LYNCH INTERACTIVE CORP
10-Q, 2000-11-14
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                        SECURITIES & EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
(Mark One)

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

For the quarterly period ended September 30, 2000
                               ------------------

                                       or

[ ]  TRANSITION  REPORT  PURSUANT  TO SECTION  13 OF 15(D) OF THE  SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from            to
                               ----------    ----------

Commission File No.     1-15097
                   -------------------


                          LYNCH INTERACTIVE CORPORATION
--------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)


              Delaware                                       06-1458056
State  or  other  jurisdiction  of                       (I.R.S.  Employer
incorporation or organization)                           Identification No.)


401 Theodore Fremd Avenue, Rye, New York                       10580
--------------------------------------------------------------------------------
(Address of principal executive offices)                    (Zip Code)


                                 (914) 921-8821
                                 --------------
               Registrant's telephone number, including area code


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 the number of shares outstanding of each of the Registrant's classes of
Common Stock, as of the latest practical date.


           Class                                Outstanding at October 31, 2000
           -----                                -------------------------------
Common Stock, $.0001 par value                             2,821,766



<PAGE>





                                      INDEX

                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES

PART I.     FINANCIAL INFORMATION


Item 1.  Financial Statements (Unaudited)

Condensed Balance Sheets
  -      September 30, 2000
  -      December 31, 1999

Condensed Statements of Operations:
  -      Three and nine months ended September 30, 2000 and 1999

Condensed Statements of Cash Flows:
  -      Nine months ended September 30, 2000 and 1999

Notes to Condensed Financial Statements


Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

Item 3.  Quantitative and Qualitative Disclosure About Market Risk


PART II.    OTHER INFORMATION

Item 5.  Other Information

Item 6.  Exhibits and Reports on Form 8-K

SIGNATURE

Part 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements


<PAGE>
<TABLE>




                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIAIRES
                            CONDENSED BALANCE SHEETS
                                 (In thousands)
<CAPTION>                                                                  September 30,  December 31,
                                                                               2000           1999
                                                                           ------------   ------------
                                                                           (Unaudited)       (Note)
CURRENT ASSETS:
<S>                                                                          <C>          <C>
    Cash and cash equivalents ............................................   $  33,535    $  31,354
    Marketable securities ................................................       2,108        1,587
    Receivables, less allowances of $293 and $415 ........................      17,894       16,875
    Deferred income taxes ................................................       3,404        3,404
    Other current assets .................................................       7,556        7,573
                                                                             ---------    ---------
TOTAL CURRENT ASSETS .....................................................      64,497       60,793

PROPERTY, PLANT AND EQUIPMENT:
    Land .................................................................       1,348        1,347
    Buildings and improvements ...........................................      10,612       10,522
    Machinery and equipment ..............................................     152,338      142,558
                                                                             ---------    ---------
                                                                               164,298      154,427
    Accumulated Depreciation .............................................     (67,121)     (58,497)
                                                                             ---------    ---------
                                                                                97,177       95,930

EXCESS OF COST OVER FAIR VALUE OF NET ASSETS .............................      59,522       62,845
   ACQUIRED, NET
INVESTMENTS IN AND ADVANCES TO AFFILIATED ENTITIES .......................       6,579        9,479
INVESTMENT IN SPINNAKER INDUSTRIES INC ...................................       9,000       11,875
OTHER ASSETS .............................................................      12,458       13,047
                                                                             ---------    ---------
TOTAL ASSETS .............................................................   $ 249,233    $ 253,969
                                                                             =========    =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
    Notes payable to banks ...............................................   $   4,020    $   3,271
    Trade accounts payable ...............................................       4,052        4,465
    Accrued interest payable .............................................         829          805
    Accrued liabilities ..................................................      20,014       21,751
    Customer advances ....................................................       1,779        1,974
    Current maturities of long-term debt .................................      15,427       16,445
                                                                             ---------    ---------
TOTAL CURRENT LIABILITIES ................................................      46,121       48,711

LONG-TERM DEBT ...........................................................     147,054      149,256
DEFERRED INCOME TAXES ....................................................      11,997       13,220
OTHER LIABILITIES ........................................................       5,179        5,817
MINORITY INTERESTS .......................................................      10,482       10,054

SHAREHOLDERS' EQUITY
   COMMON STOCK, $0.0001 PAR VALUE-10,000,000 SHARES
   AUTHORIZED; 2,824,766 issued (at stated value) ........................           0            0
    ADDITIONAL PAID - IN CAPITAL .........................................      21,404       21,404
    RETAINED EARNINGS (ACCUMULATED DEFICIT) ..............................       3,172       (1,713)
    ACCUMULATED OTHER COMPREHENSIVE INCOME ...............................       3,971        7,240
    TREASURY STOCK, 3,000 AND 400 SHARES AT COST .........................        (147)         (20)
                                                                             ---------    ---------

   TOTAL SHAREHOLDERS' EQUITY ............................................      28,400    $  26,911
                                                                             ---------    ---------
 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..............................   $ 249,233    $ 253,969
                                                                             =========    =========
<FN>
  Note: The balance sheet at December 31, 1999 has been derived from the audited
  financial statements at that date, but does not include all of the information
  and  footnotes  required  by  generally  accepted  accounting  principles  for
  complete financial statements.
</FN>

See accompanying notes.
</TABLE>


<PAGE>

<TABLE>
                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                       CONDENSED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
                    (In thousands, except per share amounts)

<CAPTION>
                                                       Three Months Ended             Nine Months Ended
                                                          September 30,                 September 30,
                                                   ---------------------------   --------------------------
                                                       2000           1999           2000          1999
                                                   ------------  -------------   ------------  ------------
SALES AND REVENUES
<S>                                                 <C>            <C>            <C>            <C>
Multimedia ......................................   $    17,899    $    15,513    $    49,489    $    42,855
Services ........................................        28,164         37,312         85,992        112,907
                                                    -----------    -----------    -----------    -----------
                                                    $    46,063    $    52,825    $   135,481    $   155,762
Costs and expenses:
Multimedia ......................................        12,302         10,610         34,877         29,779
Services ........................................        25,009         34,627         78,990        104,123
Selling and administrative ......................         3,872          3,019         10,133          9,467
                                                    -----------    -----------    -----------    -----------
OPERATING PROFIT ................................         4,880          4,569         11,481         12,393

Other income (expense):
  Investment income .............................         1,014            682          2,751          1,716
  Interest expense ..............................        (3,281)        (2,874)        (9,740)        (8,121)
  Equity in earnings of affiliated companies ....           195             44          1,464            147
  Gain on redemption of East/West preferred stock             0              0          4,125              0
  Reserve for impairment of investment in
    PCS license holders .........................             0              0              0        (15,406)
                                                    -----------    -----------    -----------    -----------
                                                         (2,072)        (2,148)        (1,400)       (21,664)
                                                    -----------    -----------    -----------    -----------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY
 INTERESTS AND EXTRAORDINARY ITEM ...............         2,808          2,421         10,081         (9,271)

(Provision) benefit for income taxes ............        (1,343)        (1,166)        (4,768)         2,600
Minority Interests ..............................          (265)          (185)          (428)          (616)
                                                    -----------    -----------    -----------    -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM .........   $     1,200    $     1,070    $     4,885    ($    7,287)
                                                    -----------    -----------    -----------    -----------
LOSS FROM EARLY EXTINGUISHMENT OF DEBT,
NET OF INCOME TAX BENEFIT OF $105 ...............             0              0              0           (160)
                                                    -----------    -----------    -----------    -----------
NET INCOME (LOSS) ...............................   $     1,200    $     1,070    $     4,885    ($    7,447)
                                                    ===========    ===========    ===========    ===========

Basic weighted average shares ...................     2,823,000      2,824,000      2,824,000      2,830,000

Diluted weighted average shares .................     3,411,000      2,824,000      3,412,000      2,830,000

BASIC EARNINGS PER SHARE

INCOME (LOSS) BEFORE EXTRAORDINARY ITEM .........   $      0.43    $      0.38    $      1.73    ($     2.57)
EXTRAORDINARY ITEM ..............................             0              0              0          (0.06)
                                                     -----------    -----------    -----------   -----------
NET INCOME (LOSS) ...............................   $      0.43    $      0.38    $      1.73    ($     2.63)
                                                    ===========    ===========    ===========    ===========

DILUTED EARNINGS PER SHARE
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM .........   $      0.42    $      0.38    $      1.65    ($     2.57)
EXTRAORDINARY ITEM ..............................             0              0              0          (0.06)
                                                    -----------    -----------    -----------    -----------    -----------
NET INCOME (LOSS) ...............................   $      0.42    $      0.38    $      1.65    ($     2.63)
                                                    ===========    ===========    ===========    ===========
See accompanying notes
</TABLE>


<PAGE>

<TABLE>


                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (In thousands)
<CAPTION>

                                                                          Nine Months Ended
                                                                            September 30,
                                                                          2000        1999
                                                                        ---------   ---------
OPERATING ACTIVITIES
<S>                                                                     <C>         <C>
Net Income (loss) ...................................................   $  4,885    ($ 7,447)
Adjustments to reconcile net income (loss) to net cash provided by
   operating activities:
   Depreciation and amortization ....................................     12,537      11,231
   Net effect of purchases and sales of trading securities ..........       (521)       (621)
   Deferred income taxes ............................................          0      (5,238)
   Share of operations of affiliated companies ......................     (1,464)       (147)
   Gain on redemption of East/West preferred stock ..................     (4,125)          0
   Gain on sale of available-for-sale securities ....................       (770)          0
   Minority interests ...............................................        428         616
   Reserve for impairment of PCS licenses ...........................          0      15,406
   Changes in operating assets and liabilities:
        Receivables .................................................     (1,019)       (324)
        Accounts payable and accrued liabilities ....................     (3,177)       (914)
        Other .......................................................         11         578
                                                                        --------    --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ...........................      6,785      13,140
                                                                        --------    --------
INVESTING ACTIVITIES
Capital Expenditures ................................................    (11,664)     (8,171)
Investment in and advances to wireless telecommunications affiliates      (1,651)          0
Proceeds from redemption of East/West preferred stock ...............      8,712           0
Acquisition of Central Scott Telephone Company - net of cash acquired          0     (25,414)
Proceeds from sale of available-for-sale securities .................      1,294           0
Other ...............................................................      1,293      (1,507)
                                                                        --------    --------
NET CASH USED IN INVESTING ACTIVITIES ...............................     (2,016)    (35,092)
                                                                        --------    --------
FINANCING ACTIVITIES
(Repayments) issuance of long term debt .............................     (3,220)     14,551
Net borrowings, lines of credit .....................................        749      15,552
Treasury stock transactions .........................................       (127)          0
Advances to Lynch Corporation .......................................          0     (15,987)
Other ...............................................................         10         971
                                                                        --------    --------
NET CASH  (USED IN) PROVIDED BY FINANCING ACTIVITIES ................     (2,588)     15,087
                                                                        --------    --------
Net increase (decrease) in cash and cash equivalents ................      2,181      (6,865)
Cash and cash equivalents at beginning of period ....................     31,354      27,988
                                                                        --------    --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..........................   $ 33,535    $ 21,123
                                                                        ========    ========

See accompanying notes.
</TABLE>

<PAGE>




                     NOTES TO CONDENSED FINANCIAL STATEMENTS

A.   Subsidiaries of the Registrant

As of September 30, 2000, the Subsidiaries of the Registrant are as follows:

<TABLE>
<CAPTION>
Subsidiary                                         Owned by Lynch
----------                                         --------------
<S>                                                  <C>
Brighton Communications Corporation ............     100.0%
  Lynch Telephone Corporation IV ...............     100.0%
    Bretton Woods Telephone Company ............     100.0%
    World Surfer, Inc. .........................     100.0%
  Lynch Kansas Telephone Corporation ...........     100.0%
  Lynch Telephone Corporation VI ...............      98.0%
    JBN Telephone Company, Inc. ................      98.0%
      JBN Finance Corporation ..................      98.0%
    Giant Communications, Inc. .................     100.0%
    Lynch Telephone Corporation VII ............     100.0%
      USTC Kansas, Inc. ........................     100.0%
       Haviland Telephone Company, Inc. ........     100.0%
        Haviland Finance Corporation ...........     100.0%
  DFT Communications Corporation ...............     100.0%
    Dunkirk & Fredonia Telephone Company .......     100.0%
      Cassadaga Telephone Company ..............     100.0%
        Macom, Inc. ............................     100.0%
      Comantel, Inc. ...........................     100.0%
        Erie Shore Communications, Inc. ........     100.0%
        D&F Cellular Telephone, Inc. ...........     100.0%
    DFT Long Distance Corporation ..............     100.0%
    DFT Local Service Corporation ..............     100.0%
  LMT Holding Corporation ......................     100.0%
    Lynch Michigan Telephone Holding Corporation     100.0%
        Upper Peninsula Telephone Company ......     100.0%
        Alpha Enterprises Limited ..............     100.0%
          Upper Peninsula Cellular North, Inc. .     100.0%
          Upper Peninsula Cellular South, Inc. .     100.0%
  Lynch Telephone Corporation IX ...............     100.0%
    Central Scott Telephone Company ............     100.0%
        CST Communications Inc. ................     100.0%
  Lynch Telephone Corporation X ................     100.0%
  Global Television, Inc. ......................     100.0%
  Inter-Community Acquisition Corporation ......     100.0%
  Home Transport Service, Inc. .................     100.0%

  Lynch Capital Corporation ....................     100.0%

  Lynch Entertainment, LLC .....................     100.0%
  Lynch Entertainment Corporation II ...........     100.0%

  Lynch Multimedia Corporation .................     100.0%
    CLR Video, LLC .............................      60.0%
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

Subsidiary                                                Owned by Lynch
----------                                                 --------------
<S>                                                       <C>
The Morgan Group, Inc. ................................   70.0%(V)/55.4%(O)
Morgan Drive Away, Inc. ...............................   70.0%(V)/55.4%(O)
    Transport Services Unlimited, Inc. ................   70.0%(V)/55.4%(O)
  Interstate Indemnity Company ........................   70.0%(V)/55.4%(O)
  Morgan Finance, Inc. ................................   70.0%(V)/55.4%(O)
  TDI, Inc. ...........................................   70.0%(V)/55.4%(O)
    Home Transport Corporation ........................   70.0%(V)/55.4%(O)
    MDA Corporation ...................................   70.0%(V)/55.4%(O)

Lynch PCS Communications Corporation ..................   100.0%
  Lynch PCS Corporation A .............................   100.0%
  Lynch PCS Corporation F .............................   100.0%
  Lynch PCS Corporation G .............................   100.0%
  Lynch PCS Corporation H .............................   100.0%
  Lynch Paging Corporation ............................   100.0%

Lynch Telecommunications Corporation ..................   100.0%
  Lynch Telephone Corporation .........................    83.1%
    Western New Mexico Telephone Company, Inc. ........    83.1%
    Interactive Networks Corporation ..................    83.1%
    WNM Communications Corporation ....................    83.1%
    Wescel Cellular, Inc. .............................    83.1%
      Wescel Cellular of New Mexico, L.P. .............    42.4%
    Wescel Cellular, Inc. II ..........................    83.1%
      Northwest New Mexico Cellular, Inc. .............    40.6%
      Northwest New Mexico Cellular of New Mexico, L.P.    20.7%
        Enchantment Cable Corporation .................    83.1%
Lynch Telephone II, LLC ...............................   100.0%
   Inter-Community Telephone Company, LLC .............   100.0%
     Inter-Community Telephone Company II, LLC ........   100.0%
   Valley Communications, Inc. ........................   100.0%
Lynch Telephone Corporation III .......................    81.0%
   Cuba City Telephone Exchange Company ...............    81.0%
   Belmont Telephone Company ..........................    81.0%
<FN>
 Notes: (V)=Percentage voting control; (O)=Percentage of equity ownership
</FN>
</TABLE>


<PAGE>


B.     Organization

On August  12,  1999,  the Board of  Directors  of Lynch  Corporation  ("Lynch")
approved in principle the spin-off to its  shareholders  of its  multimedia  and
services businesses as an independent  publicly traded company (the "Spin-off").
The multimedia and services  businesses and the  independently  publicly  traded
company to which the assets and  liabilities  were  contributed  are hereinafter
referred to as Lynch Interactive Corporation (the "Company," "Lynch Interactive"
or "Interactive"). Prior to and contemporaneous with the Spin-Off, certain legal
and  regulatory  actions  were  taken to  perfect  the  existence  of the  above
mentioned  affiliated  multimedia and service companies as subsidiaries of Lynch
Interactive.  The Spin-Off occurred on September 1, 1999. At the Spin-Off, Lynch
distributed  100  percent  of the  outstanding  shares  of  common  stock of its
wholly-owned  subsidiary,  Interactive,  to holders of record of Lynch's  common
stock as of the close of business on August 23, 1999.  As part of the  Spin-Off,
Interactive received one million shares of common stock of Spinnaker Industries,
Inc.  representing  an  approximate  13.6%  equity  ownership  interest  (and an
approximate  2.5% voting  interest) and Lynch  Interactive  also assumed certain
short-term and long-term debt  obligations of Lynch.  Net assets  contributed by
Lynch,  were  estimated  to be  approximately  $23  million  at the  date of the
Spin-Off.  Such amount was subsequently  decreased in the fourth quarter by $1.6
million to reflect a revision in the allocation of certain liabilities. Prior to
the spin-off,  Interactive  succeeded to the credit  facilities  established  by
Lynch.

In April 1999,  Lynch received an Internal Revenue Service private letter ruling
that the  distribution  to its  shareholders  of the stock of Lynch  Interactive
qualifies  as  tax-free  for  Lynch and its  shareholders.  In  connection  with
obtaining  the  rulings  from the  Internal  Revenue  Service  ("IRS") as to the
tax-free nature of the Spin Off, Lynch made certain  representations to the IRS,
which include, among other things,  certain  representations as to how Lynch and
Interactive intend to conduct their businesses in the future.

C.    Basis of Presentation

As of  September  30, 2000 and  December  31,  1999,  and for the three and nine
months ended September 30, 2000, the accompanying financial statements represent
the  consolidated  accounts of Interactive.  For the three and nine months ended
September  30, 1999,  the  financial  statements  have been  prepared  using the
historical basis of assets and liabilities and historical  results of operations
of the  multimedia  and services  businesses  and other assets and  liabilities,
which were  contributed to Interactive.  However,  for the three and nine months
periods ended September 30, 1999, financial information reflects a period during
which  the  Company  did not  operate  as an  independent  public  company  and,
accordingly,   certain   assumptions  were  made  in  preparing  such  financial
information.  Such  information,  therefore,  may not  necessarily  reflect  the
results of operations,  financial  condition or cash flows of the Company in the
future or what they would have been had the Company been an  independent  public
company during the reporting periods.

Investments  in affiliates in which the Company does not have a majority  voting
control are  accounted for in accordance  with the equity  method.  All material
intercompany  transactions  and  balances  have  been  eliminated.  The  Company
consolidates  the  operating  results  of its  telephone  and  cable  television
subsidiaries  (60-100%  owned  December 31, 1999 and September 30, 2000) and The
Morgan Group, Inc. ("Morgan"),  in which, at December 31, 1999 and September 30,
2000,  the Company  owned 70.0% of the voting power and 55.4% of common  equity.
The Company accounts for the following  affiliated companies on the equity basis
of accounting:  Coronet  Communications  Company (20% owned at December 31, 1999
and September  30, 2000),  Capital  Communications  Company,  Inc. (49% owned at
December 31, 1999 and  September  30,  2000),  Fortunet  Communications,  L.L.P.
(49.9%  owned at December 31, 1999 and  September  30,  2000),  and the cellular
partnership operations in New Mexico (17% to 21% owned at December and September
30, 2000).
<PAGE>

The shares of Spinnaker Industries,  Inc., in which the company owns 2.5% of the
voting power and 13.6% of the common  equity,  are  accounted  for in accordance
with Statements of Financial  Accounting Standards (SFAS) No. 115 "Investment in
Debt and Equity Securities."

Lynch had historically  provided  substantial  support services such as finance,
cash management,  legal and human resources to its various business units. Lynch
allocated the cost for these services among the business units  supported  based
principally on informal  estimates of time spent by the corporate office on both
Interactive  and Lynch  matters.  In the  opinion of  management,  the method of
allocating  these  costs is  reasonable;  however,  the costs of these  services
allocated to the Company are not necessarily  indicative of the costs that would
have been incurred by Interactive on a stand-alone basis.

At the Spin Off, the  employees  of the  corporate  office of Lynch  Corporation
became  employees of the Registrant and the Registrant  began providing  certain
corporate  management  services  to  Lynch  Corporation,   which  is  charged  a
management fee for these services.  This charge was $60,000 and $240,000 for the
three and nine months ended September 30, 2000, respectively.

Lynch  Interactive  and Lynch have  entered into  certain  agreements  governing
various ongoing relationships, including the provision of support services and a
tax  allocation  agreement.  The  tax  allocation  agreement  provides  for  the
allocation of tax  attributes  to each company as if it had actually  filed with
the respective tax authority.

The accompanying  unaudited condensed financial statements have been prepared in
accordance with generally accepted  accounting  principles for interim financial
information  and with the  instructions  to Form 10-Q and  Articles 10 and 11 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial  statements.  In  the  opinion  of  the  management,  all  adjustments
(consisting  of  normal  recurring  accruals)  considered  necessary  for a fair
presentation  have been  included.  Operating  results for the  three-month  and
nine-month period ended September 30, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000.

D.   Accounting and Reporting Policies

Securities and Exchange  Commission's  Staff Accounting  Bulletin  101summarizes
certain  of  the  staff's  views  in  applying  generally  accepted   accounting
principles to revenue recognition in the financial statements. The Registrant is
currently  assessing  the  impact,  if any,  that SAB will  have on its  revenue
recognition policy when it is adopted in the fourth quarter of 2000.

E.    Acquisitions

On  July  16,  1999,  Lynch  Telephone  Corporation  IX,  a  subsidiary  of  the
Registrant,  acquired  by merger,  all of the stock of Central  Scott  Telephone
Company  for  approximately   $28.4  million  in  cash.  As  a  result  of  this
transaction,  the Registrant  recorded  approximately $17.0 million in goodwill,
which is being  amortized over 25 years.  In 2000, the Registrant  finalized the
accounting  for  its  acquisition  of  Central  Scott  Telephone  Company.  This
finalization  increased other assets by $1.4 million,  increased deferred income
tax liability by $1.1 million, reduced accumulated other comprehensive income by
$0.6 million, net of taxes, and decreased goodwill by $0.9 million.

The above  acquisition  was accounted for as a purchase,  and  accordingly,  the
assets  acquired and  liabilities  assumed were recorded at their estimated fair
market values.

<PAGE>

The operating  results of the acquired company are included in the Statements of
Operations  from  its  acquisition  date.  The  following  unaudited  pro  forma
information  shows the  results  of the  Registrant's  operations  as though the
acquisition of Central Scott was made at the beginning of 1999. (In Thousands of
Dollars, except per share data.)
<TABLE>
<CAPTION>
                                               Three Months Ended      Nine Months Ended
                                                   September 30,          September 30,
                                                 2000        1999      2000         1999
                                                 ----------------      ------------------
<S>                                              <C>       <C>         <C>        <C>
Sales and Revenues ........................      46,063    53,420      135,481    158,139
Net Income (loss) before Extraordinary Item       1,200       900        4,885     (7,765)
Basic Earnings (loss) per share ...........         .43       .32         1.73      (2.74)
Diluted Earnings (loss) per share .........         .42       .32         1.65      (2.74)
</TABLE>

On October 15, 2000, the Registrant  signed an agreement to acquire Central Utah
Telephone, Inc. and subsidiaries,  a 4,100-access line telephone company located
in Utah. Central Utah also has a contract to acquire certain telephone exchanges
from Qwest  Communications  International  Inc.  involving  approximately  3,300
access lines. The Registrant has also agreed to acquire Central Telcom Services,
LLC, a related  entity,  which has certain PCS and MMDS  interests and Internet,
long distant and telephone equipment businesses.  The aggregate purchase prices,
including debt assumed,  is roughly  comparable to the Registrant's  most recent
telephone  acquisitions  and is expected to be  financed  primarily  through the
issuance of additional  debt and the remaining  coming from resources  currently
available.  The  closing of the  transactions,  which are  expected in the first
quarter of 2000,  are  subject  to certain  conditions  including  approvals  by
certain  regulatory  authorities,  as is the  acquisition by Central Utah of the
Qwest exchanges.

F.   Investment in and Advances to Affiliates Entities

During 2000, a subsidiary of the Registrant made  investments in and advances to
three  separate  49.9% owned  entities.  The funds were used as part of deposits
that were made to Federal  Communications  Commission  by these  entities  to be
eligible to bid in auctions  for  spectrum to be used in wireless  applications.
The results of the auctions were that the entities were high bidders in licenses
with a net cost of $7.8 million,  $2.8 million of which has been funded  through
September 30, 2000.

The Registrant has investments in two cellular  telephone  partnerships.  During
the three  months  ended June 30,  2000,  these  partnerships  sold the cellular
towers. As a result of this sale,  Interactive recognized a gain of $0.7 million
prior to tax a  minority  interest  affects,  which is  reflected  in equity and
earnings.

G.   Indebtedness

On a  consolidated  basis,  at September  30, 2000,  the  Registrant  maintained
short-term  lines of credit  facilities  totaling $30.0 million,  of which $11.8
million  was  available.  The  parent  company  of the  Registrant  maintains  a
short-term  line of credit  facility  totaling $10.0  million,  all of which was
available at September 30, 2000. During the quarter ended September 30, 2000, an
additional  $10.0 million  facility  expired.  The parent company  facility will
expire on August 31,  2001.  The  Morgan  Group  maintains  a line and letter of
credit facility  totaling $20.0 million,  of which $1.8 million was available at
September 30, 2000 due to borrowing base  considerations and outstanding letters
of credit.  The Morgan Group  facility  expires on January 28, 2001. In general,
the credit  facilities  are secured by  receivables  and common stock of certain
subsidiaries  and  affiliates,  in  addition,  certain  covenants  of the Morgan
facility restricts distributions.

<PAGE>

Morgan  experienced  a shortfall  in the level of cash flow  required  under its
credit facility at September 30, 2000 and is projecting that it will continue to
be in violation of the cash flow and of other  covenants in the fourth  quarter.
Morgan  received a waiver on November 10, 2000 of its shortfall  through October
from its lender.

Morgan recently  reduced its letters of credit required to $6,600,000.  Although
the waiver reduced the credit  facility to $7,600,000,  Morgan believes that the
reduced  capacity is  sufficiently  sized relative to its current  requirements.
Additionally, the waiver prohibits a cash dividend in the fourth quarter. Morgan
and its  lenders  are in  discussions  and  Morgan  believes  it will be able to
restructure or replace the facility before its January 28, 2001 maturity.

<TABLE>
<CAPTION>
Long-term debt consists of:                                                         September 30,      December 31,
                                                                                        2000                1999
                                                                                    -------------      ------------
                                                                                              (In thousands)
<S>                                                                                  <C>                <C>
Rural Electrification  Administration (REA) and Rural Telephone Bank (RTB) notes
payable  through  2027 at fixed  interest  rates  ranging  from 2% to 7.5% (4.9%
weighted average at September 30, 2000 and 4.8% at December 31, 1999), secured
by assets of the telephone companies of $113.9 million                                   $50,632            $48,892

Bank Credit  facilities  utilized by certain  telephone  and  telephone  holding
companies  through 2009,  $43.6 million at fixed interest  rates  averaging 8.2%
($46.9  million  averaging  8.2% at  December  31,  1999) and $12.9  million  at
variable interest rates averaging 8.3% ($13.8 million averaging 8.1% at
December 31, 1999)                                                                        56,554             60,740

Unsecured notes issued in connection with acquisitions  through 2006, at fixed
interest rates of 10.0%                                                                   27,358             27,654

Convertible  subordinated  note due in December 2004 at a fixed  interest rate            25,000             25,000
of 6%
Other                                                                                      2,937              3,415
                                                                                        --------          ---------
                                                                                         162,481            165,701
Current Maturities                                                                       (15,427)           (16,445)
                                                                                       ---------          ---------
                                                                                        $147,054           $149,256
                                                                                       =========          =========
</TABLE>

H.       Morgan Credit Risk

With  the  severe  downturn  in  the  Manufactured  Housing  industry,  Morgan's
management  is  continually  reviewing  credit  worthiness  of its customers and
taking  appropriate  steps to  ensure  the  quality  of the  receivables.  As of
September 30, 2000, $3.6 million of its open trade accounts  receivable was with
two manufactured housing customers,  of which 97% was within 45 days of invoice.
In total,  $9.9 million of the open trade receivables are also within 45 days of
invoice.  If either of the two major customers would  significantly  delay their
payments, it will have a negative impact on Morgan's cash flow.

I.       Comprehensive Income

Balances of accumulated other  comprehensive  income, net of tax, which consists
of unrealized  gains (losses) on available for sale of securities,  at September
30, 2000 and December 31, 1999 are as follows (in thousands):
<PAGE>
<TABLE>

<S>                                            <C>
Balance at December 31, 1999 ................   $ 7,240
Adjustment relating to acquisition accounting      (566)
Reclassification adjustment .................      (454)
Current year unrealized losses ..............    (2,249)
                                                -------
    Balance at September 30, 2000                $3,971
                                                =======
</TABLE>

The comprehensive income (loss), for the three and nine months periods ending in
September 30, 2000 and 1999 is as follows (in thousands):
<TABLE>
<CAPTION>

                                                               Three Months Ended
                                                                  September 30,
                                                                 2000       1999
                                                                -----------------
<S>                                                              <C>        <C>
Net income for the period ....................................   $ 1,200    $ 1,070
Unrealized  gains (losses) on available for
 sale  securities - net of income tax benefit
 (provision) of $342 and $(1,340), respectively ..............      (486)     1,850
Reclassification adjustment - net of income tax benefit of $12       (18)      --
                                                                 -------    -------
    Comprehensive income .....................................   $   696    $ 2,920
                                                                 =======    =======
</TABLE>


<TABLE>
<CAPTION>
                                                                  Nine Months Ended
                                                                    September 30,
                                                                   2000     1999
                                                                  ---------------
<S>                                                               <C>        <C>
Net income (loss) for the period ..............................   $ 4,885    $(7,447)
Unrealized  losses on  available  for sale
 securities  - net of income  tax benefits
 of $1,614 and $387, respectively .............................    (2,249)      (535)
Reclassification adjustment - net of income tax benefit of $316      (454)      --
                                                                  -------    -------
    Comprehensive income (loss) ...............................   $ 2,182    $(7,982)
                                                                  =======    =======
</TABLE>

J.       Principal Executive Bonus Plan

At the Registrant's Annual Meeting on May 11, 2000, the shareholders  approved a
Principal  Executive  Bonus Plan.  $0.1  million and $0.4 million of expense was
recognized  in  accordance  with this plan for the three  months and nine months
ended September 30, 2000.

K.       Stock Split

A  two-for-one   stock  split,  was  affected  through  a  distribution  to  its
shareholders of one share of Registrant's  Common Stock for each share of Common
Stock owned. The record date was August 28, 2000, and the distribution  date was
September 11, 2000.

Share and per share data in the accompanying financial statements and notes have
been adjusted to reflect this change.

<PAGE>

L.       Earnings per share

For the three and nine months ended  September 30, 1999, the following table (in
thousands,  except for per share data) sets forth the  computation  of pro forma
basic and diluted earnings (loss) per share. Pro forma earnings (loss) per share
for these periods are calculated  assuming that the shares  outstanding  for the
period prior to the  Spin-Off,  September  1, 1999,  were the same as the shares
outstanding for Lynch Corporation and, subsequent to the Spin-Off,  based on the
actual average  weighted number of shares and share  equivalents  outstanding of
the  Registrant.  On December 13, 1999, the  Registrant  issued a $25 million 6%
convertible  promissory note,  convertible into the Registrant's common stock at
$42.50 per share.
<TABLE>
<CAPTION>
                                                Three Months Ended     Nine Months Ended
                                                   September 30,          September 30,
                                                 2000       1999       2000        1999
                                                -------    -------    ------     --------
Basic earnings per share

Numerators:
<S>                                             <C>       <C>       <C>       <C>
      Income (loss) before extraordinary item   $ 1,200   $ 1,070   $ 4,885   $(7,287)
      Extraordinary item ....................      --        --        --        (160)
                                                -------   -------   -------   -------
      Net Income (loss) .....................   $ 1,200   $ 1,070   $ 4,885   $(7,447)
                                                =======   =======   =======   =======
Denominator:
      Weighted average shares outstanding ...     2,823     2,824     2,824     2,830
                                                =======   =======   =======   =======
Earnings (loss) per share:
      Income (loss) before extraordinary item   $  0.43   $  0.38   $  1.73   $ (2.57)
      Extraordinary item ....................      --        --        --       (0.06)
                                                -------   -------   -------   -------
      Net income (loss) .....................   $  0.43   $  0.38   $  1.73   $ (2.63)
                                                =======   =======   =======   =======
Diluted earnings per share
Numerators:
     Income (loss) before extraordinary item    $ 1,200     $1070   $ 4,885   $(7,287)
     Extraordinary item .....................      --        --        --        (160)
                                                -------   -------   -------   -------
     Net Income (loss) ......................   $ 1,200   $ 1,070   $ 4,885   $(7,447)
                                                =======   =======   =======   =======
     Interest saved on assumed conversion of
        convertible  notes - net of tax .....       248      --         743      --
                                                -------   -------   -------   -------

     Income (loss) before extraordinary item    $ 1,448   $ 1,070   $ 5,628   $(7,287)
     Extraordinary item .....................      --        --        --        (160)
                                                -------   -------   -------   -------
     Net Income (loss) ......................   $ 1,448   $ 1,070   $ 5,628   $(7,447)
                                                =======   =======   =======   =======
Denominators:
      Weighted average shares outstanding ...     2,823     2,824     2,824     2,830
      Shares issued on conversion of
      convertible Note ......................       588      --         588      --
                                                -------   -------   -------   -------
      Weighted average share and share
         Equivalents ........................     3,411     2,824     3,412     2,830
                                                =======   =======   =======   =======
Earnings (loss) per share:
      Income (loss) before extraordinary item   $  0.42   $  0.38   $  1.65   $ (2.57)
      Extraordinary item ....................      --        --        --       (0.06)
                                                -------   -------   -------   -------
      Net income (loss) .....................   $  0.42   $  0.38   $  1.65   $ (2.63)
                                                =======   =======   =======   =======
</TABLE>
<PAGE>

M.       Segment Information

The Company is  principally  engaged in two business  segments:  multimedia  and
services.  All  businesses  are  located  domestically,  and  substantially  all
revenues  are  domestic.   The  multimedia   segment  includes  local  telephone
companies,  a cable TV company, an investment in PCS entities and investments in
two  network-affiliated  television  stations.  The  services  segment  includes
transportation and related services.

EBITDA  (before  corporate  allocation)  for  operating  segments  is  equal  to
operating  profit  before  interest,  taxes,   depreciation,   amortization  and
allocated  corporate  expenses.  EBITDA  is  presented  because  it is a  widely
accepted  financial  indicator  of value and ability to incur and service  debt.
EBITDA is not a substitute  for  operating  income or cash flows from  operating
activities in accordance with generally accepted accounting principles.

Operating profit (loss) is equal to revenues less operating expenses,  excluding
unallocated general corporate expenses,  interest and income taxes. Prior to the
Spin Off,  Lynch,  and after the spin-off the Registrant  allocated a portion of
its general corporate  expenses to its operating  segments.  Such allocation was
$366,000 and $1 million for the three and nine months ended  September  30, 2000
respectively,  and  $317,000  and  $952,000  for the three and nine months ended
September  30, 1999.  Subsequent to the  Spin-Off,  the  Registrant is providing
corporate  management  services to Lynch  Corporation  for a management fee (see
note C).
<TABLE>
<CAPTION>
                                                   Three Months Ended       Nine Months Ended
                                                       September 30,          September 30,
                                                    2000         1999        2000       1999
                                                   --------------------    ----------------------
Revenues:                                                         (In thousands)
<S>                                               <C>          <C>          <C>          <C>
Multimedia ....................................   $  17,899    $  15,513    $  49,489    $  42,855
Services ......................................      28,164       37,312       85,992      112,907
                                                  ---------    ---------    ---------    ---------
Combined Total ................................   $  46,063    $  52,825    $ 135,481    $ 155,762
                                                  =========    =========    =========    =========

EBITDA (before corporate allocation):
Multimedia ....................................   $   9,763    $   8,475    $  26,408    $  23,389
Services ......................................         439          534          285        1,962
Corporate expenses, gross .....................      (1,066)        (518)      (2,675)      (1,688)
                                                  ---------    ---------    ---------    ---------
Combined total ................................   $   9,136    $   8,491    $  24,018    $ 23,663
                                                  =========    =========    =========    =========
Operating profit:
Multimedia ....................................   $   5,366    $   4,572    $  13,654    $  12,140
Services ......................................         178          208         (607)         969
Unallocated corporate expense .................        (664)        (211)      (1,566)        (716)
                                                  ---------    ---------    ---------    ---------
Combined Total ................................   $   4,880    $   4,569    $  11,481    $  12,393
                                                  =========    =========    =========    =========

Operating profit ..............................   $   4,880    $   4,569    $  11,481    $  12,393
Investment income .............................       1,014          682        2,751        1,716
Interest expense ..............................      (3,281)      (2,874)      (9,740)      (8,121)
Equity in earnings of affiliated companies ....         195           44        1,464          147
Reserve  for  impairment  of  investment
 in PCS license holders .......................        --           --           --        (15,406)
Gain on redemption of East/West Preferred Stock        --           --          4,125         --
                                                  ---------    ---------    ---------    ---------
Income (loss) before  income taxes,  minority
interests and extraordinary item ..............   $   2,808    $   2,421    $  10,081    $  (9,271)
                                                  =========    =========    =========    =========

</TABLE>


<PAGE>



                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Effective with the spin-off of Interactive by Lynch  Corporation on September 1,
1999,  Interactive owns the multimedia and services businesses  previously owned
by Lynch Corporation,  as well as, 1 million shares of Spinnaker Industries Inc.
(ASE:SKK).  Since the  spin-off,  Interactive  has  operated as an  independent,
publicly  traded  company.  As  such,  the  consolidated  Interactive  financial
statements  for  periods  prior  to  the  spin-off  may  not  be  indicative  of
Interactive's  future  performance  nor do they  necessarily  reflect  what  the
financial  position and results of operations of Interactive  would have been if
it had operated as a separate stand-alone entity during the periods covered.

SALES AND REVENUES

Revenues for the three months ended September 30, 2000 decreased by $6.8 million
to $46.1 million from the third quarter of 1999. Within the operating  segments,
multimedia  revenues  increased by $2.4  million or 15%,  which were offset by a
$9.1  million  decrease  at The Morgan  Group Inc.  ("Morgan")  -  Interactive's
service  subsidiary.  This decline in Morgan's  revenues was attributed to sharp
industry-wide  decline in shipments in both manufactured housing and specialized
outsourcing.  The  manufactured  housing  industry  continues  to be hampered by
tighter credit  standards and rising  interest rates at the retail level,  and a
resultant excess inventory of new and repossessed  homes, which directly impacts
production  and sales volume of Morgan's  customers.  Morgan  believes  that the
depressed level of shipments in manufactured  housing will continue through this
year, possibly  moderating in the second half of the following year.  Multimedia
revenues  grew  primarily  due to the  acquisition  of Central  Scott  Telephone
Company,  which was acquired on July 16, 1999, and  contributed  $0.4 million to
the revenue growth, growth in both regulated telecommunications services as well
as the  provision of  non-traditional  telephone  services  such as Internet and
certain  regulatory  revenue  adjustments  recorded  during  the  quarter  ($0.5
million).

Revenues for the first nine months of 2000  decreased by $20.3 million to $135.5
million  from the first  nine  months of 1999.  Within the  operating  segments,
multimedia revenues increased $6.6 million, or 15%, which were offset by a $26.9
million decline in revenues at Morgan.  The factors noted above that resulted in
Morgan's  third  quarter  revenue  decline  were also  responsible  for Morgan's
nine-month  decline.  Multimedia  revenues  increased due to the  acquisition of
Central Scott ($2.9 million incremental  contribution),  growth in regulated and
non-traditional telephone services and certain regulatory revenue adjustments.

Shipments of  manufactured  homes tend to decline in the winter  months in areas
where poor weather conditions inhibit transport.  This usually reduces operating
revenues  in the first and  fourth  quarters  of the  year.  Morgan's  operating
revenues, therefore, tend to be stronger in the second and third quarters.

Operating profit for the three months ended September 30, 2000 increased by $0.3
million to $4.9 million  from the third  quarter of 1999.  Within the  operating
segments,   multimedia's  operating  profit  increased  $0.6  million,  Morgan's
operating profit was flat at $0.2 million,  and corporate  expenses increased by
$0.3 million.  Operating profit in the multimedia  segment  increased due to the
acquisition of Central Scott and certain regulatory revenue  adjustments of $0.5
million offset by $0.3 million of additional start-up costs and operating losses
in developing  new  communications  services,  i.e.,  CLEC.  Morgan's  operating
results stayed flat as lower volume in shipments by its manufactured housing and

<PAGE>

specialized  outsourcing  businesses  were  offset by lost  savings  relating to
driver outsourcing, insurance and other lower Morgan claims overhead. Morgan has
instituted  staff reduction and other cost savings  initiatives and continues to
review incremental  marketing  initiatives.  It is currently  estimated that the
cost savings of these  initiatives will approximate $2.4 million  annually.  The
impact of the cost savings for 2000 is expected to approximate $1.8 million, net
of severance costs. Net corporate expense increased by $0.3 million.

Operating  profit for the nine months ended September 30, 2000 decreased by $0.9
million from the prior year. Within the operating segment:  multimedia operating
profit  increased by $1.2 million (net  operating  profit from Central Scott was
$0.7  million) and Morgan's  operating  profit fell by $1.6 million to a loss of
$0.6 million.  Unallocated  corporate  expenses  increased by $0.6 million.  The
factors that  affected the third quarter  results were also the primary  factors
that affected the nine months results.

Investment  income for the quarter ended  September  30, 2000  increased by $0.3
million  primarily due to higher  investment  balances and  unrealized  gains on
marketable  securities.  For the  nine-month  period  ended  September30,  2000,
investment  income increased by $1.0 million due predominantly to realized gains
on sales of available-for-sale  securities of $0.8 million and higher investment
balances.

Interest expense increased from the prior year period for both the third quarter
and  first  nine  months  of 2000 by $0.4 and $1.6  million,  respectively,  due
predominantly  to the  financing  of the  acquisition  of Central  Scott and the
issuance of the Convertible Note on December 13, 1999.

Equity in earnings of affiliated  companies for the nine months ended  September
30,  2000 was  impacted  by a net gain of $0.7  million on the sale of  cellular
towers at two of the Registrant's cellular telephone company investments,  which
was recorded in the second quarter.

On  February  25,  2000,  Omnipoint  acquired  through  a  merger,  all  of  the
outstanding shares of East/West Communications,  Inc. At the time of the merger,
the Registrant held a redeemable  preferred  stock of East/West  Communications,
Inc. with a  liquidation  value of $8.7  million,  including  payment in kind of
dividends  to date.  In  accordance  with its  terms,  the  preferred  stock was
redeemed  at its  liquidation  value and as a result the  Registrant  recorded a
pre-tax gain of $4.1 million in the first quarter of 2000.

A subsidiary of Lynch  Interactive  has  investments  in, loans to, and deferred
costs associated with a 49.9% equity ownership in Fortunet Communications,  L.P.
("Fortunet"),  a partnership  formed to acquire,  construct and operate licenses
for the provision of personal  communications  services  ("PCS") acquired in the
FCC's  C-Block PCS auction.  Fortunet  holds  licenses to provide PCS service of
15MHz of spectrum in the BTA's of Tallahassee,  Panama City and Ocala,  Florida.
On April 15, 1999,  the FCC completed the reauction of all the C-Block  licenses
that were returned to it since the original C-Block auction, including the three
15MHz licenses that Fortunet returned. In that reauction, the successful bidders
paid a total  $2.7  million  for the three  licenses  as  compared  to the $18.8
million  carrying  amount of Lynch's  investment  in Fortunet at that time.  The
final  net cost of these  licenses  in the  reauction  was  substantially  below
Fortunet's  cost of the  licenses  it retained  in these  markets.  Accordingly,
during the first quarter of 1999, Lynch Interactive recorded an additional write
down of $15.4  million.  The  Company  is  considering  spinning  off its  49.9%
interest in Fortunet.

The income tax provision  (benefit) includes federal, as well as state and local
taxes. The tax provision  (benefit) for the nine months ended September 30, 2000
and 1999, represent effective tax rates of 47.3% and (28.0%),  respectively. The
causes of the  difference  from the federal  statutory  rate and between the two
periods are principally  due to the effect of state income taxes,  including the
effect of earnings and losses attributable to different state jurisdictions, and
the amortization of non-deductible  goodwill.  Of note, no state tax benefit has
been  provided  for the  reserve  for the  impairment  of $15.4  million  in the
investment in PCS license holders in 1999.

<PAGE>



Due to the current  operating  results at Morgan,  its  management  continues to
review the necessity for a valuation  allowance relating to a deferred tax asset
of about $3.6 million.

Minority  interest  reduced  earnings by $0.3  million and $0.2  million for the
three months ended September 30, 2000 and 1999, respectively,  as lower earnings
of Morgan were more than offset by the minority  interest effect on the improved
operations  of the telephone  companies in which there is a minority  ownership.
Minority  interest  effects for the nine-month  period ended  September 30, 2000
were reduced by $0.2 million due to the lower  operating  results of Morgan.  Of
note,  the  reserve  for  impairment  of PCS  operations  and  the  gain  on the
redemption of East/West preferred stock had no effect on minority interest.

Net income for the three  months  ended  September  30, 2000 was $1.2 million or
$0.43 per share (basic) as compared to net income of $1.1 million,  or $0.38 per
share (basic), in the previous years three-month period. Net income for the nine
months ended  September  30, 2000 was $4.9 million or $1.73 per share (basic) as
compared  to a net  loss of $7.4  million  or $2.63  per  share  (basic)  in the
previous year nine-month  period. The most significant items affecting the swing
in earnings were the gain on the redemption of East/West  preferred  stock ($2.5
million, net of income tax provision) in 2000 and the reserve for the impairment
of the  investment  in PCS license  holders  ($10.2  million,  net of income tax
benefit) in 1999.

FINANCIAL CONDITION

Liquidity/ Capital Resources

As of September  30, 2000,  the Company had current  assets of $64.5 million and
current  liabilities  of $46.1  million.  Working  capital was  therefore  $18.4
million as compared to $12.1  million at December  31, 1999.  Proceeds  from the
redemption  of the  East/West  Preferred  stock  offset  by  payments  under the
Company's SAR Program were the primary reason for the increase.

The first nine months capital  expenditures  were $11.7 million in 2000 and $8.2
million  in  1999.  Overall  2000  capital   expenditures  are  expected  to  be
approximately  $4.3  million  above  the  1999  level of  $12.6  million  due to
additional expenditures for the Company's Kansas telephone operations.

At September  30, 2000,  total debt was $166.5  million,  which was $2.5 million
lower than the $169.0  million at the end of 1999. At September 30, 2000,  there
was $149.5  million of fixed interest rate debt averaging 7.0% and $17.0 million
of variable  interest rate debt averaging  8.5%.  Debt at year-end 1999 included
$151.9 million of fixed interest rate debt, at an average  interest rate of 7.0%
and $17.1 million of variable  interest rate debt at an average interest rate of
8.1%.

As of September 30, 2000,  Interactive,  the parent  company,  had $10.0 million
available  under a short-term line of credit  facility,  which expires on August
31, 2001.

Morgan  experienced  a shortfall  in the level of cash flow  required  under its
credit facility at September 30, 2000 and is projecting that it will continue to
be in violation of the cash flow and of other  covenants in the fourth  quarter.
The Company has received a waiver on November 10, 2000 of its shortfall  through
October from its lender.

Morgan recently  reduced its letters of credit required to $6,600,000.  Although
the waiver reduced the credit  facility to $7,600,000,  Morgan believes that the
reduced  capacity is  sufficiently  sized relative to its current  requirements.
Additionally, the waiver prohibits a cash dividend in the fourth quarter.

<PAGE>

Morgan and its lender are in discussions  and Morgan believes it will be able to
restructure  the  facility in the fourth  quarter of the year 2000.  There is no
assurance that such negotiations will be successful. In that event, Morgan would
seek  alternatives  financing.  There can be no assurance that such  alternative
financing  can be  obtained.  If such  situation  is not  resolved  favorably to
Morgan,  it could have a  material  adverse  effect on Morgan and its  financial
condition.

With  the  severe  downturn  in  the  manufactured  housing  industry,  Morgan's
management  is  continually  reviewing  credit  worthiness  of its customers and
taking  appropriate  steps to  ensure  the  quality  of the  receivables.  As of
September 30, 2000, $3.6 million of the open trade accounts  receivable was with
two manufactured housing customers,  of which 97% was within 45 days of invoice.
In total,  $9.9 million of the open trade receivables are also within 45 days of
invoice.  If either of the two major customers would  significantly  delay their
payments from current practice,  it will have a negative impact on Morgan's cash
flow.

Morgan  periodically  assesses the net realizable value of its long-lived assets
and  evaluates  such  assets  for  impairment  whenever  events  or  changes  in
circumstances  indicate the carrying  amount of an asset may not be recoverable.
As a result of the severe downturn in the manufactured housing industry,  Morgan
continues to assess the recoverability of the goodwill  associated with its last
acquisition.  The total  amount under  review is $3.3  million.  Morgan does not
believe there is an impairment of such assets.

Lynch  has  not  paid  any  cash  dividends  on its  Common  Stock  since  1989.
Interactive  does not expect to pay cash  dividends  on its Common  Stock in the
foreseeable  future.  Interactive  currently intends to retain its earnings,  if
any,  for use in its  business.  Future  financings  may limit or  prohibit  the
payment of dividends.

Interactive has a high degree of financial  leverage.  As of September 30, 2000,
the ratio of total debt to equity was 5.9 to 1. Certain  subsidiaries  also have
high  debt to equity  ratios.  In  addition,  the debt at  subsidiary  companies
contains  restrictions  on the  amount of  readily  available  funds that can be
transferred to the respective parent of the subsidiaries.

The Company has a need for resources  primarily to fund future  long-term growth
objectives.   Interactive  considers  various  alternative  long-term  financing
sources:  debt, equity, or sale of an investment asset. While management expects
to obtain  adequate  financing  resources  to  enable  the  Company  to meet its
obligations,  there is no  assurance  that such can be  readily  obtained  or at
reasonable costs.

On October 15, 2000, the Registrant  signed an agreement to acquire Central Utah
Telephone, Inc. and subsidiaries,  a 4,100-access line telephone company located
in Utah. Central Utah also has a contract to acquire certain telephone exchanges
from Qwest  Communications  International  Inc.  involving  approximately  3,300
access lines. The Registrant has also agreed to acquire Central Telcom Services,
LLC, a related  entity,  which has certain PCS and MMDS  interests and Internet,
long distant and telephone equipment businesses.  The aggregate purchase prices,
including debt assumed,  is roughly  comparable to the Registrant's  most recent
telephone  acquisitions  and is expected to be  financed  primarily  through the
issuance of additional  debt and the remaining  coming from resources  currently
available.  The  closing of the  transactions,  which are  expected in the first
quarter of 2000,  are  subject  to certain  conditions  including  approvals  by
certain  regulatory  authorities,  as is the  acquisition by Central Utah of the
Qwest exchanges.

The  Registrant  has  initiated  an effort to  monetize  certain of its  assets,
including  selling a portion  or all of  certain  investments  in certain of its
operating  entities.  These may include minority interest in network  affiliated
television  stations and certain  telephone  operations where  competitive local
exchange  carrier  opportunities  are not  readily  apparent.  The  Registrant's
approximately  14% ownership  interest in Spinnaker may also be sold in order to
fund future growth  initiatives.  There is no assurance  that all or any part of
this program can be effectuated on acceptable terms.
<PAGE>

            QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company is exposed to market risk  relating to changes in the general  level
of U.S. interest rates. Changes in interest rates affect the amounts of interest
earned on the Company's cash, cash equivalents and marketable  securities ($35.6
million at September 30, 2000 and $32.9 million at December 31, 1999).

The Company generally  finances the debt portion of the acquisition of long-term
assets with fixed rate,  long-term  debt.  The Company  generally  maintains the
majority  of its debt as fixed  rate in nature  either by  borrowing  on a fixed
long-term  basis  or, on a  limited  basis,  entering  into  interest  rate swap
agreements.  The  Company  does not use  derivative  financial  instruments  for
trading or speculative  purposes.  Management  does not foresee any  significant
changes in the strategies  used to manage interest rate risk in the near future,
although the strategies may be reevaluated as market conditions dictate.

At September 30, 2000,  approximately  $17.0 million,  or 10.2% of the Company's
long-term debt and notes payable bears interest at variable rates.  Accordingly,
the Company's earnings and cash flows are affected by changes in interest rates.
Assuming the current level of  borrowings  for variable rate debt and assuming a
one  percentage  point  change in the 2000  average  interest  rate under  these
borrowings, it is estimated that the Company's 2000 nine- month interest expense
would have changed by less than $0.1 million.  In the event of an adverse change
in interest rates,  management would likely take actions to further mitigate its
exposure. However, due to the uncertainty of the actions that would be taken and
their  possible  effects,  the analysis  assumes no such actions.  Further,  the
analysis  does not  consider  the  effects of the change in the level of overall
economic activity that could exist in such an environment.


                           FORWARD LOOKING INFORMATION

Included in this Management  Discussion and Analysis of Financial  Condition and
Results  of  Operations  are  certain  forward   looking   financial  and  other
information, including the cost savings and operations at Morgan, the ability of
Morgan to  obtain  waivers  from its  creditors  and  collect  its  receivables,
possible  financings,  possible  acquisitions  including Central Utah Telephone,
Central Telecom Services and Central Utah Telephone's contracted for acquisition
of  certain  exchanges  from Qwest  Communications,  possible  spectrum  auction
participation,  a  possible  spin  off of  Registrant's  interest  in  Fortunet,
Registrant's  effort to monetize  certain assets,  and Market Risk. It should be
recognized that such information are  projections,  estimates or forecasts based
on various  assumptions,  including without limitation,  meeting its assumptions
regarding  expected  operating  performance and other matters  specifically  set
forth,  as well as the  expected  performance  of the  economy as it impacts the
Registrant's  businesses,  government and regulatory actions and approvals,  and
tax  consequences  and  cautionary  statements  set forth in documents  filed by
Registrant and The Morgan Group with the Securities and Exchange Commission.  As
a result, such information is subject to uncertainties,  risks and inaccuracies,
which could be material.

Item 3.  Quantitative and Qualitative Disclosure About Market Risk

                  See  "Quantitative  and  Qualitative  Disclosure  about Market
Risk" under Item 2 above.


<PAGE>

PART II OTHER INFORMATION

Item 5.  Other Information

On August 11, 2000, the Registrant  announced a two-for-one  stock split,  to be
effected through a distribution to its shareholders of one share of Registrant's
Common Stock for each share of Common  Stock  owned.  The record date was August
28, 2000, and the distribution date was September 11, 2000.

Item 6.  Exhibits and Reports on Form 8-K
         ---------------------------------

         (a)      Exhibits
                  27 -Financial Data Schedule

         (b)      Reports on Form 8-K
                     None

                                   SIGNATURES


         Pursuant to the  requirements  of the  Securities  and  Exchange Act of
1934,  the  Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.


                                           LYNCH INTERACTIVE CORPORATION
                                           (Registrant)

                                           By: s/Robert E. Dolan
                                          -------------------------------------
                                                 Robert E. Dolan
                                                 Chief Financial Officer
November 14, 2000





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