LYNCH INTERACTIVE CORP
10-Q, 2000-05-12
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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 March 31, 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 April 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
  -      March 31, 2000
  -      December 31, 1999

Condensed Statements of Operations:
  -      Three months ended March 31, 2000 and 1999

Condensed Statements of Cash Flows:
  -      Three months ended March 31, 2000 and 1999

Notes to Condensed Financial Statement

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 6.  Exhibits and Reports on Form 8-K




SIGNATURE

<PAGE>

Part 1 - FINANCIAL INFORMATION -
Item 1 - Financial Statements
<TABLE>

                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIAIRES
                            CONDENSED BALANCE SHEETS
                                 (In thousands)
<CAPTION>
                                                                   March 31,        December 31,
                                                                      2000              1999
                                                                   -----------      ------------
ASSETS                                                             (Unaudited)         (Note)
CURRENT ASSETS:
<S>                                                                <C>            <C>
    Cash and cash equivalents ..................................   $    20,322    $    31,354
    Marketable securities ......................................         1,424          1,587
    Receivables, less allowances of $448 and $415 ..............        16,965         16,875
    Deferred income tax ........................................         3,404          3,404
    Other current assets .......................................         8,046          7,573
                                                                   -----------    -----------
TOTAL CURRENT ASSETS ...........................................        50,161         60,793
PROPERTY, PLANT AND EQUIPMENT:
    Land .......................................................         1,347          1,347
    Buildings and improvements .................................        10,558         10,522
    Machinery and equipment ....................................       145,792        142,558
                                                                   -----------    -----------
                                                                       157,697        154,427
    Accumulated Depreciation ...................................       (61,433)       (58,497)
                                                                   -----------    -----------
                                                                        96,264         95,930
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED, NET .....        62,032         62,845
INVESTMENTS IN AND ADVANCES TO AFFILIATED ENTITIES .............        18,411          9,479
INVESTMENT IN SPINNAKER INDUSTRIES INC .........................         9,750         11,875
OTHER ASSETS ...................................................        13,102         13,047
                                                                   -----------    -----------
TOTAL ASSETS ...................................................   $   249,720    $   253,969
                                                                   ===========    ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
    Notes payable to banks .....................................   $     3,932    $     3,271
    Trade accounts payable .....................................         4,558          4,465
    Accrued interest payable ...................................           848            805
    Accrued liabilities ........................................        17,438         21,751
    Customer advances ..........................................         1,632          1,974
    Current maturities of long-term debt .......................        16,208         16,445
                                                                   -----------    -----------
TOTAL CURRENT LIABILITIES ......................................        44,616         48,711

LONG-TERM DEBT .................................................       148,579        149,256
DEFERRED INCOME TAXES ..........................................        12,344         13,220
OTHER LIABILITIES ..............................................         5,992          5,817
MINORITY INTERESTS .............................................         9,951         10,054

SHAREHOLDERS' EQUITY
    COMMON STOCK, $0.0001 PAR VALUE
    10,000,000 SHARES AUTHORIZED; 1,412,383 OUTSTANDING
    ADDITIONAL PAID - IN CAPITAL ...............................        21,404         21,404
    RETAINED EARNINGS (ACCUMULATED DEFICIT) ....................           839         (1,713)
    ACCUMULATED OTHER COMPREHENSIVE INCOME .....................         6,035          7,240
    TREASURY STOCK, 400 AND 200 SHARES AT COST .................           (40)           (20)
                                                                   -----------    -----------
   TOTAL SHAREHOLDERS' EQUITY ..................................   $    28,238    $    26,911
                                                                   -----------    -----------
 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ....................   $   249,720    $   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>
</TABLE>

<PAGE>
<TABLE>
                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                        CONDENSED STATEMENT OF OPERATIONS
                                   (UNAUDITED)
                   (In thousands, except per share amounts)
<CAPTION>
                                                                         Three Months Ended
                                                                              March 31,
                                                                       2000              1999
                                                                       ----              ----
SALES AND REVENUES
<S>                                                                  <C>            <C>
Multimedia .......................................................   $    15,571    $    13,387
Services .........................................................        27,867         35,325
                                                                     -----------    -----------
                                                                          43,438         48,712
Costs and expenses:
Multimedia .......................................................        11,192          9,585
Services .........................................................        26,406         32,312
Selling and administrative .......................................         3,002          3,248
                                                                     -----------    -----------
OPERATING PROFIT .................................................         2,838          3,567
Other income (expense):
  Investment income ..............................................           504            816
  Interest expense ...............................................        (3,230)        (2,684)
  Share of operations of affiliated companies ....................           299             59
  Gain on redemption of East/West preferred stock ................         4,125              0
  Reserve for impairment of investment in PCS license holders ....             0        (15,406)
                                                                     -----------    -----------
                                                                           1,698        (17,215)
                                                                     -----------    -----------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTERESTS AND
EXTRAORDINARY ITEM ...............................................         4,536        (13,648)
(Provision) benefit for income taxes .............................        (2,087)         4,542
Minority Interests ...............................................           103           (199)
                                                                     -----------    -----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ..........................         2,552         (9,305)
                                                                     -----------    -----------
LOSS FROM EARLY EXTINGUISHMENT OF DEBT,
  NET OF TAX BENEFIT OF $105......................................             0           (160)
                                                                     -----------    -----------
NET INCOME (LOSS) ................................................   $     2,552    $    (9,465)
                                                                     ===========    ===========

Basic weighted average shares ....................................     1,412,000      1,418,000

BASIC EARNINGS PER SHARE
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ..........................   $      1.81    ($     6.56)
EXTRAORDINARY ITEM ...............................................             0          (0.11)
                                                                     -----------    -----------
NET INCOME (LOSS) ................................................   $      1.81    ($     6.67)
                                                                     ===========    ===========

Diluted weighted average shares ..................................     1,706,000      1,418,000

DILUTED EARNINGS PER SHARE
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ..........................   $      1.64          (6.56)
EXTRAORDINARY ITEM ...............................................             0          (0.11)
                                                                     -----------    -----------
NET INCOME (LOSS) ................................................   $      1.64    ($     6.67)
                                                                     ===========    ===========
</TABLE>

<PAGE>
<TABLE>
                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (In thousands)
<CAPTION>                                                                           Three Months Ended
                                                                                          March 31
                                                                                    ---------------------
                                                                                    2000             1999
                                                                                    ----             ----
OPERATING ACTIVITIES
<S>                                                                               <C>         <C>
Net Income (loss) .............................................................   $  2,552    $ (9,465)
Adjustments  to  reconcile  net  income  (loss) to net cash
  provided  by (used in)
   Depreciation and amortization ..............................................      4,108       3,612
   Unrealized (gain) loss on trading securities ...............................        163        (320)
   Deferred taxes .............................................................          0      (5,696)
    Share of operations of affiliated companies ...............................       (299)        (59)
    Gain on redemption of East/West preferred stock ...........................     (4,125)          0
    Minority interests ........................................................       (103)        199
    Reserve for impairment of PCS licenses ....................................          0      15,406
    Changes in operating assets and liabilities:
        Receivables ...........................................................        (90)       (853)
        Accounts payable and accrued liabilities ..............................     (2,791)       (853)
        Other .................................................................       (473)      1,518
      Other ...................................................................          0        (284)
                                                                                  --------    --------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES ...........................     (1,058)      3,205
                                                                                  --------    --------
INVESTING ACTIVITIES
Capital Expenditures ..........................................................     (3,664)     (2,270)
Investment in and advances to wireless telecommunications affiliates ..........    (15,118)     (3,106)
Proceeds from redemption of East/West preferred stock .........................      8,712           0
Other .........................................................................        194          48
                                                                                  --------    --------
NET CASH (USED IN) INVESTING ACTIVITIES .......................................     (9,876)     (5,328)
                                                                                  --------    --------
FINANCING ACTIVITIES
Repayments of long term debt ..................................................       (914)     (1,991)
Net borrowings (repayments), lines of credit ..................................        661      (5,582)
Treasury stock transactions ...................................................        (20)          0
Advances to Lynch Corporation .................................................          0        (357)
Other .........................................................................        175        (838)
                                                                                  --------    --------
NET CASH (USED IN) FINANCING ACTIVITIES .......................................        (98)     (8,768)
                                                                                  --------    --------
Net decrease in cash and cash equivalents .....................................    (11,032)    (10,891)
Cash and cash equivalents at beginning of period ..............................     31,354      27,021
                                                                                  --------    --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ....................................   $ 20,322    $ 16,130
                                                                                  ========    ========
</TABLE>



<PAGE>

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

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

As of March 31, 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>      <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  share  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 March 31, 2000 and December 31, 1999, and for the three months ended March
31, 2000,  the  accompanying  financial  statements  represent the  consolidated
accounts  of  Interactive.  For the  three  months  ended  March 31,  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 month period ended March 31, 1999, financial
information  reflects a periods  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 at March 31,  2000)  and The  Morgan  Group,  Inc.
("Morgan"),  in which,  at March 31, 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 March 31, 2000),  Capital  Communications  Company,  Inc. (49% owned at
March 31,  2000),  Fortunet  Communications,  L.L.P.  (49.9%  owned at March 31,
2000), and the cellular  partnership  operations in New Mexico (17% to 21% owned
at March 31, 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  are  charged  a
management fee for these services. This charge was $120,000 for the three months
ended March 31, 2000.

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  Article  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  period
ended March 31, 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.

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   $28.1  million  in  cash.  As  a  result  of  this
transaction,  the Registrant  recorded  approximately $17.9 million in goodwill,
which is being amortized over 25 years.

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 Statement 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
                                                           March 31,
                                                        2000          1999
                                                        ----          ----
<S>                                                 <C>          <C>
Sales and Revenues ..............................   $   43,438   $   49,893
Net Income (loss) before Extraordinary Item......        2,552        9,406
Basic Earnings (loss) per share .................         1.81        (6.63)
Diluted Earnings (loss) per share ...............         1.64        (6.63)
</TABLE>

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

During  the  first  quarter  of  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 was
the entities  were high bidders in license with a net cost of $1.5  million.  In
accordance  with the terms of the  agreement  with the  entities,  the remaining
amount of the  investment/advance  will be returned to the Registrant subsequent
to March 31, 2000.

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

On a consolidated basis, at March 31, 2000, the Registrant maintained short-term
lines of credit  facilities  totaling $40.0 million,  of which $21.6 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 March
31, 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 $1.6 million was available at March 31, 2000. The Morgan Group
facility  expires on February 28, 2001.  Morgan projected it was probable that a
violation  of one or  more  of the  financial  covenants  associated  with  this
facility would occur at each of the  measurement  dates during 2000.  Morgan and
the bank, on March 30, 2000, agreed to modify the affected covenants. Morgan was
in compliance at March 31, 2000. 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.
<TABLE>
<CAPTION>

Long-term debt consists of:                                                      March 31,            December 31,
                                                                                   2000                  1999
                                                                                   ----                  ----
<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 March 31, 2000 and 4.8% at
December 31, 1999), secured by assets of the telephone companies
of $113.9 million ..............................................................   $  49,483    $  48,892

Bank Credit  facilities  utilized by certain  telephone  and  telephone
holding companies  through 2009, $46.0 million at a fixed interest
rate averaging 8.2% ($46.9   million,  ave31,  1999) and $13.3 million
at variable interest rates averaging 7.8% ($13.8 million averaging
8.1% at December 31, 1999)  ....................................................      59,346       60,740

Unsecured  notes issued in connection  with  acquisitions  through 2006, at
fixed interest rate of 10.0% ...................................................      27,555       27,654

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

Other ..........................................................................       3,403        3,415
                                                                                   ---------    ---------
                                                                                     164,787      165,701
Current Maturities .............................................................     (16,208)     (16,445)
                                                                                   ---------    ---------
                                                                                   $ 148,579    $ 149,256
                                                                                   =========    =========
</TABLE>


H.     Earnings per share
- --     ------------------

For the three months ended March 31, 1999,  the  following  table 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  equivalent
outstanding.  (On  December  13, 1999,  the  Registrant  issued a $25 million 6%
convertible  promissory note,  convertible into the Registrant's common stock at
$85.00 per share.)
<TABLE>
<CAPTION>
                                                                      Three months ended
                                                                          March 31,
   Basic earnings per share                                      2000                   1999
   ------------------------                                      ----                   ----
<S>                                                         <C>                   <C>
   Numerators:
         Income (loss) before extraordinary item                $2,552,000           $(9,305,000)
         Extraordinary item                                             --              (160,000)
                                                             --------------         --------------
         Net Income (loss)                                      $2,552,000           $(9,465,000)
                                                             ==============         ==============
   Denominator:
         Weighted average shares outstanding                     1,412,000              1,418,000
                                                             ==============         ==============
   Earnings (loss) per share:
         Income (loss) before extraordinary item                     $1.81                $(6.56)
         Extraordinary item                                             --                 (0.11)
                                                             --------------         --------------
         Net income (loss)                                           $1.81                $(6.67)
                                                             ==============         ==============
   Diluted earnings per share
   Numerators:
        Income (loss) before extraordinary item                 $2,552,000           $(9,305,000)
        Extraordinary item                                              --              (160,000)
                                                             --------------         --------------
        Net Income (loss)                                       $2,552,000           $(9,465,000)
                                                             ==============         ==============
        Interest saved on assumed conversion of
        convertible notes - net of tax                             248,000                     --
                                                             ==============         ==============

        Income (loss) before extraordinary item                 $2,800,000           $(9,305,000)
        Extraordinary item                                              --              (160,000)
                                                             --------------         --------------
        Net Income (loss)                                       $2,800,000           $(9,465,000)
                                                             ==============         ==============
   Denominators:
         Weighted average shares outstanding                     1,412,000              1,418,000
         Shares issued on conversion of convertible note           294,000                     --
                                                             --------------         --------------
         Weighted average share and share equivalents            1,706,000              1,418,000
                                                             ==============         ==============
   Earnings (loss) per share:
         Income (loss) before extraordinary item                     $1.64                $(6.56)
         Extraordinary item                                             --                 (0.11)
                                                             --------------         --------------
         Net income (loss)                                            1.64                 (6.67)
                                                             ==============         ==============

</TABLE>

I.     Comprehensive income
- --     --------------------

The comprehensive  income, for the three-month  periods ending in March 31, 2000
and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
                                                                                    Three Months Ended
                                                                                         March 31,

                                                                                    2000           1999
                                                                                    ----           ----

<S>                                                                                <C>         <C>
Net Income (loss) for the period ...............................................   $  2,552    $ (9,465)
Unrealized  losses on available for sale  securities - net of tax...............     (1,205)     (2,539)
                                                                                   --------    --------
Comprehensive Income (loss) ....................................................   $  1,347    $(12,004)
                                                                                   ========    ========
</TABLE>
At March 31, 2000 and December 31, 1999 accumulated other  comprehensive  income
consisted of unrealized gains (losses) on available for sale securities.

J.       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 for the three  months ended March 31, 2000,  and $308,000 for the three
months ended March 31, 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
                                                                  March 31,
                                                                2000      1999
                                                               ------    ------
Revenues:
<S>                                                          <C>         <C>
Multimedia ...............................................   $ 15,571    $ 13,387
Services .................................................     27,867      35,325
                                                             --------    --------
Combined Total ...........................................   $ 43,438    $ 48,712
                                                             ========    ========
EBITDA (before corporate allocation):
Multimedia ...............................................   $  8,160    $  7,123
Services .................................................       (580)        659
Corporate expenses, gross ................................       (634)       (587)
                                                             --------    --------
Combined total ...........................................   $  6,946    $  7,195
                                                             ========    ========

Operating profit:
Multimedia ...............................................   $  4,025    $  3,498
Services .................................................       (898)        325
Unallocated corporate expense ............................       (289)       (256)
                                                             --------    --------
                                                               $2,838    $  3,567
                                                             ========    ========

Operating profit .........................................   $  2,838    $  3,567
Investment income ........................................        504         816
Interest expense .........................................     (3,230)     (2,684)
Equity in earnings of affiliated companies ...............        299          59
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                                         $4,536    $(13,648)
                                                             ========    ========
</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 first three  months of 2000  decreased by $5.3 million to $43.4
million  from the first  three  months of 1999.  Within the  operating  segments
multimedia  revenues increased by $2.2 million or 16.3 %, which were offset by a
$7.5 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  in  the  specialized  outsourcing  operations.   The
manufactured  housing  industry  continues to be hampered by tighter  credit and
high customer  inventory  levels,  which directly  impacts  production and sales
volumes  of  Morgan's  customers.  The  largest  portion of  Morgan's  operating
revenues are derived  from the  transportation  of  manufactured  homes.  Morgan
believes  that the  depressed  level of shipments in  manufactured  housing will
continue  through the first half of 2000 and possibly  moderating  in the second
half of the  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.

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 first three months of 2000 decreased by $0.7 million to
$2.8 million  from the first three months of 1999 as the increase in  multimedia
operating profit of $0.5 million was offset by a decrease in services  operating
profit of $1.2 million. Operating profit in the multimedia segment increased due
to the acquisition of Central Scott, $0.3 million, net of goodwill amortization.
Morgan's  operating  profits  fell by $1.2  million  due to the lower  volume in
shipments.  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.

Investment  income for  quarter  ended  March 31,  2000 was lower than the three
months ended March 31, 1999 due to  unrealized  loss on  marketable  securities,
classified  as trading,  offset by increased  earnings due to higher  investment
balances.

Interest expense for the first quarter  increased by $0.5 million  predominantly
due to the  acquisition of Central Scott  Telephone  Company and the issuance of
the Convertible Note by the parent company on December 11, 1999.

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.


<PAGE>




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 three months ended March 31, 2000 and
1999, represent effective tax rates of 46% and (33.6%), 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  interests was $0.1 million  contribution  in earnings in 2000 and $0.2
million  deduction  for  earnings in 1999.  The change is  primarily  due to the
results of the Morgan  Group Inc. Of note,  the reserve  for  impairment  of PCS
operations had no effect on minority interest.

Net income for the three  months  ended March 31, 2000 was $2.6 million or $1.81
per share  (basic) as compared to a net loss of $9.5  million or $6.67 per share
(basic) in the previous years  three-month  period.  The most significant  items
affecting  the swing in earnings  were the gain on the  redemption  of East/West
preferred  stock ($2.6  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 March 31,  2000,  the  Company  had  current  assets of $50.2  million and
current liabilities of $44.6 million. Working capital was therefore $5.6 million
as compared to $12.1  million at December  31,  1999.  Registrant's  advances to
affiliated entities of $15.1 million, which were put on deposit with the Federal
Communication  Commission,  for purposes of bidding in FCC auctions for wireless
spectrum, was the primary cause of the decline.

The first three months capital  expenditures  were $3.7 million in 2000 and $2.3
million  in  1999.  Overall  2000  capital   expenditures  are  expected  to  be
approximately  $0.6  million  above  the  1999  level of  $12.6  million  due to
additional expenditures for the Company's Kansas telephone operations.

At March 31, 2000,  total debt was $168.7  million,  which was about the same as
the  $168.9  million  at the end of 1999.  At March 31,  2000,  there was $151.4
million of fixed interest rate debt averaging 7.0% and $17.3 million of variable
interest rate debt averaging 7.8%. 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 $21.6  million in unused lines of credit at March
31, 2000,  of which $1.6  million was  attributable  to Morgan.  As of March 31,
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 March 31, 2000,  Morgan had a $20.0
million  revolving  credit  facility  that expires on February 28, 2001.  Morgan
projected  it was  probable  that a  violation  of one or more of the  financial
covenants  would  occur  at  each  of  the   measurements   dates  during  2000.
Accordingly,  Morgan  and the bank,  on March  30,  2000,  agreed to modify  the
covenants.  Morgan was in compliance  at March 31, 2000. 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 March 31,2000,  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.


<PAGE>



The  Company  has a  significant  need for  resources  primarily  to fund future
growth.  Interactive  is  currently  considering  various  alternative  long and
short-term  financing  arrangements.  One  alternative is the equity offering of
Interactive  stock. Other  alternatives,  either in addition to or in lieu of an
Interactive  equity  offering,  include a sale of shares of Spinnaker stock or a
sale of a portion or all of certain  investment  in  operating  entities.  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,  about 40% smaller in  magnitude as its recent  acquisition  of Central
Scott Telephone Company.

<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
(approximately $21.7 million at March 31, 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  March  31,  2000,  approximately  $17.3  million,  or 10%  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.

                           FORWARD LOOKING INFORMATION

Included in this Management  Discussion and Analysis of Financial  Condition and
Results of Operations and Item 5 below are certain forward looking financial and
other  information,  including without limitation matters relating to East/West,
possible financings,  possible acquisitions,  Year 2000 matters 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 risk factors 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 6.  Exhibits and Reports on Form 8-K

         (a)      Exhibits

                  27 - Financial Data Schedule

         (b)      Reports on Form 8-K

                  No  reports on Form 8-K were filed  during the  quarter  ended
                  March 31, 2000


<PAGE>




                                   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

May 12, 2000


<TABLE> <S> <C>


<ARTICLE>                     5
<LEGEND>
This schedule contains summary information extracted from the Company's
Financial Statements as of March 31, 2000 and is qualified in its entirety by
reference to such financial information.
</LEGEND>
<CIK>                         0001088771

<NAME>                    Lynch Interactive Corporation
<MULTIPLIER>                                      1,000
<CURRENCY>                                  U.S. Dollar

<S>                                        <C>
<PERIOD-TYPE>                                    3-MOS
<FISCAL-YEAR-END>                          DEC-31-2000
<PERIOD-START>                             JAN-01-2000
<PERIOD-END>                               MAR-31-2000
<EXCHANGE-RATE>                                      1
<CASH>                                          20,322
<SECURITIES>                                     1,424
<RECEIVABLES>                                   16,965
<ALLOWANCES>                                       488
<INVENTORY>                                          0
<CURRENT-ASSETS>                                50,161
<PP&E>                                         157,697
<DEPRECIATION>                                  61,433
<TOTAL-ASSETS>                                 249,720
<CURRENT-LIABILITIES>                           44,616
<BONDS>                                        148,579
                                0
                                          0
<COMMON>                                             0
<OTHER-SE>                                      28,238
<TOTAL-LIABILITY-AND-EQUITY>                   249,720
<SALES>                                         43,438
<TOTAL-REVENUES>                                43,438
<CGS>                                           37,598
<TOTAL-COSTS>                                   40,600
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                               3,230
<INCOME-PRETAX>                                  4,536
<INCOME-TAX>                                    (2,087)
<INCOME-CONTINUING>                              2,552
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                     2,552
<EPS-BASIC>                                       1.81
<EPS-DILUTED>                                     1.64



</TABLE>



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