LYNCH INTERACTIVE CORP
10-Q, 2000-08-14
BLANK CHECKS
Previous: CLEMENTS GOLDEN PHOENIX ENTERPRISES INC, NT 10-Q, 2000-08-14
Next: LYNCH INTERACTIVE CORP, 10-Q, EX-27, 2000-08-14



                        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 June 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 July 30, 2000
            -----                                 ----------------------------
Common Stock, $.0001 par value                             1,411,983



<PAGE>





                                      INDEX

                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES

PART I.     FINANCIAL INFORMATION


Item 1.  Financial Statements (Unaudited)

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

Condensed Statements of Operations:
  -      Three and six months ended June 30, 2000 and 1999

Condensed Statements of Cash Flows:
  -      Six months ended June 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 4.  Submission of Matters to a Vote of Security Holders

Item 5.  Other Information

Item 6.  Exhibits and Reports on Form 8-K


SIGNATURE

Part 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements


<PAGE>
<TABLE>
<CAPTION>

                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIAIRES
                            CONDENSED BALANCE SHEETS
                                 (In thousands)
                                                                                    June 30,    December 31,
                                                                                      2000         1999
                                                                                ------------    ------------
ASSETS                                                                            (Unaudited)      (Note)
CURRENT ASSETS:
<S>                                                                                <C>          <C>
    Cash and cash equivalents ..................................................   $  34,202    $  31,354
    Marketable securities ......................................................       1,602        1,587
    Receivables, less allowances of $370 and $415 ..............................      18,155       16,875
    Deferred income taxes ......................................................       3,404        3,404
    Other current assets .......................................................       7,209        7,573
                                                                                   ---------    ---------
TOTAL CURRENT ASSETS ...........................................................   $  64,572    $  60,793

PROPERTY, PLANT AND EQUIPMENT:
    Land .......................................................................       1,348        1,347
    Buildings and improvements .................................................      10,576       10,522
    Machinery and equipment ....................................................     148,044      142,558
                                                                                   ---------    ---------
                                                                                   $ 159,968    $ 154,427
    Accumulated Depreciation ...................................................     (64,141)     (58,497)
                                                                                   ---------    ---------
                                                                                      95,827       95,930

EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, NET .....................      60,464       62,845
IVESTMENTS IN AND ADVANCES TO AFFILIATED ENTITIES ..............................       6,263        9,479
INVESTMENT IN SPINNAKER INDUSTRIES INC .........................................       9,250       11,875
OTHER ASSETS ...................................................................      13,463       13,047
                                                                                   ---------    ---------

TOTAL ASSETS ...................................................................   $ 249,839    $ 253,969
                                                                                   =========    =========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
    Notes payable to banks .....................................................   $   4,202    $   3,271
    Trade accounts payable .....................................................       4,450        4,465
    Accrued interest payable ...................................................         833          805
    Accrued liabilities ........................................................      19,655       21,751
    Customer advances ..........................................................       1,817        1,974
    Current maturities of long-term debt .......................................      15,979       16,445
                                                                                   ---------    ---------

TOTAL CURRENT LIABILITIES ......................................................      46,936       48,711

LONG-TERM DEBT .................................................................     147,424      149,256
DEFERRED INCOME TAXES ..........................................................      12,351       13,220
OTHER LIABILITIES ..............................................................       5,101        5,817
MINORITY INTERESTS .............................................................      10,217       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) ....................................       1,972       (1,713)
    ACCUMULATED OTHER COMPREHENSIVE INCOME .....................................       4,474        7,240
    TREASURY STOCK, 800 AND 400 SHARES AT COST .................................         (40)         (20)
                                                                                   ---------    ---------
   TOTAL SHAREHOLDERS' EQUITY ..................................................      27,810    $  26,911
                                                                                   ---------    ---------
 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ....................................   $ 249,839    $ 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. See accompanying notes.
</FN>
</TABLE>

<PAGE>


<TABLE>


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

<CAPTION>
                                                                   Three Months Ended               Six Months
                                                                       June 30,                  Ended June 30,
                                                              ---------------------------   --------------------------
                                                                   2000           1999           2000          1999
                                                              ---------------------------   ------------  ------------

SALES AND REVENUES
<S>                                                             <C>            <C>            <C>            <C>
Multimedia ..................................................   $    16,019    $    13,955    $    31,590    $    27,342
Services ....................................................        29,961         40,270         57,828         75,595
                                                                -----------    -----------    -----------    -----------
                                                                     45,980         54,225         89,418        102,937
Costs and expenses:
Multimedia ..................................................        11,482          9,584         22,674         19,169
Services ....................................................        27,575         37,184         53,981         69,496
Selling and administrative ..................................         3,160          3,200          6,162          6,448
                                                                -----------    -----------    -----------    -----------
OPERATING PROFIT ............................................         3,763          4,257          6,601          7,824
Other income (expense):
  Investment income .........................................         1,233            218          1,737          1,034
  Interest expense ..........................................        (3,229)        (2,563)        (6,459)        (5,247)
  Equity in earnings of affiliated companies ................           970             44          1,269            103
  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)
                                                                -----------    -----------    -----------    -----------
                                                                     (1,026)        (2,301)           672        (19,516)
                                                                -----------    -----------    -----------    -----------

INCOME (LOSS) BEFORE INCOME TAXES, MINORITY
 INTERESTS AND EXTRAORDINARY ITEM ...........................         2,737          1,956          7,273        (11,692)
(Provision) benefit for income taxes ........................        (1,338)          (776)        (3,425)         3,766
Minority Interests ..........................................          (266)          (232)          (163)          (431)
                                                                -----------    -----------    -----------    -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM                         $     1,133     $     948     $     3,685    $    (8,357)
                                                                -----------    -----------    -----------    -----------
LOSS FROM EARLY EXTINGUISHMENT OF DEBT,
NET OF TAX BENEFIT OF $105 ..................................             0              0              0           (160)
                                                                -----------    -----------    -----------    -----------

NET INCOME (LOSS) ...........................................   $     1,133    $       948    $     3,685    $    (8,517)

                                                                ===========    ===========    ===========    ===========

Basic weighted average shares ...............................     2,824,000      2,832,000      2,824,000      2,834,000
Diluted weighted average shares .............................     2,824,000      2,832,000      3,412,000      2,834,000
BASIC EARNINGS PER SHARE
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM .....................   $      0.40    $      0.33    $      1.30    $     (2.95)
EXTRAORDINARY ITEM ..........................................             0              0              0          (0.06)
                                                                -----------    -----------    -----------    -----------
NET INCOME (LOSS) ...........................................   $      0.40    $      0.33    $      1.30    $     (3.01)
                                                                ===========    ===========    ===========    ===========
DILUTED EARNINGS PER SHARE
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM .....................   $      0.40    $      0.33    $      1.23    $     (2.95)
EXTRAORDINARY ITEM ..........................................             0              0              0          (0.06)
                                                                -----------    -----------    -----------    -----------
NET INCOME (LOSS) ...........................................   $      0.40    $      0.33    $      1.23    ($     3.01)
                                                                ===========    ===========    ===========    ===========
<FN>
See accompanying notes.
</FN>
</TABLE>


<PAGE>
<TABLE>



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

<CAPTION>
                                                                        Six Months Ended
                                                                             June 30,
                                                                        2000         1999
                                                                     ----------   -----------
<S>                                                                    <C>         <C>
Net Income (loss) ..................................................   $  3,685    $ (8,517)
Adjustments to reconcile net income (loss) to net cash provided by
   operating activities:
   Depreciation and amortization ...................................      8,281       7,338
   Unrealized (gain) loss on trading securities ....................        (15)       (316)
   Deferred income taxes ...........................................          0      (5,573)
   Share of operations of affiliated companies .....................     (1,269)       (103)
   Gain on redemption of East/West preferred stock .................     (4,125)          0
   Gain on sale of available for sale securities ...................       (703)       --
   Minority interests ..............................................        163         431
   Reserve for impairment of PCS licenses ..........................          0      15,406
   Changes in operating assets and liabilities:
        Receivables ................................................     (1,280)       (519)
        Accounts payable and accrued liabilities ...................     (2,665)     (1,064)
        Other ......................................................       (360)        863
                                                                       --------    --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ..........................      1,712       7,946
                                                                       --------    --------

INVESTING ACTIVITIES
Capital Expenditures ...............................................     (6,628)     (4,030)
Investment in and advances to wireless telecommunications affiliates       (395)          0
Proceeds from redemption of East/West preferred stock ..............      8,712           0
Proceeds from sale of available-for-sale securities ................      1,189        --
Other ..............................................................       (363)       (110)
                                                                       --------    --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ................      2,515      (4,140)
                                                                       --------    --------

FINANCING ACTIVITIES
Repayments of long term debt .......................................     (2,298)     (3,746)
Net borrowings (repayments), lines of credit .......................        931      (6,846)
Treasury stock transactions ........................................        (20)          0
Advances to Lynch Corporation ......................................          0      (1,260)
Other ..............................................................          8      (1,003)
                                                                       --------    --------
NET CASH USED IN FINANCING ACTIVITIES ..............................     (1,379)    (12,855)
                                                                       --------    --------

Net increase (decrease) in cash and cash equivalents ...............      2,848      (9,049)
Cash and cash equivalents at beginning of period ...................     31,354      27,021
                                                                       --------    --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .........................   $ 34,202    $ 17,972
                                                                       ========    ========
<FN>
See accompanying notes.
</FN>
</TABLE>

<PAGE>



                     NOTES TO CONDENSED FINANCIAL STATEMENTS

A.   Subsidiaries of the Registrant
-----------------------------------

As of June 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%
  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 June 30,  2000 and  December  31,  1999,  and for the three and six months
ended  June 30,  2000,  the  accompanying  financial  statements  represent  the
consolidated  accounts of  Interactive.  For the three and six months ended June
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 six months  periods ended June 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 June 30, 2000) and The Morgan
Group,  Inc.  ("Morgan"),  in which, at December 31, 1999 and June 30, 2000, the
Company owned 70.0% of the voting power and 55.4% of common equity.  The Company
accounts for following  affiliated  companies on the equity basis of accounting:
Coronet   Communications   Company  (20%  owned  at  June  30,  2000),   Capital
Communications   Company,   Inc.  (49%  owned  at  June  30,   2000),   Fortunet
Communications,  L.L.P.  (49.9%  owned  at June  30,  2000),  and  the  cellular
partnership operations in New Mexico (17% to 21% owned at June 30, 2000).

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 $180,000 for the
three and six months ended June 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
six-month  period  ended June 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.  During the three months ended June 30,
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.

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           Six Months Ended
                                                     June 30,                   June 30,
                                               2000            1999         2000           1999
                                              ----------------------      ------------------------

<S>                                           <C>          <C>          <C>          <C>
Sales and Revenues ........................   $   45,980   $   54,876   $  89,418    $   104,719
Net Income (loss) before Extraordinary Item        1,133          741       3,685        (8,665)
Basic Earnings (loss) per share ...........         0.40         0.26        1.30         (3.06)
Diluted Earnings (loss) per share .........         0.40         0.26        1.23         (3.06)
</TABLE>


F.   Investment in and Advances to Affiliates Entities
------------------------------------------------------

During 2000, a subsidiary of the Registrant made  investments in and advances to
two separate 49% owned entities of $15.1 million in total; these 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  auction  were that the  entities  were high
bidders in licenses  with a net cost of $1.5  million and the excess  funds were
returned.

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 and minority interest effects.

G.   Indebtedness
-----------------

On a consolidated basis, at June 30, 2000, the Registrant  maintained short-term
lines of credit  facilities  totaling $40.0 million,  of which $22.3 million was
available.  The parent company of the Registrant  maintains two short-term lines
of credit facilities totaling $20.0 million,  all of which was available at June
30, 2000.  The parent  company  facilities  will expire on August 31, 2000.  The
Morgan  Group  maintains  a line and letter of credit  facility  totaling  $20.0
million,  of which $2.3 million was  available at June 30, 2000 due to borrowing
base considerations and outstanding letters of credit. The Morgan Group facility
expires on February 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.
<TABLE>
<CAPTION>

Long-term debt consists of:                                                          June 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 June 30, 2000 and 4.8% at December 31, 1999),
secured by assets of the telephone companies of $113.9 million .................   $  49,695    $  48,892

Bank Credit  facilities  utilized by certain  telephone  and  telephone  holding
companies  through 2009,  $44.6 million at a fixed  interest rate averaging 8.2%
($46.9   million,  averaging 8.2% ad December 31,  1999) and $13.4  million at
variable interest rates averaging 8.3% ($13.8 million averaging
8.1% at December 31, 1999)  ....................................................      57,950       60,740

Unsecured notes issued in connection with acquisitions  through 2006, at fixed
interest rate of 10.0% .........................................................      27,456       27,654

Convertible  subordinated  note due in December 2004 at fixed interest rate
of 6%...........................................................................      25,000       25,000

Other ..........................................................................       3,302        3,415
                                                                                   ---------    ---------
                                                                                     163,403      165,701
Current Maturities .............................................................     (15,979)     (16,445)
                                                                                   ---------    ---------
                                                                                   $ 147,424    $ 149,256
                                                                                   =========    =========
</TABLE>


H.       Comprehensive Income
-----------------------------

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

<S>                                             <C>
Balance at December 31, 1999 ................   $ 7,240
Adjustment relating to acquisition accounting      (566)
Reclassification adjustment .................      (435)
Current year unrealized losses ..............   (1, 765)
                                                -------
    Balance at June 30, 2000 ................   $ 4,474
                                                =======
</TABLE>


The comprehensive  income (loss), for the three and six months periods ending in
June 30, 2000 and 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
                                                                               Three Months Ended
                                                                                    June 30,
                                                                                 2000       1999
                                                                               -------------------

<S>                                                                            <C>        <C>
Net Income for the period ..................................................   $ 1,133    $   948
Unrealized  gains (losses) on available for sale  securities - net of income
tax benefit (provision) of $397 and ($18), respectively                           (555)        24
Reclassification adjustment - net of income tax benefit of $302 ............      (435)      --
                                                                               -------    -------
    Comprehensive income                                                       $   143    $   972
                                                                               =======    =======
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
                                                                                 Six Months Ended
                                                                                   June 30,
                                                                                2000         1999
                                                                               ------------------

<S>                                                                            <C>         <C>
Net Income (loss) for the period ...........................................   $  3,685    $ (8,517)
Unrealized  losses on  available  for sale  securities  - net of income  tax
benefits of $1,274 and $1,727, respectively ................................     (1,765)     (2,385)

Reclassification adjustment - net of income tax benefit of $301 ............       (433)       --
                                                                               --------    --------
    Comprehensive income (loss) ............................................   $  1,487    $(10,902)
                                                                               ========    ========
</TABLE>


I.       Principal Executive Bonus Plan
---------------------------------------

At the Registrant's Annual Meeting on May 11, 2000, the shareholders  approved a
Principal Executive Bonus Plan. $0.3 million of expense was recognized with this
plan for the three months ended June 30, 2000.

J.       Stock Split
--------------------

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 will be
August 28, 2000, and the  distribution of date will be September 11, 2000 (or as
soon as possible thereafter).

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

K.       Earnings per share
---------------------------

For the three and six  months  ended  June 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 this period is  calculated  assuming  that the shares  outstanding  for such
period was the same as the shares outstanding for Lynch Corporation.  Subsequent
to the Spin-Off,  basic and diluted  earnings per share are based on the average
weighted  number of shares and share  equivalents  outstanding.  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    Six Months Ended
                                                    June 30,             June 30,
                                                 2000       1999     2000       1999
                                               -----------------   -------------------
Basic earnings per share Numerators:
<S>                                             <C>       <C>     <C>        <C>
      Income (loss) before extraordinary item   $ 1,133   $ 948   $  3,685   $(8,357)
      Extraordinary item ....................      --      --         --        (160)
                                                -------   -----   --------   -------
      Net Income (loss) .....................   $ 1,133   $ 948   $  3,685   $(8,517)
                                                =======   =====   ========   =======

Denominator:
      Weighted average shares outstanding ...     2,824   2,832      2,824     2,834
                                                =======   =====   ========   =======
Earnings (loss) per share:
      Income (loss) before extraordinary item   $  0.40   $0.33   $   1.30   $ (2.95)
      Extraordinary item ....................      --      --         --       (0.06)
                                                -------   -----   --------   -------
      Net income (loss) .....................   $  0.40   $0.33   $   1.30   $ (3.01)
                                                =======   =====   ========   =======

Diluted earnings per share Numerators:
     Income (loss) before extraordinary item    $ 1,133   $ 948   $  3,685   $(8,357)
     Extraordinary item .....................      --      --         --        (160)
                                                -------   -----   --------   -------

     Net Income (loss) ......................   $ 1,133   $ 948   $  3,685   $(8,517)
                                                =======   =====   ========   =======

     Interest saved on assumed conversion of
        convertible  notes - net of tax .....      --      --          496      --
                                                =======   =====   ========   =======

     Income (loss) before extraordinary item    $ 1,133   $ 948   $  4,181   $(8,357)
     Extraordinary item .....................      --      --         --        (160)
                                                -------   -----   --------   -------
     Net Income (loss) ......................   $ 1,133   $ 948   $  4,181   $(8,517)
                                                =======   =====   ========   =======

Denominators:
      Weighted average shares outstanding ...     2,824   2,832      2,824     2,834
      Shares issued on conversion of
        convertible note ....................      --      --          588      --
                                                -------   -----   --------   -------
Weighted average share and share
         Equivalents ........................     2,824   2,832      3,412     2,834
                                                =======   =====   ========   =======

Earnings (loss) per share:
      Income (loss) before extraordinary item   $  0.40   $0.33   $   1.23   $ (2.95)
      Extraordinary item ....................      --      --         --       (0.06)
                                                -------   -----   --------   -------
      Net income (loss) .....................   $  0.40   $0.33   $   1.23   $ (3.01)
                                                =======   =====   ========   =======
</TABLE>


L.       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
$317,000  and  $634,000  for the  three  and six  months  ended  June  30,  2000
respectively,  and $327,000 and $635,000 for the three and six months ended June
30, 1999.  Subsequent to the  Spin-Off,  the  Registrant is providing  corporate
management services to Lynch Corporation for a management fee (see note B).
<TABLE>
<CAPTION>
                                                             Three Months Ended          Six Months Ended
                                                                  June 30,                   June 30,
                                                              2000        1999           2000          1999
                                                           ----------------------   ------------------------
Revenues:                                                                      (In thousands)
<S>                                                        <C>          <C>          <C>          <C>
Multimedia .............................................   $  16,019    $  13,955    $  31,590    $  27,342
Services ...............................................      29,961       40,270       57,828       75,595
                                                           ---------    ---------    ---------    ---------
Combined Total .........................................   $  45,980    $  54,225    $  89,418    $ 102,937
                                                           =========    =========    =========    =========

EBITDA (before corporate allocation):
Multimedia .............................................   $   8,385    $   7,791    $  16,545    $  14,914
Services ...............................................         426          769         (154)       1,428
Corporate expenses, gross ..............................        (875)        (583)      (1,509)      (1,170)
                                                           ---------    ---------    ---------    ---------
Combined total .........................................   $   7,936    $   7,977    $  14,882    $  15,172
                                                           =========    =========    =========    =========
Operating profit:
Multimedia .............................................   $   4,163    $   4,070    $   8,188    $   7,568
Services ...............................................         113          436         (785)         761
Unallocated corporate expense ..........................        (513)        (249)        (802)        (505)
                                                           ---------    ---------    ---------    ---------
Combined Total .........................................   $   3,763    $   4,257    $   6,601    $   7,824
                                                           =========    =========    =========    =========

Operating profit .......................................   $   3,763    $   4,257    $   6,601    $   7,824
Investment income ......................................       1,233          218        1,737        1,034
Interest expense .......................................      (3,229)      (2,563)      (6,459)      (5,247)
Equity in earnings of affiliated companies .............         970           44        1,269          103
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 ...............................   $   2,737    $   1,956    $   7,273    $ (11,692)
                                                           =========    =========    =========    =========
</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 June 30, 2000  decreased by $8.2 million to
$46.0 million from the second  quarter of 1999.  Within the  operating  segments
multimedia  revenues  increased  by $2.1 million or 15 %, which were offset by a
$10.3 million decrease at Morgan Group Inc. - Interactive's  service subsidiary.
This decline in Morgan's  revenues was attributed to lower shipments in both the
manufactured housing and specialized  outsourcing  operations.  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 the
following year. In addition, Morgan is currently evaluating the profit potential
of its niche  businesses and their growth  potential.  Multimedia  revenues grew
partially due to the acquisition of Central Scott Telephone  Company,  which was
acquired on July 16, 1999, and  contributed  $1.2 million to the revenue growth,
and partially to growth, in both regulated  telecommunications  services as well
as the provision of non-traditional telephone services such as Internet.

Revenues for the first six months of 2000  decreased  by $13.5  million to $89.5
million from the first half of 1999. Within the operating  segments,  multimedia
revenues  increased  $4.2 million,  or 16%, which were offset by a $17.8 million
decline in  revenues at The Morgan  Group,  Inc.  The  factors  noted above that
resulted in Morgan's second quarter  revenue  decline were also  responsible for
the first half decline.  Multimedia revenues increased due to the acquisition of
Central  Scott  Telephone  Company  ($2.4  million  contribution)  and growth in
regulated and non-traditional telephone services.

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 June 30, 2000  decreased  by $0.5
million to $3.8 million from the second  quarter of 1999.  Within the  operating
segments: the multimedia operating profit increase of $0.1 million was offset by
a decrease in Morgan's operating profit of $0.3 million. Operating profit in the
multimedia  segment  increased due to the  acquisition  of Central  Scott,  $0.3
million,  net of goodwill  amortization  offset by additional start-up costs and
operating losses in developing new communications services, i.e., CLEC. Morgan's
operating  profits  fell by $0.3  million due to the lower  volume in  shipments
offset by its manufactured housing and specialized outsourcing businesses offset
by improved driver  outsourcing,  insurance and overhead savings. In March 2000,
Morgan  instituted  staff  reduction and other cost savings  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.  Morgan continues to review
incremental  marketing initiatives and continuously is reviewing staffing levels
and  expenditures  to reduce  its  overhead  structure.  Net  corporate  expense
increased by $0.3  million due to an accrual  under the  Registrant's  Principal
Executive  Bonus Plan and the  Registrant  expects to record an additional  $0.3
million in the second half of 2000.

Operating  profit  for the six  months  ended June 30,  2000  decreased  by $1.2
million from the prior year. Within the operating segment:  multimedia operating
profit  increased by $0.6 million (net  operating  profit from Central Scott was
$0.7  million) and Morgan's  operating  profit fell by $1.5 million to a loss of
$0.8 million.  Unallocated  corporate  expenses  increased by $0.3 million.  The
factors that affected the second quarter  results were also the primary  factors
that affected the second quarter results.

Investment  income for the quarter ended June 30, 2000 increased by $1.0 million
primarily  due to realized  gains on sales of  available-for-sale  securities of
$0.7  million and  unrealized  gains on trading  securities.  For the  six-month
period ended June 30, 2000,  investment  income increased by $0.7 million due to
the above noted realized gains.

Interest  expense  increased  from the prior  year  period  for both the  second
quarter  and  first  half of 2000 by $0.7 and $1.2  million,  respectively,  due
predominantly  to the  acquisition  of Central Scott  Telephone  Company and the
issuance of the Convertible Note by the parent company on December 11, 1999.

Equity in earnings of  affiliated  companies  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.

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 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 $18.8  million
carrying amount of Lynch's  investment in Fortunet.  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 six months ended June 30, 2000 and
1999,  represent  effective  tax rates of 47.1% and (32.2%),  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 jurisdiction,  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.

Minority  interest  reduced  earnings by $0.3  million and $0.2  million for the
three months ended June 30, 2000 and 1999,  respectively,  as lower  earnings of
Morgan were more than offset by the minority  interest effect on the gain of the
sale of the  cellular  towers.  Minority  interest  effects  for the six  months
periods ended June 30, 1999 and June 30, 2000 was 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 June 30, 2000 was $1.1  million or $0.40
per share  (basic) as  compared  to a net income of $0.9  million,  or $0.33 per
share (basic),  in the previous years three-month  period.  The most significant
items  affecting  the swing in earnings  were the  realized  gain on the sale of
available-for-sale  securities  and a gain on the sale of towers by an affiliate
entity offset by lower net income contributed by Morgan.

Net income for the six months  ended June 30, 2000 was $3.7 million or $1.30 per
share  (basic)  as  compared  to a net loss of $8.5  million  or $3.01 per share
(basic) in the  previous  year  six-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 June 30, 2000, the Company had current assets of $64.6 million and current
liabilities of $46.9  million.  Working  capital was therefore  $17.6 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 to the increase.

The first six months  capital  expenditures  were $6.6  million in 2000 and $4.0
million  in  1999.  Overall  2000  capital   expenditures  are  expected  to  be
approximately  $6.8  million  above  the  1999  level of  $12.6  million  due to
additional expenditures for the Company's Kansas telephone operations.

At June 30, 2000, total debt was $167.6 million, which was about the same as the
$169.0 million at the end of 1999. At June 30, 2000, there was $150.0 million of
fixed interest rate debt  averaging 7.0% and $17.6 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%.  Additionally,
the Company had $22.3  million in unused  lines of credit at June 30,  2000,  of
which $2.3 million was attributable to Morgan. As of June 30, 2000, Interactive,
the parent  company had $20.0 million  available  under two  short-term  line of
credit facilities,  the maximum  availability.  These short-term lines of credit
expire on August 31,  2000.  Management  anticipates  that  these  lines will be
renewed when they expire. At June 30, 2000, Morgan had a $20.0 million revolving
credit  facility  that  expires on February  28,  2001.  In general,  the credit
facilities are secured by receivables  and common stock of certain  subsidiaries
and affiliates,  in addition,  certain  covenants of Morgan  facility  restricts
distributions.

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 June 30, 2000, the
ratio of total debt to equity was 6.0 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  significant  need for  resources  primarily  to fund future
growth.  Interactive considers various alternative long and short-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.

Lynch Interactive  actively pursues  acquisitions of rural telephone  companies.
Specifically,  it has an agreement  in  principal  to acquire a rural  telephone
company,  somewhat  smaller in magnitude than its recent  acquisition of Central
Scott Telephone Company.  In addition,  an associated entity,  PTPMS II, L.L.C.,
has  recently  filed an  application  to  participate  in the 700MHz  Guard Band
Auction  being  conducted  by the FCC.  The  Registrant  anticipated  funding  a
substantial  portion  of the  deposit  to be  made  to the  FCC by  PTPMS  II to
participate in the auction.

            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 ($35.8
million at June 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 June 30,  2000,  approximately  $17.6  million,  or  10.5%  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 three 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.


<PAGE>




                           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 without  limitation profit evaluations of Morgan's niche
businesses  and  their  growth   potential,   the  cost  savings  and  marketing
initiatives at Morgan,  possible  financings,  possible  acquisitions,  possible
spectrum auction participation,  a possible spin off of Registrant's interest in
Fortunet 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.

PART II OTHER INFORMATION

Item 4.  Submission of Matters to A Vote of Security Holders
         ---------------------------------------------------

          At the Annual Meeting of  Stockholders  of the Registrant  held on May
          11, 2000,  the  following  persons were elected as Directors  with the
          following votes:
<TABLE>
<CAPTION>

 Name                     Votes For    Votes Withheld
 ----                     ---------    --------------
<S>                       <C>            <C>
Paul J. Evanson ......    1,248,254      15,911
John C. Ferrara ......    1,247,054      17,111
Mario J. Gabelli......    1,230,855      33,310
David C. Mitchell.....    1,248,254      15,911
Salvatore Muoio ......    1,247,054      17,111
Ralph R. Papitto......    1,247,054      17,111
</TABLE>


         In addition,  The  Registrant's  2000 Stock Option Plan was approved as
follows:
<TABLE>

<S>                 <C>
For: ............   858,951
Against: ........    26,600
Abstain: ........     4,489
Broker Non votes:   374,125
</TABLE>

And Registrant's Principal Executive Bonus Plan was approved as follows:

<TABLE>
<S>               <C>
For: ..........   1,229,750
Against:.......      26,802
Abstain:.......       7,613
</TABLE>


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 will be
August 28, 2000, and the  distribution of date will be September 11, 2000 (or as
soon as possible thereafter).


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

August 14, 2000




© 2019 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission