENT FEES

     Recently,  Sprint increased service fees in connection with its development
of 3G-related  back-office systems and platforms.  Horizon PCS, along with other
PCS affiliates of Sprint, is currently  disputing the validity of Sprint's right
to pass  through  this  fee to the  affiliates.  If  this  dispute  is  resolved
unfavorably to Horizon PCS, then Horizon PCS will incur additional expenses.  As
of December  31, 2002,  Horizon PCS has not  recorded or paid amounts  billed by
Sprint for 3G development costs of approximately $591,000.

OPERATING LEASES

     The  Company  leases  office  space and  various  equipment  under  several
operating  leases.  In October 1999,  Horizon PCS signed a tower lease agreement
with a third  party  whereby it will lease the towers for  substantially  all of
Horizon PCS' cell sites.  The tower leases are  operating  leases with a term of
five to ten years with three consecutive five-year renewal option periods.


                                      F-35


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

     Horizon PCS also leases space for its retail stores.  At December 31, 2002,
Horizon  PCS  leased  43 of  its  44  retail  stores  operating  throughout  its
territories.

     Future minimum operating lease payments are as follows:

             YEAR                                            AMOUNT
             ----                                         -----------
             2003.......................................   18,646,000
             2004.......................................   16,799,000
             2005.......................................   13,571,000
             2006.......................................    8,419,000
             2007.......................................    3,440,000
             Thereafter.................................    7,027,000
                                                          -----------
             Future operating lease obligation..........  $67,902,000
                                                          ===========

     Rental expenses for all operating  leases were  approximately  $18,625,000,
$11,347,000 and $5,539,500 for the years ended December 31, 2002, 2001 and 2000,
respectively.

LEGAL MATTERS

     The  Company  is party to legal  claims  arising  in the  normal  course of
business.  Although the ultimate  outcome of the claims cannot be ascertained at
this time,  it is the opinion of  management  that none of these  matters,  when
resolved,  will have a  material  adverse  impact on the  Company's  results  of
operations or financial condition.

     On July 3, 2002 the Federal Communications Commission (the "FCC") issued an
order in Sprint v.  AT&T for  declaratory  judgment  holding  that PCS  wireless
carriers could not unilaterally  impose terminating long distance access charges
pursuant  to FCC  rules.  This  FCC  order  did  not  preclude  a  finding  of a
contractual  basis for these charges,  nor did it rule whether or not Sprint had
such a contract  with  carriers  such as AT&T.  This case has been remanded to a
U.S. District Court for further  proceedings.  Because the case is still pending
the Company cannot predict, with certainty, the final outcome of this action. As
a result,  the Company  recorded a reduction in revenue in the second quarter of
2002 of approximately $1.3 million representing previously billed and recognized
access revenue.  The Company plans to cease  recognition of this type of revenue
in future quarters,  unless there is ultimately a favorable ruling by the courts
or the FCC on this  issue.  Sprint  has  asserted  the  right to  recover  these
revenues  from the Company.  The Company will  continue to assess the ability of
Sprint  or  other  carriers  to  recover  these  charges.  The  Company  is also
continuing to review the  availability of defenses it may have against  Sprint's
claim to recover these revenues from the Company.


                                      F-36


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

NTELOS NETWORK AGREEMENT

     In August  1999,  the Company  entered  into a wholesale  network  services
agreement  with West  Virginia PCS  Alliance  and  Virginia  PCS  Alliance  (the
"Alliances"), two related, independent PCS providers whose network is managed by
NTELOS. Under the network services agreement,  the Alliances provide the Company
with the use of and access to key components of their network in most of Horizon
PCS' markets in Virginia and West Virginia. The initial term was through June 8,
2008, with four automatic ten-year renewals.

     This  agreement  was amended in the third  quarter of 2001 to provide for a
minimum  monthly fee to be paid by the Company  through  December 31, 2003.  The
minimum  monthly  fee  includes  a fixed  number  of  minutes  to be used by the
Company's  subscribers.  The Company  incurs  additional  per minute charges for
minutes used in excess of the fixed number of minutes  allotted each month.  The
aggregate  amount  of future  minimum  payments  through  December  31,  2003 is
$38,600,000.  Total costs incurred, for both fixed and variable charges from the
NTELOS agreement, were approximately $33,036,000 for the year ended December 31,
2002.

     On March 4, 2003,  NTELOS announced that it and certain of its subsidiaries
have filed voluntarily petitions for reorganization under Chapter 11 of the U.S.
Bankruptcy  Code in the  U.S.  Bankruptcy  Court  for the  Eastern  District  of
Virginia.  The results of NTELOS'  restructuring  could have a material  adverse
impact on our  operations.  Pursuant to bankruptcy  law, the Alliances  have the
right to assume or reject  the  network  services  agreement.  If the  Alliances
reject  the  network  services  agreement,  we will lose the  ability to provide
service to our  subscribers  in Virginia and West Virginia and will be in breach
of our management agreements with Sprint.

LONG-TERM DEBT COVENANTS

     As  discussed  in  Note 12  above,  Horizon  PCS  entered  into a  covenant
amendment  under its  secured  credit  facility  in June 2002.  In addition to a
number of changes to the secured credit  facility,  including an increase in the
margin on the base interest rate,  this  amendment  placed  restrictions  on the
Company's  ability  to draw on the  $95.0  million  line of credit  and  deposit
requirements on the $105.0 million term loan A borrowed under the secured credit
facility in March 2002. These amounts are summarized below.

     The following table details the maximum amount  available to be borrowed on
the line of credit for the period then ended:

                                                  MAXIMUM AMOUNT
                                                  AVAILABLE TO BE
                                                     BORROWED
                                                  ---------------
        December 31, 2002......................             --
        March 31, 2003.........................             --
        June 30, 2003..........................     16,000,000
        September 30, 2003.....................     26,000,000
        December 31, 2003......................     33,000,000
        March 31, 2004.........................     52,000,000
        April 1, 2004..........................     95,000,000


                                      F-37


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

     The following table details the minimum balance requirements placed on cash
and cash equivalents under the amended terms of the secured credit facility:

                                                      DEPOSIT BALANCE
                                                         REQUIREMENT
                                                      ----------------
December 31, 2002..............................           55,000,000
January 1, 2003, through February 15, 2003.....           33,000,000
February 16, 2003, through March 31, 2003......           11,000,000
April 1, 2003, through May 15, 2003............            5,500,000

NOTE 16 - CONVERTIBLE PREFERRED STOCK

     Horizon PCS has  authorized  175,000,000  shares of  convertible  preferred
stock at $0.0001 par value.  On  September  26, 2000,  an investor  group led by
Apollo Management purchased 23,476,683 shares of convertible preferred stock for
approximately $126,500,000 in a private placement offering.  Concurrent with the
closing,  holders of the $14,100,000  short-term  convertible note converted the
principal and unpaid  interest  into  2,610,554  shares of the same  convertible
preferred  stock  purchased by the investor  group.  Holders of the  convertible
preferred  stock have the option to convert  their  shares (on a share for share
basis)  into class A common  stock at any time.  In  addition,  the  convertible
preferred stock converts  automatically upon the completion of a public offering
of class A common stock  meeting  specified  criteria or upon the  occurrence of
certain business combination transactions.  The convertible preferred stock pays
a 7.5% stock dividend  semi-annually,  commencing  April 30, 2001. The dividends
are payable in additional  preferred stock.  Through December 31, 2002,  Horizon
PCS paid a cumulative  total  $23,412,886  of dividends in additional  shares of
convertible  preferred stock. At December 31, 2002, there were 30,432,329 shares
of convertible preferred stock outstanding.

     If Horizon PCS has not completed  either (i) a public offering of its class
A common  stock in which  Horizon PCS  receives at least  $50,000,000  or (ii) a
merger  or  consolidation  with a  publicly-listed  company  that  has a  market
capitalization  of at least  $100,000,000  by the fifth  anniversary of the date
Horizon PCS issued the  convertible  preferred  stock,  the  investor  group may
request  Horizon PCS  repurchase  all of their shares of  convertible  preferred
stock  at  fair  market  value,  as  determined  by  three  investment   banking
institutions.  If the  investor  group  requests  Horizon PCS  repurchase  their
convertible  preferred  stock and  Horizon  PCS  declines,  Horizon  PCS will be
required to auction  itself.  If no bona fide offer is received upon an auction,
the repurchase  right of the investor group expires.  If,  however,  a bona fide
offer is received upon the auction, Horizon PCS must sell itself or the dividend
rate on the  convertible  preferred  stock will  increase from 7.5% to 18.0% and
Horizon PCS will be required to re-auction itself annually until the convertible
preferred  stock is  repurchased.  Horizon PCS' secured credit  facility and the
discount  notes,   both  described  in  Note  12,  prohibit   Horizon  PCS  from
repurchasing  any convertible  preferred  stock.  Due to a mandatory  redemption
clause,  this stock is considered a mezzanine  financing and is recorded outside
of stockholders' equity (deficit).

     Holders of Horizon PCS' convertible preferred stock are entitled to vote on
all  matters  on an  as-converted  basis.  In  addition,  the vote of at least a
majority of the outstanding shares of convertible  preferred stock,  voting as a
single  class,  shall be  necessary  for  effecting  or  validating  significant
corporate actions specified in the certificate of incorporation.

     Horizon PCS has agreed that until the conversion of the preferred stock, it
will adhere to certain restrictive covenants. Among other restrictions, the most
significant  covenants relate to capital expenditures,  asset sales,  restricted
payments,  additional debt incurrence,  and equity issuance.  As of December 31,
2002, Horizon PCS was in compliance with the covenants under the agreement.


                                      F-38


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 17 - COMMON STOCK AND TREASURY STOCK

     In February  2000,  Horizon PCS purchased  78,900 shares of common stock of
the Company from the Company's largest unaffiliated shareholder for $11,835,000.
This  represented  approximately a 19.78%  interest in the Company.  Horizon PCS
exchanged  40% of the shares  owned  (31,912  shares) as  consideration  for the
acquisition of Bright PCS (Note 5). This transaction  reduced the treasury stock
to 11.78%.

     On September 26, 2000,  Horizon PCS distributed 10% of its 11.78% ownership
of the Company in the form of a dividend,  payable pro rata to the  shareholders
of  record  on  September  26,  2000.  This  transaction  resulted  in a gain of
approximately  $1,038,000,  as part of the stock was distributed to owners other
than the Company.

     During 2001,  Horizon PCS distributed its remaining 7,249 shares of Horizon
Telcom to members of  Horizon  PCS'  management  as an award.  As a result,  the
Horizon PCS recorded non-cash compensation expense of approximately  $725,000 in
the accompanying consolidated statements of operations.

NOTE 18 - SPRINT PCS WARRANTS

     Horizon PCS agreed to grant to Sprint warrants to acquire  2,510,460 shares
of Horizon  PCS' class A common  stock in exchange  for the right to service PCS
markets in additional  areas.  By September 30, 2000,  Sprint had  substantially
completed  its  obligations  under the  agreement  and Horizon PCS completed the
required purchase of certain Sprint assets.  Horizon PCS valued the warrants and
recorded an intangible asset of approximately  $13,356,000  (based on a price of
$5.88 per share, valued using the Black-Scholes  pricing model using an expected
dividend yield of 0.0%, a risk-free  interest rate of 6.5%,  expected life of 10
years and a volatility of 95%). The intangible asset is being amortized over the
remaining term of the Sprint  management  agreement  resulting in  approximately
$752,000 of amortization expense per year. The warrants will be issued to Sprint
PCS at the earlier of an initial public offering of Horizon PCS' common stock or
July 31, 2003.

NOTE 19 - STOCK OPTION PLANS

     In November 1999,  Horizon Telcom adopted the 1999 Stock Option Plan,  (the
"Plan"). The Plan is intended to provide directors, officers and other employees
of, and service  providers  to, the Company and any of its related  corporations
with  opportunities  to purchase  stock  pursuant to the grant of  incentive  or
nonqualified options.

     The  Company may grant  options  for up to 10,000  shares of class B common
stock.  The maximum term of the options is ten years.  Options vest based on the
terms of each individual  agreement,  currently over four years from the date of
the grant.

     In November 1999,  Horizon PCS adopted the 1999 Stock Option Plan which was
amended in June 2000 and renamed the 2000 Stock Option Plan (Horizon PCS' Plan).
Horizon PCS may grant  options for up to 7,500,000  shares of its class A common
stock and 4,196,883  shares of its class B common stock. The maximum term of the
options  is ten  years.  Options  vest  based on the  terms  of each  individual
agreement, currently over four or six years from the date of the grant.


                                      F-39


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 19 - STOCK OPTION PLANS (CONTINUED)

     A summary of the status of the Company's plans for the years ended December
31, 2002, 2001 and 2000, follows:



                                                                         

                                     HORIZON TELCOM                  HORIZON PCS
                                   --------------------  -------------------------------------------
                                              WEIGHTED              WEIGHTED               WEIGHTED
                                              AVERAGE               AVERAGE                AVERAGE
                                   CLASS B    EXERCISE   CLASS A    EXERCISE    CLASS B    EXERCISE
                                    OPTIONS    PRICE     OPTIONS     PRICE      OPTIONS     PRICE
                                   ---------  ---------  ---------  ---------   ---------  ---------
             December 31, 1999..       950       60.00         --         --    4,196,883       0.12
               Granted..........        --          --    116,971       5.88           --         --
               Exercised........      (123)      60.00         --         --           --         --
               Forfeited........        --          --         --         --           --         --
                                   ---------  ---------  ---------  ---------   ---------  ---------
             December 31, 2000..       827       60.00    116,971       5.88    4,196,883       0.12
               Granted..........        --          --         --         --           --         --
               Exercised........        --          --         --         --           --         --
               Forfeited........        --          --         --         --           --         --
                                   ---------  ---------  ---------  ---------   ---------  ---------
             December 31, 2001..       827     $ 60.00    116,971  $    5.88    4,196,883  $    0.12
               Granted..........        --          --    200,000       5.60           --         --
               Exercised........      (149)      60.00         --         --           --         --
               Forfeited........        --          --         --         --           --         --
                                   ---------  ---------  ---------  ---------   ---------  ---------
             December 31, 2002..       678       60.00    316,971       5.70    4,196,883       0.12
                                   =========  =========  =========  =========   =========  =========


     The  Company  applies  APB  Opinion  25  and  related   interpretations  in
accounting for the plans with respect to employees. The Company applies SFAS No.
123 and related  interpretations  in  accounting  for stock  options  granted to
non-employees.  Pursuant  to this,  the  Company  will  recognize  approximately
$2,180,000  in  compensation  expense  over the period of the  options  (through
2005). The accompanying  consolidated  financial  statements  reflect a non-cash
compensation  charge,  related  to the  stock  option  plans,  of  approximately
$413,000,  $424,000 and $674,000 for the years ended December 31, 2002, 2001 and
2000, respectively.

     The per share  weighted-average  fair value of stock options granted during
2002 and 2000 was $5.02 and $4.75 on the date of grant  using the Black  Scholes
option-pricing  model with the following  weighted-average  assumptions:  2002 -
expected dividend yield 0%, risk-free interest rate of 5%, volatility of 95% and
an  expected  life of 10 years;  2000 - expected  dividend  yield 0%,  risk-free
interest rate of 5.5%, volatility of 95% and an expected life of 10 years.



                                                                      
                                  OPTIONS OUTSTANDING                    OPTIONS EXERCISABLE
                        -------------------------------------------- -------------------------------
                                                        WEIGHTED
                                         WEIGHTED-       AVERAGE
                                         AVERAGE        REMAINING                       WEIGHTED-
         RANGE OF                        EXERCISE      CONTRACTUAL                       AVERAGE
       EXERCISE PRICE      NUMBER         PRICE           LIFE          NUMBER        EXERCISE PRICE
       ---------------- -------------- -------------- -------------- --------------  ---------------
            HPCS
       ---------------- -------------- -------------- -------------- --------------  ---------------
       $       0.12 (1)     4,196,883   $       0.12           5.88      2,804,648   $         0.12
       $5.60 - 5.88 (2)       316,971           5.70           8.58         51,175             5.88
                        -------------- -------------- -------------- --------------  ---------------
                            4,513,854   $       0.51           6.07      2,855,823             0.22
                        ============== ============== ============== ==============  ===============

             TELCOM
       ----------------
       $          60.00           678   $      60.00           6.88            499   $         60.00
                        ============== ============== ============== ==============  ===============

- ---------------------
(1)  Horizon PCS Class B common stock.
(2)  Horizon PCS Class A common stock.




                                      F-40


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 20 - EXTRAORDINARY LOSS

     As a result of the September 26, 2000,  financings  described earlier,  the
Company retired long-term debt payable to financial institutions. As a result of
this debt  extinguishment,  the Company expensed the unamortized  portion of the
related   financing   costs   as  well  as  fees   associated   with   the  debt
extinguishments.  These fees and  expenses  amounted to  approximately  $748,000
during 2000 and are shown on the consolidated  statements of operations net of a
tax benefit of approximately $262,000.

NOTE 21 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

     SFAS  No.  107  requires  disclosure  of the fair  value  of all  financial
instruments.  For  purposes  of this  disclosure,  the fair value of a financial
instrument is the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidation sale.
Fair  value  may be based  on  quoted  market  prices  for the  same or  similar
financial  instruments or on valuation  techniques  such as the present value of
estimated  future cash flows using a discount rate  commensurate  with the risks
involved.

     The  estimates  of fair  value  required  under SFAS No.  107  require  the
application of broad assumptions and estimates. Accordingly, any actual exchange
of such financial instruments could occur at values significantly different from
the  amounts  disclosed.  As cash and  cash  equivalents,  current  receivables,
current  payables and certain other  short-term  financial  instruments  are all
short term in  nature,  their  carrying  amounts  approximate  fair  value.  The
carrying  value of restricted  cash  approximates  fair value as the  investment
funds  are  short-term.  Investments  in  marketable  securities  classified  as
available-for-sale  are  recorded at fair value based on the market price of the
security at December 31, 2002.

     The secured  credit  facility is based on  variable,  market-driven  rates;
therefore,  its carrying value  approximates  fair value.  The senior notes were
issued in December 2001 and approximate  fair value as of December 31, 2002. The
fair values of the fixed-rate  2002 Senior Notes,  the 1998 Senior Notes and the
Horizon PCS senior notes and discount  notes,  set forth below,  were  estimated
using discounted cash flow analyses based on current incremental borrowing rates
for similar types of borrowing arrangements and current market prices.

                                            FAIR VALUE       RECORDED VALUE
                                            ----------       --------------
            December 31, 2002.........   $  68,500,000      $  403,300,000
            December 31, 2001.........     162,000,000         179,000,000

     In the first quarter of 2001,  Horizon PCS entered into a two-year interest
rate swap,  effectively  fixing  $25,000,000  of a term loan  under the  secured
credit  facility  (Note  12) at a rate of 9.4%.  In the third  quarter  of 2001,
Horizon PCS entered into another two-year interest rate swap, effectively fixing
the remaining  $25,000,000  borrowed under the secured credit facility at 7.65%.
The swaps have been  designated  as a hedge of a portion of the future  variable
interest  cash flows  expected  to be paid  under the  secured  credit  facility
borrowings.  A  gain  of  approximately  $443,000  and a loss  of  approximately
$838,000 was recorded in other comprehensive income (loss) during the year ended
December 31, 2002 and 2001, respectively.  The Company also recognized a loss in
the consolidated statements of operations of approximately $49,000 and $176,000,
during 2002 and 2001, respectively, related to the ineffectiveness of the hedge.
Other  comprehensive  income may fluctuate based on changes in the fair value of
the swap instrument. The Company has recorded a liability in accrued liabilities
in the accompanying  consolidated  balance sheets of approximately  $619,000 and
$1,014,000 at December 31, 2002, and 2001,  respectively,  related to the swaps.
The swaps mature in the first and third quarters of 2003.


                                      F-41


HORIZON TELCOM, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
As of December 31, 2002 and 2001
And for the Years Ended December 31, 2002, 2001 and 2000
- --------------------------------------------------------------------------------


NOTE 22 - SUPPLEMENTARY FINANCIAL INFORMATION (UNAUDITED)

     The quarterly  results of operations  for the years ended December 31, 2002
and 2001:



                                                                                         
                                                                       FOR THE THREE MONTHS ENDED
                                                 ------------------------------------------------------------------
                                                     MARCH 31         JUNE 30        SEPTEMBER 30     DECEMBER 31
                                                 ----------------  ---------------  ---------------  --------------
                                                          (Dollars in thousands except per share data)
Fiscal Year 2002:
Total revenues.............................      $    59,408       $    65,272     $    68,190        $   71,837
Operating loss.............................          (23,282)          (24,456)        (23,928)          (41,071)
Impairment of goodwill and impact of
    acquisition-related deferred taxes.....               --                --              --           (13,222)
Net loss...................................          (39,093)          (43,621)        (43,164)          (60,222)
Basic and diluted net loss per share.......      $   (107.89)      $   (120.36)        (119.08)       $  (166.15)

Fiscal Year 2001:
Total revenues.............................      $    30,633       $    35,755     $    47,364        $   56,388
Operating loss.............................          (13,660)          (20,051)        (21,181)          (27,798)
Net loss...................................          (19,751)          (28,724)        (30,471)          (39,875)
Basic and diluted net loss per share ......      $    (55.62)      $    (79.28)    $    (84.10)       $  (110.59)






                                      F-42


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