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                                    FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

For the fiscal year ended December 31, 2002         Commission file number 1-106
                          -----------------                                -----

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

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

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

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

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

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

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

            Title of each class                    Name of each exchange
            -------------------                     on which registered
                                                    -------------------
            Common Stock, $.0001                  American Stock Exchange

Securities registered pursuant to section 12(g) of the Act:  None
                                                             ----

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

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

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act) Yes    No X

The  aggregate  market  value of  voting  stock  held by  non-affiliates  of the
Registrant as of June 30, 2002 (based upon the closing price of the Registrant's
Common  Stock on the  American  Stock  Exchange  of $30.50  per  share)  was $65
million. (In determining this figure, the Registrant has assumed that all of the
Registrant's directors and officers are affiliates. This assumption shall not be
deemed conclusive for any other purpose.)

The number of outstanding shares of the Registrant's  Common Stock was 2,790,651
as of March 24, 2003.

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<PAGE>



                      DOCUMENTS INCORPORATED BY REFERENCE:

Part III: Certain  portions of Registrant's  Proxy Statement for the 2003 Annual
          Meeting of Shareholders.

FORWARD LOOKING INFORMATION

This Form 10-K contains certain forward looking  information,  including without
limitation Item 1-I.A "Regulatory  Environment" and possible changes thereto and
"Competition,"   Item   1.-I.B   "Cable   Television,"   Item  1-I.C   "Personal
Communications and other Wireless  Services',"  including without limitation the
risks  described,  "Impairment  of  Assets,"  and "Risk  Management,  Safety and
Insurance," Item 7. "Management's Discussion and Analysis of Financial Condition
and Results of Operations,"  including without limitation  Liquidity and Capital
Resources,  and Market Risk. It should be recognized  that such  information are
estimates or forecasts  based upon various  assumptions,  including the matters,
risks,  and cautionary  statements  referred to therein,  as well as meeting the
Registrant's  internal  performance  assumptions  regarding  expected  operating
performance and the expected performance of the economy and financial markets as
it impacts Registrant's businesses.  As a result, such information is subject to
uncertainties,  risks and inaccuracies,  which could be material.

                                     PART I

ITEM 1. BUSINESS

Lynch Interactive Corporation  ("Interactive" or the "Company") was incorporated
in 1996  under  the  laws of the  State  of  Delaware.  On  September  1,  1999,
Interactive  was spun off by Lynch  Corporation to its  shareholders  (the "Spin
Off") and became a public  company.  Prior to the Spin Off,  Interactive  had no
significant  assets,  liabilities  or  operations.  As a  successor  to  certain
businesses  of  Lynch  Corporation,  Interactive  became a  diversified  holding
company with  subsidiaries  primarily  engaged in multimedia and  transportation
services.  Interactive's  executive  offices are located at 401  Theodore  Fremd
Avenue, Rye, New York 10580-1430. Its telephone number is 914-921-8821.

Interactive's business development strategy is to expand its existing operations
through  internal  growth  and  acquisitions.  It may  also,  from time to time,
consider the  acquisition of other assets or businesses  that are not related to
its present  businesses.  In January 2002,  Interactive spun off its interest in
The Morgan Group, Inc., its only services subsidiary, via a tax-free dividend to
its  shareholders  of the stock of Morgan Group Holding Co., a corporation  that
was formed initially to serve as a holding company for Interactive's controlling
interest in The Morgan Group,  Inc., among other business  purposes.  In October
2002, the Morgan Group, Inc. filed for bankruptcy.  As a result, the Company now
operates   in   one   business   segment,    multimedia,   which   consists   of
telecommunications,   cable  television  and   broadcasting.   As  used  herein,
Interactive includes subsidiaries.

I. MULTIMEDIA

A. Telecommunications

Operations.  Interactive  conducts  its  telecommunications  operations  through
subsidiary companies. The telecommunications group has been expanded through the
selective  acquisition of local exchange telephone companies serving rural areas
and by offering  additional  services such as Internet service,  alarm services,
long distance service and competitive local exchange carrier service.  From 1989
through 2002,  Interactive has acquired fourteen  telephone  companies,  four of
which have indirect  minority  ownership of 2% to 19%, whose operations range in
size from approximately 800 to over 10,000 access lines. The Company's telephone
operations are located in Iowa, Kansas, Michigan, New Hampshire, New Mexico, New
York,  North Dakota,  Utah and Wisconsin.  As of December 31, 2002, total access
lines were 53,619, 100% of which are served by digital switches.

The  principal  business  of  Interactive's  telephone  companies  is to provide
telecommunications  services.  These  services fall into four major  categories:
local  network,   network   access,   long  distance  and  other   non-regulated
telecommunications  services. Toll service to areas outside franchised telephone
service territory is furnished  through switched and special access  connections
with intrastate and interstate long distance networks.

Interactive holds  franchises,  licenses and permits adequate for the conduct of
its business in the geographic areas that it serves.

We  expect  future  growth  in  telephone  operations  to be  derived  from  the
acquisition of additional  telephone  companies,  from providing  service to new
customers or additional services to existing customers,  from upgrading existing
customers to higher grades of service, and from new service offerings.
<page>
The following  table  summarizes  certain  information  regarding  Interactive's
multimedia operations:
<TABLE>
<CAPTION>

                                                                                                   Years Ended December 31,
                                                                                                   2000      2001      2002
                                                                                                 ------    ------    ------
Telecommunications Operations
<S>                                                                                              <C>       <C>       <C>
Access lines (a) .............................................................................   46,312    53,804    53,619
  % Residential ..............................................................................       75%       75%       74%
  % Business .................................................................................       25%       25%       26%
Internet Subscribers .........................................................................   18,340    20,885    21,329
Security Customers ...........................................................................      680     5,597     6,500
Cable Subscribers ............................................................................    4,515     2,959     2,879

Total Multimedia Revenues
Telecommunications Operations
 Local Service ...............................................................................       15%       14%       15%
 Network Access & Long Distance ..............................................................       61%       60%       59%
 Non-Regulated & Other (b) ...................................................................       21%       24%       25%
                                                                                                 ------    ------    ------
 Total Telecommunications Operations .........................................................       97%       98%       99%
Cable Television  Operations .................................................................        3%        2%        1%
                                                                                                 ------    ------    ------
   Total Multimedia Revenues .................................................................      100%      100%      100%
                                                                                                 ======    ======    ======
<FN>


(a)  An "access line" is a  telecommunications  circuit  between the  customer's
     establishment and the central switching office.

(b)  Non-regulated  and other revenues include  Internet,  alarm,  PCS, CLEC and
     other non-regulated revenues.
</FN>
</TABLE>

Telephone  Acquisitions.  Interactive  pursues an active  program  of  acquiring
operating telephone  companies.  From January 1, 1989 through December 31, 2002,
Interactive   acquired   fourteen   telephone   companies  serving  a  total  of
approximately  45,600 access lines,  at the time of these  acquisitions,  for an
aggregate consideration totaling approximately $153.6 million. Such acquisitions
are summarized in the following table:


<TABLE>
<CAPTION>



                                                           Number of       Number of
                                             Year of      Access Lines   Access Lines   Ownership
Company                                    Acquisition    Yr. of Acq.      12/31/02     Percentage
-------                                    -----------    -----------      --------     ----------
<S>                                           <C>             <C>            <C>           <C>
Western New Mexico Telephone Co.              1989            4,200          6,966         83.1
Inter-Community Telephone Co. (a)             1991            2,550          2,616        100.0
Cuba City Telephone Co. & Belmont
Telephone Co. ....................            1991            2,200          2,744         81.0
Bretton Woods Telephone Co. ......            1993              250            836        100.0
JBN Telephone Co. (b) ............            1993            2,300          2,710         98.0
Haviland Telephone Co. ...........            1994            3,800          3,856        100.0
Dunkirk & Fredonia Telephone Co. &
Cassadaga Telephone Co. ..........            1996           11,100         13,099        100.0
Upper Peninsula Telephone Co. ....            1997            6,200          7,271        100.0
Central Scott Telephone Co. ......            1999            6,000          6,264        100.0
Central Utah Telephone Co./Skyline
 Telephone Company/Bear Lake
 Telephone Company ...............            2001            7,000          7,257        100.0
<FN>

(a) Includes 1,350 access lines acquired in 1996.

(b)  Includes 354 access lines acquired in 1996.
</FN>
</TABLE>
<page>
Interactive  continually evaluates acquisition  opportunities targeting domestic
rural telephone  companies with a strong market position,  good growth potential
and predictable  cash flow. In addition,  Interactive  generally seeks companies
with  excellent  local  management  already in place who will remain active with
their company.  Recently, certain large telephone companies have offered certain
of their rural telephone exchanges for sale, often on a statewide or larger area
basis.  Interactive  has and in the future may, bid on such groups of exchanges.
Telephone  holding  companies and others actively compete for the acquisition of
telephone companies and such acquisitions are subject to the consent or approval
of  regulatory  agencies in most states.  While  management  believes it will be
successful in making additional acquisitions, any acquisition program is subject
to various risks,  including being able to find and complete  acquisitions at an
attractive  price and being  able to  integrate  and  operate  successfully  any
acquisition made.

Related  Services  and  Investments.  Interactive  also  provides  non-regulated
telephone related services,  including internet access service and long distance
resale  service,  in certain of its  telephone  service  (and  adjacent)  areas.
Interactive  also provides and intends to provide more local telephone and other
telecommunications   service   outside   certain  of  its  franchise   areas  by
establishing  competitive  local exchange  carrier (CLEC)  operations in certain
nearby areas.  Affiliates of nine of Interactive's telephone companies now offer
Internet access service. At December 31, 2002, Internet access customers totaled
21,329  compared  to  20,885  at  December  31,  2001.  Affiliates  of  four  of
Interactive's   telephone  companies  now  offer  long  distance  service,   and
affiliates of two of Interactive's telephone companies now offers CLEC services.

An affiliate  of Dunkirk & Fredonia  Telephone  Company  ("DFT")  provides  CLEC
service on a resale basis in neighboring Dunkirk, New York, certain areas of the
Buffalo, New York, market and two other western New York counties. Some of DFT's
CLEC  services  are  now  being  provided  via an  "unbundled  network  elements
platform", which allows for increased margins over a resale CLEC business model.
In addition,  facilities-based services are continuing to be evaluated for DFT's
CLEC  business.  Giant  Communications  also  provides CLEC services to selected
areas in Northeast Kansas.

DFT  Security  Systems,  Inc.  (which is 63.6%  owned by  Interactive),  another
affiliate of DFT, acquired American Alarm Company in December 2001. DFT Security
Systems provides alarm services to western New York, including the Buffalo area,
and now serves 6,500 alarm customers.

Affiliates of Inter-Community Telephone Company in North Dakota, and Western New
Mexico  Telephone  Company  in New Mexico  have filed with the state  regulatory
commissions to provide CLEC services in those states.  Final plans to offer CLEC
service in areas adjacent to Interactive's  telephone operations in those states
have not been completed. There is no assurance that Interactive can successfully
develop these  businesses or that these new or expanded  businesses  can be made
profitable  within a reasonable  period of time. Such businesses,  in particular
any CLEC  business,  would be expected to operate at losses  initially and for a
period of time.

Regulatory  Environment.  Operating  telephone  companies are regulated by state
regulatory agencies with respect to intrastate  telecommunications  services and
the  Federal  Communications  Commission  ("FCC")  with  respect  to  interstate
telecommunications services.

For the interstate services, Interactive's telephone subsidiaries participate in
the  National  Exchange  Carrier  Association  ("NECA")  common line and traffic
sensitive  tariffs and access revenue  pools.  Where  applicable,  Interactive's
subsidiaries also participate in similar pooling arrangements  approved by state
regulatory  authorities for intrastate services.  Such interstate and intrastate
arrangements are intended to compensate local exchange carriers  ("LECs"),  such
as Interactive's operating telephone companies,  for the costs, including a fair
rate-of-return,   of  facilities   furnished  in  originating   and  terminating
interstate and intrastate long distance services.

In addition to access pool participation,  certain of Interactive's subsidiaries
are  compensated  for  their   intrastate  costs  through  billing  and  keeping
intrastate  access charge revenues  (without  participating  in an access pool).
Intrastate  access charge  revenues are based on  intrastate  access rates filed
with the state regulatory agency.

In recent years,  various aspects of federal and state telephone regulation have
been subject to re-examination and on-going modification.  In February 1996, the
Telecommunications  Act of 1996 (the "1996 Act"),  which is the most substantial
revision of  communications  law since the 1930's,  became law.  The 1996 Act is
intended   generally   to  allow   telephone,   cable,   broadcast   and   other
telecommunications  providers  to  compete  in each  other's  businesses,  while
loosening  regulation of those businesses.  Among other things, the 1996 Act (i)
allows major long distance telephone companies and cable television companies to
provide  local  exchange  telephone  service;  (ii)  allows new local  telephone
service providers to connect into existing local telephone exchange networks and
purchase services at wholesale rates for resale; (iii) provides for a commitment
to universal service for high-cost,  rural areas and authorizes state regulatory
commissions to consider their status on certain  competition issues; (iv) allows
the Regional Bell Operating  Companies to offer long distance  telephone service
and enter the alarm services and electronic publishing  businesses;  (v) removes
rate regulation  over non-basic cable service;  and (vi) increases the number of
television  stations that can be owned by one party. The 1996 Act had dual goals
of fostering local and intrastate  competition while ensuring  universal service
to rural America.

The FCC has completed numerous regulatory  proceedings required to implement the
1996 Act.  For  certain  issues,  the FCC  bifurcated  the  proceedings  between
price-cap and  rate-of-return  companies or in the case of the Universal Service
Fund ("USF")  between  rural and  non-rural  companies.  In several  cases,  the
regulations for the price-cap (or non-rural)  local exchange  carriers have been
or  are  being   determined   first,   followed  by  separate   proceedings  for
rate-of-return (or rural) companies. All of Interactive's telephone subsidiaries
are rural,  rate-of-return  companies for interstate  regulatory  purposes.  The
rate-of-return  designation is an election made by the carrier with the FCC. The
price  cap  approach  differs  from  traditional  rate-of-return  regulation  by
focusing  primarily  on the prices of  communications  services  rather than the
telephone companies' costs.

USF is intended,  among other things,  to provide  special support funds to high
cost rural LECs so that they can provide affordable services to their customers,
notwithstanding  their high cost due to low population density.  The FCC adopted
permanent USF procedures for non-rural  carriers  effective January 1, 2000. The
new Federal universal service support mechanism for non-rural  carriers utilizes
the FCC's  synthesis  cost  proxy  model  with a  hold-harmless  provision.  The
hold-harmless  provision  originally ensured that the non-rural carrier receives
at least as much USF as they had been receiving under the previous  system.  The
hold-harmless support is being gradually phased out for non-rural carriers.

During 2001, the FCC completed  three major  regulatory  proceedings  related to
rural LECs to provide a more stable,  predictable  source of interstate  and USF
revenues.  In May  2001,  the FCC  adopted  an order  related  to USF for  rural
carriers based on the Rural Task Force (RTF) recommendation. Such order mandates
the  continued  use of actual  embedded  costs as the basis for USF  support for
rural  carriers  through June 2006. In such order,  the FCC  emphasized  that it
would  provide  predictability,  certainty  and stability to rural LECs for five
years,  so  as  to  allow  rural  carriers  to  continue  to  provide  supported
telecommunications  services at affordable rates to American  consumers.  In May
2001, the FCC adopted the Separations Freeze Order in which the FCC stressed how
freezing  separations factors would bring stability and regulatory  certainty to
the  separations  process to avoid  sudden cost shifts in a time of rapid market
and  technology  changes.   Finally,  in  October  2001,  the  FCC  adopted  the
Multi-Association  Group (MAG) Order, in which the FCC declared that some of the
primary  benefits are to provide  certainty  and  stability  for  rate-of-return
carriers and to encourage  investment in rural America. The MAG Order reaffirmed
that the 11.25%  interstate  rate-of-return  was appropriate for  rate-of-return
carriers.  In addition,  the MAG Order  increased  the  Subscriber  Line Charges
billed to end user customers  effective January 2002 and created a new universal
service  support  mechanism  called the  Interstate  Common  Line  Support  fund
effective July 2002.

In  November  2002 the FCC  requested  that  the  Federal-State  Joint  Board on
Universal  Service (Joint Board) review certain of the FCC rules relating to the
high-cost  universal service support mechanisms to ensure that the dual goals of
preserving universal service and fostering competition continue to be fulfilled.
The Joint  Board  initiated  this review in February  2003.  Interactive  cannot
predict  the  effects  of the review of the FCC rules in this  proceeding  which
could take over a year or more to complete.

In  addition,  the  FCC  has an  open  docket  regarding  potential  changes  to
intercarrier  compensation.  Some parties are advocating  that the FCC eliminate
the interstate access charges that local exchange carriers bill to interexchange
companies and implement a policy where each local  exchange  carrier bills their
own end user customers the costs to originate and terminate  calls.  Any changes
made to intercarrier  compensation for the interstate jurisdiction may also need
to be adopted for the intrastate  jurisdiction.  Interactive  cannot predict the
potential  changes that may be made to  intercarrier  compensation or the impact
the changes might have on the operations of the company.

Interactive's   local  exchange  carrier   telephone   operations  do  not  have
significant  wireline  competition  at the  present  time.  Because of the rural
nature  of  their  operations  and  related  low  population  density,  they are
primarily  high cost  operations,  which receive  substantial  Federal and state
subsidies.  However, the regulatory  environment for LEC operations has begun to
change.  A principal  purpose of the 1996 Act was to  encourage  competition  in
local telephone services. Although the 1996 Act reaffirmed the Federal policy of
maintaining  universal  telephony service at fair and reasonable rates, the 1996
Act and  related  proceedings  also  promote  competition  and USF  portability.
Similar  regulatory  changes  have also been  initiated in many of the states in
which Interactive operates.

Competition.  All of  Interactive's  current  telephone  companies  are monopoly
wireline  providers  in their  respective  area  for  local  telephone  exchange
service,  except to a very limited extent in Iowa, but there can be no assurance
that this will continue.  As a result of the 1996 Act, FCC and state  regulatory
authority  initiatives and judicial  decisions,  competition has been introduced
into certain areas of the toll network wherein certain  providers are attempting
to bypass local exchange  facilities to connect  directly with  high-volume toll
customers.  For example,  in the last few years,  the States of New Mexico,  New
York, Michigan,  Wisconsin and Kansas passed or amended telecommunications bills
intended to introduce  more  competition  among  providers of local services and
reduce regulation. Regulatory authorities in certain states, including New York,
have taken steps to promote  competition in local telephone exchange service, by
requiring certain companies to offer wholesale rates to resellers. A substantial
impact is yet to be seen on  Interactive's  telephone  companies.  Interactive's
subsidiaries  do not expect bypass to pose a significant  near-term  competitive
threat due to a limited number of high-volume customers they serve. In addition,
cellular radio or similar  radio-based  wireless  services,  including  personal
communication  services,  and cable television and internet based services could
provide an  alternative  local  telephone  exchange  service as well as possible
competition from electric companies.

Interactive's  telephone companies,  in the aggregate,  own approximately 10,000
miles of cable and 1,000 miles of fiber optic  cable.  Substantially  all of the
telephone  companies'  properties  are encumbered  under  mortgages and security
interests. See Item 2. Properties

B.  Cable Television/Broadcasting

Cable Television

It  is  part  of  Interactive's   strategy  to  own  cable  television  systems,
particularly in markets where Interactive is the telephone operator and adjacent
areas.

CLR Video, L.L.C. - CLR Video, L.L.C., a 98% owned subsidiary of Interactive, is
a provider of cable  television  in northeast  Kansas with  approximately  2,695
subscribers.

Broadcasting

Station  WHBF-TV - Lynch  Entertainment,  L.L.C.  ("Lynch  Entertainment  I"), a
wholly-owned  subsidiary  of  Interactive,  and Lombardo  Communications,  Inc.,
wholly-owned  by  Philip  J.  Lombardo,  are the  general  partners  of  Coronet
Communications Company ("Coronet").  Lynch Entertainment I has a 20% interest in
Coronet and Lombardo  Communications,  Inc. has an 80% interest. In addition, on
the sale of the stations,  Interactive is entitled to an additional fee of 5% of
the Capital  Proceeds (as  defined).  Coronet owns a  CBS-affiliated  television
station  WHBF-TV  serving  Rock Island and Moline,  Illinois and  Davenport  and
Bettendorf, Iowa.

Station WOI-TV - Lynch Entertainment  Corporation II ("LEC-II"),  a wholly-owned
subsidiary of Interactive,  owns 49% of the outstanding common shares of Capital
Communications  Corporation  ("Capital") and convertible  preferred stock, which
when converted,  would bring LEC-II's common share ownership to 50%. On March 1,
1994, Capital acquired the assets of WOI-TV for $12.7 million.  WOI-TV is an ABC
affiliate and serves the Ames/Des Moines, Iowa market. Lombardo  Communications,
Inc. II,  controlled by Philip J. Lombardo,  has the remaining share interest in
Capital.

Based upon a multiple of ten times  broadcast cash flow,  plus cash,  less debt,
Interactive  estimates  its value in these  stations  at almost  $12  million as
compared to the net book value of these  investments of a negative $0.8 million.
It is not  assured  that the  results of these  stations  will  continue  at the
current level or that they could be sold at ten times cash flow.

Operations.  Revenues of a local  television  station depend to some extent upon
its  relationship  with  an  affiliated  television  network.  In  general,  the
affiliation  contracts  of WHBF-TV  and WOI-TV  with CBS and ABC,  respectively,
provide  that the network will offer to the  affiliated  station the programs it
generates, and the affiliated station will transmit a number of hours of network
programming  each month.  The programs  transmitted  by the  affiliated  station
generally include advertising  originated by the network,  for which the network
is compensated by its advertisers.

The  affiliation  contract  generally  provides that the network will pay to the
affiliated station an amount which is determined by negotiation,  based upon the
market size and rating of the  affiliated  station.  Typically,  the  affiliated
station  also makes  available a certain  number of hours each month for network
transmission  without  compensation to the local station,  and the network makes
available to the affiliated  station certain  programs,  which will be broadcast
without advertising,  usually public information programs. Some network programs
also  include  "slots" of time in which the local  station is  permitted to sell
spot  advertising  for its own  account.  The  affiliate  is  permitted  to sell
advertising spots preceding, following, and sometimes during network programs.

A network  affiliation is important to a local station because network programs,
in general,  have higher viewer  ratings than  non-network  programs and help to
establish a solid audience base and  acceptance  within the market for the local
station.  Because  network  programming  often  enhances  a  station's  audience
ratings, a network-affiliated  station is often able to charge higher prices for
its own  advertising  time.  In addition to revenues  derived from  broadcasting
network  programs,  local  television  stations derive revenues from the sale of
advertising  time for spot  advertisements,  which  vary from 10  seconds to 120
seconds in length,  and from the sale of program  sponsorship  to  national  and
local advertisers. Advertising contracts are generally short in duration and may
be canceled  upon  two-weeks  notice.  WHBF-TV and WOI-TV are  represented  by a
national firm for the sale of spot advertising to national  customers,  but have
local  sales  personnel  covering  the  service  area in which each is  located.
National   representatives   are  compensated  by  a  commission  based  on  net
advertising revenues from national customers.

Competition.  WHBF-TV and WOI-TV compete for revenues with local  television and
radio  stations,  cable  television,   and  other  advertising  media,  such  as
newspapers,   magazines,  billboards  and  direct  mail.  Generally,  television
stations  such as  WHBF-TV  and WOI-TV do not  compete  with  stations  in other
markets.

Other sources of  competition  include  community  antenna  television  ("CATV")
systems,   which  carry  television  broadcast  signals  by  wire  or  cable  to
subscribers who pay a fee for this service. CATV systems retransmit  programming
originated by broadcasters,  as well as providing additional programming that is
not originated  on, or transmitted  from,  conventional  broadcasting  stations.
Direct  broadcast are  satellites  providing  local to local video services to a
growing  percentage of the  population in the United States.  In addition,  some
alternative  media operators,  such as multipoint  distribution  service owners,
provide for a fee and on a subscription basis, programming that is not a part of
regular  television  service.   Additional  program  services  are  provided  by
low-power television stations as well.

Federal  Regulation.  Television  broadcasting is subject to the jurisdiction of
the FCC under the  Communications  Act of 1934, as amended (the  "Communications
Act"). The  Communications  Act, and/or the FCC's rules, among other things, (i)
prohibit the  assignment of a broadcast  license or the transfer of control of a
corporation  holding  a license  without  the prior  approval  of the FCC;  (ii)
prohibit the common  ownership of a television  station and a daily newspaper in
the same  market;  (iii)  prohibit  ownership  of a CATV  system and  television
station in the same market; (iv) restrict the total number of broadcast licenses
which can be held by a single entity or  individual or entity with  attributable
interests in the stations  and  prohibits  such  individuals  and entities  from
operating or having attributable interests in most types of stations in the same
service area (loosened in the 1996 Act); and (v) limit foreign  ownership of FCC
licenses under certain circumstances.  See Regulatory Environment under A. above
for a description of certain  provisions of the 1996 Act including in particular
those,  which would remove the regulations over non-basic cable service in three
years and permit  telephone  service  providers  to provide  cable  service.  In
calculating media ownership interests, The Company's interests may be aggregated
under  certain  circumstances  with  certain  other  interests  of Mr.  Mario J.
Gabelli,  Vice Chairman and Chief Executive Officer of the Company,  and certain
of his affiliates.

Television  licenses are issued for terms of eight years and are  renewable  for
terms of eight  years.  The current  licenses  for WHBF-TV and WOI-TV  expire on
December 1, 2005 and February 1, 2006, respectively.

C.  Personal Communications and Other Wireless Services.

Sunshine  PCS  Corporation.  In February  2001,  Interactive  spun off its 49.9%
interest in Sunshine PCS Corporation ("Sunshine") to its shareholders.  Sunshine
succeeded by merger to the assets and  liabilities  of Fortunet  Communications,
L.P.  Sunshine holds 15 MHz PCS licenses in Tallahassee,  Panama City and Ocala,
Florida. Interactive currently holds the following interests in Sunshine: 10,000
shares of 7%  preferred  stock of Sunshine  (dividends  payable in kind  through
February  2006,  and in cash  thereafter)  with a  liquidation  value  of  $10.0
million,  12,500  shares of  series  A-1  preferred  stock of  Sunshine  with no
dividend and a liquidation  value of $12.5  million,  2,000 shares of series A-2
convertible preferred stock of Sunshine with no dividend and a liquidation value
of $2.0 million (which represent  approximately  13.7% of the common equity on a
fully diluted basis), and warrants expiring February, 2006 to purchase 4,300,000
shares of Class A Common Stock of Sunshine at $0.75 per share  (which  represent
approximately 29.5% of the common equity on a fully diluted basis). In addition,
Interactive  owns  294,218  shares  of  Sunshine's  Class A  Common  Stock.  The
Company's total book basis in its Sunshine  investment is $3.4 million,  its tax
basis is approximately $14.0 million and from inception Interactive has invested
over $21.0  million in Sunshine  and its  predessors.  Taking  into  account the
series A-2  convertible  preferred  stock,  the  warrants  and the  shares  held
directly,  Interactive beneficially owns 57.2% of the outstanding Class A Common
Stock of Sunshine  and 45.2% of the total  outstanding  shares of  Sunshine.  In
September  2001,  Sunshine  met the FCC  requirement  that  it  provide  service
coverage  to at least  one-quarter  of the  population  in its  licensed  areas.
However, Sunshine does not presently have the funds necessary to fully build out
the system  necessary  to provide  commercial  operations;  moreover,  obtaining
financing  from third parties is extremely  difficult to obtain,  because of the
general  downturn in the  wireless  industry  and  Sunshine's  lack of operating
history.  Sunshine has disclosed that it would consider  selling its licenses or
entering into a joint  venture with a company that provides  service to a nearby
area and then developing our licenses  together.  However,  Sunshine has not yet
adopted a business plan and there can be no assurance of  Sunshine's  ability to
achieve any of its  several  business  strategic  options  because of  financial
considerations.  Moreover,  because  Sunshine  has  incurred  losses  since  its
inception and has not yet determined how to finance its  operations,  the latest
report of its  independent  auditors  contains an explanatory  paragraph,  which
expresses  substantial  doubt as to  Sunshine's  ability to  continue as a going
concern.  As of December 31, 2002,  it has $0.4 million in cash and for the year
ended  December 31, 2002,  cash flow used in operations  was $0.6 million though
steps are being taken to reduce that number in 2003.

Las  Cruces,  NM PCS  License.  Another  subsidiary  of  Interactive,  Lynch PCS
Corporation  G ("LPCSG")  holds a 10 MHz PCS license for the Basic  Trading Area
(BTA) covering Las Cruces,  New Mexico.  Las Cruces is the principal city in the
BTA, which covers a population of approximately 197,166 (as of the 1990 census).
In April 2002,  LPCSG  completed a build-out of the licensed area  sufficient to
meet  the  FCC  requirement  that  it  provide  service  coverage  to  at  least
one-quarter of the population in this BTA.

Logan,  UT PCS License.  As part of the  acquisition  of Central Utah  Telephone
Company  by  Interactive  in June 2001,  Interactive  acquired  Central  Telecom
Services, LLC, a related entity that now owns 7.5 MHz of a 10 MHz PCS license in
the Logan, Utah, BTA, which has a population of approximately  102,702.  Similar
to LPCSG,  Central Telecom Services has completed a build-out sufficient to meet
the FCC requirement that service  coverage be available to at least  one-quarter
of the  population  in this BTA.  In  respect  of the  traditions  of many staff
members and former owners,  Interactive  donated 20% of the net profits from any
sale of the Logan license to the Church of Jesus Christ of Latter Day Saints.

Iowa PCS  Licenses.  Central  Scott has a 10 MHz PCS  License  for its  wireline
territory   covering  a  population   of  11,470.   Central  Scott  is  also  an
approximately  14% minority owner of an entity that has a 10 MHz PCS license for
portions of Clinton and Jackson  Counties in Iowa,  with a total  population  at
December  31,  2002 of 68,470,  of which  Interactive's  proportionate  share is
9,781.

RSA  Cellular  Interests.  At December  31,  2002,  Interactive  owned  minority
interests in certain entities that provide wireless  cellular  telephone service
in two Rural Service Areas ("RSAs") in New Mexico and two RSA's in North Dakota,
covering  areas with a total  population  of  approximately  157,415.  Equity in
earnings from these two  operations was $0.9 million for the year ended December
31,  2002 on a combined  basis and the  combined  book basis is $2.4  million at
December  31,  2002.  Interactive  is  proportional  share of  these  operations
combined revenues,  EBITDA and operating profits were $2.0 million, $1.2 million
and $0.9  million  respectively,  for the year  ended  December  31,  2002.  The
difference  between  EBITDA and operating  profit is  depreciation  of plant and
equipment.  EBITDA  is  presented  because  it is a  widely  accepted  financial
indicator of value and ability to incur and service debt.  The Company  utilizes
the EBITDA metric for valuing potential acquisitions. EBITDA is not a substitute
for  operating   profit  in  accordance  with  generally   accepted   accounting
principles.  The entities have no debt and Interactive is proportional  share of
their cash equivalents is $0.8 million

In March  2002,  Interactive  sold its  interest in New Mexico RSA 1 (North) for
$5.5 million to Verizon  Wireless,  and in connection  therewith prepaid certain
outstanding  indebtedness  to  Verizon.  As a result of such  sale,  Interactive
reported a pre-tax gain of $5.0 million in the first quarter of 2002.

Other  Interests  in  Wireless  Licenses.  LPCSG  also  has  an  agreement  with
Bal/Rivgam  LLC (in which an affiliate  of the Vice  Chairman has a 49.9% equity
interest),  which won  licenses in the FCC's  Wireless  Communications  Services
("WCS")  Auction  in 1997,  to  receive  a fee equal to 5% of the  realized  net
profits  of  Bal/Rivgam  (after an  assumed  cost of  capital),  in  return  for
providing  bidding and certain other services to Bal/Rivgam.  Bal/Rivgam holds 5
WCS licenses covering a population of approximately 42 million with an aggregate
cost of $0.7 million and certain Local Multipoint Distribution Services ("LMDS")
licenses.  Betapage  Communications,  L.L.C.,  in which  Interactive has a 49.9%
equity  interest,  was a winning  bidder in the FCC  auction  for 929 MHz paging
licenses,  which was conducted in 2000. Betapage won 24 paging licenses covering
a population  of 76.7 million at a cost of  approximately  $77,000.  Interactive
also has the right to receive a fee equal to 20% of the  realized net profits of
Betapage (after an assumed cost of capital).

Another  subsidiary  of  Interactive  is a 49.9% owner of PTPMS  Communications,
L.L.C. ("PTPMS"),  which was a winning bidder in the FCC auction of licenses for
fixed point-to-point  microwave services, which was conducted in 2000. PTPMS won
22 licenses  covering a population of 27.6 million for an aggregate cost of $1.5
million.  Interactive's  subsidiary has loaned PTPMS approximately $1.4 million.
Interactive's subsidiary also has the right to receive a fee equal to 20% of the
realized net profits of PTPMS (after an assumed cost of capital).

Another  subsidiary of Interactive is a 49.9% owner of PTPMS  Communications II,
L.L.C  ("PTPMS II"),  which was a winning  bidder in the FCC auction of licenses
for 700 MHz Guard Band  spectrum for  wireless  data  transmission  and wireless
Internet  services,  which was  conducted in 2000.  PTPMS II won three  licenses
covering a population  of 6.4 million in BTAs  including  the cities of Buffalo,
NY,  Des  Moines-Quad-Cities,  IA and El  Paso,  TX,  at an  aggregate  cost  of
approximately  $6.3 million.  Interactive has loaned PTPMS II approximately $6.1
million, $5.0 million of which was loaned in 2001.  Interactive's subsidiary has
the right to receive a fee equal to 20% of the  realized net profits of PTPMS II
(after an assumed cost of capital).  In a FCC auction  conducted during 2002 for
similar  spectrum,  which ended on  September  18, 2002 , the Lower 700 MHz Band
Auction,  the price per MHz of population  was  materially  lower than the price
paid by PTPMS II in 2000.  Accordingly,  during  2002,  Interactive  provided  a
reserve for impairment for its investment in PTPMS II of $5.5 million, resulting
in a net book value, at December 31, 2002, of $0.7 million and the tax basis was
$6.2 million.

Another  subsidiary  of  Interactive,   Lynch  3G  Communications   Corporation,
participated in the Lower 700 MHz auction conducted in August 2002. Lynch 3G won
eight 12 MHz licenses in the following areas:  Reno, NV; Santa Barbara,  CA; Des
Moines, IA; Quad Cities area of Davenport and Bettendorf, IA and Rock Island and
Moline,  IL; Las Cruces, NM; Elmira, NY; and two RSAs in the western part of New
Mexico.  The total  population  covered by these licenses is  approximately  1.7
million. Lynch 3G paid $1.1 million for these licenses.

Interactive  expects to continue to participate  in the spectrum  auctions being
conducted by the FCC.

In addition to the build out  requirements  for PCS  licenses,  FCC rules impose
build-out requirements for WCS, LMDS, paging licenses,  point-to-point microwave
services  and the  licenses  granted in 700 MHz  (guard  band) and Lower 700 MHz
spectrum.  There are also substantial restrictions on the transfer of control of
licensed spectrum.

There are many risks relating to PCS and other FCC wireless  licenses  including
without  limitation,  the high cost of PCS and certain other licenses,  the fact
that it involves start-up businesses,  raising the substantial funds required to
pay for the licenses and the build out,  determining the best way to develop the
licenses and which technology to utilize,  the small size and limited  resources
of  companies  compared to other  potential  competitors,  existing and changing
regulatory  requirements,  additional  auctions of  wireless  telecommunications
spectrum and actually building out and operating new businesses  profitably in a
highly competitive environment (including already established cellular telephone
operators  and other new PCS  licensees).  There  can be no  assurance  that any
licenses  granted  to  Sunshine,  or other  entities  in which  subsidiaries  of
Interactive have interests,  can be successfully  sold or financed or developed,
thereby  allowing  Interactive's  subsidiaries  to recover their debt and equity
investments.

III.  OTHER INFORMATION

While Interactive holds licenses of various types,  Interactive does not believe
they   are   critical   to  its   overall   operations,   except   for  (1)  the
television-broadcasting  licenses  of  WHBF-TV  and  WOI-TV;  (2)  Interactive's
telephone   subsidiaries'   franchise  certificates  to  provide  local-exchange
telephone  service within their service areas;  (3) Western New Mexico Telephone
Company's FCC licenses to operate point-to-point microwave systems; (4) licenses
held by  partnerships  and  corporations  in which Western New Mexico  Telephone
Company and Inter-Community  Telephone Company own minority interests to operate
cellular  telephone  systems covering areas in New Mexico and North Dakota,  (5)
CLR Video's  franchises to provide cable  television  service within its service
areas and (6) personal  communications services and other wireless communication
licenses held by companies in which Interactive's subsidiaries have investments,
including the PCS licenses for Las Cruces, New Mexico, Logan, Utah, and portions
of Iowa as described above in more detail.

The capital expenditures,  earnings and competitive position of Interactive have
not been materially  affected by compliance  with current  federal,  state,  and
local  laws and  regulations  relating  to the  protection  of the  environment;
however, Interactive cannot predict the effect of future laws and regulations.

No portion of the business of Interactive is regarded as seasonal.

Interactive  does not believe that its  multimedia  business is dependent on any
single  customer  of local  telephone  service.  Most local  exchange  carriers,
including  Interactive's,  received a significant amount of revenues in the form
of access fees from long distance companies.

Interactive  had a total of 359 employees at December 31, 2002,  compared to 328
employees at December 31, 2001.

IV.   EXECUTIVE OFFICERS OF THE REGISTRANT

Pursuant  to General  Instruction  G (3) of Form  10-K,  the  following  list of
executive officers of the Registrant is included in Part 1 of this Annual Report
on Form  10-K in lieu of being  included  in the  Proxy  Statement  for the 2003
Annual Meeting of  Shareholders.  Such list sets forth the names and ages of all
executive  officers of the Registrant  indicating all positions and offices with
the  Registrant  held by each  such  person  and each  such  person's  principal
occupations or employment during the past five years.
<page>
<TABLE>
<CAPTION>

             Name                               Officers and Positions Held                             Age

<S>                             <C>                                                                     <C>
Mario J. Gabelli ............   Vice Chairman since December 2002   and Chief Executive                  60
                                Officer  since September 1999. From September 1999 to
                                December 2002,  Mr.  Gabelli  served as our Chairman.  He is
                                also  the  Vice  Chairman  (and  from  1986 to  August  2001
                                Chairman and Chief Executive  Officer) of Lynch Corporation;
                                Chairman,  Chief Executive Officer, Chief Investment Officer
                                and a director  of Gabelli  Asset  Management  Inc.  and its
                                predecessors  (since  November 1976) (and in connection with
                                those  responsibilities,  he serves as  director  or trustee
                                and/or  an  officer  of  registered  investment    companies
                                managed by  subsidiaries of Gabelli Asset  Management);  and
                                Chairman  and  Chief  Executive  Officer  of  Gabelli  Group
                                Capital Partners, Inc., a private company

Frederic V. Salerno ............Chairman since     December      2002. Mr. Salerno became a              60
                                director of  Interactive  in August  2002. Prior to joining
                                Interactive,  Mr.  Salerno was the Vice  Chairman  and Chief
                                Financial  Officer of Verizon  Communications.  Mr. Salerno,
                                a trustee of the New York  Inner-City  Scholarship  Fund and
                                former Chairman of the Archdiocese of New York's
                                Partnership for Quality Education Campaign,  joined New York
                                Telephone in 1965. He was named Vice  President in 1983 when
                                he  managed  the  divestiture  of the  firm  from  the  Bell
                                System;  and became President and Chief Executive Officer of
                                NY Telephone in 1987

Joseph C. Farina ...............President and Chief Operating Officer since February 2003.               54
                                Prior to  joining  Interactive,  Mr.  Farina  was the  Chief
                                Operating  Officer of Genuity Inc. from June 2000 to January
                                2003.  Before that,  Mr.  Farina was the President and Chief
                                Executive  Officer of Bell  Atlantic  Data  Solutions  Group
                                from 1998 to 2000

Robert E. Dolan ................Chief Financial Officer and Controller (since September                  51
                                1999);  Chief Financial  Officer  (1992-2000) and Controller
                                (1990-2000) of Lynch Corporation

John Fikre .....................Vice President--Corporate Development, General Counsel and               38
                                Secretary  (since  August 2001);  Associate,  Willkie Farr &
                                Gallagher (since August 1994)
</TABLE>

The executive  officers of the Registrant  are elected  annually by the Board of
Directors at its meeting in May and hold office until the organizational meeting
in the next subsequent year and until their respective successors are chosen and
qualified.

ITEM 2. PROPERTIES

Interactive  leases  approximately  3,400  square  feet of office  space from an
affiliate of its Vice Chairman for its executive  offices in Rye, New York.  The
lease expires at the end of 2007.

Western  New Mexico  Telephone  Company  owns a total of 16.9 acres at  fourteen
sites located in southwestern New Mexico. Its principal operating facilities are
located in Silver City,  where  Western owns one building  comprising a total of
6,480  square feet  housing  its  administrative  offices  and  certain  storage
facilities and another  building  comprising 216 square feet,  which houses core
network equipment.  In Cliff, Western owns five buildings with a total of 14,055
square feet in which are located  additional  offices and storage  facilities as
well as a vehicle shop, a wood shop,  and central  office  switching  equipment.
Smaller  facilities,  used mainly for storage  and for  housing  central  office
switching  equipment,  with a  total  of  8,384  square  feet,  are  located  in
Lordsburg,  Reserve,  Magdalena and five other localities. In addition,  Western
leases 1.28 acres on which it has  constructed  four microwave  towers and a 120
square-foot  equipment  building.  Western  has the use of 38 other  sites under
permits or easements at which it has installed various equipment either in small
company-owned  buildings (totaling 2,403 square feet) or under protective cover.
Western also owns 3,317 miles of copper cable and 421 miles of fiber optic cable
running  through  rights-of-way  within its 15,000 square mile service area. All
Western's properties described herein are encumbered under mortgages held by the
Rural  Utilities  Service  ("RUS")  and  the  National  Bank  for  Co-Operatives
("Co-Bank").

Inter-Community  Telephone  Company owns 12 acres of land at 10 sites.  Its main
office at Nome, ND,  contains 4,326 square feet of office and storage space.  In
addition,  it has 4,400  square  feet of garage  space  and  5,035  square  feet
utilized for its switching facilities. Inter-Community has 2,028 miles of copper
cable and 226 miles of fiber optic cable.  All of  Inter-Community's  properties
described herein are encumbered under mortgages held by Co-Bank.

Cuba City Telephone  Company is located in a 3,800 square foot brick building on
0.4 of an acre of land. The building  serves as the central  office,  commercial
office,  and garage for vehicle and  material  storage.  The company also owns a
cement  block  storage  building  of 1,490  square  feet on 0.1 of an  acre.  In
Madison,  Wisconsin,  Cuba  City  leases  900  square  feet  for  administrative
headquarters and financial functions.  Belmont Telephone Company is located in a
cement  block  building  of 800  square  feet on .5  acre  of  land in  Belmont,
Wisconsin.  The building  houses the central office  equipment for Belmont.  The
companies  own a  combined  total of 346 miles of  copper  cable and 34 miles of
fiber optic cable. All of Cuba City and Belmont's  property described herein are
encumbered  under  first  mortgages  held by the RUS and Rural  Telephone  Bank,
respectively,  and second  mortgages held by Co-Bank.  All of  Inter-Community's
properties described herein are encumbered under mortgages held by Co-Bank.

J.B.N.  Telephone  Company owns a total of  approximately  2.25 acres at fifteen
sites located in northeast  Kansas.  Its  administrative  and commercial  office
consisting of 7,000 square feet is located in Holton,  Kansas and a 3,000 square
feet  garage  warehouse  facility is located in Wetmore,  Kansas.  In  addition,
J.B.N.  owns  thirteen  smaller  facilities  housing  central  office  switching
equipment  and over  1,186  miles of copper  cable and 186 miles of fiber  optic
cable.  All properties  described  herein are encumbered under mortgages held by
the RUS.

CLR Video has its headquarters in Holton,  Kansas, leased from J.B.N.  Telephone
Company.  It also owns one small parcel of land and leases 22 small sites, which
it uses for its cable  receiving  and  transmission  equipment.  All  properties
described  herein are  encumbered  under a mortgage to Co-Bank.  Also, see under
Item 1.I.B. Cable Television.

Haviland  Telephone  Company owns a total of approximately 3.9 acres at 20 sites
located in south  central  Kansas.  Its  administrative  and  commercial  office
consisting  of 4,450  square feet is located in Haviland,  Kansas.  In addition,
Haviland  owns 19 smaller  facilities  housing  garage,  warehouse,  and central
office switching equipment and over 1,213 miles of copper cable and 198 miles of
fiber optic  cable.  All  properties  described  herein are  encumbered  under a
mortgage held by the RUS.

Dunkirk & Fredonia  Telephone Company  (including its subsidiaries) owns a total
of  approximately  16.4 acres at six  locations  in western  New York.  Its host
central  office  switching  equipment,  administrative  and  commercial  offices
consisting of 18,297 square feet is located in Fredonia,  New York. In addition,
Dunkirk & Fredonia owns five other  properties,  including a service  garage,  a
paging tower site, a small central office housing switching equipment, sales and
service center in Jamestown,  New York, and one rental property in Ashville, New
York.  Dunkirk & Fredonia also owns 345 miles of copper  telephone  cable and 65
miles of fiber optic cable. All properties described herein are encumbered under
a mortgage held by RUS.

Upper Peninsula  Telephone  Company owns a total of approximately 25 acres at 19
sites located  principally in the Upper Peninsula of Michigan.  Its host central
office switching equipment,  administrative and commercial offices consisting of
11,200 square feet is located in Carney,  Michigan. In addition, Upper Peninsula
owns 25 other smaller  facilities  housing garage,  warehouse and central office
switching  equipment and over 2,272 miles of copper cable and 152 miles of fiber
optic cable. All properties described herein are encumbered under mortgages held
by the RUS and Co-Bank.

Central  Scott  Telephone  Company  owns 3.5 acres of land at 6 sites.  Its main
office in  Eldridge,  Iowa  contains  3,104 square feet of office and 341 square
feet of storage space. In addition, it has 3,360 square feet of garage space and
2,183 square feet utilized for its switching  facilities.  Central Scott has 357
miles of copper cable and 25 miles of fiber optic cable.  All of Central Scott's
properties  described  herein  are  encumbered  under  mortgages  held the First
National Bank of Omaha.

Central Utah Telephone,  Inc., and its subsidiaries own a total of 9.49 acres at
sixteen  sites and have an  additional  1.54 acres at fifteen  sites,  which are
under  leases,  permits or  easements.  These sites are located in the  central,
northeastern and mid-western areas of Utah.  Central Utah Telephone's  principal
operating  facilities  are  located  in  Fairview,  Utah,  where  it  owns a new
commercial  office  bldg.  containing  14,400  square  feet,  a plant office and
central  office  building  containing  5,200 square feet. In addition it has 720
square feet of office space,  2,455 square feet of warehouse space, 5,245 square
feet of vehicle  maintenance  facilities,  4,252 square feet of protective cover
and 3 rental homes.  Central Utah Telephone owns smaller  facilities used mainly
for housing central office switching equipment with a total of 9,405 square feet
in 25 various locations.  In addition,  Central Utah Telephone owns 867 miles of
copper cable and 157 miles of fiber optic cable  running  through  rights-of-way
within its 6,867  square mile  service  area.  All of Central  Utah  Telephone's
properties  described  herein are encumbered under mortgages held by the RUS and
CoBank.

It is  Registrant's  opinion that the  facilities  referred to above are in good
operating condition and suitable and adequate for present uses.

ITEM 3.  LEGAL PROCEEDINGS

Interactive and several other parties,  including our Chief  Executive  Officer,
and  Fortunet  Communications,   L.P.,  which  was  Sunshine  PCS  Corporation's
predecessor-in-interest,  have been  named as  defendants  in a lawsuit  brought
under the so-called "qui tam"  provisions of the federal False Claims Act in the
United  States  District  Court for the District of Columbia.  The complaint was
filed under seal with the court on February 14, 2001.  At the  initiative of one
of the  defendants,  the seal was lifted on January  11,  2002.  Under the False
Claims Act, a private plaintiff,  termed a "relator," may file a civil action on
the U.S. government's behalf against another party for violation of the statute.
In  return,  the  relator  receives a  statutory  bounty  from the  government's
litigation proceeds if he is successful.

The relator in this lawsuit is R.C.  Taylor III, an individual  who, to the best
of our knowledge, has no relationship to any of the entities and affiliates that
have been named parties in this  litigation.  Indeed at the time of his filings,
and to the best of our knowledge,  Mr. Taylor was a lawyer at Gardner,  Carton &
Douglas.  Thereafter,  we believe he was a lawyer with a Washington,  D.C.,  law
firm. We do not know his current status.  We issued a press release dealing with
this litigation on January 16, 2002.

The  main  allegation  in the case is that the  defendants  participated  in the
creation  of "sham"  bidding  entities  that  allegedly  defrauded  the  federal
Treasury  by  improperly   participating   in  certain  Federal   Communications
Commission  spectrum  auctions  restricted  to  small  businesses,  as  well  as
obtaining  bidding credits in other spectrum  auctions  allocated to "small" and
"very small"  businesses.  The lawsuit seeks to recover an unspecified amount of
damages, which would be subject to mandatory trebling under the statute.

Interactive strongly believes that this lawsuit is completely without merit, and
intends to defend  the suit  vigorously.  The U.S.  Department  of  Justice  has
notified the court that it has declined to intervene in the case.  Nevertheless,
we cannot predict the ultimate outcome of the litigation, nor can we predict the
effect  that the  lawsuit or its  outcome  will have on our  business or plan of
operation.

Interactive  was  formally  served  with  the  complaint  on July 10,  2002.  On
September  19,  2002,  Interactive  filed two  motions  with the  United  States
District Court for the District of Columbia: a motion to dismiss the lawsuit and
a motion  to  transfer  the  action to the  Southern  District  of New York.  On
November  25,  2002,  the  relator  filed an  opposition  reply to our motion to
dismiss  and on December  5, 2002,  Interactive  filed a reply in support of its
motion to dismiss.

In addition to the litigation described above, Interactive is a party to routine
litigation incidental to its business. Based on information currently available,
Interactive  believes  that none of this  ordinary  routine  litigation,  either
individually  or in the aggregate,  will have a material effect on its financial
condition and results of operations.

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

Not applicable.
<page>

                                     PART II

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

The Common  Stock of Lynch  Interactive  Corporation  is traded on the  American
Stock  Exchange  under the  symbol  "LIC."  The  market  price  high and lows in
consolidated trading of the Common Stock for the last two years are as follows:
<TABLE>
<CAPTION>

                                          2002
                                    Three Months Ended
             March 31     June 30      September 30     December 31
             --------     -------      ------------     -----------

<S>           <C>         <C>             <C>            <C>
High          $70.50      $54.50          $31.58         $28.50
Low           $39.00      $24.50          $24.50         $22.80
</TABLE>
<TABLE>
<CAPTION>

                                           2001
                                    Three Months Ended
             March 31     June 30      September 30     December 31
             --------     -------      ------------     -----------

<S>           <C>         <C>             <C>            <C>
High          $48.75      $63.99          $79.00         $69.99
Low           $34.50      $40.00          $48.03         $43.00
</TABLE>


At March 20, 2003,  Interactive  had 848  shareholders of record and the closing
price of our Common Stock was $23.05.

Neither  Interactive nor Lynch  Corporation,  the company from which Interactive
was spun off,  has 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.  Current  and  future  financings  may  limit or
prohibit the payment of dividends.


<PAGE>



ITEM 6. SELECTED FINANCIAL DATA

                          LYNCH INTERACTIVE CORPORATION
                             SELECTED FINANCIAL DATA
                      (In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>

                                                                          Years Ended December 31, (a)(b)
                                                           --------------------------------------------------------------
                                                             1998       1999        2000        2001        2002
                                                           --------------------------------------------------------------

<S>                                                      <C>         <C>         <C>         <C>         <C>
Revenues .............................................   $ 54,622    $ 59,011    $ 66,983    $ 79,352    $ 86,304

Operating profit(k) ..................................     14,650      12,299      15,331      19,985      19,233
Net financing activities (d) .........................     (7,973)     (8,789)    (10,308)    (11,074)    (11,266)
Equity in earnings of affiliates .....................        317       1,057       1,669         932       1,262
Impairment of investment in Spinnaker Industries, Inc.       --          --          --        (3,194)       --
Reserve for impairment of investment in spectrum
  license holders (e) ................................       --       (15,406)       --          --        (5,479)
Gain on sale of subsidiary stock and other
  assets .............................................      2,709        --         4,187        --         4,965
                                                         --------    --------    --------    --------    --------
Income (loss) before income taxes, minority
  interests, extraordinary item and
  operations of Morgan ...............................      9,703     (10,839)     10,879       6,649       8,715
(Provision) benefit for income taxes .................     (4,453)      2,478      (4,971)     (3,454)     (3,924)
Minority interests ...................................       (763)       (686)       (877)       (661)     (1,030)
                                                         --------    --------    --------    --------    --------
  Income (loss) from continuing operations before
    Extraordinary item and operations of Morgan ......      4,487      (9,047)      5,031       2,534       3,761
 Extraordinary item (f) ..............................       --          (160)       --          --          --
Income (Loss) from operations of Morgan
  distributed to shareholders (i) ....................        442          (9)     (2,666)     (1,386)     (1,888)
                                                         ========    ========    ========    ========    ========
  Net income (loss) ..................................   $  4,929    $ (9,216)   $  2,365    $  1,148    $  1,873
                                                         ========    ========    ========    ========    ========
Basic and diluted earnings
Per common share (g)
  Income (loss) from continuing operations before
    Extraordinary item and operations of Morgan .....   $    1.58   $ (3.21)     $   1.78    $   0.90    $   1.34
Extraordinary item ....................................        --   $ (0.06)           --          --          --
  Income (loss) from operations of Morgan
    distributed to shareholders (j) .................   $    0.16   $ (0.00)     $  (0.94)   $  (0.49)   $  (0.67)
  Net income (loss) .................................   $    1.74   $ (3.27)     $   0.84    $   0.41    $   0.67
</TABLE>
<TABLE>
<CAPTION>

                                                                                  December 31, (a)
                                                        ---------   -----------    ---------    ---------    ---------
                                                            1998          1999         2000         2001         2002
                                                        ---------   -----------    ---------    ---------    ---------
<S>                                                     <C>         <C>            <C>          <C>          <C>
Cash, securities and short-term investments .........   $  26,498   $    29,094    $  26,900    $  31,233    $  23,356
Total assets  (l)....................................   $ 212,705   $   221,705    $ 217,742    $ 256,350    $ 245,347
Long-term debt ......................................   $ 126,183   $   164,736    $ 162,304    $ 193,202    $ 176,621
Shareholders' equity (h) ............................   $  32,285   $    20,211    $  19,391    $  24,517    $  22,632
<FN>

(a)  On September  1, 1999,  Interactive  was spun off to the Lynch  Corporation
     ("Lynch")  shareholders (the "Spin Off") and became a public company. Prior
     to the Spin Off,  Interactive  had no  significant  assets,  liabilities or
     operations.  As a successor to certain  businesses  of Lynch,  December 31,
     2000,  2001 and 2002,  for the three years  ended 2002,  and for the period
     from  September  1, 1999 to December  31, 1999,  the above  financial  data
     represented the consolidated accounts of Interactive. Prior to September 1,
     1999, the financial  data has 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,  on a combined basis.  Accordingly,  the
     results for the year ended  December 31, 1999,  represent a combination  of
     consolidated and combined financial information for the respective periods.
     As the historical  financial  information prior to September 1, 1999 herein
     reflects periods during which the Company did not operate as an independent
     public company,  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.  In the above  presentation,
     Lynch's only service  business,  Morgan, is being treated as a discontinued
     operation.

(b)  Includes results of Upper Peninsula  Telephone Company from March 18, 1997,
     Central  Scott  Telephone  Company  from July 16,  1999,  and Central  Utah
     Telephone   Company  from  June  23,  2001,   their   respective  dates  of
     acquisition.

(c)  Operating  profit is sales and  revenues  less  operating  expenses,  which
     excludes  investment  income,  interest  expense,  equity  in  earnings  of
     affiliated  companies,  impairment of  investment  in Spinnaker  Industries
     Inc.,  reserve for impairment in spectrum license holders in 1999 and 2000,
     gains on sales of subsidiary  stock and other assets,  minority  interests,
     income taxes, extraordinary items and operations of Morgan.

(d)  Consists  of  investment  income  and  interest  expense.

(e)  See Note 4 "Wireless Communications Services" in the Company's consolidated
     financial  statements.

(f)  Loss from  Early  Extinguishment  of Debt,  Net of Tax  Benefit of $105

(g)  Based on weighted average number of common shares outstanding.

(h)  Adjusted to reflect a 2 for 1 stock split which  occurred on September  11,
     2000.

(i)  Net of income tax and minority  interest.

(j)  No cash  dividends  have  been  declared  over  the  period.

(k)  Goodwill  amortization was $1.9 million,  $2.2 million,  $2.5 million, $2.8
     million  and $0.0  million  for the five  years  ended  December  31,  2002
     respectively.  On January 1, 2002, the Company  adopted the provisions SFAS
     142  and  stopped  amortizing  goodwill.  (See  note l in the  accompanying
     financial statements.)

(l)  Amounts do not include assets associated with The Morgan Group, Inc.
</FN>
</TABLE>

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

This  discussion  should  be  read  together  with  the  Consolidated  Financial
Statements  of  Interactive  and the notes  thereto  included  elsewhere in this
Annual Report.

RESULTS OF OPERATIONS

Overview

In January 2002,  Interactive spun off its investment in The Morgan Group,  Inc.
("Morgan"),  its  only  services  subsidiary,  via a  tax-free  dividend  to its
shareholders  of the stock of Morgan Group Holding Co., a  corporation  that was
initially  formed to serve as a holding  company for  Interactive's  controlling
interest  in  Morgan.  Morgan  Group  Holding  Co.  is  now  a  public  company.
Accordingly,  the amounts for Morgan are  reflected  on a one-line  basis in the
consolidated financial statements as of December 31, 2001, and for the year then
ended as "to be  distributed  to  shareholders."  Similarly,  the  prior  years'
financial statements have been restated to be comparable with the current year's
presentations.

The  narratives  below reflect these  changes in reporting and  restatements  of
prior periods.

Year 2002 compared to 2001

Revenues

Revenues  for the year ended  December  31,  2002,  increased by $7.0 million to
$86.3  million  from the year ended  December  31,  2001.  During the year ended
December 31, 2001, Interactive recorded a $2.8 million contingent administrative
fee  for  services  it had  previously  performed  in an  auction  for  wireless
spectrum.  Excluding  this  fee,  revenues  increased  by $9.7  million  or 13%,
attributable  due  to  acquisitions  and  higher  regulated   telephone  service
revenues,  and the  provision of  non-traditional  telephone  services  such as:
Internet,  long  distance  service  and  local  exchange  carrier  service.  The
acquisition  of American  Alarm  Company  (63.6%  owned by  Interactive),  which
occurred on November 30,  2001,  contributed  $3.1  million to 2002  revenues as
compared to $0.3 million in 2001. On June 22, 2001, the Company acquired Central
Utah Telephone  Company.  Prior to our  acquisition,  Central Utah recorded $3.7
million of revenues in 2001,  such amount  excludes the effect of certain access
lines  that  Central  Utah  acquired  on  April  6,  2001.   Certain  regulatory
initiatives in some of the states, in which our companies  operate,  will reduce
revenues  at  certain  telecommunication  operations  in  the  near  future.  In
addition,  significant capital expenditures at certain operations will result in
increased regulated revenues in the future.



<PAGE>



Operating Profit

Operating profit for the year ended December 31, 2002, decreased by $0.8 million
to $19.2 million from the year ended December 31, 2001. The absence, in 2002, of
the $2.8 million in administration fee income,  that was recorded in 2001, was a
significant  item  effecting  the  variance.  In addition,  in  accordance  with
Financial  Accounting  Standards ("SFAS") No. 142, Goodwill and Other Intangible
Assets,  effective January 1, 2002, the Company no longer amortized goodwill and
other intangible assets, deemed to have indefinite lives. There was $2.8 million
of such  amortization  expense  recorded  during 2001.  Also,  during year ended
December 31, 2002,  the Company  recorded $0.9 million in allowance for doubtful
accounts  associated with the  bankruptcies of MCI/Worldcom and Global Crossing.
The  bankruptcy  filings may  adversely  impact the  interstate  revenues  pools
administered by the National Exchange Carrier Association  ("NECA") of which all
of the Company's telephone operating subsidiaries participate.  If the Company's
access  settlements from NECA are reduced,  the Company's  operating  results in
2003 could be materially affected. As noted above, in November 2001, the Company
acquired American Alarm. At that time, $4.0 million of the acquisition price was
allocated to customer  contracts,  which for nine months of 2002 were  amortized
over 3 years.  During the  fourth  quarter  of 2002,  based on Company  specific
experience,  the amortization  period was changed to 10 years.  During 2002, the
Company  recorded $1.2 million of  amortization  expense  associated  with these
contracts  and  annual  amortization  is  expected  to be $0.3  million in 2003.
Overall,  the  inclusion  of American  Alarm  reduced  operating  profit by $0.7
million in 2002.

EBITDA

EBITDA (Earnings before interest,  taxes  depreciation and amortization) for the
year ended  December 31, 2002,  increased by $0.3 million to $38.6  million from
the year ended  December  31, 2001.  EBITDA is presented  because it is a widely
accepted financial indicator of value and ability to incur and service debt. The
Company utilizes the EBITDA metric for valuing potential acquisitions. EBITDA is
not a substitute for operating  profit,  in accordance  with generally  accepted
accounting  principles.  The difference  between EBITDA and operating  profit is
depreciation  and  amortization of $17.4 million and $18.5 million for the years
ended  December 31, 2002 and 2001,  respectively.  The absence,  in 2002, of the
$2.8 million in  administration  fee income,  that was  recorded in 2001,  was a
significant  item effecting the variance.  Also,  during year ended December 31,
2002,  the Company  recorded  $0.9  million in allowance  for doubtful  accounts
associated with the bankruptcies of MCI/Worldcom and Global Crossing. Subject to
the bankruptcy  results, a percentage of this allowance may be recovered in 2003
and beyond.  On June 22,  2001,  the Company  acquired  Central  Utah  Telephone
Company. Prior to our acquisition,  Central Utah recorded $1.8 million of EBITDA
in 2001,  such amount  excludes the effect of certain  access lines that Central
Utah acquired on April 6, 2001. As noted above,  in November  2001,  the Company
acquired American Alarm which contributed $0.5 million to 2002.

Other Income (Expense)

The Company has made loans to and has  investments in PTPMS  Communications  II,
LLC,  totaling $6.2 million.  PTPMS II acquired  wireless spectrum in an auction
conducted by the Federal  Communications  Commission  in 2000 called the 700 MHz
Guard Band Auction. In a FCC auction conducted during 2002 for similar spectrum,
which ended on September  18, 2002 , the Lower 700 MHz Band  Auction,  the price
per MHz of population  was  materially  lower than the price paid by PTPMS II in
2000. Accordingly,  during 2002, Interactive provided for the impairment for its
investment  in  PTPMS II of $5.5  million  ($3.6  net of  income  tax  effects),
resulting in a net book value, at December 31, 2002, of $0.7 million.

During  2002,  the Company sold its  interest in a cellular  partnership  in New
Mexico RSA # 1 (North)  for $5.5  million  resulting  in a pre-tax  gain of $5.0
million ($2.5 million net of income tax and minority interests effect).

As discussed below, during 2001, the Company provided for the impairment of $3.2
million  representing  its  entire  investment  in  1,000,000  Common  Shares of
Spinnaker  Industries Inc. On November 13, 2001, Spinnaker announced that it had
commenced voluntary proceedings under Chapter 11 of the U.S. Bankruptcy Code for
the purpose of facilitating  and accelerating  its financial  restructuring.  In
late March 2002, all assets of Spinnaker  were sold and equity holders  received
no value.

For the year December 31, 2002  investment  income was down by $1.1 million from
the previous  year due to lower levels of treasury  rates,  in which the Company
invests  the  predominant  amount of its  liquid  assets.  In  addition,  2001's
investment  income  included  approximately  $1.0 million of gains in connection
with the  Company's  investment in Tremont  Advisers,  Inc. All of the Company's
interest  in Tremont  was sold in October  2001 when  Tremont  was  acquired  by
Oppenheimer  Funds,  Inc. at a price of $19.00 per share.  Offsetting these 2001
gains, there was higher dividend income in 2002 from the Company's  ownership of
bank stocks.

Interest  expense  decreased  from 2001 to 2002 by $0.9 million due primarily to
reduced interest rates, lower levels of borrowings and the absence,  in 2002, of
a collateral fee $0.6 million associated with a Put on the Company's convertible
debt outstanding.  Offsetting these decreases, interest expense increased during
2002 from 2001 due to the full year effect of debt incurred for the acquisitions
of Central Utah and American Alarm. In November 2002, the Company reacquired its
Convertible  Note issued to Cascade  Investments  LLC, there was $0.7 million of
interest expense and other costs associated with this note in 2002.

Income Tax Provision


The income tax provision  includes federal as well as state and local taxes. The
tax  provision  for the  years  ended  December  31,  2002 and  2001,  represent
effective  tax  rates  of 45.0%  and  51.9%,  respectively.  The  causes  of the
difference  from the federal  statutory rate are principally the effect of state
income  taxes,  including  the effect of  earnings  and losses  attributable  to
different state jurisdictions,  and the amortization of non-deductible  goodwill
in 2001.

Minority Interests

Minority interests  decreased earnings by $1.0 million for the year December 31,
2002 and $0.7  million  for the year ended  December  31,  2001.  The Change was
principally due to minority  interest  associated with the gain from the sale of
New Mexico RSA 1 (North)  offset by net losses at American Alarm for which there
is a 36.4% minority ownership.

Income From Continuing Operations

The  Company  recorded  income  from  continuing  operations  for the year ended
December  31, 2002 of $3.8  million,  $1.34 per share  (basic and  diluted),  as
compared to income from  continuing  operations for the same period last year of
$2.5  million,  or $0.90 per share (basic and diluted).  The following  were the
significant causes of the variance: (1) the absence of the administrative fee in
2002  reduced  net income by $1.7  million,  (2) the  absence of the reserve for
impairment in Spinnaker  increased  net income by $2.1 million,  (3) the gain in
2002 on the sale of New  Mexico  RSA # 1 (North)  increased  net  income by $2.5
million,  (4) the provision for impairment of spectrum  license  holders reduced
net income in 2002 by $3.6 million and (5) the amortization of goodwill prior to
the  adoption by the Company of the  non-amortization  provision  SFAS 142 which
decreased 2001 net income by $2.4 million.

Year 2001 compared to 2000

Revenues

2001 total revenues were $79.3 million,  an increase of $12.3 million, or 18.4%,
from the $67.0  million  recorded in 2000.  Revenues  grew  primarily due to the
recognition,  in the third  quarter of 2001,  of an  administrative  fee of $2.8
million;  the  acquisition  of Central  Utah  Telephone  Company,  Inc.  and its
subsidiaries,  and Central Telecom Services, L.L.C., a related entity which were
acquired on June 23, 2001,  which combined  contributed $4.8 million in revenues
and,  to a  lesser  extent,  the  growth  in both  regulated  telecommunications
services and provisions of non-traditional telephone services such as: Internet,
long distance service and competitive local exchange carrier and the acquisition
of American  Alarm on November 30, 2001.  During the third quarter of 2001,  the
Company recorded an administration  fee of $2.8 million for services provided to
a related entity in a Federal  Communication  Commission auction for spectrum to
be used for the provision of personal  communications  services. The auction was
conducted  in 1999  and the fee was  based on the  entity's  gain on the sale of
licenses acquired.

Operating Profit

Operating profit for 2001 increased to $20.0 million from $15.3 million reported
for 2000,  an increase of $4.7 million.  This  increase in operating  profits is
principally  attributable  to the inclusion the results of operations of Central
Utah from the date of acquisition and the $2.8 million administrative fee.



<PAGE>



EBITDA

Earnings  before  interest,  taxes,  depreciation  and  amortization  ("EBITDA")
increased to $38.3  million in 2001 from $31.0  million in 2000,  an increase of
$7.3  million,  or 23.3%.  EBITDA is  presented  because  it is widely  accepted
financial  indicator of value and ability to incur and service  debt.  EBITDA is
not a substitute  for operating  income in accordance  with  generally  accepted
accounting  principles.  The  Company  utilies  the EBITDA  metric  for  valuing
potential  acquisitions . The difference  between EBITDA and Operating Profit is
depreciation  and  amortization of $18.3 million and $15.8 million for the years
ended December 31, 2002 and 2001. Of the $7.3 million  increase in EBITDA,  $2.6
million of the increase  was due to the  acquisition  of Central Utah  Telephone
Company.  In  addition,  during  2001,  the  Company  recorded  $2.8  million of
administrative  fee income.  The  remaining  increase was  primarily  due to the
increase in  regulated  operations  and  reduced  losses by the  Company's  CLEC
operations.

Other Income (Expense)

Investment income was approximately  $2.9 million in 2001 compared to investment
income of $3.3 million in 2000. The lower level of investable securities was the
primary cause of the decrease in investment income.

Interest expense  increased by $0.4 million to $13.9 million in 2001 compared to
$13.5  million in 2000.  The  increase is due  primarily to the  acquisition  of
Central  Utah on June 23,  2001 ($0.9  million)  offset by higher debt levels at
lower average  interest  rates on the variable debt,  the  restructuring  of the
Company's  Convertible Note discussed below, and the absence of the amortization
of the put  premium  associated  with  the  Company's  Convertible  Note for the
duration of 2000.

During  2001,  the  Company  recorded  approximately  $0.9  million of equity in
earnings of affiliated  entities  compared to $1.7 million in 2000. The decrease
of $0.8 million was  primarily  due to a net gain of $0.7 million in 2000 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,
Interactive 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,  Registrant  recorded a pre-tax gain of $4.2
million in the year ended December 31, 2000.

The Company owned 1,000,000 shares of Spinnaker  Industries,  Inc. common stock.
As described in the Notes to the accompanying financial statements,  the Company
accounts  for this  investment  under the  provision  of  Statement of Financial
Accounting  Standards No. 115 "Investment and Debt and Equity Securities." Under
the  provision of this  standard,  the Company  records this  investment  at its
publicly  traded market price at the end of each  accounting  period and records
the change in unrealized gains (loss) in that period's  comprehensive income. In
addition, under the provisions of this statement, if the quoted market indicated
by that  valuation  is below the  Company's  basis,  management  is  required to
consider if the decline in value is other than  temporary and, if so determined,
write down the investment to its publicly  traded value by recording the loss in
the Statement of Operations. As of December 31, 2000, the basis of the Spinnaker
shares was $3.2 million,  or $3.19 per share.  At December 31, 2001,  the quoted
market  price of these shares was $0 per share.  During the year ended  December
31, 2000, Spinnaker recorded a loss from continuing operations of $17.7 million.
Losses of $5.2  million  and $2.8  million  were  recorded  for the years  ended
December 31, 1999 and 1998, respectively. In the nine months ended September 30,
2001, Spinnaker recorded a net loss of $53.9 million, including $41.2 million of
restructuring  and  asset  impairment  reserves  related  to  the  close  of its
Spinnaker Coating facility in Westbrook,  Maine. On October 15, 2001,  Spinnaker
Industries  announced that it would not be making that day's scheduled  interest
payment with regard to its 10 3/4% Senior  Notes and it was actively  engaged in
discussion  with a majority  of the  holders of those  notes for the  purpose of
negotiating  a consensual  restructuring  of its  indebtedness.  On November 13,
2001,  Spinnaker  announced that it has commenced  voluntary  proceedings  under
Chapter  11 of the U.S.  Bankruptcy  Code for the  purpose of  facilitating  and
accelerating its financial  restructuring.  Spinnaker also announced that it had
reached  agreement,  subject to  Bankruptcy  Court  approval,  with its existing
lenders to provide up to $30 million in debtor-in  possession  financing,  which
Spinnaker  believes  will allow it to  continue  operating  its  business in the
ordinary and customary manner. There has been no quoted price since the stock at
December  31,  2002.  The Company  believes  that the decline in quoted value is
other than  temporary  and,  accordingly,  has  recorded a loss of $3.2  million
during 2001 to write down its  investment  in  Spinnaker  to $0 at December  31,
2001. In late March 2002,  all assets of Spinnaker  were sold and equity holders
received no value.


Tax Provision

The 2001 tax provision of $3.5 million includes  federal,  state and local taxes
and  represents  an effective  rate of 51.9% versus 45.7%  effective tax rate of
$5.0 million in 2000.  The causes of the difference  from the federal  statutory
rate are principally  the effect of state income taxes,  including the effect of
earnings and losses  attributable  to  different  state  jurisdictions,  and the
amortization  of  non-deductible  goodwill.  Beginning  on January 1, 2002,  the
Company will no longer be amortizing goodwill in its results of operations. As a
result, the Company's effective tax rate will be lower in the future.

Minority Interest

Minority  interest  was a reduction to earnings of $0.7 million in 2001 and $0.9
million in 2000.  The reduction in net earnings in 2001 at telephone  operations
in which there is a minority  ownership  was the cause of the  variance  between
years.

Income from Continuing Operations

Income from continuing  operations was $2.5 million ($0.90 per diluted share) in
2001 compared to income from  continuing  operations of $5.0 million  ($1.78 per
diluted share) in 2000, net income for the year ended December 31, 2001 was $1.1
million,  or $0.41  per  diluted  share,  as  compared  to a net  income of $2.4
million,  or $0.84 per diluted  share for the year ended  December 31, 2000.  In
2001,  the  recording of the  administrative  fee noted above and the results of
Central Utah were offset by lower investment income, higher interest expense and
the impairment of the Spinnaker shares.  The most significant item affecting the
swing in earnings  was the gain on the  redemption  of the  East/West  preferred
stock ($2.5 million, net of income tax provision) in 2000.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2002,  Lynch  Interactive  Corporation  had current assets of
$37.1 million and current  liabilities of $49.9 million.  Working  capital was a
deficit  $12.8  million as compared to a deficit  $8.9  million at December  31,
2001.   This  increase  in  the  deficit  was  principally  the  result  of  the
reclassification  from  long-term to current of $6.4  million of long-term  debt
which is due in December,  2003.  During 2003, the Company expects to extend the
maturity  of certain  debt  instruments  and  refinance  other debt  instruments
thereby issuing  additional  long-term  debt, and reducing the negative  working
capital though there is no assurance that the Company can accomplish this.

Cash at December  31,  2002,  was $23.3  million  about the same as the previous
year.  During  the year  ended  December  31,  2002,  the net cash  provided  by
operations  of $25.5 million was used to invest in plant and equipment and repay
debt. The Company used $7.6 million of restricted  cash at December 31, 2001, as
part of the repurchase of $10.5 million of convertible debt. In addition, during
the year ended  December 31, 2002,  the Company  generated  $3.0 million of cash
proceeds for the sale of a minority interest in a cellular  operation and issued
$7.1 million in long-term debt.

Capital  expenditures  were  $23.8  million  in 2002 and $20.5  million in 2001.
Anticipated capital expenditures in 2003 are approximately $20 million. External
financing  is  currently  in  place  for   approximately  $7  million  of  these
expenditures.  The remainder will be financed from internal sources. $20 million
in capital expenditures are expected to be made in 2004.

Subsequent  to December 31, 2002,  the Company  issued $3.3 million of long-term
debt through the refinancing of Lynch Telephone Corporation III.

On November 29, 2002, Interactive repurchased from Cascade Investment,  LLC, the
remaining  outstanding $10 million in principal amount of its convertible  notes
pursuant to a previously negotiated put arrangement. The repurchase price was at
105% of the principal  amount was funded by the balance in the  restricted  cash
account.

On March 26, 2003, the Company issued a press release and filed a Current Report
on  Form  8-K  disclosing  a  planned  offering  of  certain  securities  to its
shareholders which is expected to be completed in 2003.

At December 31, 2002,  total debt (including  notes payable to banks) was $189.5
million,  a decrease of $14.0  million from  December 31, 2001.  At December 31,
2002, there was $124.7 million of fixed interest rate debt outstanding averaging
7.1% and $64.8  million of variable  interest rate debt  averaging  4.4%. Of the
debt at fixed interest rates,  there is $34.5 million of subordinated notes at a
10% interest rate issued to sellers as part of the acquisition.

Interactive has a short-term line of credit  facility,  which expires August 31,
2003,  with  maximum  availability  totaling  $10.0  million  all of  which  was
outstanding  at December 31,  2002.  The Company is pursuing  various  financing
alternatives including renewal of the line of credit,  refinancing substantially
all or individual pieces of its currently  outstanding debt, and sale of certain
investments.  The  Company  expects  that this line of credit  facility  will be
renewed in August 2003.  While it is  management's  belief that the Company will
have adequate  resources to fund operations  over the next twelve months,  there
can be no assurance that the Company will obtain  financing on terms  acceptable
to management.

In  general,  the  long-term  debt  facilities  at  subsidiaries  are secured by
substantially all of the Company's  property,  plant and equipment,  receivables
and  common  stock  of  certain   subsidiaries  and  contain  certain  covenants
restricting  distribution to Lynch  Interactive.  At December 31, 2001 and 2002,
substantially all of the subsidiaries' net assets are restricted.

A subsidiary of the Company has guaranteed $3.8 million of an equity  investees'
total debt of $10.1 million.

Subsequent to the spin-off by Lynch Corporation, the Board of Directors of Lynch
Interactive  Corporation  authorized  the  purchase  of up to 100,000  shares of
common stock.  Through December 31, 2002, 32,115 shares had been purchased at an
average cost of $36.95 per share.  Subsequent to year-end,  an additional  2,000
shares have been acquired at an average cost of $25.60 per share.

Lynch Corporation, the Company's predecessor, has not paid any cash dividends on
its common stock since 1989. The Company has not paid any cash  dividends  since
its  inception  in 1999 and 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.  Further  financing  may  limit or
prohibit the payment of dividends.

Interactive  has a high degree of financial  leverage.  As of December 31, 2002,
the ratio of total debt to equity was 8.4 to 1. Certain  subsidiaries  also have
high  debt to equity  ratios.  In  addition,  the debt at  subsidiary  companies
contains  restrictions  on the  amount of funds that can be  transferred  to the
respective parent of the subsidiaries.

The Company has a need for resources  primarily to fund future  long-term growth
initiatives.  The Company  considers  various  alternative  long-term  financing
sources:  debt, equity, or sale of an investment asset. While management expects
to obtain  adequate  financing  resources  to  enable  the  Company  to meet its
obligations,  there is no  assurance  that such can be  readily  obtained  or at
reasonable  costs.  The Company is obligated under long-term debt provisions and
lease  agreements to make certain cash payments over the term of the agreements.
The following table  summarizes  these  contractual  obligations for the periods
shown:
<TABLE>
<CAPTION>

                                                           Payments Due by Period
                                                              (In thousands)
                                                  Less than
                                     Total         1 year        1 - 3 years     4 - 5 years    After 5 years
                                     ------------------------------------------------------------------------

<S>                                  <C>           <C>           <C>             <C>            <C>
Long-term Debt (a) ...............   $176,621      $ 18,272      $ 39,181        $ 48,285       $ 70,883

Operating Leases .................      1,337           352           566             419             --
                                     --------      --------      --------        --------       --------

Total Contractual Cash Obligations   $177,958      $ 18,624      $ 39,747        $ 48,704       $ 70,883
                                     ========      ========      ========        ========       ========
<FN>


(a) Does not include interest payments on debt
</FN>
</TABLE>

The company has certain  financing  commitments  from banks and other  financial
institutions  that  provide  liquidity.   The  following  table  summarizes  the
expiration of these commitments for the periods shown:


<PAGE>

<TABLE>
<CAPTION>



                                                                   Amount of Commitment Expiration
                                                                             Per Period
                                                                           (In thousands)
                                            Total
                                           Amounts            Less than
Other Commercial Commitments               Committed           1 year        1 - 3 years     4 - 5 years     Over 5 years
                                           --------------- --------------- ---------------- --------------- -------------
<S>                                       <C>                 <C>                <C>             <C>              <C>
Lines of Credit ..............            $12,882             $12,882                 --              --               --

Standby Letter of Credit (Notes
 payable to Banks)...... .....                 --                  --                 --              --               --

Guarantees ...................              3,750                  --                 --              --          $ 3,750

Standby Repurchase Obligations                 --                  --                 --              --               --

Other Commercial Commitments .                 --                  --                 --              --               --
                                          -------             -------            -------         -------          -------

Total Commercial Commitments .            $16,632             $12,882                 --              --          $ 3,750
                                          =======             =======            =======         =======          =======
</TABLE>

A subsidiary of the Company has guaranteed $3.8 million of an equity  investees'
total debt of $10.1 million.

The Company has initiated an effort to monetize certain of its assets, including
selling a portion  or all of  certain in  vestment  in certain of its  operating
entities.  These may include minority interest in network affiliated  television
stations and certain  telephone  operations where growth  opportunities  are not
readily apparent. There is no assurance that all or any part of this program can
be  effectuated on acceptable  terms.  In March 2002, the Company sold its 20.8%
interest in the New Mexico cellular property, RSA #1 (North) to Verizon Wireless
for $5.5 million and repaid certain  outstanding  indebtedness to Verizon.  (See
Note 5 in the accompanying financial statements)

Critical Accounting Policies and Estimates

General

Interactive's  discussion and analysis of its financial condition and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United  States.   The  preparation  of  these  financial   statements   requires
Interactive to make estimates and judgments that affect the reported  amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets  and  liabilities.   On  an  ongoing  basis,  Interactive  evaluates  its
estimates, including those related to revenue recognition, carrying value of its
investments  in the spectrum  entities and  long-lived  assets,  purchase  price
allocations,  and contingencies and litigation.  Interactive bases its estimates
on historical  experience and on various other  assumptions that are believed to
be reasonable under the  circumstances,  the results of which form the basis for
making  judgments about the carrying  values of assets and liabilities  that are
not readily  apparent from other  sources.  Actual results may differ from these
estimates under different assumptions or conditions.

Interactive  believes the following critical accounting policies affect its more
significant  judgments and estimates used in the preparation of its consolidated
financial statements.

Revenue Recognition

The  principal  business  of  Interactive's  telephone  companies  is to provide
telecommunications  services.  These  services fall into four major  categories:
local  network,   network   access,   long  distance  and  other   non-regulated
telecommunications  services. Toll service to areas outside franchised telephone
service territory is furnished  through switched and special access  connections
with intrastate and interstate long distance networks.

Local  service  revenues are derived from  providing  local  telephone  exchange
services.  Local  service  revenues are based on rates filed with various  state
telephone regulatory bodies.

Revenues from long distance network services are derived from providing  certain
long distance  services to the Company's local exchange  customers and are based
on rates filed with various state regulatory bodies.

Revenue from intrastate  access is generally  billed monthly in arrears based on
intrastate access rates filed with various state regulatory bodies.  Interactive
recognizes  revenue from  intrastate  access service based on an estimate of the
amounts  billed to  interexchange  carriers in the subsequent  month.  Estimated
revenues are adjusted monthly as actual revenues become known.

Revenue from  interstate  access is derived from  settlements  with the National
Exchange Carrier Association ("NECA"). NECA was created by the FCC to administer
interstate  access rates and revenue  pooling on behalf of small local  exchange
carriers  who  elect  to  participate  in  a  pooling  environment.   Interstate
settlements are determined based on the various  subsidiaries' cost of providing
interstate  telecommunications service. Interactive recognizes interstate access
revenue  based on an  estimate of the current  year cost of  providing  service.
Estimated  revenue is adjusted to actual upon the  completion of cost studies in
the subsequent period.

Other ancillary revenues derived from the provision of directory advertising and
billing  and  collection  services  are  billed  monthly  based on  rates  under
contract.

Purchase   Price   Allocation/Test   for   Impairment   of  Goodwill  and  Other
Indefinite-lived Intangible Assets

Interactive's business development strategy is to expand its existing operations
through internal growth and acquisition. From 1989 through 2001, the Company has
acquired twelve  telephone  companies.  Significant  judgments and estimates are
required to allocate the  purchase  price of  acquisitions  to the fair value of
tangible  assets  acquired and  identifiable  intangible  assets and liabilities
assumed.  Any excess  purchase  price over the above fair values is allocated to
goodwill.  Additional  judgments  and  estimates  are  required to  determine if
identified intangible assets have finite or indefinite lives.

Annually,  the Company tests goodwill for impairment  using the two-step process
prescribed in SFAS No. 142. The first step is a screen for potential impairment,
while the second step  measures  the amount of  impairment,  if any. The Company
performed its  transitional  impairment  tests of goodwill and other  indefinite
lived  intangible  assets as of  January  1, 2002 and the first of its  required
annual tests as of October 1, 2002 and determined that there were no impairments
at that time.

Depreciation and Amortization

The  calculation  of  depreciation  and  amortization  expense  is  based on the
estimated economic useful lives of the underlying property,  plant and equipment
and intangible  assets.  Although  Interactive  believes it is unlikely that any
significant  changes to the useful  lives of its tangible or  intangible  assets
will occur in the near term, rapid changes in technology,  the discontinuance of
accounting under SFAS No. 71 by the Company's wireline subsidiaries,  or changes
in market  conditions  could result in revisions  to such  estimates  that could
materially  affect the carrying  value of these assets and the Company's  future
consolidated operating results.

Recently Issued Accounting Pronouncements

In June 2001,  the FASB issued SFAS No. 143,  "Accounting  for Asset  Retirement
obligations.  This standard provides  accounting  guidance for legal obligations
associated  with the  retirement  of  long-lived  assets  that  result  from the
acquisition,  construction  or  development  and (or) normal  operation  of that
asset.  According  to the  standard,  the  fair  value  of an  asset  retirement
obligation  (ARO  liability)  should be  recognized  in the period in which (1)a
legal  obligation to retire a long-lived  asset exists and (2) the fair value of
the  obligation  based on  retirement  cost and  settlement  date is  reasonably
estimable.  Upon initial  recognition  of the ARO  liability,  the related asset
retirement  cost should be capitalized by increasing the carrying  amount of the
related  long-lived  asset. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002.  Under FCC mandated  accounting  practices,  the Company is
prohibited from complying with the provisions of SFAS 143 at this time.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company is exposed to market risks  relating to changes in the general level
of U.S. interest rates.  Changes in interest rates affect the amount of interest
earned  on  the  Company's   cash   equivalents   and   short-term   investments
(approximately  $23.4 million at December 31, 2002 and $31.2 million at December
31, 2001). 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 by  borrowing  on a
fixed long-term basis. 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 December 31,  2002,  approximately  $64.8  million,  or 34% of  Interactive's
long-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 2002  average  interest  rate under  these
borrowings,  it is estimated that Interactive's 2002 interest expense would have
changed by  approximately  $0.5  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.  In addition,  if
the  Company  were to  convert a  significant  portion  of its  assets  variable
interest  rate debt into fixed  interest,  at current  time such could  increase
interest expense by $1.5 million levels. 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.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Item 15(a).

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

Not applicable.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The  information  required  by  this  Item  10 is  included  under  the  caption
"Executive  Officers of the  Registrant" in Item 1 hereof and included under the
captions  "Election of Directors" and "Section 16(a)  Reporting" in Registrant's
Proxy  Statement  for  its  Annual  Meeting  of  Shareholders  for  2003,  which
information is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The  information  required  by  this  Item 11 is  included  under  the  captions
"Compensation of Directors," "Executive  Compensation,"  "Executive Compensation
and Benefits Committee Report on Executive Compensation" and "Performance Graph"
in Registrant's Proxy Statement for its Annual Meeting of Shareholders for 2003,
which information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item 12 is included under the caption "Security
Ownership of Certain  Beneficial  Owners and  Management,"  in the  Registrant's
Proxy  Statement  for  its  Annual  Meeting  of  Shareholders  for  2003,  which
information is included herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The  information  required  by  this  Item  13 is  included  under  the  caption
"Executive Compensation",  and "Transactions with Certain Affiliated Persons" in
the  Registrant's  Proxy  Statement for its Annual Meeting of  Shareholders  for
2003, which information is included herein by reference.

ITEM 14. CONTROLS AND PROCEDURES

(a)  Evaluation of disclosure controls and procedures.

     Our chief executive  officer and chief financial officer have evaluated the
     effectiveness  of the Registrant's  disclosure  controls and procedures (as
     defined in Rules 13a-14(c) and 15d-14(c) of the Securities  Exchange Act of
     1934 (the  "Act")) as of a date  within 90 days of the filing  date of this
     annual  report  (Evaluation  Date).  They have  concluded  that,  as of the
     Evaluation Date, the Registrant's  disclosure  controls and procedures were
     adequate and effective to ensure that information  required to be disclosed
     by the  Registrant in the reports that if files or submits under the Act is
     recorded,  processed,  summarized  and  reported,  within the time  periods
     specified in the rules and forms of the Securities and Exchange Commission.

(b)  Changes in internal controls.

     There were no significant changes in the Registrant's  internal controls or
     in other factors that could significantly  affect these controls subsequent
     to the Evaluation  Date,  nor were there any  significant  deficiencies  or
     material weaknesses in these controls requiring corrective actions.

                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K


(a)(1) The  following  documents  are  filed as part of this  Form  10-K  Annual
       Report: Financial Statements:

          Reports of Independent Auditors and the following Financial Statements
          of the Company are included herein:

          Consolidated  Balance Sheets - December 31, 2001 and 2002 Consolidated
          Statements  of  Operations - Years ended  December 31, 2000,  2001 and
          2002  Consolidated  Statements of  Shareholders'  Equity - Years ended
          December 31, 2000, 2001 and 2002 Consolidated Statements of Cash Flows
          - Years ended December 31, 2000,  2001 and 2002 Notes to  Consolidated
          Financial Statements

(a)(2) Financial Statement Schedules:

          Schedule I - Condensed Financial Information of Registrant
          Schedule II - Valuation and Qualifying Accounts

(a)(3) Exhibits: See the Exhibit Index on pages 51 through 53

All other  schedules for which  provision is made in the  applicable  accounting
regulation of the Securities and Exchange  Commission are not required under the
related instructions, or are inapplicable, and therefore have been omitted.

See Page 2 above re Forward Looking Information.

<PAGE>

(b)  Reports on Form 8-K:

          Current Report on Form 8-K filed on November 29, 2002.

(c)  Exhibits: The following Exhibits listed in the Exhibit Index are filed with
     this Form 10-K Annual Report:

          3.2  Amended By-laws of Registrant

          23   Consents of Siepert & Co., L.L.P. for use of:

               -    Report of Siepert & Co., L.L.P. on the financial  statements
                    of Cuba City Telephone  Exchange  Company for the year ended
                    December 31, 2002 and 2001

               -    Report of Siepert & Co., L.L.P. on the financial  statements
                    of Belmont Telephone Company for the year ended December 31,
                    2002 and 2001

               -    Report of Siepert & Co., L.L.P. on the financial  statements
                    of Upper  Peninsula  Telephone  Company  for the year  ended
                    December 31, 2002 and 2001

               -    Report of Siepert & Co., L.L.P. on the financial  statements
                    of Lynch  Michigan  Telephone  Holding  Company for the year
                    ended December 31, 2001 and 2000

          24   Powers of Attorney

          99.1  Report of Independent Auditors

               -    Report of Siepert & Co., L.L.P. on the financial  statements
                    of Cuba City Telephone  Exchange  Company for the year ended
                    December 31, 2002 and 2001

               -    Report of Siepert & Co., L.L.P. on the financial  statements
                    of Belmont Telephone Company for the year ended December 31,
                    2002 and 2001

               -    Report of Siepert & Co., L.L.P. on the financial  statements
                    of Upper  Peninsula  Telephone  Company  for the year  ended
                    December 31, 2002 and 2001

               -    Report of Siepert & Co., L.L.P. on the financial  statements
                    of Lynch  Michigan  Telephone  Holding  Company for the year
                    ended December 31, 2001 and 2000

          99.2 Chief Executive Officer Section 906 Certification

          99.3 Chief Financial Officer Section 906 Certification

(d)  Financial Statement Schedules:  Financial Statement Schedules are listed in
     response to Item 15(a)(2)



<PAGE>




                         REPORT OF INDEPENDENT AUDITORS


Shareholders and Board of Directors
Lynch Interactive Corporation

We  have  audited  the  accompanying   consolidated   balance  sheets  of  Lynch
Interactive Corporation (the "Company") and subsidiaries as of December 31, 2001
and 2002, and the related consolidated  statements of operations,  shareholders'
equity,  and cash flows for each of the three years in the period ended December
31, 2002. Our audits also included the financial  statement  schedules listed in
the index at Item  15(a).  These  financial  statements  and  schedules  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial  statements and schedules based on our audits. We did
not  audit the  following:  the  financial  statements  of Cuba  City  Telephone
Exchange  Company  and  Belmont   Telephone   Company,   indirect   wholly-owned
subsidiaries of Lynch Interactive  Corporation,  which statements  reflect total
assets  of  $4,347,000  and  $4,372,000  as  of  December  31,  2001  and  2002,
respectively,  and total revenues of  $2,076,000,  $2,139,000 and $2,117,000 for
each of the three years in the period ended  December 31,  2002;  the  financial
statements  of Upper  Peninsula  Telephone  Company,  an  indirect  wholly-owned
subsidiary of Lynch  Interactive  Corporation,  which  statements  reflect total
assets of  $26,720,000 as of December 31, 2002 and total revenues of $10,986,000
for the  year  then  ended;  and the  financial  statements  of  Lynch  Michigan
Telephone  Holding  Corporation,  an indirect  wholly-owned  subsidiary of Lynch
Interactive Corporation, which statements reflect total assets of $33,147,000 as
of December 31, 2001 and total revenues of $11,246,000  for the year then ended.
Those  financial  statements  were audited by other  auditors whose reports have
been  furnished  to us, and our  opinion,  insofar as it relates to the  amounts
included  in the  consolidated  financial  statements  and  financial  statement
schedules for Cuba City Telephone Exchange Company and Belmont Telephone Company
in 2000,  2001 and 2002,  Upper  Peninsula  Telephone  Company in 2002 and Lynch
Michigan  Telephone Holding  Corporation in 2001, is based solely on the reports
of the other auditors.

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

In our  opinion,  based on our audits and the  reports  of other  auditors,  the
financial statements referred to above present fairly, in all material respects,
the  consolidated  financial  position  of  Lynch  Interactive  Corporation  and
subsidiaries  at December  31, 2001 and 2002,  and the  consolidated  results of
their  operations and their cash flows for each of the three years in the period
ended  December 31, 2002, in conformity  with  accounting  principles  generally
accepted in the United States. Also, in our opinion, based on our audits and the
reports of other  auditors,  the related  financial  statement  schedules,  when
considered  in  relation  to the basic  financial  statements  taken as a whole,
present fairly in all material respects the information set forth therein.

As discussed in Note 1 to the consolidated  financial  statements,  in 2002, the
Company  changed its method of  accounting  for  goodwill  and other  intangible
assets.

                                                          /s/ Ernst & Young LLP


Stamford, Connecticut
March 14, 2003

<page>
<TABLE>
<CAPTION>

                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


                                                           December 31,
                                                   -----------------------------
                                                        2001          2002
                                                   -----------------------------
                                                        (In Thousands)

ASSETS

CURRENT ASSETS:
<S>                                                  <C>          <C>
  Cash and cash equivalents ......................   $  23,664    $  23,356
  Restricted cash ................................       7,569         --
  Receivables, less allowances of $424 and
    $316, respectively ...........................       9,963        8,916
  Material and supplies ..........................       3,373        3,351
  Prepaid expenses and other current assets ......       1,757        1,451
  Current assets of Morgan Group Holding Co. .....
      distributed to shareholders ................      12,757         --
                                                     ---------    ---------
TOTAL CURRENT ASSETS .............................      59,083       37,074

PROPERTY, PLANT AND EQUIPMENT:
  Land ...........................................         840          807
  Buildings and improvements .....................      10,858       12,741
  Machinery and equipment ........................     178,110      195,015
                                                     ---------    ---------
                                                       189,808      208,563
  Accumulated Depreciation .......................     (74,419)     (88,201)
                                                     ---------    ---------
                                                       115,389      120,362

EXCESS OF COST OVER FAIR VALUE OF NET ASSETS
  ACQUIRED, NET (GOODWILL) .......................      60,889       60,884
INVESTMENTS IN AND ADVANCES TO AFFILIATED ENTITIES      14,277        9,343
OTHER ASSETS .....................................      19,469       17,684
NON CURRENT ASSETS OF MORGAN GROUP HOLDING CO ....
   DISTRIBUTED TO SHAREHOLDERS ...................      10,241         --
                                                     ---------    ---------


TOTAL ASSETS .....................................   $ 279,348    $ 245,347
                                                     =========    =========
</TABLE>


See accompanying notes


<PAGE>




                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>


                                                           December 31,
                                                     ---------------------------
                                                         2001          2002
                                                     ---------------------------
                                                           (In Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
<S>                                                   <C>          <C>
  Notes payable to banks ..........................   $  10,336    $  12,882
  Trade accounts payable ..........................         921        1,638
  Accrued interest payable ........................       1,579          384
  Accrued liabilities .............................      15,700       16,682
  Convertible debt ................................      10,000         --
  Current maturities of long-term debt ............      18,126       18,272
  Current liabilities of Morgan Group Holding Co. .
       distributed to shareholders ................      11,281         --
                                                      ---------    ---------
     TOTAL CURRENT LIABILITIES ....................      67,943       49,858



LONG-TERM DEBT ....................................     165,076      158,349
DEFERRED INCOME TAXES .............................       6,844        6,621
OTHER LIABILITIES .................................         887          736
MINORITY INTEREST .................................       6,120        7,151
NON CURRENT LIABILITIES AND MINORITY
  INTERESTS OF MORGAN GROUP HOLDING CO ............
  DISTRIBUTED TO SHAREHOLDERS .....................       7,961         --

COMMITMENTS AND CONTINGENCIES (Note 13)

SHAREHOLDERS' EQUITY
  COMMON STOCK, $0.0001 PAR VALUE-10,000,000
     SHARES AUTHORIZED; 2,824,766 ISSUED; 2,820,051
     and 2,792,651 outstanding ....................        --           --
  ADDITIONAL PAID-IN CAPITAL ......................      21,406       21,406
  RETAINED EARNINGS ...............................       1,800        1,879
  ACCUMULATED OTHER COMPREHENSIVE INCOME ..........       1,542          534
  TREASURY STOCK, 4,715 and 32,115 shares, at cost         (231)      (1,187)
                                                      ---------    ---------
                                                         24,517       22,632
                                                      ---------    ---------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........   $ 279,348    $ 245,347
                                                      =========    =========
</TABLE>

See accompanying notes



<PAGE>




                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                                                Years Ended December 31,
                                                                   -------------------------------------------
                                                                         2000           2001           2002
                                                                   -------------------------------------------
                                                                         (In Thousands, except per share data)

<S>                                                               <C>            <C>            <C>
SALES AND REVENUES ............................................   $    66,983    $    79,352    $    86,304

COSTS AND EXPENSES:
  Multimedia cost of sales ....................................        48,477         57,019         63,637
  Selling and administrative ..................................         3,175          2,348          3,434
                                                                  -----------    -----------    -----------
OPERATING PROFIT ..............................................        15,331         19,985         19,233
                                                                  -----------    -----------    -----------
Other income (expense):
  Investment income ...........................................         3,260          2,862          1,765
  Interest expense ............................................       (13,568)       (13,936)       (13,031)
  Equity in earnings of affiliated companies ..................         1,669            932          1,262
  Impairment of investment in Spinnaker Industries, Inc. ......          --           (3,194)          --
  Provision for impairment of investment in spectrum license ..          --             --           (5,479)
    holders
  Gain on sales of subsidiary stock and other assets ..........         4,187           --            4,965
                                                                  -----------    -----------    -----------
                                                                       (4,452)       (13,336)       (10,518)
                                                                  -----------    -----------    -----------

INCOME BEFORE INCOME TAXES, MINORITY  INTERESTS, AND OPERATIONS
   OF THE MORGAN GROUP, INC. ("MORGAN") DISTRIBUTED TO
   SHAREHOLDERS ...............................................        10,879          6,649          8,715
Provision for income taxes ....................................        (4,971)        (3,454)        (3,924)
Minority interests ............................................          (877)          (661)        (1,030)
                                                                  -----------    -----------    -----------
INCOME FROM CONTINUING OPERATIONS
   BEFORE  OPERATIONS OF MORGAN DISTRIBUTED
   TO SHAREHOLDERS ............................................         5,031          2,534          3,761

LOSS FROM OPERATIONS OF MORGAN DISTRIBUTED
  TO SHAREHOLDERS NET OF INCOME TAXES OF
 $2,451, $(166) and $0, RESPECTIVELY, AND MINORITY
  INTERESTS OF $2,133, $603, and $868, RESPECTIVELY ...........        (2,666)        (1,386)        (1,888)
                                                                  -----------    -----------    -----------

NET INCOME ....................................................   $     2,365    $     1,148    $     1,873
                                                                  ===========    ===========    ===========

Basic and diluted weighted average shares outstanding .........     2,823,000      2,821,000      2,805,000
                                                                  ===========    ===========    ===========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:

INCOME BEFORE OPERATIONS OF MORGAN DISTRIBUTED
 TO SHAREHOLDERS ..............................................   $      1.78    $      0.90    $      1.34
LOSS FROM OPERATIONS OF MORGAN DISTRIBUTED TO
    SHAREHOLDERS ..............................................         (0.94)         (0.49)         (0.67)
                                                                  -----------    -----------    -----------

NET INCOME ....................................................   $      0.84    $      0.41    $      0.67
                                                                  ===========    ===========    ===========
</TABLE>


See accompanying notes.


<PAGE>



                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIAIRES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                        (In Thousands, Except Share Data)

<TABLE>
<CAPTION>

                                                                                     Accumulated
                                  Shares of                                             Other
                                   Common                 Additional                   Compre-
                                    Stock      Common      Paid-in      Retained       hensive      Treasury
                                  Outstanding   Stock      Capital      Earnings       Income         Stock       Total
                                 ------------ ---------- ------------- ------------ -------------- ------------ ----------
<S>                 <C> <C>       <C>               <C>   <C>           <C>           <C>            <C>         <C>
Balance at December 31, 1999      1,412,183   $     0     $ 21,404      $(1,713)      $ 7,240        $  (20)     $ 26,911
Two-for-one stock split ....      1,412,183        --           --           --            --            --            --
Net income for the period ..         --            --           --        2,365            --            --         2,365
Unrealized loss on available
for sale securities ........         --            --           --           --        (4,699)           --        (4,699)
Reclassification adjustment          --            --           --           --          (480)           --          (480)
                                                                                                                 ----------
  Comprehensive income .....         --            --           --           --            --            --        (2,814)
                                                                                                                 ----------
Adjustment relating to
acquisition ................         --            --           --           --          (566)           --          (566)
  Cost

Purchase of treasury stock .       (2,700)         --           --           --            --          (132)         (132)
                               ----------    ----------   ----------   ----------    ----------    ----------    ----------
Balance at December 31, 2000    2,821,666           0       21,404          652         1,495          (152)       23,399
Net income for the period ..         --            --           --        1,148          --              --         1,148
Unrealized loss on available
for
  sale securities ..........         --            --           --           --        (1,688)           --        (1,688)
 Reclassification adjustment         --            --           --           --         1,735            --         1,735
                                                                                                                 ----------
    Comprehensive income ...         --            --           --           --            --            --         1,195
                                                                                                                 ----------
Issuance of Treasury Shares           185          --            2           --            --             9            11
Purchase of Treasury Stock .       (1,800)         --           --           --            --           (88)          (88)
                               ----------    ----------   ----------   ----------    ----------    ----------    ----------
Balance at December 31, 2001    2,820,051    $      0     $   21,406   $  1,800    $    1,542      $   (231)   $   24,517
Dividend of shares of Morgan
Group Holding Inc. .........         --            --           --       (1,794)         --              --        (1,794)
Net income for the period ..         --            --           --        1,873          --              --         1,873
Unrealized loss on available
for ........................         --            --           --           --          (780)           --          (780)
  sale securities, net
 Reclassification adjustment         --            --           --           --          (228)           --          (228)
                                                                                                                 ----------
    Comprehensive income ...         --            --           --           --          --              --           865
                                                                                                                 ----------
Purchase of Treasury Stock .      (27,400)         --           --           --          --            (956)         (956)
                               ----------    ----------   ----------   ----------    ----------    ----------    ----------
Balance at December 31, 2002    2,792,651    $       0    $   21,406   $  1,879     $    534    $    (1,187)   $   22,632
                               ==========    ==========   ==========   ==========    ==========    ==========    ==========
</TABLE>


See accompanying notes.


<PAGE>



                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                                  Years Ended December 31,
                                                                        ----------------------------------------------
                                                                                2000        2001        2002
                                                                        ----------------------------------------------
                                                                                       (In Thousands)
OPERATING ACTIVITIES
<S>                                                                         <C>         <C>         <C>
Net income ..............................................................   $  2,365    $  1,148    $  1,873
Depreciation and amortization ...........................................     15,797      18,283      19,353
Unrealized gain on trading securities ...................................       (479)       --          --
Net proceeds from sale of trading securities ............................       --         2,066        --
Minority interests ......................................................        877         661       1,030
Equity in Earnings of affiliated companies ..............................     (1,669)       (932)     (1,262)
Provision for impairment of investment in spectrum license holders ......       --          --         5,479
Gain on redemption of East/West preferred stock .........................     (4,125)       --          --
Gain on sale of cellular partnership ....................................       --          --        (4,965)
Impairment of investment in Spinnaker Industries, Inc. ..................       --         3,194        --
Gain on sale of securities ..............................................       (909)       (198)       (228)
Deferred income taxes ...................................................     (2,101)       (724)        398
Non-cash items and changes in operating assets and liabilities
  from operations of Morgan Group Holding Co. to be distributed to
  shareholders ..........................................................      3,539       1,032       1,888
Assets transferred in settlement of litigation ..........................       --           415        --
Changes in operating assets and liabilities, net of effects of
  acquisitions:
    Trade accounts receivable ...........................................       (834)     (1,082)      1,047
    Trade accounts payable and accrued liabilities ......................      2,850        (629)        563
    Other ...............................................................       (658)      1,326         328
Other ...................................................................     (1,034)       (212)       --
                                                                              --------    -------   --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ...............................     13,619      24,348      25,504
                                                                              --------    -------   --------

INVESTING ACTIVITIES
Acquisition (total cost less debt assumed and cash equivalents acquired):
    Central Utah Telephone Company ......................................       --        (6,914)       --
    American Alarm Company ..............................................       --        (3,085)       --
Investment in Personal Communications Services
  Partnerships, net .....................................................     (7,988)       (186)       (788)
Proceeds from redemption of East/West preferred stock ...................      8,712        --          --
Proceeds from sale of cellular partnership ..............................       --          --         2,958
Capital expenditures ....................................................    (17,208)    (20,533)    (23,785)
Proceeds from sale of securities ........................................      1,563         494         398
Cash received from liquidation of partnership ...........................       --           550        --
Investing activities of operations of Morgan Group Holding Co. to be
  distributed to shareholders ...........................................       (104)     (2,718)       --
Other ...................................................................        896       1,276         215
                                                                             --------    -------     -------
NET CASH USED IN INVESTING ACTIVITIES ...................................    (14,129)    (31,116)    (21,002)
                                                                             --------    -------     -------

FINANCING ACTIVITIES
Issuance of long-term debt ..............................................     13,489      30,847       7,087
Payments to reduce long-term debt .......................................    (16,021)    (24,499)    (21,056)
Net borrowings, lines of credit .........................................      1,062       6,003       2,546
Purchase of Treasury stock ..............................................       (132)        (88)       (956)
Financing activities of operations of Morgan Group Holding Co.  to be
distributed to shareholders .............................................       (769)        439        --
Other ...................................................................        208         465        --
                                                                             --------    -------     -------

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES .....................     (2,163)     13,167     (12,379)
                                                                             --------   -------    --------
Net increase (decrease) in cash and cash equivalents ....................     (2,673)      6,399      (7,877)
Cash and cash equivalents at beginning of year ..........................     27,507      24,834      31,233
                                                                            --------    --------    --------
Cash and cash equivalents at end of year ................................   $ 24,834    $ 31,233    $ 23,356
                                                                            ========    ========    ========
</TABLE>
See accompanying notes .

<PAGE>




                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                December 31, 2002

1.   Accounting and Reporting Policies

Organization

On  September  1,  1999,  Lynch  Corporation  distributed  100  percent  of  the
outstanding  shares  of  common  stock  of its  wholly-owned  subsidiary,  Lynch
Interactive  Corporation,  to the then holders of record of Lynch's common stock
("Spin-Off"),  in the form of a tax-free distribution.  As part of the Spin-Off,
Interactive received one million shares of common stock of Spinnaker Industries,
Inc.  representing  an  approximately  13.6% equity  ownership  interest (and an
approximate   2.5%  voting   interest)  and  Interactive  also  assumed  certain
short-term and long-term debt obligations of Lynch Corporation.

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.  At the time of the  Spin-Off,  the employees of the
corporate  office of Lynch became the employees of Interactive  and for a period
of time  thereafter,  Interactive  began providing  certain support  services to
Lynch.  The  Company  charged  a  management  fee for  these  services  to Lynch
Corporation amounting to approximately $265,000 in 2000 and $208,000 in 2001. In
September 2001,  Interactive stopped charging this management fee to Lynch since
the services were no longer being provided.

In January 2002,  Interactive  spun off its interest in The Morgan  Group,  Inc.
("Morgan"),  its  only  services  subsidiary,  via a  tax-free  dividend  to its
shareholders  of the stock of Morgan Group Holding Co., a  corporation  that was
initially  formed to serve as a holding company for  Interactive's,  among other
business purposes,  controlling interest in Morgan.  Morgan Group Holding Co. is
now a public  company.  Accordingly,  the amounts for Morgan are  reflected on a
one-line basis in the consolidated  financial statements as of December 31, 2001
and for the year then  ended as amounts  "to be  distributed  to  shareholders."
Similarly,  the prior  years'  financial  statements  have been  restated  to be
comparable with the current year's presentation.


Basis of Presentation

The accompanying  financial  statements  represent the consolidated  accounts of
Interactive  which  primarily  consists of its telephone  (81%-100% owned during
each of the three years ended  December  31,  2002),  cable  television  (60% at
December 31, 2000 and 100% owned at December 31, 2001 and December 31, 2002) and
security (64% owned from date of  acquisition  of American Alarm on November 30,
2001)  subsidiaries.  All material  intercompany  transactions and balances have
been eliminated.  Investments in affiliates in which the Company does not have a
majority  voting control are accounted for in accordance with the equity method.
The Company accounts for the following  affiliated companies on the equity basis
of accounting:

The  Company's  public  utility  subsidiaries  are regulated by both the Federal
Communications   Commission   (FCC)  and  various   state   commissions.   These
subsidiaries follow the accounting  prescribed by the Uniform System of Accounts
of the FCC and the state  commissions  and  Statement  of  Financial  Accounting
Standards  (SFAS)  No. 71,  "Accounting  for the  Effects  of  Certain  Types of
Regulation." Where applicable,  this accounting  recognizes the economic effects
of rate regulation by recording costs and a return on investment as such amounts
are recovered through rates authorized by regulatory authorities.

Coronet  Communications  Company  (20%  owned at  December  31,  2002),  Capital
Communications  Company,  Inc.  (49%  owned  at  December  31,  2002),  Fortunet
Communications,   L.P.   (49.9%   owned   through   February   2001),   and  the
telecommunications  operations in New Mexico, Iowa and New York (5% to 21% owned
at December 31, 2002).

The shares of Spinnaker Industries, Inc., in which the company owned 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." On November 13, 2001,  Spinnaker announced that it
has commenced voluntary proceedings under Chapter 11 of the U.S. Bankruptcy Code
for the purpose of facilitating and accelerating its financial restructuring. On
January 9, 2002,  both  classes of  Spinnaker's  stock were  de-listed  from the
American Stock  Exchange.  The Company  believed at December 31, 2001,  that the
decline in quoted value was other than  temporary and,  accordingly,  recorded a
loss of $3.2 million during 2001 to write down its investment in Spinnaker to $0
at December 31, 2001. In late March 2002,  all assets of Spinnaker were sold and
the equity holders received no value.

Use of Estimates/Reclassifications

The  preparation  of  consolidated   financial  statements  in  conformity  with
accounting   principles   generally  accepted  in  the  United  States  requires
management to make estimates and assumptions that effect the amounts reported in
the financial  statements and  accompanying  notes.  Actual results could differ
from  those   estimates.   Certain  prior  year  amounts  in  the   accompanying
consolidated  financial  statements have been reclassified to conform to current
year presentation.


Cash Equivalents

Cash  equivalents  consist of highly liquid  investment with a maturity of three
months or less when purchased.

At December 31, 2001 and 2002, assets of $14.6 million and $12.4 million,  which
are  classified  as cash and cash  equivalents,  are  invested in United  States
Treasury  money  market  funds  for which  affiliates  of the  Company  serve as
investment managers to the respective funds.

At December 31, 2001, the Company has segregated  $7.6 million of U.S.  Treasury
Bills in a separate  account and pledged this account as  collateral on a letter
of credit that secured the Company's  obligation under a put (option to sell) on
certain of the Company's debt. (See Note 6-Notes Payable and Long-term Debt).

Marketable Securities

Marketable securities consist principally of common stocks. At December 31, 2001
and 2002, Interactive's investment in marketable securities,  which had carrying
values of $3.8  million  and $2.3  million,  respectively,  were  classified  as
available-for-sale. Trading and available-for-sale securities are stated at fair
value with unrealized gains or losses on trading securities included in earnings
and  unrealized  gains or losses on  available-for-sale  securities  included in
equity and as a component  of  comprehensive  income  (loss).  Unrealized  gains
(losses) on available-for-sale  securities were ($8.1 million),  ($3.0 million),
and ($1.3  million)  for the  years  ended  December  31,  2000,  2001 and 2002,
respectively.  The changes in unrealized gains in each of the periods presented,
net of tax, have been included in the  Consolidated  Statements of Shareholder's
Equity, as "Accumulated other comprehensive income."

The  cost  of  marketable   securities   sold  is  determined  on  the  specific
identification  method.  Realized gains included in investment  income were $0.9
million,  $1.4 million and $0.4  million for the years ended  December 31, 2000,
2001 and 2002, respectively.

Accounts Receivable

Accounts  receivable  are  recorded  at the  invoiced  amount  and  do not  bear
interest.  The allowance for doubtful accounts is the Company's best estimate of
the  amount  of  probable  credit  losses  in the  Company's  existing  accounts
receivable.  The Company  establishes  an allowance for doubtful  accounts based
upon  factors  surrounding  the credit  risk of specific  customers,  historical
trends, and other information. Receivable balances are reviewed on an aged basis
and account  balances are charged off against the  allowance  after all means of
collection have been exhausted and the potential for recovery is doubtful.

Property, Plant and Equipment

Property,  plant and equipment are recorded at cost and include expenditures for
additions  and major  improvements.  Maintenance  and  repairs  are  charged  to
operations  as  incurred.  Depreciation  is  computed  for  financial  reporting
purposes using the  straight-line  method over the estimated useful lives of the
assets,  which range from 3 to 35 years.  For income tax  purposes,  accelerated
depreciation methods are used.

When a portion  of the  Company's  depreciable  property,  plant  and  equipment
relating to its telephone  operations business is retired,  the gross book value
of the assets,  including  cost of disposal  and net of any  salvage  value,  is
charged to accumulated depreciation,  in accordance with the Company's regulated
accounting procedures.

Excess of Cost Over Fair Value of Net Assets Acquired, Net (Goodwill)

In June 2001,  the Financial  Accounting  Standards  Board issued  Statements of
Financial  Accounting  Standards No. 141,  Business  Combinations,  and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Statement 141 required that the purchase method of accounting
be used for all  business  combinations  initiated  after  September  30,  2001.
Statement 141 also includes guidance on the initial  recognition and measurement
of goodwill  and other  intangible  assets  arising from  business  combinations
completed  after June 30, 2001.  Statement  142 prohibits  the  amortization  of
goodwill and assets with  indefinite  lives.  Statement  142 requires that these
assets be reviewed for  impairment  at least  annually.  Intangible  assets with
finite lives will continue to be amortized over their estimated useful lives.

The Company tests goodwill for impairment using the two-step process  prescribed
in SFAS No. 142. The first step is a screen for potential impairment,  while the
second step measures the amount of impairment, if any. The Company performed its
transitional impairment tests of goodwill and indefinite lived intangible assets
as of January 1, 2002 and the first of its required annual tests October 1, 2002
and determined that there were no impairments at that time.

The  application  of  the  non-amortization  provisions  of  Statement  No.  142
increased Income from continuing operations for the year ended December 31, 2002
by  approximately  $2.5 million  ($0.89 per basic and diluted share) whereas the
similar  amortization charge for the years ended December 31, 2001 and 2000 were
approximately  $2.4 million ($0.85 per basic and diluted share) and $2.1 million
($0.74 per basic share), respectively.

The  following  table  discloses  what the  effects of the  non-amortization  of
goodwill  and  indefinite  lived  intangible  assets would be for income and per
share amounts for the periods displayed:
<TABLE>
<CAPTION>

                                                                                        Year Ended December 31,
                                                                                ---------------------------------------
                                                                                   2000             2001         2002
                                                                                ---------------------------------------
As reported:                                                                                       (000s)
<S>                                                                             <C>        <C>              <C>
    Income before operation of Morgan .....................................     $ 5,031    $        2,534   $    3,761
      distributed to Shareholders
    Loss from operations of Morgan distributed to
       Shareholders .......................................................      (2,666)           (1,386)      (1,888)
                                                                                 -------    --------------   ----------
    Net Income (loss) .....................................................     $ 2,365    $        1,148   $    1,873
                                                                                =======    ==============   ==========

Adjustment from non-amortization Continuing operations net of income taxes
    of $300, $296, and $0, and minority interest
    of $76, $74, and $0, respectively .....................................     $ 2,079    $        2,392   $     --
    Operations of Morgan, net of income taxes of
    $244, $0, and $0 and minority interestsof
    $173, $185 and $0, respectively.......................................      $   217    $          287   $     --

As adjusted:
    Income (loss) from continuing operations ..............................     $ 7,110    $        4,926   $    3,761
    Income (loss) from operations of Morgan ...............................      (2,449)           (1,099)      (1,888)
                                                                                -------    --------------   ----------
    Net income ............................................................     $ 4,661    $        3,827   $    1,873
                                                                                =======    ==============   ==========

Basic and diluted earnings per share
    Income (loss) from continuing operations ..............................     $  2.52    $         1.75   $     1.34
    Income (loss) from operations of Morgan ...............................       (0.87)            (0.39)       (0.67)
                                                                                -------    --------------   ----------
    Net Income (loss) .....................................................     $  1.65    $         1.36   $     0.67
                                                                                =======    ==============   ==========
</TABLE>




<PAGE>



The following tables display the details of goodwill and intangible assets as of
the dates shown.
<TABLE>
<CAPTION>

                                                             December 31,
                                                   -----------------------------
                                                       2001              2002
                                                   -----------------------------
Subscriber Lists:  Intangible Assets subject to
   amortization
<S>                                                   <C>                <C>
Asset .........................................       $7,194             $7,284
Accumulated Amortization ......................       $  986             $2,370
</TABLE>
<TABLE>
<CAPTION>

                                                         Year Ended December 31,
                                                   -----------------------------------
                                                    2000           2001         2002
                                                   -----------------------------------
<S>                                                  <C>           <C>          <C>
Total amortization expense                           $-            $  189       $1,384
</TABLE>

<TABLE>
<CAPTION>

                                               2003       2004         2005        2006         2007
                                          ----------------------------------------------------------
Estimated aggregate amortization
<S>                                            <C>        <C>          <C>         <C>          <C>
expense by year ................               $552       $552         $547        $547         $547
</TABLE>
<TABLE>
<CAPTION>

                                                             December 31,
                                                   -----------------------------
                                                      2001         2002
                                                   -----------------------------
Intangible assets not subject to amortization:
<S>                                                   <C>          <C>
     Goodwill ........                                $60,889      $60,884
     Cellular licenses                                $ 1,650      $ 1,650
</TABLE>


Revenues

Multimedia  revenues  include local and  intrastate  telephone  company  service
revenues,  which are  subject to review and  approval  by state  public  utility
commissions, and long distance network revenues, which are based upon charges to
long distance  carriers through a tariff filed by the National Exchange Carriers
Association with the Federal  Communications  Commission.  Revenues are based on
cost  studies  for the  Company's  exchanges,  and have been  estimated  pending
completion of final cost studies.  Estimated  revenue is adjusted to actual upon
the completion of the cost studies.

Sales of communications  products  represent a separate earnings process and are
recognized  when  products are  delivered  and accepted by  customers.  For each
transaction  involving both the  installation and activations of service and the
sale of equipment,  the Company has allocated  revenues  based on fair value for
the  service  element  and the  residual  method for all other  elements  of the
transaction.

Earnings (Loss) Per Share

Basic  earnings  (loss) per common share amounts are based on the average number
of common shares outstanding during each period,  excluding the dilutive effects
of options,  warrants,  and convertible  securities.  Diluted earnings per share
reflect  the  effect,  where  dilutive,  of options,  warrants  and  convertible
securities, using the treasury stock and if converted methods as applicable.

Comprehensive Income

The Company  follows the  provisions of SFAS No. 130,  "Reporting  Comprehensive
Income"  that  requires   unrealized   gains  or  losses  on  the   Registrant's
available-for-sale  securities  to  be  included  as  a  separate  component  of
Shareholder Equity and in other comprehensive income (loss).


Segment Information

The Company follows the provisions of SFAS No. 131,  "Disclosures About Segments
of an Enterprise and Related  Information." SFAS No. 131 requires  disclosure of
selected financial and descriptive  information for each operating segment based
on management's internal organizational  decision-making  structure.  Additional
information  is  required  on a  company-wide  basis for  revenues by product or
service, revenues and identifiable assets by geographic location and information
about significant  customers.  Subsequent to the spin-off of Morgan, the Company
has only one reportable segment - multimedia - see Note 14.

Stock Based Compensation

Historically,  the Company  applies the disclosure  only  provisions of SFAS No.
123, Accounting for Stock Based Compensation.  In the three years ended December
31,  2002,  the  Company  had  provided  pro  forma  data  with  regard  to  its
consolidated  subsidiary,  The Morgan Group,  Inc., such disclosure is no longer
required as Morgan is being treated as a  discontinued  operations  SFAS No. 123
establishes a fair value method of accounting and reporting  standards for stock
based compensation plans. However, as permitted by SFAS No. 123, Company elected
to continue to apply  provision of Accounting  Principles  Board Opinion ("APB")
No. 25,  "Accounting for Stock Issued to Employees" and related  interpretations
in accounting for its equity awards.  Under APB No. 25, if the exercise price of
the Company's  employee  stock options was not less than the market price of the
underlying stock on the date of grant, no compensation expense is recognized. As
the Company has had no options  outstanding  during any of the three years ended
December 31, 2002, the disclosure practices of SFAS 123 are not applicable.  The
Company is required to disclose  the pro forma net income  (loss) and net income
(loss)  per share as if the fair value  method  defined in SFAS No. 123 had been
applied to all grants.

Issuance of Stock by Subsidiary and Investees

Changes  in the  Company's  equity  in a  subsidiary  or an  investee  caused by
issuances of the  subsidiary's or investees' stock are accounted for as gains or
losses where such issuance is not part of a broader reorganization.

Fair Value of Financial Instruments

Cash and cash equivalents,  trade accounts  receivable,  short-term  borrowings,
trade  accounts  payable  and  accrued  liabilities  are  carried  at cost which
approximates fair value due to the short-term maturity of these instruments. The
carrying amount of the Company's  borrowings  under its revolving line of credit
approximates  fair value, as the  obligations  bear interest at a floating rate.
The  fair  value of  other  long-term  obligations  approximates  cost  based on
borrowing rates for similar instruments.

Recent Issued Accounting Pronouncements

Effective  January  1,  2002,  we  adopted  SFAS  No.  144,  Accounting  for the
Impairment or Disposal of Long-Lived Assets.  This standard  supersedes SFAS No.
121 and the  provisions  of APB  Opinion  No.  30,  "Reporting  the  Results  of
Operations-  Reporting  the Effects of Disposal of a Setment of a Business,  and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," with
regard to reporting  the effects of a disposal of a segment of a business.  SFAS
No. 144  establishes a single  accounting  model for assets to be disposed of by
sale and addresses several SFAS No. 121  implementation  issues. The adoption of
SFAS No. 144 did not have a material  effect on our  results  of  operations  or
financial position.

In June 2001,  the FASB issued SFAS No. 143,  "Accounting  for Asset  Retirement
obligations  "This standard provides  accounting  guidance for legal obligations
associated  with the  retirement  of  long-lived  assets  that  result  from the
acquisition,  construction  or  development  and (or) normal  operation  of that
asset.  According  to the  standard,  the  fair  value  of an  asset  retirement
obligation  (ARO  liability)  should be  recognized  in the period in which (1)a
legal  obligation to retire a long-lived  asset exists and (2) the fair value of
the  obligation  based on  retirement  cost and  settlement  date is  reasonably
estimable.  Upon initial  recognition  of the ARO  liability,  the related asset
retirement  cost should be capitalized by increasing the carrying  amount of the
related  long-lived  asset. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002. We are currently  evaluating  the impact,  if any, this new
standard will have on our future results of operations or financial position.

2.   Spin-off of Morgan

On July 12, 2001,  the Company made an  additional  $2.0 million  investment  in
Morgan,  which increased its equity ownership from 55.6% to 70.2% and its voting
control from 68.59% to 80.8%.

In January 2002,  Interactive  spun off its interest in The Morgan Group,  Inc.,
its only services subsidiary, via a tax-free dividend to its shareholders of the
stock of Morgan Group Holding Co., a  corporation  that was formed to serve as a
holding company for Interactive's controlling interest in The Morgan Group, Inc.
Morgan Group Holding Co. is now a public company.

As a result,  the Company's  services  segment,  which  consisted  solely of the
operations  of Morgan,  is being  reported as operations  to be  distributed  to
shareholders. Accordingly, operating results of Morgan have been segregated from
continuing  operations and reported as a separate line item in the Statements of
Operations.

Interactive  has restated  its prior year  financial  statements  to present the
operating results of Interactive on a comparable basis.  Morgan's net sales were
$101.2  million,  and $128.4  million for the years ended  December 31, 2001 and
2000, respectively.

The net  assets of Morgan  included  in the  accompanying  consolidated  balance
sheets as of December 31, 2001, consist of the following (in thousands):


<page>
<TABLE>

<S>                                                              <C>
Cash and cash equivalents ....................................   $ 1,017
Accounts receivable, net .....................................     6,322
Prepaids and other (includes restricted cash of $2.6 million)      5,418
                                                                 -------
Current assets to be distributed to shareholders .............   $12,757
                                                                 =======

Property, plant and equipment, net ...........................   $ 3,385
Excess of cost over net fair value of net assets acquired, net     6,256
Other assets .................................................       600
                                                                 -------
Non-current assets to be distributed to shareholders .........   $10,241
                                                                 =======

Notes payable ................................................   $   580
Accounts payable .............................................     4,505
Accrued liabilities ..........................................     6,027
Current portion of long term debt ............................       169
                                                                 -------
Current liabilities to be distributed to shareholders ........   $11,281
                                                                 =======

Long term debt ...............................................   $    13
Other liabilities ............................................     4,078
Deferred income taxes ........................................     1,671
Minority interest ............................................     2,199
                                                                 -------
Non-current liabilities and minority interest to be
  distributed to shareholders ................................   $ 7,961
                                                                 =======
</TABLE>

3.   Acquisitions and Dispositions

Acquisitions

On June 22, 2001,  Lynch  Telephone  Corporation X, a subsidiary of Interactive,
acquired Central Utah Telephone,  Inc. and its subsidiaries,  and Central Telcom
Services, LLC, a related entity, for approximately $8.0 million in cash and $7.6
million in notes. The Company recorded  approximately $11.0 million of goodwill,
which was being amortized over 25 years, through December 31, 2001 (see Note 1).

This acquisition was accounted for as a purchase,  and  accordingly,  the assets
acquired and  liabilities  assumed were recorded at their  estimated fair market
values  on the  date of  acquisition.  The  operating  results  of the  acquired
companies are included in the  Statements of  Operations  from their  respective
acquisition dates.

The following unaudited  consolidated pro forma information shows the results of
the Company's  operations  presented as if the Central Utah  acquisition and the
distribution  of Morgan were made at the  beginning of 2000.  The  unaudited pro
forma  information  is not  necessarily  indicative of the results of operations
that would have occurred had the transactions been made at these dates nor is it
necessarily indicative of future results of operations.



<PAGE>

<TABLE>
<CAPTION>


                                            Year Ended December 31,
                                         ---------------------------------
                                            2000           2001
                                         ---------------------------------
                                                 (Unaudited)
<S>                                        <C>            <C>
Sales ..................................   $71,705        $82,129
Income (loss) from continuing operations
  before extraordinary item ............   $ 5,361        $ 2,491
Net income (loss) ......................     5,361          2,491
Basic and diluted earnings per share:
   Net income (loss) ...................   $  1.90        $  0.88

</TABLE>

4.   Wireless Communications Services

On February  22, 2001,  Interactive  spun-off to its  shareholders  2,800,000 of
Sunshine PCS Corporation  ("Sunshine") Class A Common Stock. Sunshine was formed
just  prior to the  spin-off  through  the  merger  of  Sunshine  with  Fortunet
Communications   Limited   Partnership  and  Interactive   converted  its  49.9%
partnership  interest in Fortunet into 3,000,000  shares of Class A Common Stock
of Sunshine  representing 49.9% of Sunshine's common equity interest. As part of
the merger,  Interactive exchanged $85 million of subordinated notes of Fortunet
into $16.1 million (face value) of subordinated notes in Sunshine, Interactive's
carrying value in these notes was $3.4 million at December 31, 2001. In addition
prior to the spin-off,  in exchange for $250,000,  Interactive  acquired  10,000
shares of preferred stock in Sunshine with an aggregate  liquidation  preference
of $10.0 million and warrants to purchase  4,300,000  shares of Sunshine Class A
Common  Stock  at  $0.75  per  share.   Sunshine  owns  three  15  MHz  personal
communications services ("PCS") licenses in Tallahassee,  Panama City and Ocala,
Florida,  areas  covering a total  population  of 960,000  (based on 2000 census
data).  During  2002,  as part  of a  rights  offering  to its  shareholders  by
Sunshine, Interactive acquired an additional 58,824 shares of Sunshine's Class A
Common  Stock at $1.00;  per share.  Prior to the rights  offering,  Interactive
loaned Sunshine $550,000.  This amount, plus interest of $12,000,  was repaid by
Sunshine with a portion of the proceeds of the rights offering.

Also during 2002,  Interactive  exchanged  subordinated notes of Sunshine with a
principal in the amount of $18.5  million  into two classes of preferred  stock.
Interactive received 12,500 shares of Sunshine's A-1 preferred stock which has a
total  liquidation  value of $12.5  million and 2,000 shares of  Sunshine's  A-2
convertible preferred stock which has a liquidation value of $2.0 million and is
convertible  into 2.0 million shares of Sunshine Class A Common Stock.  The book
value of  Interactive's  investment  is $3.4  million,  therefore,  there was no
impact on the carrying  value of the  investment in Sunshine as a result of this
restructuring.

During 2000,  Interactive  invested in four limited liability  companies,  which
participated  in  four  separate  auctions.  In  the  paging  auction,  Betapage
Communications,   L.L.C.  acquired  24  licenses  at  a  net  cost  of  $77,000;
Interactive  owns  49.9% of  Betapage's  equity.  In the 39 MHz  auction,  PTPMS
Communications,  L.L.C.  acquired  22 licenses  for a net cost of $1.5  million;
Interactive  has loans to PTPMS of $1.4 million and owns 49.9% of PTPMS  equity.
In the Guard  Band  auction,  PTPMS II  Communications,  L.L.C.  acquired  three
licenses  at a net cost of $6.3  million;  Interactive  has loans to PTPMS II of
$6.1 million,  and owns 49.9% of PTPMS II is equity.  In a FCC auction conducted
during 2002 for similar  spectrum,  which ended on September 18, 2002, the Lower
700 MHz Band Auction,  the price per MHz of population was materially lower than
the  price  paid by PTPMS  II in 2000.  Accordingly,  during  2002,  Interactive
provided for the  impairment  for its  investment  in PTPMS II of $5.5  million,
resulting in a net book value, at December 31, 2002, of $0.7 million.

In the C&F Block PCS Reauction  ("Auction 35"), which ended on January 26, 2001,
Theta  Communications,  LLC acquired one license at a net cost of $4.0  million.
During the year ended December 31, 2001, $5.0 million of loans from  Interactive
to Theta were returned. Lynch Interactive owns 10% of Theta and has committed to
fund a portion of the remaining  license cost. An affiliate of Interactive  also
has invested in Theta.

During  2002,  the FCC provided  all  participants  in Auction 35, the option of
withdrawing their high bid exchange for a return of all monies on deposit. Theta
withdrew its bid on the licenses it acquired. All remaining monies were returned
by the FCC and distributed to other owners.

During 2002, a wholly owned subsidiary of Interactive acquired eight licenses in
the Lower MHz Auction at a total cost of $1.1 million.

On February 25, 2000, Omnipoint Incorporated 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,  Interactive  recorded a
pre-tax gain of $4.2 million in the first quarter of 2000.

During the third quarter of 2001, the Company recorded an administration  fee of
$2.8  million for services  provided to an entity,  in which an affiliate of the
Chairman of the Company has a minority  investment  in a Federal  Communications
Commission  conducted  auction  for  spectrum  to be used for the  provision  of
personal communications  services. The auction was conducted in 1999 and the fee
was based on the  entity's  realization  of the licenses  acquired.  This fee is
included  in  the  "Sales  and  Revenues"  in  the  Consolidated   Statement  of
Operations.

There are many risks relating to PCS and other FCC wireless licenses  including,
without  limitation,  the high cost of PCS and certain other licenses,  the fact
that it involves start-up businesses,  raising the substantial funds required to
pay for the licenses and the build out,  determining the best way to develop the
licenses and which technology to utilize,  the small size and limited  resources
of  companies  compared to other  potential  competitors,  existing and changing
regulatory  requirements,  additional  auctions of  wireless  telecommunications
spectrum and actually building out and operating new businesses  profitably in a
highly competitive environment (including already established cellular telephone
operators  and other new PCS  licensees).  There  can be no  assurance  that any
licenses  granted  to  Sunshine,  or other  entities  in which  subsidiaries  of
Interactive have interests,  can be successfully  sold or financed or developed,
thereby  allowing  Interactive's  subsidiaries  to recover their debt and equity
investments.

5.   Investments in Affiliated Companies

Lynch Entertainment, L.L.C. ("LENCO"), a wholly owned subsidiary of the Company,
has a 20%  investment  in  Coronet  Communications  Company  ("Coronet"),  which
operates  television station WHBF-TV, a CBS affiliate in Rock Island,  Illinois.
Lynch  Entertainment  Corporation II ("LENCO II"), a wholly owned  subsidiary of
the  Company,  has a 49%  investment  in Capital  Communications  Company,  Inc.
("Capital"),  which operates  television station WOI-TV, an ABC affiliate in Des
Moines, Iowa.

At December 31, 2001 and 2002,  LENCO's  investment  in Coronet was carried at a
negative  $946,000  and  a  negative  $791,000,  respectively,  due  to  LENCO's
guarantee  of $3.8  million of  Coronet's  third party debt.  Long-term  debt of
Coronet, at December 31, 2002, totaled $10.1 million due to a third party lender
which is due quarterly through December 31, 2005.

At December 31, 2001 and 2002,  LENCO II's  investment  in Capital is carried at
zero as its  share  of net  losses  recognized  to date  have  exceeded  its net
investment. LENCO II also owns $10,000 of Preferred Stock B of Capital, which is
convertible at any time into the Common Stock of Capital in a sufficient  amount
to bring LENCO II's ownership to 50%.

Subsidiaries  of Lynch  Telephone  Corporation  own  minority  positions  in two
partnerships providing cellular service to three Rural Service Areas ("RSAs") in
New  Mexico.  Adjusting  for the  minority  positions  in non  wholly-owned  and
wholly-owned subsidiaries,  Lynch Telephone Corporation's net equity interest in
the two RSA's is as follows: RSA #3 - 21.1%, and RSA #5 - 17.0%. Lynch Telephone
Corporation's  net investment in these  partnerships is $2.6 million at December
31, 2001 and $2.4  million at December 31, 2002.  In January  2002,  the Company
sold its interest in RSA #1 (North) for $5.5 million  ($3.0  million in cash and
$2.5 million in satisfaction of a note payable to the acquiror),  and recorded a
pre-tax gain of approximately $5.0 million.

Undistributed  earnings of companies  accounted for using the equity method that
are included in consolidated retained earnings are $1.0 million and $1.2 million
at December 31, 2001 and 2002, respectively.

Summarized  financial  information  for  companies  accounted  for by the equity
method as of and for the years ended December 31, is as follows:
<TABLE>
<CAPTION>

                                                      Combined Information
                                                   -----------------------------
                                                   2000      2001      2002
                                                   -----------------------------
                                                       (In Thousands)
<S>                                                <C>       <C>       <C>
Current assets .................................   $10,955   $11,139   $20,283
Property, plant & equipment, intangibles & other   $41,899   $44,606   $39,109
Total Assets ...................................   $52,854   $55,745   $59,392
Current liabilities ............................   $ 6,651   $ 5,720   $13,002
Long term liabilities ..........................   $36,628   $36,641   $29,938
Equity .........................................   $ 7,755   $10,359   $16,452
Total liabilities & equity .....................   $52,854   $55,745   $59,392
Revenues .......................................   $37,442   $39,837   $56,216
Gross profit ...................................   $11,306   $18,636   $18,285
Net income .....................................   $ 4,679   $ 4,712   $10,790
</TABLE>



<PAGE>



6.   Notes Payable to Banks and Long-term and Convertible Debt

Long-term  debt   represents   borrowings  by  specific   entities,   which  are
subsidiaries of Interactive.
<TABLE>
<CAPTION>

                                                                                       December 31,
                                                                                   2001             2002
                                                                             ------------------------------
                                                                                      (In Thousands)
Long-term debt consists of (all interest rates are at December 31, 2002):
<S>                                  <C>                                          <C>          <C>
Rural Electrification Administration (REA) and Rural Telephone Bank (RTB) notes
payable in equal quarterly installments through 2027 at fixed interest rates
ranging from 2% to 7.5% (4.9% weighted average), secured by

assets of the telephone companies of $150 million .............................   $  55,499    $  58,119

Bank credit facilities utilized by certain telephone and telephone holding
companies through 2016, $30.4 million at fixed interest rates averaging
7.9% and $49.7 million at variable interest rates averaging 4.3% ..............      87,127       80,166

Unsecured notes issued in connection with acquisitions through 2008, all at
fixed interest rates averaging 10% (costs held by management operations on
subsequent companies) .........................................................      34,512       34,749

Other .........................................................................       6,064        3,587
                                                                                   ---------   ---------
                                                                                    183,202      176,621
Current maturities ............................................................    (18,126)     (18,272)
                                                                                   ---------   --------
                                                                                  $ 165,076    $ 158,349
                                                                                   =========   =========
</TABLE>

REA debt of $10.8 million bearing  interest at 2% has been reduced by a purchase
price  allocation  of $1.7 million  reflecting  an imputed  interest rate of 5%.
Unsecured notes issued in connection with the telephone company acquisitions are
predominantly  held  by  members  of  management  of  the  telephone   operating
companies.

The parent company of Interactive  maintains a $10.0 million  short-term line of
credit  facility,  which expires in August 2003.  Borrowings  under this line at
December  31, 2001 and 2002 were $7.6 million and $10.0  million,  respectively.
Management  expects  that such  line  will be  renewed  by its  expiration  date
although there are no assurances that this will be accomplished.

In general,  the long-term debt facilities are secured by  substantially  all of
the Company's  property,  plant and equipment,  receivables  and common stock of
certain subsidiaries and contain certain covenants restricting  distributions to
Lynch  Interactive.  At  December  31,  2001  and  2002,  substantially  all the
subsidiaries' net assets are restricted.

On December  12,  1999,  Interactive  completed  the private  placement of a $25
million 6% five-year unsecured,  convertible subordinated note, convertible into
Interactive  common stock at $42.50 per share,  (adjusted for subsequent 2 for 1
stock split).  At that time, to assist the Company with the private placement to
Cascade Investment LLC ("Cascade"),  the Chairman and CEO of the Company, agreed
to give the acquirer of the note,  a one-time  option to sell the note to him at
105% of the principal amount thereof.  The exercise period was from November 15,
2000 to  December  1,  2000.  Under  generally  accepted  accounting  principles
relating to significant  shareholders,  during 2000,  Interactive recorded $1.25
million in interest  expense to  recognize  the 5% premium  incorporated  in the
option to sell.  This option to sell is secured by a bank letter of credit.  The
Company  agreed to  reimburse  the Chairman for the cost of the letter of credit
(approximately  $160,000) plus his counsel fees in connection with the option to
sell agreement and obtaining the letter of credit.

In January 2001,  the above option to sell  agreement  was amended.  As amended,
Cascade had the right to sell up to $15 million of the note back to the Chairman
at any time prior to January  31, 2001 and the right to sell the  remaining  $10
million of the notes  between  November 15 and  December 1, 2002.  The option to
sell was at 105% of principal amount sold plus accrued and unpaid interest. As a
condition to modifying  and extending  the option to sell,  the Company  entered
into an agreement with its Chairman whereby it will pay for and acquire,  on the
same terms and  conditions,  any portion of the note sold by Cascade  under this
option.  During January 2001,  Cascade  exercised this option with regard to the
$15  million of the notes and on  February  14,  2001,  the  Company  paid $15.9
million to Cascade,  including 5% premium  plus  accrued and unpaid  interest in
exchange for $15.0 million of the note held by Cascade.

The option to sell the  remaining  $10 million  was secured by a  collateralized
letter of credit in which, for a period of time, a portion of the collateral was
provided by an affiliate  of the Vice  Chairman.  The company  agreed to pay all
legal  fees,  letter of credit  fees and a 10% per annum  collateral  fee on the
amount of collateral  provided by the  affiliate  which at December 31, 2001 was
valued at $3.0  million.  The Company  expensed $0.2 million and $0.8 million in
2000 and 2001  relating  to this  agreement.  Amounts  payable  at 2001 was $0.3
million.  The Company can replace the  collateral at any time and the fees would
be eliminated thereafter. As of December 31, 2001, the company had replaced $7.5
million of the escrow  collateral  securing  the above noted letter of credit by
segregating  $7.5  million  of U.S.  Treasury  Bills in a separate  account  and
pledging  this  account to the  issuers of the letter of credit.  Subsequent  to
December 31, 2001, the remaining  collateral of $3.0 million was replaced by the
Company.  In November,  2002, Cascade exercised its ability to demand payment on
the  remaining  $10.0  million in notes and such  payment was made plus the $0.5
million  premium.  During the year ended December 31, 2002, the Company's  total
expense,  interest and fees, associated with the $10.0 million was $0.7 million,
of this amount $0.1 million was paid to an affiliate of the Vice Chairman.

On January 31, 2001, a subsidiary  of the Company  borrowed  $27.0  million on a
long-term basis,  secured by the stock of Western New Mexico Telephone  Company.
$15.9 million of the proceeds were used to acquire the  Convertible  Note of the
Company owned by Cascade. The loan is to be repaid in equal monthly installments
over twelve years beginning in April 2001, bearing interest at either the bank's
prime rate or LIBOR plus 2.5%, or at the Company's  option,  it can be fixed for
its term. The stock of Western New Mexico Telephone  Company had previously been
used to secure the acquisition  facility,  the balance of which was $7.9 million
prior to repayment in December 2000.

In January,  2003, a subsidiary  of the Company  borrowed $3.0 million on a long
term basis  secured by the stock of Cuba City  Telephone  Exchange  and  Belmont
Telephone Company.

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

On March 26, 2003, the Company issued a press release and filed a Current Report
on Form 8-K  disclosing a planned rights  offering of certain  securities to its
shareholders which is expected to be completed in 2003.

Cash payments for interest were $12.0  million,  $14.6 million and $14.0 million
for the years ended December 31, 2000, 2001 and 2002,  respectively.  During the
year ended December 31, 2000, 2001 and 2002, the Company capitalized interest of
$0.4 million, $0.3 million and $0.2 million respectively.

Aggregate  principal  maturities of long-term debt at December 31, 2002 for each
of the next five years are as follows: 2003--$18.3 million, 2004--$27.4 million,
2005--$11.7 million, 2006--$37.9 million and 2007--$10.4 million.

7.   CLR Video, L.L.C.

At December 31, 2000, the Company owned a 60% interest in CLR Video,  L.L.C.,  a
provider of cable television  services in northeast  Kansas. In conjunction with
the settlement of two pending  lawsuits during 2001, CLR distributed  certain of
its assets to the holders of the  remaining  40%  interest in exchange for their
interest in CLR and cash.

8.   Related Party Transactions

Interactive  leases its  corporate  headquarters  from an  affiliate of its Vice
Chairman. The lease was renewed in December 2002 for five years and calls for an
annual payment of $103,000 including utilities.  Prior to the renewal the annual
payment was $70,000. In addition,  expenses relating to administrative  support,
transportation,   and  communications   (approximately  $124,000,  $104,000  and
$104,000 for the years ended December 31, 2000, 2001 and 2002, respectively) are
paid to an affiliate of its Vice  Chairman.  See Notes 1, 4 and 6 for additional
references to related party transactions.

During 2000, in settlement of the fee for  performance of services in connection
with an  acquisition,  the  Company  transferred  to an  affiliate  of the  Vice
Chairman of Interactive its stock ownership in Lynch Capital Corporation.  Lynch
Capital  Corporation  is a broker dealer that recorded  revenues of $6,000 and a
net loss of $16,000 in 2000.  The Company  recorded a $61,000  pre-tax gain from
this transfer in 2000.



<PAGE>



9.   Shareholder's Equity

Subsequent to the spin-off by Lynch, the Board of Directors of Lynch Interactive
authorized  the purchase of up to 100,000  shares of its common  stock.  Through
December  31,  2002,  32,115  shares have been  purchased  at an average cost of
$36.95  per  share.  Subsequent  to  year-end,  the  Company  has  purchased  an
additional 2,000 shares at an average cost of $25.60 per share.

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

Subsequent to December 31, 2002,  the Company  issued stock options to its newly
hired  President  and Chief  Operating  Officer,  covering  55,000  shares.  The
exercise  prices  are as  follows:  20,000  at $26.06  (market  price at date of
grant),  20,000 at $36.06 and 15,000 at $46.06.  These options vest at one year,
three years and four years from  February 10, 2003.  The Company is  considering
accounting for these options under the provisions of SFAS 123.

10.  Income Taxes

Interactive  files  consolidated  income tax returns with its  subsidiaries  for
federal  income tax purposes.  Separate  returns and in some cases  consolidated
returns, of subsidiary entities are filed with other governing authorities.

Deferred  income  taxes  for  2001  and  2002  are  provided  for the  temporary
differences  between  the  financial  reporting  bases  and the tax bases of the
Company's assets and liabilities.  Cumulative temporary  differences at December
31, 2001 and 2002 are as follows:

<TABLE>
<CAPTION>



                                                             Dec. 31, 2001                  Dec. 31, 2002
                                                             Deferred Tax                    Deferred Tax
                                                         Asset        Liability         Asset         Liability
                                                     --------------------------------------------------------------
                                                                            (In Thousands)
<S>                                                                       <C>             <C>              <C>
Fixed assets revalued under purchase
   accounting and tax over book depreciation .....     $  --          $ 7,283           $  --          $ 8,968
Discount on long-term debt .......................        --              734             350              992
Basis difference in subsidiary and affiliate stock        --              828              --               --
Unrealized gains on marketable securities ........        --            2,153              --            1,388
Partnership tax losses in excess of book losses ..        --           (4,547)             --           (5,434)
Other reserves and accruals ......................        --              393              --              707
Other ............................................        --               --              --               --
                                                       -------        -------          -------          -------
    Total deferred income taxes ..................        --            6,844             350            6,621

Valuation Allowance ..............................        --               --            (350)              --
                                                       -------        -------          -------          -------
                                                       $  --          $ 6,844           $  --          $ 6,621
                                                       =======        =======          =======         =======
</TABLE>
<page>
The provision (benefit) for income taxes before extraordinary item is summarized
as follows:
<TABLE>
<CAPTION>

                           2000       2001        2002
                         -------------------------------
                                 (In Thousands)
<S>                      <C>        <C>        <C>
Current payable taxes:
  Federal ............   $ 5,728    $ 3,438    $ 3,016
  State and local.....     1,344        740        510
                         -------    -------    -------
                           7,072      4,178      3,526
Deferred taxes:
 Federal .............    (1,891)      (671)        15
 State and local .....      (210)       (53)       383
                         -------    -------    -------
                          (2,101)      (724)       398
                         -------    -------    -------
                         $ 4,971    $ 3,454    $ 3,924
                         =======    =======    =======
</TABLE>

A   reconciliation   of  the   provision   (benefit)  for  income  taxes  before
extraordinary  item and the amount  computed by applying the  statutory  federal
income  tax  rate  to  income  before  income  taxes,  minority  interest,   and
extraordinary item follows:
<TABLE>
<CAPTION>

                                                2000       2001      2002
                                               ---------------------------------
                                                     (In Thousands)
<S>                                             <C>        <C>       <C>
Tax at statutory rate .......................   $ 3,673    $ 2,261   $ 2,963
Increases (decreases):
State and local taxes, net of federal benefit       779        453       589
Amortization of non-deductible goodwill .....       880        596      --
Other .......................................      (361)       144       372
                                                -------    -------   -------
                                                $ 4,971    $ 3,454   $ 3,924
                                                =======    =======   =======
</TABLE>

Net cash  payments  for income  taxes were $4.9  million , $4.9 million and $3.2
million for the years ended December 31, 2000, 2001 and 2002, respectively.

11.  Accumulated Other 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,
2001 and 2002 are as follows (in thousands):
<TABLE>
<CAPTION>

                                           Unrealized
                                           Gain(Loss)   Tax Effect      Net
                                           -------------------------------------
<S>                 <C> <C>                <C>          <C>        <C>
Balance at December 31, 2001 ...........   $ 2,599      $(1,057)   $ 1,542
Reclassification adjustment ............      (374)         146       (228)
Change in unrealized gains (losses), net    (1,310)         530       (780)
                                           -------      -------    -------
Balance at December 31, 2002 ...........   $   915      $  (381)   $   534
                                           =======      =======    =======
</TABLE>

12.  Employee Benefit Plans

Interactive  maintains  several  defined  contribution  plans  at its  telephone
subsidiaries  and  corporate  office.  Interactive's  contributions  under these
plans,  which  vary  by  subsidiary,   are  based  primarily  on  the  financial
performance  of the business units and employee  compensation.  Total expense of
these  plans for the  years  ended  December  31,  2000,  2001 and 2002 was $0.9
million, $0.9 million and $1.0 million, respectively.

At the Registrant's Annual Meeting on May 11, 2000, the shareholders  approved a
Principal  Executive Bonus Plan. No amounts were  recognized  under this program
for the years ended  December 31, 2000 and 2001 and $0.3 million was recorded in
2002.

In addition,  three of the Company's  telephone  subsidiaries  participate  in a
multi-employer  defined  benefit  plan,  which is  administrated  by a telephone
industry  association.  Under this plan accumulated benefits and plan assets are
not  determined or allocated  separately by individual  employees.  Accordingly,
such data is not currently  available.  Total  expenses of these plans were $0.1
million for each of the three years in the period ended December 31, 2002.

13.  Commitments and Contingencies

Interactive  is a  party  to  routine  litigation  incidental  to its  business.
Management  believes that the ultimate resolution of these matters will not have
a material  adverse  effect on the  combined  liquidity,  financial  position or
results of operations of Lynch Interactive.

The  Company  leases  certain  land,  buildings  computer  equipment,   computer
software,  and network services equipment under non-cancelable  operating leases
that expire in various years through 2007.  Certain leases have renewal  options
and escalation clauses.  Rental expense under operating leases was $0.4 million,
$0.3 million and $0.3 million for years ended  December 31, 2000,  2001 and 2002
respectively.   The  table  below  shows  minimum   lease   payments  due  under
non-cancelable operating leases at December 31, 2002.
<TABLE>
<CAPTION>

                                         Years Ended December 31,
                             ---------------------------------------------------
                             2003      2004       2005       2006       2007
                             ---------------------------------------------------
<S>                         <C>        <C>        <C>        <C>        <C>
Operating leases            $352,000   $306,000   $260,000   $214,000   $205,000
</TABLE>

Additionally,  Interactive  and several other  parties,  including the Company's
Chief Executive Officer, and Fortunet  Communications,  L.P., which was Sunshine
PCS  Corporation's  predecessor-in-interest,  have been named as defendants in a
lawsuit  brought under the so-called  "qui tam"  provisions of the federal False
Claims Act in the United  States  District  Court for the  District of Columbia.
Although the complaint was filed under seal with the court on February 14, 2001,
and the seal was lifted on  January  11,  2002,  the  defendants  have yet to be
formally  served  with the  complaint.  Under the False  Claims  Act,  a private
plaintiff,  termed a "relator," may file a civil action on the U.S. government's
behalf  against  another  party for  violation  of the statute.  In return,  the
relator receives a statutory bounty from the government's litigation proceeds if
he is successful.

The relator in this  lawsuit is R.C.  Taylor III,  who is  allegedly an attorney
specializing in telecommunications  law. The main allegation in the case is that
the  defendants  participated  in the creation of "sham"  bidding  entities that
allegedly defrauded the federal Treasury by improperly  participating in certain
Federal   Communications   Commission  spectrum  auctions  restricted  to  small
businesses,  as well as obtaining  bidding  credits in other  spectrum  auctions
allocated to "small" and "very small"  businesses.  The lawsuit seeks to recover
an unspecified  amount of damages,  which would be subject to mandatory trebling
under the statute.

Interactive  strongly believes that this lawsuit is completely without merit and
will have no material  adverse  effect on the Company's  financial  condition or
results of  operations,  and  intends to defend  the suit  vigorously.  The U.S.
Department  of Justice has  notified the court that it has declined to intervene
in the case.  Nevertheless,  the Company cannot predict the ultimate  outcome of
the  litigation,  nor can the Company predict the effect that the lawsuit or its
outcome will have on our  business,  plan of operation,  financial  condition or
results of operations.

14.  Segment Information

As a result of the decision to spin off its  investment  in Morgan (see Note 2),
the Company is engaged in one business segment:  multimedia.  All businesses are
located domestically, and substantially all revenues are domestic. The Company's
operations include local telephone companies, a cable TV company,  investment in
PCS entities and investment in two  network-affiliated  television stations. The
Company's  primary  operations  are  located  in the  states  of  Iowa,  Kansas,
Michigan,  New  Hampshire,  New  Mexico,  New  York,  North  Dakota,  Utah,  and
Wisconsin.  74%  of the  Company's  telephone  customers  are  residential.  The
remaining customers are businesses.

EBITDA  (before  corporate  allocation)  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  accounting
principles generally accepted in the United States.

Operating  profit  is equal  to  revenues  less  operating  expenses,  including
unallocated general corporate expenses, and excluding interest and income taxes.
The  Company  allocates  a portion  of its  general  corporate  expenses  to its
operating segment.  Such allocation was $1.3 million for each of the years ended
December 31, 2000,  2001and 2002.  Identifiable  assets of the operating segment
are the assets used by the segment in its operations excluding general corporate
assets.  General  corporate  assets are principally  cash and cash  equivalents,
short-term investments and certain other investments and receivables.
<page>
<TABLE>
<CAPTION>

                                                                            Years Ended December 31,
                                                                    -------------------------------------
                                                                        2000         2001         2002
                                                                    -------------------------------------
                                                                                (In thousands)
<S>                                                                  <C>          <C>          <C>
Sales and revenues ...............................................   $  66,983    $  79,352    $  86,304
EBITDA (before corporate allocation)
  Operations .....................................................      34,699       41,274       41,920
  Unallocated corporate expense ..................................      (3,671)      (3,006)      (3,334)
                                                                     ---------    ---------    ---------
  Consolidated total .............................................   $  31,028    $  38,268    $  38,586
                                                                     =========    =========    =========
Operating Profit
  Operations .....................................................   $  17,531    $  21,534    $  21,227
  Corporate expense, net .........................................      (2,200)      (1,549)      (1,994)
                                                                     ---------    ---------    ---------
  Consolidated total .............................................   $  15,331    $  19,985    $  19,233
                                                                     =========    =========    =========

Depreciation and amortization
  Operations .....................................................   $  15,781    $  18,268    $  19,339
  General corporate ..............................................          16           15           14
                                                                     ---------    ---------    ---------
  Consolidated total .............................................   $  15,797    $  18,283    $  19,353
                                                                     =========    =========    =========

Capital expenditures
  Operations .....................................................   $  17,196    $  20,524    $  23,782
  General corporate ..............................................          12            9            3
                                                                     ---------    ---------    ---------
                                                                     $  17,208    $  20,533    $  23,785
                                                                     =========    =========    =========
Total assets (excludes total assets of Morgan Group Holding Co. ..
   of $22,668, $22,998 and $0, respectively)
  Operations .....................................................   $ 211,562    $ 247,034    $ 243,553
  General corporate ..............................................       6,180        9,316        1,794
                                                                     ---------    ---------    ---------
  Consolidated total .............................................   $ 217,742    $ 256,350    $ 245,347
                                                                     =========    =========    =========

Operating profit for reportable segments .........................   $  15,331    $  19,985    $  19,233
Other profit or loss:
  Investment income ..............................................       3,260        2,862        1,765
  Interest expense ...............................................     (13,568)     (13,936)     (13,031)
  Equity in earnings of affiliated companies .....................       1,669          932        1,262
  Reserve for impairment of investment in PCS license holders ....        --           --         (5,479)
  Gain on sales of subsidiary and affiliate stock and other assets       4,187         --          4,965
  Impairment of Spinnaker Industries, Inc. .......................        --         (3,194)        --
                                                                     ---------    ---------    ---------
  Income (loss) before income taxes, minority interest and
    operations of Morgan .........................................   $  10,879    $   6,649    $   8,715
                                                                     =========    =========    =========
</TABLE>

Substantially, all long-lived assets are attributable to Multimedia operations.
<page>

15.  Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION>

                                                          2001-Three Months Ended (a)
                                               -----------------------------------------------
                                                                     September
                                               March 31   June 30      30(b)    December 31(d)
                                               -----------------------------------------------
                                                (In thousands, except per share amounts)

<S>                                            <C>        <C>        <C>        <C>
Sales and revenues .........................   $ 17,209   $ 17,451   $ 23,934   $ 20,758
Operating profit ...........................      3,649      4,230      8,365      3,741
Income (loss) from continuing operations (c)        610        971      1,785       (832)
Net Income (Loss) ..........................   $    309   $  1,319   $  1,595   $ (2,075)
Basic and diluted earnings per share (b):
Income (loss) from continuing operations (e)   $   0.22   $   0.34   $   0.63   $  (0.30)
Net income (loss) ..........................   $   0.11   $   0.47   $   0.57   $  (0.74)
</TABLE>
<TABLE>
<CAPTION>

                                                           2002-Three Months Ended (g)
                                               -------------------------------------------------------------
                                                March 31(e)  June 30      September 30(f)  December 31(h)
                                               -------------------------------------------------------------
                                                     (In thousands, except for per share amounts)

<S>                                            <C>          <C>          <C>              <C>
Sales and revenues .........................   $   20,974   $   21,098   $   22,983       $   21,249
Operating profit ...........................        5,244        4,457        5,891            3,641
Income (loss) from continuing operations (e)        4,273          905       (1,872)             455
Net income (loss) ..........................   $    2,385   $      905   $   (1,872)      $      455
Basic and diluted earnings per share (b):
Basic: Income (loss) from continuing
 operations (c) ............................   $     1.52   $    0.32    $    (0.67)      $     0.16
Diluted: Income (loss) from continuing
 operations (e) ............................   $     1.45   $    0.32    $    (0.67)      $     0.16
Basic: Net Income (loss) ...................   $     0.85   $    0.32    $    (0.67)      $     0.16
Diluted: Net Income(loss) ..................   $     0.83   $    0.32    $    (0.67)      $     0.16
<FN>

(a)  Quarterly  results for the periods  March 31, 2001 and June 30, 2001,  have
     been restated to reflect the spin off of Morgan.

(b)  The  three  months  ended  September  30,  2001  includes  a  $2.8  million
     administrative fee revenue for services rendered to an affiliated entity in
     an FCC auction for  spectrum in 1999 and a $1.3  million  impairment  write
     down in the carrying value of Spinnaker stock (see Note 1).

(c)  Reflects income before operations of Morgan.

(d)  The  three  months  ended  December  31,  2001,  includes  a  $1.9  million
     impairment  write down in the carrying  value of Spinnaker  stock (see Note
     1).

(e)  The three months ended March 31, 2002, include a $5.0 million gain from the
     sale of RSA #1 (North) in New Mexico.

(f)  The three months ended September 30, 2002, include a $5.5 million provision
     for impairment for an investment in a spectrum license holder.

(g)  Effective  January  1,  2002,  the  Company  adopted  the non  amortization
     provision under SFAS 142 (see note 1).

(h)  Effective  October 1, 2002, the Company  increased the amortization  period
     from  three  years  to ten  years on  customer  contracts  acquired  in the
     American Alarm acquisition.  Such change reduced quarterly  amortization by
     $0.2 million.
</FN>
</TABLE>

16.  Earnings (Loss) Per Share

Basic and dilutive  earnings per share are based on the average  weighted number
of shares  outstanding.  On December 13, 1999,  Lynch  Interactive  issued a $25
million 6%  convertible  promissory  note,  which was  convertible  into 588,235
shares of the Company's  common stock.  In January 2001, $15 million of the note
was repaid.  The remaining $10 million  convertible  note was  convertible  into
235,294 shares of the Company's  common stock.  In November,  2002 the remaining
$10 million was repaid.  This  security was  excluded  from the  calculation  of
dilutive  earnings  (loss) per share in all periods  presented,  since  assuming
conversion would have been anti-dilutive.



<PAGE>




           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                          LYNCH INTERACTIVE CORPORATION
                        CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>


                                                                 Years Ended December 31,
                                                              --------------------------------
                                                                 2000     2001       2002
                                                              --------------------------------
                                                                     (In Thousands)

<S>                                                            <C>        <C>        <C>
Interest, Dividends & Gains on Sale of Marketable Securities   $   278    $   891    $   169
Interest and Other Income from Subsidiaries ................       280        313       --
                                                               -------    -------    -------
     TOTAL INCOME ..........................................       558      1,204        169

Cost and Expenses:
  Unallocated Corporate Administrative Expense .............     2,248      1,549      1,936
  Interest Expense .........................................     4,115      4,612      1,620
                                                               -------    -------    -------
      TOTAL COST AND EXPENSES ..............................     6,363      6,161      3,556
                                                               -------    -------    -------

LOSS BEFORE INCOME TAXES AND EQUITY IN
INCOME (LOSS) OF SUBSIDIARIES ..............................    (5,805)    (4,957)    (3,386)

Income Tax Benefit .........................................     1,974      1,685      1,151
Equity in Income (Loss) of Subsidiaries ....................     8,862      5,806      5,996
Loss from operations of Morgan - Net .......................    (2,666)    (1,386)    (1,888)
                                                               -------    -------    -------
NET INCOME .................................................   $ 2,365    $ 1,148    $ 1,873
                                                               =======    =======    =======
</TABLE>


NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE A - BASIS OF PRESENTATION

          In the parent company's financial statements, the Company's investment
          in  subsidiaries  is  stated  at cost  plus  equity  in  undistributed
          earnings of the subsidiaries.

NOTE B - DIVIDENDS FROM SUBSIDIARIES

          No dividends were received from subsidiaries in any period.

NOTE C - LONG-TERM DEBT

          Lynch Interactive Corporation  ("Interactive") was spun-off from Lynch
          Corporation on September 1, 1999.  Interactive has a note payable to a
          subsidiary,  with a principal  amount of $8.0  million at December 31,
          2002, at a fixed interest rate of 6% per annum,  due in 2004. The note
          is convertible, at the subsidiary's option, into common stock of Lynch
          Corporation  (1 share)  and  Interactive  (2  shares)  with a combined
          exercise price of $120 per share.

NOTE D  -  SEE  NOTES  TO  CONSOLIDATED   FINANCIAL  STATEMENTS  FOR  ADDITIONAL
           INFORMATION.

NOTE E - PRIOR  REPORTING  PERIODS ARE  RECLASSED  TO CONFORM  WITH CURRENT YEAR
         REPORTING PRESENTATIONS


<PAGE>




           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                          LYNCH INTERACTIVE CORPORATION
                            CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                     Years Ended December 31,
                                                                     ------------------------
                                                                        2001      2002
                                                                     ------------------------
                                                                           (In Thousands)
ASSETS

<S>                                                                     <C>       <C>
CURRENT ASSETS
   Cash and Cash Equivalents ........................................   $    62   $   133
   Restricted Cash ..................................................     7,569      --
   Deferred Income Taxes ............................................        85        85
   Other current assets .............................................       158        63
                                                                        -------   -------
                                                                          7,874       281

OFFICE EQUIPMENT (Net) ..............................................        24        13

OTHER ASSETS (Principally Investment in and Advances to Subsidiaries)    84,543    43,242
                                                                        -------   -------

TOTAL ASSETS ........................................................   $92,441   $43,536
                                                                        =======   =======

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES .................................................   $21,778   $10,929

LONG TERM DEBT ......................................................    44,100     7,995

DEFERRED CREDITS ....................................................     2,046     1,980

TOTAL SHAREHOLDERS' EQUITY ..........................................    24,517    22,632
                                                                        -------   -------

Total Liabilities and Shareholders' Equity ..........................   $92,441   $43,536
                                                                        =======   =======
</TABLE>



<PAGE>



           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                          LYNCH INTERACTIVE CORPORATION
                        CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>


                                                           Years Ended December 31,
                                                       ----------------------------------
                                                        2000         2001       2002
                                                       ----------------------------------
                                                                 (In Thousands)

<S>                                                     <C>         <C>         <C>
Cash Provided by (Used In) Operating Activities .....   $ (1,355)   $ (3,924)   $ (2,298)
                                                        --------    --------    --------

INVESTING ACTIVITIES:
   Investment and Advances to Brighton Communications        843     (12,861)      3,497
   Proceeds from sale of securities .................       --         1,679        --
   Purchase of securities ...........................       --          --          (158)
                                                        --------    --------    --------

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
                                                             843     (11,182)      3,339
                                                        --------    --------    --------

FINANCING ACTIVITIES:
  Net Borrowings Under:
    Lines of Credit .................................       --         7,700       2,400
    Issuance of Long Term Debt ......................        171      27,784        --
    Repayment of Long Term Debt .....................       --       (15,121)    (10,008)
    Purchase of Treasury Stock ......................       --           (88)       (931)
    Other ...........................................       (132)         11        --
                                                        --------    --------    --------

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
                                                              39      20,286      (8,539)
                                                        --------    --------    --------

TOTAL INCREASE (DECREASE) CASH AND CASH
   EQUIVALENTS ......................................       (473)      5,180      (7,498)

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ......      2,924       2,451       7,631
                                                        --------    --------    --------

CASH AND CASH EQUIVALENTS AT END OF YEAR ............   $  2,451    $  7,631    $    133
                                                        ========    ========    ========
</TABLE>



<PAGE>




                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                          LYNCH INTERACTIVE CORPORATION
                  YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

<TABLE>
<CAPTION>

COLUMN A                       COLUMN  B      COLUMN C - ADDITIONS     COLUMN D        COLUMN E
DESCRIPTION                                              CHARGED TO
                               BALANCE AT   CHARGED TO   OTHER                          BALANCE AT
                               BEGINNING    COSTS AND    ACCOUNTS       DEDUCTIONS      END OF
                               OF PERIOD    EXPENSES     DESCRIBE       DESCRIBE        PERIOD
                              ---------------------------------------------------------------------
<S>                            <C>          <C>          <C>             <C>             <C>
Year Ended December 31, 2002
Allowance for Uncollectible
 Accounts ..................   $  424,000   $1,037,000   $               $1,145,000(A)   $  316,000

Year Ended December 31, 2001
Allowance for Uncollectible
Accounts ...................   $  155,000   $  276,000   $   22,000(B)   $   29,000(A)   $  424,000

Year Ended December 31, 2000
Allowance for Uncollectible
 Accounts ..................   $  102,000   $  123,000   $        0      $   70,000(A)   $  155,000

<FN>

(A) UNCOLLECTIBLE ACCOUNTS WRITTEN OFF ARE NET OF RECOVERIES.

(B)  BEGINNING BALANCE OF ACQUIRED SUBSIDIARY
</FN>

</TABLE>


<PAGE>




                                   SIGNATURES

     Pursuant to the  requirements  of Section 13 or 15(d) 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


By:  /s/ Robert E. Dolan
     ------------------------------------
        ROBERT E. DOLAN
        Chief Financial Officer (Principal
        Financial and Accounting Officer)

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>

    Signature                 Capacity                                          Date



<S>                           <C>                                               <C>
*/s/ Mario J. Gabelli         Vice Chairman of the Board of                     March 28, 2003
 --------------               Directors and Chief Executive
 MARIO J. GABELLI             Officer (Principal Executive Officer)



*/s/ Frederic V. Salerno      Chairman of the Board of                          March 28, 2003
--------------                Directors
FREDERIC V. SALERNO



*/s/ Paul J. Evanson          Director                                          March 28, 2003
--------------
PAUL J. EVANSON



*/s/ John C. Ferrara          Director                                          March 28, 2003
--------------
JOHN C. FERRARA



*/s/ Daniel R. Lee            Director                                          March 28, 2003
--------------
DANIEL R. LEE



*/s/ David C. Mitchell        Director                                          March 28, 2003
--------------
DAVID C. MITCHELL



*/s/ Salvatore Muoio          Director                                          March 28, 2003
--------------
SALVATORE MUOIO



*/s/ Vincent S. Tese          Director                                          March 28, 2003
--------------
VINCENT S. TESE



/s/ Robert E. Dolan          Chief Financial Officer                            March 28, 2003
--------------               Principal Financial
ROBERT E. DOLAN              and Accounting Officer)

*/s/ Robert E. Dolan
--------------
ROBERT E. DOLAN
Attorney-in-fact
</TABLE>


<PAGE>



                                 CERTIFICATIONS

I, Mario J. Gabelli, certify that:


1.   I have  reviewed  this  annual  report  on Form  10-K of Lynch  Interactive
     Corporation;


2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;


3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;


4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:


a)   designed such  disclosure  controls and  procedures to ensure that material
     information   relating  to  the  registrant,   including  its  consolidated
     subsidiaries,  is  made  known  to  us by  others  within  those  entities,
     particularly  during  the  period  in which  this  annual  report  is being
     prepared;


b)   evaluated the  effectiveness  of the registrant's  disclosure  controls and
     procedures  as of a date  within 90 days prior to the  filing  date of this
     annual report (the "Evaluation Date"); and


c)   presented in this annual report our conclusions  about the effectiveness of
     the disclosure  controls and  procedures  based on our evaluation as of the
     Evaluation Date;


5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):


a)   all  significant  deficiencies  in the  design  or  operation  of  internal
     controls which could adversely affect the  registrant's  ability to record,
     process,  summarize and report  financial data and have  identified for the
     registrant's auditors any material weaknesses in internal controls; and


b)   any fraud,  whether or not  material,  that  involves  management  or other
     employees  who  have  a  significant  role  in  the  registrant's  internal
     controls; and


6.   The  registrant's  other  certifying  officers and I have indicated in this
     annual report whether there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.

Date:  March 31, 2003



/s/ Mario J. Gabelli
--------------------
MARIO J. GABELLI,
Chief Executive Officer of
Lynch Interactive Corporation


<PAGE>






I, Robert E. Dolan, certify that:


1.   I have  reviewed  this  annual  report  on Form  10-K of Lynch  Interactive
     Corporation;


2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;


3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;


4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:


a)   designed such  disclosure  controls and  procedures to ensure that material
     information   relating  to  the  registrant,   including  its  consolidated
     subsidiaries,  is  made  known  to  us by  others  within  those  entities,
     particularly  during  the  period  in which  this  annual  report  is being
     prepared;


b)   evaluated the  effectiveness  of the registrant's  disclosure  controls and
     procedures  as of a date  within 90 days prior to the  filing  date of this
     annual report (the "Evaluation Date"); and


c)   presented in this annual report our conclusions  about the effectiveness of
     the disclosure  controls and  procedures  based on our evaluation as of the
     Evaluation Date;


5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):


a)   all  significant  deficiencies  in the  design  or  operation  of  internal
     controls which could adversely affect the  registrant's  ability to record,
     process,  summarize and report  financial data and have  identified for the
     registrant's auditors any material weaknesses in internal controls; and


b)   any fraud,  whether or not  material,  that  involves  management  or other
     employees  who  have  a  significant  role  in  the  registrant's  internal
     controls; and


6.   The  registrant's  other  certifying  officers and I have indicated in this
     annual report whether there were significant  changes in internal  controls
     or in other  factors  that could  significantly  affect  internal  controls
     subsequent  to the  date  of our  most  recent  evaluation,  including  any
     corrective  actions with regard to  significant  deficiencies  and material
     weaknesses.

Date:  March 31, 2003



/s/ Robert E. Dolan
-------------------
ROBERT E. DOLAN,
Chief Executive Officer of
Lynch Interactive Corporation


<PAGE>





                                  EXHIBIT INDEX



Exhibit No.             Description
-----------             -----------

2                       Separation Agreement(1)
3.1                     Amended and Restated Certificate of Incorporation of
                        Registrant (1)
3.2                     Amended By-laws of Registrant+
4.1                     Mortgage, Security Agreement and Financing Statement
                        among Haviland Telephone Company, Inc., the
                        United States of America and the Rural Telephone Bank(1)

4.2                     Restated Mortgage, Security Agreement and Financing
                        Statement between Western New Mexico Telephone
                        Company, Inc. and the United States of America(1)

10         (a)          Partnership Agreement dated March 11, 1987, between
                        Lombardo Communications, Inc. and Lynch Entertainment
                        Corporation (incorporated by reference to Exhibit 10(e)
                        of the Lynch Corporation("Lynch")'s Annual Report on
                        Form 10-K for the year ended December 31, 1987).

10         (b)          Lynch Corporation 401(k) Savings Plan (incorporated by
                        reference to Exhibit 10(b) to Lynch's Form
                        10-K for the year ended December 31, 1995).

10         (c)          Shareholders Agreement among Capital Communications
                        Company, Inc., Lombardo Communications, Inc. and
                        Lynch Entertainment Corporation II (incorporated by
                        reference to Exhibit 10 of Lynch's Form 8-K,
                        dated March 14, 1994).

10         (d)(i)       Loan Agreement, dated as of November 6, 1995, between
                        Lynch PCS Corporation A and Aer Force Communications
                        L.P. (now Fortunet Wireless, L.P.) (plus four similar
                        loan agreements with Fortunet Wireless, L.P.)
                        (incorporated by reference to Exhibit 10(w) to Lynch's
                        Form 10-K for the year ended
                        December 31, 1995.

10         (d)(ii)      Amendment No. 1 to the Loan Agreement, dated as of
                        November 6, 1995, referred to in 10(d)(i)
                        incorporated by reference to Exhibit 10(a) to Lynch's
                        Form 10-Q for quarter ended March 31, 1996).

10         (e)(i)       Letter Agreement, dated as of August 12, 1996,
                        between Rivgam Communicators, L.L.P. and Lynch PCS
                        Corporation G (incorporated by reference to Exhibit
                        10(u)(ii) to Lynch's Form 10-K for the year ended
                        December 31, 1996).

10        (f)(ii)       Letter Agreement dated as of December 16, 1998,
                        between Rivgam Communicators, L.L.P. and Lynch PCS
                        Corporation G (incorporated by reference in Exhibit
                        10(u)(iv) to Lynch's Form 10-K for the year ended
                        December 31, 1998).

10         (f)          Letter Agreement between Lynch PCS Corporation G and
                        Bal/Rivgam, L.L.C. (incorporated by reference
                        to Exhibit 10(x) to Lynch's Form 10-Q for the Quarter
                        ended September 30, 1997).

10         (g)          Letter Agreement, dated January 20, 1998, between Lynch
                        PCS Corporation G and BCK/Rivgam, L.L.C.
                        (incorporated by reference to Exhibit 10(y) to Lynch's
                        Form 10-K for the year ended December 31, 1997).

10         (h)          2000 Stock Option Plan (incorporated by reference to
                        the Exhibit to Registrant's Proxy Statement
                        dated April 18, 2000).

10         (i)          Lease Agreement between Lynch and Gabelli Funds, Inc.
                        (incorporated by reference to Exhibit 10(a)(a)
                        to Lynch's Form 10-Q for the Quarter ended March 31,
                        1998).

10         (j)          Letter Agreement dated November 11, 1998, between
                        Registrant and Gabelli & Company, Inc.
                        (incorporated by reference to Exhibit 10(c)(c) to Lynch
                        Form 10-K for the year ended December 31, 1998).

10         (l)          Agreement and Plan of Merger dated as of May 25, 1999,
                        among Central Scott Telephone Company,
                        Brighton Communications Corporation and Brighton Iowa
                        Acquisition Corporation (schedules omitted)
                        (incorporated by reference to Exhibit 10.1 to Lynch's
                        Form 8-K dated July 16, 1999).

10         (m)          Separation and Distribution Agreement, dated as of
                        January 18, 2002, by and among Lynch Interactive
                        Corporation, Morgan Group Holding Co. and The Morgan
                        Group, Inc.(2)

10         (n)          Employment Agreement, dated as of August 1, 2001,
                        between John Fikre and Lynch Interactive
                        Corporation(2)

21                      Subsidiaries of Registrant(2)

23                      Consents of Siepert & Co., L.L.P. for use of: +
                             -     Report of Siepert & Co., L.L.P. on the
                                   financial statements of Cuba City
                                   Telephone Exchange Company for the year
                                   ended December 31, 2002 and 2001
                             -     Report of Siepert & Co., L.L.P. on the
                                   financial statements of Belmont Telephone
                                   Company for the year ended December 31,
                                   2002 and 2001
                             -     Report of Siepert & Co., L.L.P. on the
                                   financial statements of Upper Peninsula
                                   Telephone Company for the year ended
                                   December 31, 2002 and 2001
                             -     Report of Siepert & Co., L.L.P. on the
                                   financial statements of Lynch Michigan
                                   Telephone Holding Company for the year
                                   ended December 31, 2001 and 2000

24                      Powers of Attorney+

99.1                    Report of Independent Auditors+
                             -     Report of Siepert & Co., L.L.P. on the
                                   financial statements of Cuba City
                                   Telephone Exchange Company for the year
                                   ended December 31, 2002 and 2001
                             -     Report of Siepert & Co., L.L.P. on the
                                   financial statements of Belmont Telephone
                                   Company for the year ended December 31,
                                   2002 and 2001
                             -     Report of Siepert & Co., L.L.P. on the
                                   financial statements of Lynch Michigan
                                   Telephone Holding Corporation for the
                                   year ended December 31, 2002 and 2001
                             -     Report of Siepert & Co., L.L.P. on the
                                   financial statements of Lynch Michigan
                                   Telephone Holding Company for the year
                                   ended December 31, 2001 and 2000

99.2                    Chief Executive Officer Section 906 Certification+

99.3                    Chief Financial Officer Section 906 Certification+


+    Filed herewith.

(1)  Incorporated by reference to the exhibits to the Registrant's  Registration
     Statement on Form 10A-1.

(2)  Incorporated by reference to the exhibits to the Registrant's Annual Report
     on Form 10-K Report for the fiscal year ended December 31, 2001.



The Exhibits  listed above have been filed  separately  with the  Securities and
Exchange  Commission in conjunction with this Annual Report on Form 10-K or have
been  incorporated  by  reference  into this Annual  Report on Form 10-K.  Lynch
Interactive  Corporation  will furnish to each of its shareholders a copy of any
such  Exhibit  for a fee  equal  to  Lynch  Interactive  Corporation's  cost  in
furnishing  such  Exhibit.  Requests  should be  addressed  to the Office of the
Secretary,  Lynch Interactive  Corporation,  401 Theodore Fremd Avenue, Rye, New
York 10580.