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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 [FEE REQUIRED]

For the fiscal year ended December 31, 1999         Commission file number 1-106

                                       OR

[   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

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


                          LYNCH INTERACTIVE CORPORATION

             (Exact name of Registrant as specified in its charter)

            Delaware                                           06-145056
           --------                                            ---------
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, No Par Value                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. [X]

The  aggregate  market  value of  voting  stock  held by  non-affiliates  of the
Registrant (based upon the closing price of the Registrant's Common Stock on the
American   Stock   Exchange  on  March  22,  2000  of  $129.50  per  share)  was
$135,439,360.  (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 1,412,183
as of March 22, 2000.

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<PAGE>


                      DOCUMENTS INCORPORATED BY REFERENCE:

Part III:  Certain portions of Registrant's Proxy Statement for the 2000
           Annual Meeting of Shareholders.

FORWARD LOOKING INFORMATION

This Form 10-K contains certain forward looking  information,  including without
limitation,   a  "harvesting"   initiative  (pg.  2),  Item  1-I.A   "Regulatory
Environment"  and possible  changes  thereto and  "Competition"  (pgs.  5-7 Item
1.-I.B "Cable  Television" (Pgs. 7-8), Item 1-I.C "Personal  Communications  and
other Wireless Services," including without limitation the risks described (pgs.
9-11),   Item   1-II.   Morgan   "Growth   Strategy"   (p.   11),   "Independent
Owner-Operators" (p. 13) Fuel Cost (p. 14), "Long-Lived Assets" (p.14) and "Risk
Management,  Safety and Insurance" (p. 14), Item 7. "Management's Discussion and
Analysis of Financial  Condition and Results of Operations,"  including  without
limitation Liquidity and Capital Resources, Year 2000 and Market Risk, and Notes
to Financial  Statements  (Item 14(a) below).  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.  For the year  ended  December  31,  1999,  multimedia
operations  provided 29% of the Company's  consolidated  revenues,  and services
operations provided 71% of the Company's  consolidated revenues. As used herein,
Interactive includes corporations, which are subsidiaries of Interactive.

In November 1998, Lynch Corporation announced a "harvesting"  initiative,  i.e.,
an effort to  monetize  certain  assets,  including  considering  selling all or
portions of certain operating entities. These may include Interactive's minority
interests in network affiliated  television  stations,  and certain  Interactive
telephone operations where competitive local exchange carrier  opportunities are
not readily apparent.  As part of this initiative,  Interactive sold in December
1998  its  DirectTV  franchise  serving  certain  counties  in  New  Mexico  for
approximately  $3.1 million.  Interactive  intends to continue this  initiative.
There is no assurance that any transaction can be consummated on terms favorable
or acceptable to Interactive.

I.  MULTIMEDIA

A.  Telecommunications

Operations.  Interactive  conducts  its  telecommunications  operations  through
subsidiary  corporations.  The  telecommunications  segment  has  been  expanded
through the selective  acquisition of local exchange telephone companies serving
rural areas and by offering  additional  services  such as Internet  service and
long distance service.  From 1989 through 1999,  Interactive has acquired eleven
telephone  companies,  four of which have indirect  minority  ownership of 2% to
20%, whose operations range in size from approximately 500 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 and Wisconsin. As of December
31, 1999, total access lines were approximately 45,126, 100% of which are served
by digital switches.  In January 2000,  Interactive signed a letter of intent to
acquire  a  rural  telephone  company,   which  also  has  cellular,  and  other
telecommunications  and cable television interests,  in the general magnitude of
(though somewhat smaller than) its recent acquisition of Central Scott Telephone
Company.

These subsidiaries' principal business is providing 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 territories, which it serves.

Future  growth in  telephone  operations  is  expected  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 additional service offerings.

The following table summarizes certain information regarding Interactive's
multimedia operations
<TABLE>
<CAPTION>
                                                                        Years Ended December 31,
                                                                      1997          1998        1999
                                                                    ---------     ---------   ----------
Telecommunications Operations

<S>                                                                    <C>         <C>         <C>
Access lines* ....................................................     36,525      37,604      45,126
  % Residential ..................................................         75%         75%         75%
  % Business .....................................................         25%         25%         25%
Internet Subscribers .............................................      3,506       7,977      15,524
Cable Subscribers + ..............................................      4,660       4,709       4,642

Total Multimedia Revenues
Telecommunications Operations
 Local Service ...................................................         13%         13%         16%
 Network Access & Long Distance ..................................         69%         67%         64%
 Non-Regulated & Other** .........................................         15%         17%         17%
                                                                     --------    --------    --------
 Total Telecommunications Operations .............................         97%         97%         97%
                                                                     --------    --------    --------
Cable Operations .................................................          3%          3%          3%
                                                                     --------    --------    --------
Total Multimedia Revenues ........................................        100%        100%        100%

($ in 000)
Total Revenues ...................................................   $ 47,908    $ 54,622    $ 59,011
EBITDA++ .........................................................     24,666      29,389      31,443
Depreciation & Amortization ......................................     12,175      12,995      14,115
Capital Expenditures .............................................     10,914      11,028      11,742
Total Assets .....................................................   $196,285    $195,010    $211,622
<FN>
*    An "access line" is a  telecommunications  circuit  between the  customer's
     establishment and the central switching office.

**   Non-regulated  and other revenues include  Internet,  PCS, Direct Broadcast
     Satellite  and other  non-regulated  revenues.  + Does not include  certain
     cable  systems in northeast  Kansas,  where a subsidiary  of  Registrant is
     suing a 20% partner in CLR Video for  diverting an  opportunity  to acquire
     such additional systems.

++   EBITDA is earnings before interest,  taxes,  depreciation and amortization,
     and corporate overhead allocation.
</FN>
</TABLE>


Telephone  Acquisitions.  Interactive  pursues an active  program  of  acquiring
operating telephone  companies.  From January 1, 1989 through December 31, 1999,
Interactive  has  acquired  eleven  telephone   companies  serving  a  total  of
approximately  38,600  access  lines at the time of  these  acquisitions  for an
aggregate consideration totaling approximately $138.0 million. Such acquisitions
are summarized in the following table:

<PAGE>



ACQUISITION HISTORY
<TABLE>
<CAPTION>
                                                           Number of       Number of       Annual
                                             Year of      Access Lines   Access Lines     Revenues     Ownership
Company                                    Acquisition    Yr. of Acq.      12/31/99       12/31/99     Percentage
-------                                    -----------    -----------      --------       --------     ----------
                                                                            ($ in 000)
<S>                                           <C>            <C>            <C>          <C>                <C>
Western New Mexico Telephone Co.              1989           4,200          6,516        $17,105            83.1
Inter-Community Telephone Co. (a)             1991           2,550          2,624          3,305           100.0
Cuba City Telephone Co. &
  Belmont Telephone Co.                       1991           2,200          2,685          2,070            81.0
Bretton Woods Telephone Co.                   1993             250            623            688           100.0
JBN Telephone Co. (b)                         1993           2,300          2,776          4,388            98.0
Haviland Telephone Co.                        1994           3,800          4,186          4,114           100.0
Dunkirk & Fredonia Telephone Co.
  & Cassadaga Telephone Co.                   1996          11,100         12,661         13,673           100.0
Upper Peninsula Telephone Co.                 1997           6,200          7,009          9,854           100.0
Central Scott Telephone Co.                   1999           6,000          6,046          4,787           100.0
<FN>
(a) Includes 1,350 access lines acquired in 1996.
(b) Includes 354 access lines acquired in 1996.
</FN>
</TABLE>

In  1997,   Interactive   acquired  Upper   Peninsula   Telephone   Company  for
approximately  $26,500,000,  and in  1999  Interactive  acquired  Central  Scott
Telephone Company for approximately $28,100,000.

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 state-wide 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 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. See "Harvesting" initiative at page 2
above.

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 intends to provide 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 eight
of  Interactive's  telephone  companies now offer Internet  access  service.  At
December  31, 1999,  Internet  access  customers  totaled  approximately  15,524
compared to approximately 8,000 at December 31, 1998.

In late  1998,  an  affiliate  of  Dunkirk & Fredonia  Telephone  Company  began
providing  long  distance   resale   service,   and  affiliates  of  certain  of
Interactive's other telephone  companies are considering  becoming long distance
resellers.  An affiliate of Dunkirk & Fredonia Telephone Company began providing
(CLEC)  service  on a resale  basis in  neighboring  Dunkirk,  NY in the  second
quarter of 1999,  and on March 1, 2000,  they  announced  that would be entering
into the Buffalo  market.  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.   In  December  1998,
Interactive also acquired a 10 MHZ personal communications service (PCS) license
for the Basic Trading Area (BTA) covering the Las Cruces,  New Mexico market and
is  considering  how to  utilize  that  license.  BTAs  are  used  by the FCC to
designate  the  geographic  area  covered  by a PCS  License.  BTAs are based on
materials  copyright to the Rand McNally 1992 Commercial Atlas & Marketing Guide
and divide the United States into 493 separate  geographic areas. The Las Cruces
BTA covers a population of  approximately  197,166 (as of the 1990 census),  and
Las Cruces is the principal city in the BTA. The company is currently developing
plans to utilize this license.

Central Scott provides long distance resale service. In addition,  Central Scott
has a 10 MHz PCS  License  for its  wireline  territory.  Central  Scott is also
approximately  14% minority owner of an entity that has a 10 MHz PCS License for
portions of Clinton and Jackson Counties in Iowa.

At December 31, 1999,  Interactive owned minority  interests in certain entities
that provide wireless cellular  telephone service in several Rural Service Areas
("RSAs") in New Mexico and North Dakota,  covering areas with a total population
of  approximately  231,000,  of which  Interactive's  proportionate  interest is
approximately  46,000.  The company  accounts for its net investment in the RSAs
under the equity method.

There is no assurance that Registrant can successfully  develop these businesses
or that  these  new or  expanded  businesses  can be made  profitable  within  a
reasonable period line. 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 its intrastate  telephone  services and the
Federal  Communications  Commission  ("FCC")  with  respect  to  its  interstate
telephone service and, with the enactment of the  Telecommunications Act of 1996
(the "1996 Act"),  certain other matters relating principally to fostering local
and intrastate competition.

Interactive's  telephone  subsidiaries  participate  in  the  National  Exchange
Carrier  Association  ("NECA")  common  line and traffic  sensitive  tariffs and
participate  in the access  revenue pools  administered  by NECA for  interstate
services.  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  ("LEC's"),  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 access
charge revenues (without participating in an access pool). The intrastate access
charge  revenues are developed  based on intrastate  access rates filed with the
state regulatory agency.

In addition,  a 1989 FCC decision  provided for price cap regulation for certain
interstate   services.   The  price  cap  approach   differs  from   traditional
rate-of-return  regulation by focusing primarily on the prices of communications
services.  The intention of price cap regulation is to focus on productivity and
the approved plan for telephone operating companies. This allows for the sharing
with its customers of profits achieved by increasing productivity.  Alternatives
to  rate-of-return  regulation have also been adopted or proposed in some states
as well. Inter-Community Telephone Company is an example of one such subsidiary,
which has elected a price cap limitation on intrastate access charges.  However,
management  does not believe that this agreement will have a material  effect on
the  Company's  results.   In  certain  states,   regulators  have  ordered  the
restructuring of local service areas to eliminate nearby long distance calls and
substitute extended calling areas.

Various aspects of federal and state  telephone  regulation have in recent years
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  communication  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 Act (i) would
allow major long distance telephone companies and cable television  companies to
provide local exchange telephone  service;  (ii) would allow new local telephone
service providers to connect into existing local telephone exchange networks and
purchase  services  at  wholesale  rates for resale;  (iii) would  provide 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) would allow the Regional  Bell  Operating  Companies to offer long distance
telephone  service  and enter  the  alarm  services  and  electronic  publishing
businesses;  (v) would remove rate  regulation  over non-basic  cable service in
three years; and (vi) would increase the number of television  stations that can
be owned by one party.

Although  the FCC has  completed  numerous  regulatory  proceedings  required to
implement  the 1996 Act,  the FCC is still in the  process of  promulgating  new
regulations  covering these and related  matters.  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 (LECs) have been or are being determined first, followed
by separate  proceedings for rate-of-return  (or rural) companies.  Since all of
Interactive's telephone subsidiaries are rural, rate-of-return companies for the
interstate  jurisdiction,  many of the issues are yet to be  resolved by the FCC
for Interactive's subsidiaries.  Current or anticipated proceedings, which could
have significant revenue impacts for rural,  rate-of-return  companies,  include
changes in access charge  regulations,  jurisdictional  separations rules (which
allocate costs between interstate and intrastate services),  reevaluation of the
interstate rate-of-return and permanent USF procedures.

The 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. In May
1997, the FCC adopted interim USF procedures  effective  January 1, 1998,  which
continue  to  use  actual  embedded  costs  for  rural  companies.  The  interim
procedures  transferred  the Weighted DEM (which is a subsidy related to central
office switching  equipment) and Long-Term Support (LTS) to the USF and required
all   telecommunications    companies   (including    Interactive's    telephone
subsidiaries)  to contribute to the fund. In addition,  a cap was implemented on
the amount of  corporate  expense  allowable  for the  computation  of USF.  The
interim  rules are expected to be in effect until  January 1, 2001.  This is the
earliest date that a transition to a new universal service support mechanism may
begin.  On July 1, 1998,  the  Federal-State  Joint Board on  Universal  Service
(Joint  Board)  appointed a Rural Task Force  ("RTF") to address  changes to the
universal  service support  mechanisms for rural carriers.  All of Interactive's
telephone  companies  are  designated as rural  carriers for  universal  service
support.  On September 30, 2000 (i.e., nine months after the implementation of a
new universal service plan for non-rural  carriers) the RTF is scheduled to make
recommendations to the Joint Board regarding any changes required to the current
universal  service support mechanism for rural carriers.  This includes,  but is
not limited to, reviewing a proxy model built on Forward-Looking  Economic Costs
(FLEC).

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 ensures that the non-rural
carrier  will  receive at least as much  Federal USF as they had been  receiving
under the previous  system.  The FCC is currently in the process of  determining
how long the hold-harmless provision should last for non-rural carriers.

In addition to the changes to universal  service,  the FCC also has open dockets
related  to  access  charges,   jurisdictional  separations  and  rate-of-return
reevaluation.  The FCC made  several  changes  to access  charges  for price cap
companies in May 1997.  The FCC issued a proposal for similar  changes to access
charges for  rate-of-return  carriers  in June 1998.  In October  1997,  the FCC
initiated a proceeding  where companies  provided  comments to the FCC regarding
how  costs  should  be  allocated   between  the   intrastate   and   interstate
jurisdictions. In October 1998, the FCC requested comments regarding whether the
interstate  rate-of-return  was at  the  appropriate  rate.  No  final  decision
regarding  proposed  changes  for  rate-of-return  carriers  related  to  access
charges,  jurisdictional  separations or  rate-of-return  reevaluation  has been
issued by the FCC. Since interstate  revenues  constituted  approximately 50% of
the  regulated  revenues  of  the  Registrant's  telephone  companies  in  1998,
modifications to access charges, separations,  rate-of-returns, and/or USF could
have a  material  effect.  It is  impossible  to  determine  the impact of these
proposed changes on the Registrant's telephone companies at this time.

Interactive cannot predict the effect of the 1996 Act, state initiatives and new
proposed  Federal and state  regulations.  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  subsidiaries.  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.  Though the 1996 Act reaffirmed Federal
policy of universal telephony service at fair and reasonable rates, the 1996 Act
and related  proceedings  will also change the method of  subsidizing  high cost
rural LECs such as  Interactive's  and the new methods have not yet been finally
determined.  Similar  regulatory changes have also been initiated in many of the
states in which Interactive operates.  Because of its low population density and
high cost  operations,  Interactive  believes that competition will be slower in
coming to most of its service areas than to larger urban areas. Interactive also
believes  that a  satisfactory  subsidization  mechanism  will be  developed  to
compensate  Interactive's LECs for their high cost service areas; however, these
are very  significant  issues to Interactive and there can be no assurance as to
how such issues will ultimately be determined.

Competition.  All of  Interactive's  current  telephone  companies are currently
monopoly wireline providers in their respective area of local telephone exchange
service; although there can be no assurance that this will continue. However, 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
("PCS"),  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, principally to the Rural Utilities Services. See Item 2. Properties
                                                        ------------------

B.   Cable Television/Broadcasting

Cable Television

It  is  part  of  Registrant's   strategy  to  own  cable  television   systems,
particularly in markets where Registrant is the telephone  operator and adjacent
areas. The following table sets forth Registrant's cable interests:
<TABLE>
<CAPTION>
                                                        Number of
                                                       Subscribers
                             Year of      Cost of          at       Annual Revenues Ownership
 Company                    Acquisition  Acquisition   Acquisition     12/31/99     Percentage
--------------------------- -----------  -----------   -----------  -------------   ----------
<S>                            <C>         <C>             <C>      <C>              <C>
Haviland Telephone Company     1994        200,000(1)      176      $     46,000     100%
CLR Video                      1995      5,200,000       4,489      $1,728,000        60%
Falcon/Westcom                 1999      3,690,000(2)    3,053(2)   $1,040,000(2)     60%(3)
<FN>
(1)      Allocated portion of total purchase price.
(2)      Lynch  Multimedia  is suing  Robert C.  Carson,  an  affiliate of a 20%
         partner in CLR Video and the former  President  and General  Manager of
         CLR Video,  for  diverting  these  properties  from CLR Video to Carson
         Communications, Inc. Information of these systems is estimated.
(3)      Subject to a 20% profits interest awarded to Mr. Carson.
</FN>
</TABLE>

In late March 1999,  Robert C.  Carson,  an  affiliate of the 20% partner in CLR
Video  and  the  former   President   and   General   Manager,   caused   Carson
Communications,  Inc. to close on the  acquisition of the  Falcon/Westcom  cable
systems,  which Registrant claims as diverted from and belong to CLR Video. As a
result, in April 1999,  Registrant's  subsidiary,  Lynch Multimedia Corporation,
filed a lawsuit in the Federal  District Court in Wichita,  Kansas,  against Mr.
Carson,  Carson  Communications,  Inc. and the Robert C. Carson Trust,  claiming
that they  diverted the  acquisition  of  Falcon/Westcom  cable systems from CLR
Video to Carson  Communications,  Inc. in violation  of the CLR Video  operating
agreement and their fiduciary  obligations to CLR Video. The complaint  contends
that a constrictive trust has been created and the diverted properties belong to
CLR  Video and  seeks an order of  specific  performance  requiring  the  Carson
defendants  to offer the  Falcon/Westcom  systems  to CLR on the same terms that
they acquired the systems. In the alternative, Lynch Multimedia seeks damages in
the amount of $12.5  million.  The complaint also seeks  punitive  damages.  The
lawsuit is expected to go to trial in the summer of 2000.

Registrant also has letters of intent to acquire additional systems.

Broadcasting

See  the  "Harvesting"  initiative  at page 2 above  concerning  the  television
operations.

STATION WHBF-TV - Lynch Entertainment  Corporation ("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.  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.

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  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. 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  and direct  broadcast  satellites
provide video services 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, 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.

Other

See the "harvesting"  initiative at page 2 as to sale of Interactive's  DirectTV
franchise in certain parts of New Mexico. In December 1998, Interactive sold for
approximately  $3.1 million its right to market direct  broadcasting TV services
via  satellite in New Mexico.  Financial  results for the operation had not been
material.

C.   Personal Communications and Other Wireless Services.

A  subsidiary  of   Interactive   is  a  49.9%   limited   partner  in  Fortunet
Communications,   L.P.   ("Fortunet").   Fortunet  is  the   successor  to  five
partnerships  that won  30-megahertz  personal  communications  services ("PCS")
licenses  in the FCC's  C-Block  auction  (restricted  to small  businesses  and
certain other  qualifying  bidders),  which  concluded in 1996.  Fortunet won 31
licenses in 17 states  covering a population of  approximately 7 million people.
The licenses had an aggregate purchase price of $216 million after a 25% bidding
credit.

Under FCC rules,  Fortunet  made a down payment equal to 10% of the cost (net of
bidding  credits) of the  licenses  ($21.6  million).  The  Government  provided
10-year  installment  financing,  interest  only for the  first  six years at an
interest rate of 7% per annum.  Interactive's  subsidiary has loaned Fortunet an
aggregate of approximately $24.0 million to fund the down payments and the first
interest payment on the licenses. The 50.1% general partner has no obligation to
provide loans or additional funds to Fortunet.

Certain C-Block licensees, including Fortunet, experienced substantial financial
problems in connection with servicing the FCC  installment  debt and/or building
out the licenses. The three largest C-Block licensees filed for protection under
the  Federal  Bankruptcy  Act.  As a result,  the FCC in March  1997,  suspended
interest  payments on the FCC installment  debt while it examined the situation.
In September 1997 the FCC gave C-Block  licensees four alternatives with respect
to their licenses. In the third quarter of 1997,  Interactive provided a reserve
of 30% of its subsidiary's investment in Fortunet ($4.6 million after-tax).

In June 1998, Fortunet,  pursuant to the FCC restructuring  program,  elected to
give up all of its PCS  licenses,  except for 15 MHZ  licenses  in  Tallahassee,
Panama  City and  Ocala,  Florida.  It used the FCC  credits  from the  returned
licenses to pay the remaining purchase prices for the retained Florida licenses.
Fortunet  also  received  back $3.9 million from the FCC,  which was used to pay
down a portion of Fortunet's loan from  Interactive's  subsidiary.  This reduced
the loan to Fortunet to  approximately  $20 million.  On April 15, 1999, the FCC
completed a reauction  of all the "C Block"  licenses  that were  returned to it
subsequent to the original auction,  including the 15 MHZ licenses that Fortunet
returned on June 8, 1998,  in the basic  trading  areas of  Tallahassee,  Panama
City, and Ocala, Florida. In that reauction, the successful bidders paid a total
of $2.7 million for the three licenses as compared to the $18.7 million carrying
amount of Interactive's  investment in Fortunet.  In the quarter ended March 31,
1999,  Interactive  recorded  a  reserve  of $15.4  million  to  write  down its
investment  in Fortunet  to reflect  the amount bid for similar  licenses in the
reauction,  plus an additional $0.7 million of capitalized  expenses, to leave a
net  carrying  value of $3.4  million  at  December  31,  1999.  The  Company is
considering spinning off its 49.9% interest in Fortunet.

Another  subsidiary of  Interactive,  Lynch PCS  Corporation F ("LPCSF"),  was a
49.9% limited partner in Aer Force  Communications B, L.P. ("Aer Force"). In the
FCC's  F-Block  Auction  (restricted  to  small  businesses  and  certain  other
qualifying bidders) of 10 megahertz PCS licenses, Aer Force won five licenses in
four states  covering a  population  of  approximately  20 million  people.  The
licenses  had an  aggregate  purchase  price of $19 million  after a 25% bidding
credit. In December 1997, East/West Communications, Inc. ("East/West") succeeded
to the assets and  liabilities of Aer Force,  with LPCSF  receiving 49.9% of the
common stock.  Immediately thereafter,  Lynch spun-off 39.9% of the common stock
of East/West to Lynch Corporation  shareholders and transferred 10% of East/West
stock to Gabelli Funds, Inc. ("GFI") in satisfaction of an obligations to pay it
10% of the net  profits  of Aer  Force  (after  an  assumed  cost  of  capital).
Interactive then owned 7,800 shares ($7,800,000 par and liquidation value) of 5%
payment-in-kind  preferred  stock of East/West  with a carrying value of $4.8 at
December  31,  1999.  In February  2000,  East/West  was merged  into  Omnipoint
Corporation  and  Interactive  received   approximately  $8.7  million  for  its
preferred stock interest.

Another  subsidiary  of  Interactive,  Lynch PCS  Corporation G ("LPCSG") had an
agreement with Rivgam  Communications  L.L.C.  ("Rivgam"),  a subsidiary of GFI,
which won licenses in the FCC's D and E Block PCS Auctions for 10 megahertz  PCS
licenses,  to receive a fee equal to 10% of the  realized  net profits of Rivgam
(after an assumed cost of capital) in return for  providing  bidding and certain
other services.  Rivgam won 12 licenses in seven states covering a population of
33 million,  with an aggregate cost of $85.1 million.  In December 1998,  Rivgam
settled its obligation  under said agreement by transferring to LPCSG its 10 MHZ
PCS license for the Las Cruces, New Mexico, market.

LPCSG also has an agreement with Bal/Rivgam LLC (in which GFI has a 49.9% equity
interest),  which won licenses in 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 won 5 WCS licenses covering
a population of approximately 42 million with an aggregate cost of $0.7 million.
LPCSG also has an agreement  to provide  BCK\Rivgam  L.L.C.,  in which GFI has a
49.9% equity interest,  with similar services in connection with the FCC's Local
Multipoint  Distribution  Services  ("LMDS")  Auction  ended on March 25,  1998.
Subject to final grant,  BCK/Rivgam won three licenses  covering a population of
1.3 million with an aggregate  cost of $6.1  million.  LPCSG has an agreement to
receive 5% of the net profits of BCK\Rivgam (after an assumed cost of capital).

Betapage Communications,  L.L.C., a 49.9% owned limited liability company, was a
winning bidder in the recently  concluded  929MHz  auction for paging  licenses.
Betapage won 24 paging  licenses  covering a  population  of 76.7 million for an
aggregate cost of $77,000.

Another  subsidiary  of  Registrant  is a 49.9%  owner of PTPMS  Communications,
L.L.C.  ("PTPMS"),  which has filed an  application to bid in the FCC's upcoming
auction of licenses for fixed  point-to-point  microwave  services  scheduled to
begin in April  2000.  That  subsidiary  has loaned  PTPMS  approximately  $13.0
million  for  bidding   purposes.   There  can  be  no   assurance   that  PTPMS
communications  will win any  licenses or if it win any  licenses,  whether such
licenses can be successfully exploited.

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

FCC rules impose  build-out  requirements  that require PCS licensees to provide
adequate  service to at least  one-third of the  population in the licensed area
within five years from the date of grant and to at least  two-thirds  within ten
years,  as well as build out  requirements  for WCS,  LMDS and paging  licenses.
Neither Fortunet nor East/West has begun any build out of their licenses.  There
are also  substantial  restrictions  on the transfer of control of C and F Block
PCS licenses, WCS licenses, LMDS licenses and paging licenses.

There  are  many  risks  relating  to  PCS   communications   including  without
limitation,  the high cost of PCS 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 Fortunet 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  are also  similar  risks as to WCS,  LMDS and
paging  licenses.  There  can be no  assurance  that  any  licenses  granted  to
Fortunet,  or other entities in which subsidiaries of Registrant have interests,
can  be  successfully   sold  or  financed  or  developed,   with   Registrant's
subsidiaries recovering their debt and equity investments.

II. SERVICES

The Morgan Group, Inc.

The Morgan Group Inc. (including  subsidiaries,  "Morgan") is Interactive's only
service  subsidiary.  On July 22,  1993,  Morgan  completed  an  initial  public
offering  ("IPO") of  1,100,000  shares of its Class A common  stock,  $.015 par
value,  at $9.00 per share. As a result of this offering,  Interactive's  equity
ownership in Morgan was reduced from 90% to 47%, represented by its ownership of
1,200,000 shares of Class B common stock. In December 1995, Interactive acquired
from Morgan  150,000  shares of Class A common  stock (plus $1.3 million in cash
plus  accrued  dividends)  in  exchange  for its  1,493,942  shares  of Series A
Preferred  Stock of Morgan.  As of March 19, 1999,  Morgan  repurchased  102,528
shares of its Class A common  stock at $9.00 per share in a "Dutch  Auction." At
March 25, 1999,  Interactive's equity ownership in Morgan was approximately 55%.
Because the Class B common stock is entitled to two votes per share,  its voting
interest  in Morgan  at March 25,  1999 was  approximately  70% and,  therefore,
Interactive   continues  to  consolidate   Morgan's  results  in  its  financial
statements. Morgan Class A common stock is listed on the American Stock Exchange
under the symbol "MG."

Morgan is the nation's  largest  publicly owned service  company in managing the
delivery of manufactured housing,  commercial vehicles and specialized equipment
in the United  States,  and through its wholly  owned  subsidiary,  Morgan Drive
Away,  Inc.  has  been  operating  since  1936.   Morgan  provides   outsourcing
transportation  services  through a  national  network  of  approximately  1,320
independent  owner-operators  and  1,470  other  drivers  who are its  employees
(primarily  part-time).  Morgan  dispatches  its drivers from 98 locations in 32
states. Morgan's largest customers include Oakwood Homes Corporation,  Fleetwood
Enterprises,  Inc.  Champion  Enterprises,   Inc.,  Winnebago  Industries,  Inc.
Cavalier  Homes,  Inc.,   Clayton  Homes,  Four  Seasons  Housing,   Inc.,  Thor
Industries,  Inc.,  Fairmont  Homes,  Inc. and Ryder Systems,  Inc.  Morgan also
provides certain insurance and financing services to its owner-operators through
its  subsidiaries,   Interstate  Indemnity  Company  ("Interstate")  and  Morgan
Finance, Inc. ("Finance").

Growth  Strategy.   Morgan's  strategy  is  to  focus  on  the  profitable  core
transportation  services of manufactured housing and driver outsourcing.  Morgan
will  also  look  for  opportunities  to grow  through  expansion  in the  niche
businesses  already being  serviced,  along with pursuing  acquisitions or joint
ventures  in  related  industries.  In  addition,  Morgan  will  look to  expand
insurance product offerings to drivers through its Interstate subsidiary. Morgan
is   continuously   reviewing   potential   acquisitions   and   joint   venture
opportunities, and is engaged in negotiations from time to time. There can be no
assurance that any future  acquisitions  will be effected or, if effected,  that
they  can  be  successfully   integrated  with  Morgan's  business.  To  enhance
profitability, Morgan is continuing the process of reducing overhead costs.

Industry  Information.  Morgan's  business is  substantially  dependent upon the
manufactured housing industry.  Morgan's operations are affected by, among other
things,  fluctuations in interest rates and availability of credit of purchasers
of manufactured homes and motor homes, and the availability,  and price of motor
fuels.  This industry has been subject to broad productions  cycles.  Currently,
the manufactured  housing  industry is experiencing an industry-wide  decline in
shipments,  which is having an adverse impact on Morgan's operating revenues and
profitability. Morgan recently reduced administrative staff by approximately 25%
and is instituting other cost cutting measures.

Competition.  All of Morgan's activities are highly competitive.  In addition to
fleets  operated by  manufacturers,  Morgan competes with several large national
interstate  carriers,  many of whom have  substantially  greater  resources than
Morgan, and numerous small regional or local interstate and intrastate carriers.
Morgan's  principal  competitors  in the  manufactured  housing and  specialized
outsourcing services marketplaces are privately owned. No assurance can be given
that Morgan will be able to maintain its competitive position in the future.

Competition among carriers is based on the rate charged for services, quality of
service,  financial strength and insurance coverage. The availability of tractor
equipment and the possession of appropriate  registration  approvals  permitting
shipments between points required by the customer may also be influential.

Lines of Business.  Morgan  operates in these lines of businesses:  Manufactured
Housing, Driver Outsourcing, Specialized Outsourcing

Services, and Insurance and Finance.

The  largest   portion  of   Morgan's   operating   revenues  is  derived   from
transportation  of manufactured  housing,  primarily new  manufactured  homes. A
manufactured  home  is an  affordable  housing  alternative.  During  1999,  the
manufactured  housing industry is experiencing a decline in shipments.  However,
Morgan believes the manufactured  housing industry production over the long-term
should  continue  to grow  along  with  the  general  economy,  especially  when
employment  statistics  and  consumer  confidence  remain  strong.  There  is no
assurance,  however,  that manufactured  housing production will increase.  Unit
production by the manufactured housing industry  (considering  double-wide homes
as two  shipments)  in the United  States  decreased  by  approximately  5% from
602,000 in 1998 to 574,000 in 1999. In 1998, the increases was 8%.

Manufactured  Housing  provides  specialized  transportation  to companies which
produce new manufactured homes, modular homes, and office trailers. In addition,
Manufactured   Housing  transports  used  manufactured  homes  and  offices  for
individuals,  businesses,  and the U.S.  Government.  Based on industry shipment
data  available  from the MHI,  and  Morgan's  knowledge of the industry and its
principal  competitors,  Morgan  believes that it is the largest  transporter of
manufactured  homes in the United  States.  Manufactured  Housing ships products
through approximately 1,015 independent owner-operators some who drive specially
modified  semi-tractors,  referred to as "toters," used in manufactured  housing
transportation to reduce combined vehicle length. Makers of manufactured housing
generally  ship  their  products  no more than a few  hundred  miles  from their
production  facilities.  Therefore,  to serve  the  regional  structure  of this
industry,  Morgan  positions  its  dispatch  offices  close  to  the  production
facilities it is serving.

Morgan's Driver Outsourcing line of business provides outsourcing transportation
services primarily to manufacturers of recreational vehicles, commercial trucks,
and other  specialized  vehicles  through a network of  service  centers in nine
states.  Driver outsourcing  engages the services of approximately 1,470 drivers
who are  outsourced  to  customers  to deliver  the  vehicles.  In 1999,  driver
outsourcing delivered approximately 49,900 units.

Morgan's  Specialized  Outsourcing  Services line of business  consists of large
trailer  ("Towaway")  delivery,  travel and other small trailer  delivery ("pick
up") and presently another specialized service called ("Decking").  In 1999, the
Towaway  operation moved  approximately  14,600 large  trailers.  Decking is the
delivery of two to four over-the-road  highway tractors by means of mounting one
or more tractors on the rear of a preceding  tractor.  In 1997, Morgan initiated
transportation  and delivery  service called  "Decking."  Morgan  contracts with
approximately 305  owner-operators to provide towaway and travel and other small
trailer  services.  Morgan is currently  reviewing these  businesses as to their
financial and strategic fit with the organization.

Morgan's insurance and finance line of business provides insurance and financing
to Morgan's drivers and independent owner-operators.

Selected Operating and Industry Participation  Information.  The following table
sets forth certain operating and industry participation  information for each of
the five years ended December 31, 1999.
<TABLE>
<CAPTION>
Manufactured Housing
  Operating Information:                           1995        1996        1997       1998        1999
                                                   ----        ----        ----       ----        ----
<S>                                               <C>         <C>         <C>         <C>         <C>
New Home Shipments ...........................    114,890     121,136     154,389     161,543     148,019
Other Shipments ..............................     20,860      23,465      24,144      17,330      11,871
                                                 --------    --------    --------    --------    --------
Total Shipments ..............................    135,750     144,601     178,533     178,873     159,890
Linehaul Revenues (000s) (1) .................   $ 63,353    $ 72,616    $ 93,092    $ 94,158    $ 88,396

Manufactured Housing
 Industry Participation:                           1995        1996        1997        1998         1999
                                                   ----        ----        ----        ----         ----
Industry Production (2) ......................    505,819     553,133     558,435     601,678     573,629
New Home Shipments ...........................    114,890     121,136     154,389     161,543     148,019
Share of Unites Shipped ......................      22.7%       21.9%       27.6%       26.8%       25.8%

Driver Outsourcing
 Operating Information: ......................     1995        1996        1997        1998         1999
                                                   ----        ----        ----        ----         ----
Shipments ....................................     49,885      58,368      45,446      44,177      49,892
Linehaul Revenues (000s)(1) ..................   $ 19,842    $ 23,090    $ 19,706    $ 19,979    $ 23,748

Specialized Outsourcing Services
 Operating Information: ......................     1995        1996        1997        1998         1999
                                                   ----        ----        ----        ----         ----
Shipments ....................................     44,406      41,255      34,867      38,167      32,967
Linehaul Revenues (000s)(1) ..................   $ 29,494    $ 26,169    $ 19,630    $ 23,015    $ 21,115
<FN>
(1)  Linehaul revenue is derived by multiplying the miles of a given shipment by
     the stated  mileage  rate.
(2)  Based on reports of Manufactured  Housing Institute.  To calculate share of
     homes  shipped,  Morgan  assumes two units  shipped for each  multi-section
     home.
</FN>
</TABLE>

Customers and Marketing.  Morgan's operating revenues are comprised primarily of
linehaul  revenues  derived by multiplying  the miles of a given shipment by the
stated  mileage  rate.  Operating  revenues  also  include  charges for permits,
insurance,  escorts and other items. A substantial portion of Morgan's operating
revenues are generated under one, two, or three year contracts with producers of
manufactured  homes,  recreational  vehicles,  and the other products.  In these
contracts,  the manufacturers  agree that a specific  percentage (up to 100%) of
their  transportation  service  requirements from a particular  location will be
performed  by Morgan on the basis of a  prescribed  rate  schedule,  subject  to
certain adjustments to accommodate  increases in Morgan's  transportation costs.
Linehaul revenues generated under customer contracts in 1997, 1998 and 1999 were
60%, 64% and 71% of total linehaul revenues, respectively.  Morgan's ten largest
customers  have  been  served  for  at  least  three  years  and  accounted  for
approximately 66%, 69%, and 68% of its linehaul revenues in 1997, 1998 and 1999,
respectively.  The following  customers  accounted for more than 10% of Morgan's
linehaul revenues in 1997, 1998 and 1999:  Oakwood Homes  Corporation  accounted
for approximately $21.6 million or 16% in 1997, $31.8 million or 23% in 1998 and
$28.8 million or 21% in 1999;  and  Fleetwood  Enterprises,  Inc.  accounted for
approximately  $28.1  million or 21% in 1997,  $26.0  million or 19% in 1998 and
$23.9 million or 18.0% in 1999. The Fleetwood  manufactured  housing contract is
continous unless cancelled by either party with thirty days notice.  The Oakwood
manufacturing housing contract is renewable annually.  Morgan has been servicing
Oakwood  for ten  years  and  Fleetwood  for  over 25  years  and  believes  its
relationship  with both  companies is good.  There is no assurance the customers
will agree to renew their contracts on acceptable terms or on terms as favorable
as those currently in force. The loss of one or more significant  customer could
adversely affect Morgan's results of operations.

Independent Owner-Operators. The shipment of product by Manufactured Housing and
certain Specialized Outsourcing Services is conducted by contracting for the use
of the equipment of independent  owner-operators.  Recruitment  and retention of
qualified  drivers  and  independent  owners-operators  is  highly  competitive.
Morgan's  contracts with  independent  owner-operators  are terminable by either
party on ten days'  notice.  There is no assurance  that  Morgan's  drivers will
continue to  maintain  their  contracts  in force or that Morgan will be able to
recruit a sufficient  number of new drivers on terms similar to those  presently
in force. Morgan may not be able to engage a sufficient number of new drivers to
meet customer  shipment demands from time to time resulting in loss of operating
revenues that might otherwise be available to Morgan.

Owner-operators are independent contractors who own totters,  tractors or pickup
trucks,  which they contract to, and operate for,  Morgan on a long-term  basis.
Independent  owner-operators are not generally approved to transport commodities
on their own in interstate or intrastate commerce.  Morgan,  however,  possesses
such approvals and/or authorities (see  "Regulation"),  and provides  marketing,
insurance,  communications,  administrative, and other support required for such
transportation.

Independent  owner-operators  are generally  compensated  for each trip on a per
mile basis. Independent  owner-operators are responsible for operating expenses,
including fuel,  maintenance,  lodging,  meals, and certain insurance  coverage.
Morgan provides required permits,  cargo and liability insurance (coverage while
transporting goods for Morgan),  and  communications,  sales, and administrative
services.  Independent  owner-operators,  except for  owners of certain  pick-up
trucks,  are  required to possess a commercial  drivers  license and to meet and
maintain  compliance with requirements of the U.S.  Department of Transportation
and standards established by Morgan.

From time to time,  tax  authorities  have  sought to  assert  that  independent
contractors in the  transportation  service industry are employees,  rather then
independent contractors. Under existing interpretations of federal and state tax
laws as well as Morgan's current method of operations,  Morgan believes that its
independent  contractors  are not employees.  There can be no assurance that tax
authorities  will  not  challenge  this  position,  or  that  such  tax  laws or
interpretations  thereof will not change.  If the independent  contractors  were
determined  to  be  employees,  such  determination  could  materially  increase
Morgan's payroll tax and workers' compensation insurance costs.

Agents  and  Employees.  Morgan  has  approximately  91  terminal  managers  and
assistant  managers who are involved  directly with the  management of equipment
and  drivers.  Of  these,  approximately  73 are  full  time  employees  and the
remainder are  independent  contractors  who earn a  commission.  In addition to
terminal personnel, Morgan employs approximately 246 full-time employees.

Fuel Cost. The  transportation  industry is dependent upon the  availability and
cost  of  fuel.   Although   fuel  costs  are  paid  by   Morgan's   independent
owner/operators,  increases in fuel prices may have significant  adverse effects
on  Morgan's  operations  for  various  reasons.  Since fuel costs vary  between
regions,  drivers  may  become  more  selective  as to which  regions  they will
transport goods, resulting in diminished driver availability. Also, Morgan would
experience  adverse effects during the time period from when fuel costs begin to
increase  until the time when scheduled rate increases to customers are enacted.
Increases  in fuel prices may also effect the sale of  recreational  vehicles by
making the purchase  less  attractive  to  consumers.  A decrease in the sale of
recreational  vehicles would be accompanied by a decrease in the  transportation
of  recreational  vehicles  and a decrease  in the need for  Driver  Outsourcing
Services.

Long-Lived Assets.  Morgan periodically assesses the net realizable value of its
long-lived  assets and evaluates such assets for impairment  whenever  events or
changes in  circumstances  indicate the  carrying  amount of an asset may not be
recoverable.  Morgan  continues  to assess the  recoverability  of the  goodwill
associated with two recent acquisitions. The total amount under review by Morgan
is $5.6  million.  Morgan does not believe  there is an impairment of long-lived
assets, incuding goodwill.

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

Risk Management,  Safety and Insurance.  The risk of substantial  losses arising
from  traffic  accidents  is inherent  in any  transportation  business.  Morgan
carries  insurance  with a  deductible  of up to  $250,000  per  occurrence  for
personal injury and property damage. Morgan has approved,  but has not activated
a self-insurance  authority of up to $1 million.  Morgan carries cargo insurance
and  effective  April 1,  1999 is self  insured  for up to $1  million  of cargo
coverage.  The frequency  and severity of claims under the  Company's  liability
insurance affect the cost, and potentially the availability,  of such insurance.
If Morgan is required to pay substantially greater insurance premiums, or incurs
substantial losses above insurance  coverage or below its $250,000  deductibles,
its results of operations can be materially adversely affected. Morgan continues
to review its  insurance  program,  self  insurance  limits  and  excess  policy
provisions.  Morgan believes that its current insurance  coverage is adequate to
cover its liability risks. There can be no assurance that Morgan can continue to
maintain its present coverage on acceptable terms.


The  following  table  sets forth  information  with  respect to bodily  injury,
property damage,  cargo claims, and automotive  physical damage reserves for the
years ended December 31, 1997, 1998, and 1999, respectively.
<TABLE>

                             Claims Reserve History
                            Years Ended December 31,
                                 (In Thousands)
<CAPTION>
                              1997       1998      1999
                             ------     ------    ------
<S>                         <C>        <C>        <C>
Beginning Reserve Balance   $ 4,660    $ 5,323    $ 8,108
Provision for Claims ....     7,204      7,698      8,633
Payments, net ...........    (6,541)    (4,913)    (8,323)
                            -------    -------    -------
   Ending Reserve Balance   $ 5,323    $ 8,108    $ 8,418
                            =======    =======    =======
</TABLE>

While Morgan's management has devoted substantial attention to controlling claim
costs,  there is no assurance  that claims and  insurance  costs will not in the
future substantially affect profitability.

Interstate makes available  physical damage insurance coverage for the Company's
owner-operators.  Interstate  also writes  performance  surety  bonds for Morgan
Drive Away, Inc.

Regulation.  Morgan's  interstate  operations  are subject to  regulation by the
Federal  Highway  Administration,  which  is an  agency  of  the  United  States
Department of Transportation ("D.O.T.").  Effective August 26, 1994, essentially
all  motor  common  carriers  were  no  longer  required  to  file  individually
determined  rates,  classifications,  rules or  practices  with  the  Interstate
Commerce  Commission   ("I.C.C.")   Effective  January  1,  1995,  the  economic
regulation  of certain  intrastate  operations  by various  state  agencies  was
preempted by federal law. The states continue to have jurisdiction  primarily to
insure that  carriers  providing  intrastate  transportation  services  maintain
required insurance coverage, comply with all applicable safety regulations,  and
conform to regulations governing size and weight of shipments on state highways.
Most states have adopted D.O.T.  safety  regulations  and conform to regulations
governing  size and weight of shipments on state highway,  and actively  enforce
them in conjunction with D.O.T. personnel.

Carriers  normally  are  required  to obtain  authority  from the I.C.C.  or its
successor  as well as various  state  agencies.  Morgan is  approved  to provide
transportation  from,  to,  and  between  all points in the  continental  United
States.

Federal  regulations govern not only operating  authority and registration,  but
also such matters as the content of agreements  with  owner-operators,  required
procedures  for  processing  of cargo  loss and  damage  claims,  and  financial
reporting.  Morgan  believes  that  it is in  substantial  compliance  with  all
material regulations applicable to its operations.

The D.O.T. regulates safety matters with respect to the interstate operations of
Morgan.   Among  other   things,   the  D.O.T.   regulates   commercial   driver
qualifications   and  licensing;   sets  minimum  levels  of  carrier  liability
insurance;  requires  carriers  to  enforce  limitations  on  drivers'  hours of
service;  prescribes  parts,  accessories  and  maintenance  procedures for safe
operation of freight  vehicles;  establishes  noise emission and employee health
and safety  standards  for  commercial  motor  vehicle  operators;  and utilizes
audits,  roadside  inspections  and  other  enforcement  procedures  to  monitor
compliance  with all such  regulations.  In 1997,  the  D.O.T.  has  established
regulations which mandate random,  periodic,  pre-employment,  post-accident and
reasonable  cause drug  testing  for  commercial  drivers.  The D.O.T.  has also
established similar regulations for alcohol testing.  Morgan believes that it is
in substantial  compliance with all material D.O.T.  requirements  applicable to
its operations.

Most manufactured  homes,  when being  transported by toter,  exceed the maximum
dimensions  allowed on state highways  without a special permit.  Morgan obtains
these permits for its independent  contractor  owner-operators  from each state,
which allows Morgan to transport their manufactured homes on state highways. The
states have special requirements for over-dimensional  loads detailing permitted
routes, timing required, signage, escorts, warning lights and similar matters.

Most states and provinces also require operators to pay fuel taxes,  comply with
a variety of other state tax and/or registration requirement,  and keep evidence
of such  compliance  in their  vehicles  while in  transit.  Morgan  coordinates
compliance  with these  requirement  by its drivers and  independent  contractor
owner-operators,  and  monitors  their  compliance  with all  applicable  safety
regulations.

From time to time, tax authorities have sought to assert that owner operators in
the trucking  industry are employees,  rather than independent  contractors.  No
such tax claim has been successfully made with respect to Morgan. Under existing
industry practice and  interpretations of federal and state tax laws, as well as
Morgan's  current method of operation,  Morgan,  based on the advice of counsel,
maintains that its owner operators are not employees.  Whether an owner operator
is an independent contractor or employee is, however, generally a fact-sensitive
determination  and the laws and their  interpretations  can vary  from  state to
state.  There can be no assurance  that tax  authorities  will not  successfully
challenge this position,  or that such tax laws or interpretations  thereof will
not  change.  If the owner  operators  were  determined  to be  employees,  such
determination  could  materially  increase  Morgan's  payroll  tax and  workers'
compensation insurance costs.

Interstate,  Morgan's  insurance  subsidiary,  is a  captive  insurance  company
incorporated under Vermont law. It is required to report annually to the Vermont
Department of Banking,  Insurance & Securities and must submit to an examination
by this Department on a triennial basis.  Vermont regulations require Interstate
to be audited  annually and to have its loss  reserves  certified by an approved
actuary.  Morgan believes  Interstate is in substantial  compliance with Vermont
insurance regulations.

Morgan's  finance  subsidiary is subject to Indiana's  Equal Credit  Opportunity
Laws and other  state and  federal  laws  relating  generally  to fir  financing
practices.

For additional  information  on Morgan,  reference is made to Morgan's Form 10-K
and other filings with the Securities and Exchange Commission.

III.       SPINNAKER STOCK

Interactive owns 1,000,000 shares of Common Stock of Spinnaker Industries,  Inc.
(AMEX:SKK/SKKA),  which  constitutes  26.5% of the  class and 13.6% of the total
outstanding shares of Spinnaker. Substantially all of the Registrant's Spinnaker
shares  are  pledged  by  Interactive  to a bank to  secure a line of  credit to
Interactive for $10 million.  Interactive  intends to sell such shares from time
to time to fund its acquisition program. On March 15, 2000, the closing price in
limited trading of Spinnaker Common Stock on the AMEX was $9.75 per share.

Spinnaker is a leading manufacturer of adhesive backed paper label stock for the
packaging  industry  as well as being a major  supplier  of stock  for  pressure
sensitive U.S. postage stamps.  In July and August 1999,  Spinnaker sold its two
industrial  tape business  units to Intertape  Polymer  Group,  Inc.  (AMEX-ITP;
Toronto),  Montreal,  Quebec,  Canada,  for approximately  U.S. $105 million and
300,000  five-year  warrants to purchase  Intertape  common shares at a price of
U.S.  $29.50 each. The sales are part of a plan to seek strategic  alternatives,
which  Spinnaker  announced  in  November  1998.  In  addition  to the  risks of
Spinnaker's  business,  because of Interactive's  large position and the limited
trading in Spinnaker  Common Stock,  it may be difficult for Interactive to sell
such  stock  and  realize  its  value  if and  when it  wants  to.  For  further
information  on Spinnaker,  reference is made to its Form 10-K and other filings
with the Securities and Exchange Commission.

IV.   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 its 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  licenses  held by companies in
which Interactive's  subsidiaries have investments,  as well as the licenses for
Las Cruces, New Mexico and portions of Iowa held by Interactive.

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.
Interactive  has  not  experienced  difficulties  relative  to  fuel  or  energy
shortages  but  substantial  increases  in fuel  costs or fuel  shortages  could
adversely affect the operations of Morgan.

See "Management's  Discussion and Analysis of Financial Condition and Results of
Operations" for a discussion of Year 2000 matters.

Interactive is a party to certain  lawsuits in the ordinary  course of business,
primarily at Morgan.  See "Business of  Interactive - II.  Services - The Morgan
Group, Inc. - Risk Management,  Safety and Insurance" for information on claims,
lawsuits and insurance relating to Morgan.

No portion of the business of Interactive is regarded as seasonal,  except that,
in the case of Morgan, fewer shipments are scheduled during the winter months in
those parts of the country where weather conditions limit highway use.

There  were  no  customers  in  1998  or  1999  that  represents  10% or more of
consolidated revenues, except for Oakwood Homes Corporation (23% in 1998 and 21%
in 1999)  and  Fleetwood  Enterprises,  Inc.  (19% in 1998 and  18.0% in  1999).
Interactive  does not believe that its  multimedia  business is dependent on any
single customer. Most local exchange carriers, including Registrant's,  received
a  significant  amount of revenues in the form of access fees from long distance
companies including AT&T.

Excluding   the   following   for  Morgan:   approximately   1,320   independent
owner-operators   and  1,470  other   drivers,   Interactive   had  a  total  of
approximately 630 employees at December 31, 1998,  compared to approximately 642
employees at December 31, 1999.

Additional  information  with  respect  to each  of  Interactive's  segments  is
included in Note 14 Segment Information to the Consolidated Financial Statements
included herein.

V.   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 2000
Annual Meeting of  Shareholders.  Such list sets forth the names and ages of all
executive  officers of 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.
<TABLE>
<CAPTION>
     Name                                  Offices and Positions Held                                  Age
     ----                                  --------------------------                                  ---

<S>                             <C>                                                                    <C>
Mario J. Gabelli                Chairman and Chief Executive Officer (since September 1999)             57
                                Chairman, since 1986, and Chief Executive Officer (1986 to
                                January 2000) of Lynch Corporation.  Chairman and Chief
                                Executive Officer (since March 1980) of Gabelli Group Capital
                                Partners, a private company which makes investments for its
                                own account; and Chairman and Chief Executive Officer of
                                Gabelli Asset Management Inc. (since 1999), a NYSE listed
                                holding company for subsidiaries engaged in various aspects
                                of the securities business.


Robert E. Dolan                 Chief Financial Officer and Controller (since September 1999)           48
                                Chief  Financial  Officer (1992 - 2000) and Controller (1990 -
                                2000) of Lynch Corporation.

Robert A. Hurwich               Vice  President-Administration,  Secretary & General Counsel            58
                                (since   September  1999);   Vice   President-Administration
                                Secretary and General  Counsel of Lynch  Corporation  (since
                                February 1994).
</TABLE>

The executive  officers of the Registrant  are elected  annually by the Board of
Directors  at its  organizational  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  space  containing  approximately  4,000 square feet for its
executive offices in Rye, New York.

Morgan  owns  approximately  24  acres of land  with  improvements  in  Elkhart,
Indiana.  The improvements  include a 23,000 square foot office building used as
Morgan's  principal  office,  a 7,000  square  foot leased  building  containing
additional  offices,  and a 9,000 square foot building used for Morgan's  safety
and driver service departments and also for storage. Most of Morgan's 98 offices
are  situated  on leased  property.  Morgan  also owns and leases  property  for
parking and storage of  equipment  at various  locations  throughout  the United
States,  usually in proximity to manufacturers of products moved by Morgan.  The
property  leases have lease term  commitments  of a minimum of thirty days and a
maximum  of three  years,  at monthly  rental  ranging  from $25 to $6,500.  The
Elkhart facility is currently  mortgaged to one of Morgan's  lenders.  In total,
Morgan owns 69 acres of land throughout the United States, including the Elkhart
facilities.

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 a building  comprising a total of
6,480  square feet  housing  its  administrative  offices  and  certain  storage
facilities.  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").

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 1,756 miles of copper
cable and 202 miles of fiber optic cable.  All of  Inter-Community's  properties
described  herein are encumbered  under  mortgages held by the National Bank for
Co-Operatives ("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 800 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 221 miles of copper  cable and 28 miles of fiber optic cable.
All of Cuba City and Belmont's  property  described  herein are encumbered under
mortgages held by the RUS and Rural Telephone Bank, respectively.

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,  located in Holton,  Kansas and a 3,000 square
feet garage warehouse facility 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.

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 1,316 miles of copper cable and 61 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 5 sites  located 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 4 other smaller facilities housing garage, warehouse and
central  office  switching  equipment  and over 341 miles of copper cable and 30
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 2,098 miles of copper cable and 93 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
351.96  miles of copper  cable  and 18.18  miles of fiber  optic  cable.  All of
Central Scott's properties  described herein are encumbered under mortgages held
the First National Bank of Omaha.

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 1.1.B. Cable Television.

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

Registrant  is a party to certain  lawsuits in the  ordinary  course of business
primarily  at Morgan.  See  "Business of  Interactive-  II Services - The Morgan
Group, Inc. - Risk Management, Safety and Insurance."


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

Not applicable.

                                     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  since  Registrant  became a public
company on September 1, 1999:
<TABLE>
<CAPTION>
                   Sept. 1-30, 1999     Oct. 1-Dec. 31, 1999

             <S>            <C>                 <C>
             High           75                  120
             Low            42                   51
</TABLE>

At March 15, 2000, the Company had 892  shareholders of record.  The Company has
not paid and does not expect to pay in the foreseeable future, cash dividends.


<PAGE>


ITEM 6. SELECTED FINANCIAL DATA

                          LYNCH INTERACTIVE CORPORATION
                                FIVE-YEAR SUMMARY
                            SELECTED FINANCIAL DATA
                      (In Thousands, Except Per Share Data)

<TABLE>
<CAPTION>
                                                                 Years Ended December 31, (a)
                                               ------------- ------------ ------------ ------------ ------------
                                                  1995         1996         1997         1998         1999
                                               ------------- ------------ ------------ ------------ ------------

<S>                                            <C>          <C>          <C>          <C>          <C>
Revenues ...................................   $ 145,900    $ 160,816    $ 194,062    $ 205,076    $ 204,640

Operating Profit (b) .......................       6,099        1,940       11,288       16,657       12,849
Net Financing Activities (c) ...............      (2,587)      (4,024)      (7,908)      (8,201)      (8,070)
Reserve for Impairment of Investment in PCS
 License Holders(d)........................           --           --       (7,024)          --      (15,406)
Gain on Sale of Subsidiary Stock and Other
 Operating Assets..........................           59           14          260        2,709           --
Income (Loss) Before Income Taxes,
 Minority Interests, and Extraordinary Item        3,571       (2,010)      (3,384)      11,165      (10,627)
(Provision) Benefit for Income Taxes .......      (1,695)         445          736       (5,012)       2,285
Minority Interests .........................      (1,409)         747         (631)      (1,224)        (714)
Income (Loss) Before Extraordinary Item ....         467         (818)      (3,279)       4,929       (9,056)
Extraordinary Item (f) .....................        --           --           --             --         (160)
Net Income (Loss) ..........................         467         (818)      (3,279)       4,929       (9,216)
Basic and Diluted Earnings
Per Common Share (g)
Income (Loss) Before Extraordinary Item.....        0.34        (0.59)       (2.32)        3.48        (6.42)
Net Income (Loss)...........................        0.34        (0.59)       (2.32)        3.48        (6.53)
Cash, Securities and Short-Term Investments       21,948       25,541       28,043       27,988       32,941
Total Assets ...............................     157,455      248,651      253,032      246,092      253,969
Long-Term Debt .............................      75,472      123,002      134,200      127,663      165,701
Shareholders' Equity (h) ...................      29,427       45,068       32,995       39,314       26,911

<FN>
(a)  Includes  results of Dunkirk and Fredonia  Telephone  Company from November
     26, 1996,  Transit Homes of America from December 30, 1996, Upper Peninsula
     Telephone  Company from March 18, 1997, and Central Scott Telephone Company
     from July 16, 1999.

(b)  Operating  Profit is sales and  revenues  less  operating  expenses,  which
     excludes  investment  income,  interest  expense,  share of  operations  of
     affiliated companies, minority interests and taxes.

(c)  Consists of investment  income,  interest expense and equity in earnings of
     affiliated companies.

(d)  See  Footnote  4  "Wireless   Communications  Services"  in  the  Company's
     financial statements.

(e)  See  Footnote 2  "Acquisitions  and  Dispositions  -  Dispositions"  in the
     Company's financial statements

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

(g)  Based on weighted average number of common shares outstanding - restated to
     conform to SFAS #128 in 1996 and prior years.

(h)  No cash dividends have been declared over the period.
</FN>
</TABLE>


<PAGE>




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

RESULTS OF OPERATIONS

YEAR 1999 COMPARED TO 1998

This discussion should be read together with Consolidated  Financial  Statements
of Interactive and the notes thereto included herein.

Overview

Effective  with the spin off of Interactive  by Lynch  Corporation,  Interactive
owns  the  multimedia  and  services   businesses   previously  owned  by  Lynch
Corporation.  In  addition,  Interactive  owns 1 million  shares  of  Spinnaker.
Interactive  operates as an independent,  publicly traded company.  As such, the
consolidated   Interactive   financial   statement  may  not  be  indicative  of
Interactive's  future  performance  nor do they  necessarily  reflect  what  the
financial  position and results of operations of Interactive  would have been if
it had operated as a separate stand-alone entity during the periods covered.

Revenues

1999 total  revenues were $204.6  million,  a $0.5 million or 0.2% decrease from
the $205.1 million in 1998. Within the operating  segments:  multimedia revenues
increased  $4.4  million,  or 8% from the previous  year,  primarily  due to the
acquisition  of Central  Scott  Telephone  Company  ($1.9  million  effect)  and
partially  due to  growth  in both  telecommunications  services  as well as the
provision of  non-traditional  revenue  services  as:  Internet,  long  distance
service and competitive  local exchange carrier.  Service revenues  decreased by
$4.8  million or 3%.  This  decline is  primarily  attributed  to the decline in
shipments of  manufactured  housing,  which was evidenced in lower  shipments by
some of the Company's major customers.  The Company believes that this depressed
level of unit shipments in Manufactured  Housing will continue through the first
half of 2000 and possibly moderating in the second half of the year. Despite the
current  conditions,  the Company  believes that  manufactured  housing industry
production  over the long term  should  continue  to grow along with the general
economy.

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

EBITDA

Earnings  before  interest,   taxes,   depreciation  and  amortization  (EBITDA)
decreased to $28.2  million in 1999 from $30.9  million in 1998, a $2.7 million,
or 9% decrease.  EBITDA is presented  because it is a widely accepted  financial
indicator  of value and  ability  to incur  and  service  debt.  EBITDA is not a
substitute  for  operating  income or cash flows from  operating  activities  in
accordance  with  generally  accepted  accounting  principles.  EBITDA  for  the
telecommunications  segment  increased by $2.0  million,  or 7% to $31.4 million
from  $29.4  million  in 1998.  $1.1  million  of this  increase  was due to the
acquisition of Central Scott Telephone  Company.  The remaining increase was due
to the growth in  regulated  and  deregulated  operations.  EBITDA at The Morgan
Group decreased by $1.4 million, or 44%, from $3.3 million in 1998. The decrease
is  primarily  attributable  to a decline in shipments  of  manufactured  homes,
reduced  operating  revenues and  profitability  in the specialized  outsourcing
services  business and a continued  increase in insurance and claims costs.  For
purposes of this presentation, EBITDA does not include SARs expense (see below).

Morgan  in  March  2000  instituted  staff  reduction  and  other  cost  savings
initiatives.   It  is  currently  estimated  that  the  cost  savings  of  these
initiatives  will  approximate  $2.4  million  annually.  The impact of the cost
savings for 2000 is expected  to  approximate  $1.8  million,  net of  severance
costs.

Operating Profit

Operating  profits  for 1999  decreased  to $12.8  million  from  $16.7  million
reported for 1998, a decrease of $3.9 million. This decline in operating profits
is  principally  attributable  to SAR  expense of $2.9  million  coupled  with a
decrease in operating  results of $1.5 million from the services  segment due to
lower   revenues,   which   offset  the   increase  of  $0.3  million  from  the
telecommunications  segment  resulting  from the  acquisition  of Central  Scott
Telephone Company, net of goodwill amortization.

On February  29,1996,  Lynch  Corporation  adopted a Stock  Appreciation  Rights
program  for  certain  employees.  Through  September  1, 1999,  43,000 of Stock
Appreciation  Rights  ("SAR") had been granted at prices ranging from $63 to $85
per share.  Upon the  exercise  of a SAR,  the holder is  entitled to receive an
amount  equal to the amount by which the market  value of the Lynch  Corporation
common stock on the exercise date exceeds the grant price of the SAR.  Effective
September 30, 1998, Lynch  Corporation  amended the SAR program so that the SARs
became exercisable only if the market price for the Lynch  Corporation's  shares
exceed 200% of the SAR exercise  price within five years from the original grant
date.  This amendment  eliminated the recording of the profit and loss effect of
the SARs for changes in the market price in the Company's  common stock until it
becomes probable that the SARs will become  exercisable.  Lynch  Corporation and
Interactive  offered  to the SAR  holders  an option of turning in their SARs in
exchange  for  a  payment  based  upon  the  combined  market  prices  of  Lynch
Corporation and Lynch  Interactive  Corporation  and, in the case of SARs issued
prior  to   December  5,  1997,   East/West   Communications,   Inc.   East/West
Communications  was spun off from Lynch  Corporation  on  December  5, 1997 on a
share  for  share  basis.   All  SAR  holders  accepted  this  proposal  thereby
terminating  the plan and the total  payments of $3.8 million were  allocated to
Lynch ($0.8 million) and Interactive  ($3.0) on the basis of the relative market
value of December 31, 1999.

Investment income was approximately  $2.0 million,  or 7.9% increase compared to
1998. This increase is due to unrealized gain (loss) on trading securities.

Interest expense  increased by $0.7 million to $11.1 million in 1999 compared to
$10.4  million in 1998.  The  increase is due  primarily to the  acquisition  of
Central  Scott  Telephone  Company  on July  16,  1999  ($0.6  million)  and the
Company's decision, effective January 1, 1999, to cease capitalizing interest on
its investment in PCS license  holders ($1.6  million)  offset by lower level of
borrowings at certain of the Company's subsidiaries.

During  1999,  the  Company  recorded  approximately  $1.0  million of equity in
earnings of affiliated  entities  primarily due to operating income form its New
Mexico cellular RSA interests.

Tax Provision

The 1999 tax benefit of $2.3 million includes federal, state and local taxes and
represents  an effective  rate of 22% versus 45%  effective tax benefit in 1998.
The  difference  in the  effective  rates is primarily due to the effects of the
amortization of non-deductible  goodwill and the tax effect on losses of certain
subsidiaries.

Minority Interest

Minority interest declined from $1.2 million in 1998 to $0.7 million in 1999 due
to lower earnings at Morgan.

PCS Write-off

A subsidiary of Lynch  Interactive  has  investments  in, loans to, and deferred
costs associated with a 49.9% equity ownership in Fortunet Communications,  L.P.
("Fortunet"),  a partnership  formed to acquire,  construct and operate licenses
for the provision of personal  communications  services  ("PCS") acquired in the
FCC's C-Block PCS auction.  Fortunet  holds  licenses to provide PCS services of
15MHz of spectrum in the BTA of Tallahassee,  Panama City and Ocala, Florida. On
April 15,  1999,  the Federal  Communications  Commission  completed a reauction
other 15 MHz PCS C-Block  licenses,  including  the 15 MHz licenses in the basic
trading areas of  Tallahassee,  Panama City, and Ocala,  Florida.  The final net
cost of these licenses in the reauction was substantially  below Fortunet's cost
of the licenses it retained in these markets.  Accordingly,  during 1999,  Lynch
Interactive  recorded an additional write down of $15.4 million.  The Company is
considering spinning off its 49.9% interest in Fortunet.

Net Income

Net loss for year ended  December  31, 1999 was $(9.2)  million,  or $(6.53) per
share,  as compared to a net income of $4.9 million,  or $3.48 per share for the
year ended December 31, 1998. The  write-down  associated  with Fortunet was the
primary item affecting the net loss.

YEAR 1998 COMPARED TO 1997

Revenues

Revenues  increased to $205.1  million in 1998 from $194.1 million in 1997, a 6%
increase. In the multimedia segment,  revenues increased by $6.7 million, or 14%
from the previous  year,  partially due to the  acquisition  of Upper  Peninsula
Telephone  Company in which control was acquired on March 18, 1997 ($2.4 million
effect), the remainder primarily coming from growth in regulated and deregulated
revenues.  In addition,  1998 results include  management service income of $1.0
million related to compensation for bidding and administrative services provided
in certain PCS auctions. For telecommunications  businesses owned for comparable
periods  in both  years,  revenues  increased  9%. At The  Morgan  Group,  Inc.,
revenues increased by $4.3 million, or 3% due to gains in Specialized Transport.

EBITDA

Earnings  before  interest,   taxes,   depreciation  and  amortization  (EBITDA)
increased to $30.9 million in 1998 from $24.6 million in 1997, a $6.3 million or
a 26% increase.  EBITDA is presented  because it is a widely accepted  financial
indicator  of value and  ability  to incur  and  service  debt.  EBITDA is not a
substitute  for  operating  income or cash flows from  operating  activities  in
accordance  with  generally  accepted  accounting  principles.  EBITDA  for  the
telecommunications  segment,  which for 1998 represented 93% of combined EBITDA,
increased  by $4.7  million,  or 20%,  from 1997 to 1998.  $1.4  million of this
increase was due to the acquisition of Upper Peninsula  Telephone  Company.  The
remaining  increase was due to growth in regulated and  deregulated  operations.
For  telecommunications  businesses owned for comparable  periods in both years,
EBITDA  increased by 13%. EBITDA at The Morgan Group,  Inc. which represents 10%
of  combined  EBITDA  increased  by $1.1  million,  or 52%  from  1997's  EBITDA
primarily due to the absence of special  charges in 1998,  special  charges were
$0.6 million 1997.

Operating Profit

Operating  profits for 1998 were $16.7  million,  up from $11.3 million in 1997.
The telecommunications  segment's operating profits grew $3.9 million due to the
inclusion  of Upper  Peninsula  Telephone  Company for the full year and revenue
growth.  Operating profits in the services segment increased by $1.0 million, or
98%, from 1997 to 1998, due to the absence of special charges.

Effective  September 30, 1998, the Company  amended its SAR (stock  appreciation
rights) Program so that the SARs became  exercisable only in the event the price
for Lynch's  shares  double from the SAR grant price  within five years from the
original  issuance.  This  amendment  eliminated the recording of the profit and
loss effect from changes in the market price in Lynch's common stock until it is
probable that the SARs will become  exercisable.  During 1997,  Lynch  allocated
$0.4 million SAR expense to Interactive  and in 1998,  prior to the amendment of
the program, $0.2 million in SAR income.

Investment  income  was  approximately  $1.9  million in 1998  compared  to $1.7
million in 1997.

Interest  expense  increased by $0.6 million in 1998 when compared to 1997. This
increase is due primarily to the debt related to the purchase of Upper Peninsula
Telephone Company for the full year in 1998.

In 1997, Interactive recorded a write-off of 30% of the investment in, loans to,
and deferred costs  associated with its  subsidiary's  49.9% equity ownership in
Fortunet  Communications,  L.P., a partnership formed to acquire,  construct and
operate  licenses for the provision of personal  communications  services in the
so-called  C-Block.  Such  write-off  amounted to $7.0 million,  or $4.6 million
after tax benefit. No such write-off occurred in 1998.

As of December 9, 1998, WNM Communications,  Inc., a Lynch Telephone Corporation
subsidiary,  sold the assets of its direct broadcast  satellite business serving
portion  of New  Mexico  for  approximately  $3.1  million.  As a result  of the
transaction,  a pre-tax  gain of the sale of the  assets of  approximately  $2.7
million was recognized  and classified as gain on sales of subsidiary  stock and
other operating assets in the combined statement of operations.

The 1998 tax provision of $5.0 million includes  federal,  state and local taxes
and represents an effective rate of 45% versus 22% effective tax benefit rate in
1997. The  difference in the effective  rates is primarily due to the effects of
the amortization of goodwill, state taxes, and losses of subsidiaries.

During 1998,  minority  interest was $1.2 million  compared with $0.6 million in
1997.

Liquidity and Capital Resources

As of December 31, 1999,  Lynch  Interactive  Corporation  had current assets of
$60.8 million and current  liabilities  of $48.7  million.  Working  capital was
therefore  $12.1 million as compared to $5.6 million at December 31, 1998.  This
increase in working capital is due to the sale of the convertible  note of $25.0
million in December 1999 offset by reclassification of certain long-term debt to
current.

Capital  Expenditures  were  $12.5  million  in 1999 and $11.6  million in 1998.
Overall 2000 capital  expenditures are expected to be approximately $0.6 million
above the 1999 level due to additional  expenditures  for the  Company's  Kansas
telephone operations.

On December  13, 1999,  Lynch  Interactive  Corporation  issued a $25 million 6%
convertible promissory note to Cascade Investment. This note is convertible into
common shares of Interactive at $85 per share and is due in 2004.

At  December  31,  1999,  total debt was $168.9  million,  an  increase of $24.1
million  compared with the same period in 1998. The increase is primarily due to
$20.0 million borrowed to fund a portion of the Central Scott Telephone  Company
acquisition.  A  portion  of the  proceeds  of the  sale  of the  $25.0  million
convertible note was used to pay down corporate lines of credit. At December 31,
1999 there was $151.9 million of fixed  interest rate debt  available  averaging
7.0%  and  $17.1  million  of  variable   interest  rate  debt  averaging  8.1%.
Additionally,  Interactive  at December  31, 1999,  had $23.6  million in unused
lines of credit of which  Morgan had $3.1  million  available.  At December  31,
1998,  Interactive  borrowed  $15.2  million  from Lynch  Corporation  under two
short-term line of credit  facilities with maximum  availability  totaling $20.0
million. These facilities were transferred to Interactive on August 31, 1999. At
December 31, 1999, Lynch  Interactive had no borrowings under these  facilities.
These facilities  mirrored  facilities between Lynch Corporation and third party
lenders.  These renewed  short-term lines of credit of $20.0 million will expire
on August 31, 2000.  There are no actual or anticipated  arrangements  for Lynch
Corporation to provide funding to Interactive. It is Management's belief that it
has or will be able to obtain  adequate  resources to fund  operations  over the
next twelve months but there is no assurance that they will.

On February 22, 1999, The Morgan Group, Inc. filed a Schedule 13E4, that invited
its  shareholders  to tender up to 100,000  shares of Class A common  stock,  to
Morgan at prices  not less than $8.50 nor  greater  than  $10.00 per share.  The
tender offer expired March 19, 1999,  whereby Morgan purchased 103,000 shares at
$9 per  share.  Lynch  Interactive  Corporation  did not  tender  any  shares in
response to this offer.

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, 1999,  200 shares had been  purchased at an
average cost of $99.16 per share.

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

Interactive  has a high degree of financial  leverage.  As of December 31, 1999,
the ratio of total debt to equity was 6.3 to 1. Certain  subsidiaries  also have
high  debt to equity  ratios.  In  addition,  the debt at  subsidiary  companies
contains  restrictions  on the  amount of  readily  available  funds that can be
transferred to the respective parent of the subsidiaries.

The  Company  has a need for  resources  to fund  future  growth  as well as the
ongoing operations of the parent company.  Interactive is currently  considering
various alternative long and short-term financing arrangements.  One alternative
is the equity  offering of  Interactive  stock.  Other  alternatives,  either in
addition  to or in lieu of an  Interactive  equity  offering,  include a sale of
shares of Spinnaker stock or a sale of a portion or all of certain investment in
operating  entities  (see  "harvesting"   initiative  discussed  below),  either
directly or through an exchangeable debt instrument. 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  continues a harvesting  program that was initiated when it was part
of Lynch Corporation.  This program is a concentrated effort to monetize certain
of the  Company's  assets,  including  selling  a  portion  or  all  of  certain
investments  in Company's  operating  entities.  These may include the Company's
minority  interest  in  network  affiliated   television  stations  and  certain
telephone operations where competitive local exchange carrier  opportunities are
not readily  apparent.  The Company's  approximately  14% ownership  interest in
Spinnaker may also be sold in order to fund future growth initiatives.  There is
no assurance  that all or any part of this program can be effected on acceptable
terms.

Morgan  periodically  assesses the net realizable value of its long-lived assets
and  evaluates  such  assets  for  impairment  whenever  events  or  changes  in
circumstances  indicate the carrying  amount of an asset may not be recoverable.
Morgan continues to assess the  recoverability  of the goodwill  associated with
two  recent  acquisitions.  The  total  amount  under  review  by Morgan is $5.6
million.  Morgan does not believe there is any impairment of long-lived  assets,
including goodwill.

On March 27, 2000, the Company loaned a 49.9% affiliate $13.0 million, which was
put on deposit with the Federal Communications Commission for the upcoming 39MHz
auction.

YEAR 2000

Over the past couple of years, the Company has performed a comprehensive  review
of its  computer  systems to identify  the systems that could be affected by the
"Year 2000" issue and resolve the issue.  The Year 2000 problem is the result of
computer  programs  being written using two digits  (rather than four) to define
the  applicable  year.  Any of the  Company's  programs or programs  utilized by
vendors to the Company that have  time-sensitive  software may  recognize a date
using "00" as the year 1900  rather than the year 2000.  This could  result in a
major  system  failure or  miscalculation.  The  Company's  Year 2000 review was
performed primarily by internal staff, and in certain operations supplemented by
outside consultants.  The principal  Information  Technology ("IT") systems that
could have been impacted by the Year 2000 for the  Company's  telecommunications
operations are central office switching,  billing and accounting.  The principal
IT systems for the Morgan  Group are order entry  dispatch and  accounting.  The
Year 2000 could also have impact various non-IT  systems,  including among other
things security systems, HVAC, elevator systems, and communications  systems. In
addition,  each of the  Company's  could  have  been  impacted  by the Year 2000
readiness of third party vendors/suppliers.

Due to the integral nature of switching  equipment and billing software to their
operations,  the  telecommunications  businesses could have been affected by the
Year 2000 issues. The telecommunications  businesses rely on switching equipment
and software provided by third party vendors. The telecommunications  businesses
periodically  upgrade switching software in order to remain current with respect
to service  features.  The upgrades  provided other enhanced service features as
well  as  included  Year  2000  readiness  and  have  been  capitalized.   Other
remediation  costs,  including  internal  costs have been  charged to expense as
incurred.  The total cost of Year 2000  remediation  for the  telecommunications
businesses was approximately  $1.1 million,  all of which has been spent to date
and the total cost for Morgan was approximately  $336,000,  all of which as been
spent to date.

The  Company's  Year 2000  procedures  and  testing  plan was  completed  in all
material  respects prior to the anticipated year 2000 failure dates. As of March
15, 2000,  the Company has not  experienced  any materially  important  business
disruptions or system failures as a result of Year 2000 issues,  nor is it aware
of any Year 2000 issues that have impacted its vendors, customers,  suppliers or
other  significant  third  parties  to an  extent  significant  to the  Company.
However, Year 2000 compliance has many elements and potential consequences, some
of  which  may  not be  foreseeable  or  may  be  realized  in  future  periods.
Consequently,  there can be no assurance that unforeseen  circumstances  may not
arise, or that the Company will not in the future identify  equipment or systems
which are not Year 2000 compliant.

MARKET RISK

The Company is exposed to market risk  relating to changes in the general  level
of U.S. interest rates. Changes in interest rates affect the amounts of interest
earned  on  the  Company's   cash   equivalents   and   short-term   investments
(approximately  $33.0 million at December 31, 1999 and $28.0 million at December
31, 1998). The Company generally finances the debt portion of the acquisition of
long-term  assets  with  fixed  rate,  long-term  debt.  The  Company  generally
maintains the majority of its debt as fixed rate in nature either borrowing on a
fixed long-term  basis or, on a limited basis,  entering into interest rate swap
agreements.  The  Company  does not use  derivative  financial  instruments  for
trading or speculative  purposes.  Management  does not foresee any  significant
changes in the strategies  used to manage interest rate risk in the near future,
although the strategies may be reevaluated as market conditions dictate.

At December 31,  1999,  approximately  $17.1  million,  or 10% of  Interactive's
long-term debt and notes payable bears interest at variable rates.  Accordingly,
the Company's earnings and cash flows are affected by changes in interest rates.
Assuming the current level of  borrowings  for variable rate debt and assuming a
one  percentage  point change in the 1998 and 1999 average  interest  rate under
these borrowings,  it is estimated that  Interactive's  1998 and 1999,  interest
expense would have changed by $0.3 million and $0.2 milllion,  respectively.  In
the event of an adverse change in interest rates,  management  would likely take
actions to further mitigate its exposure. However, due to the uncertainty of the
actions that would be taken and their possible effects,  the analysis assumes no
such actions.  Further, the analysis does not consider the effects of the change
in the  level  of  overall  economic  activity  that  could  exist  in  such  an
environment.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The  information  required by this Item 7A is included under the caption "Market
Risk" in  "Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations" in Item 7.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Item 14(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  2000,  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 2000,
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  2000,  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
2000, which information is included herein by reference.

                                     PART IV

ITEM 14.  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  Consolidated
                 Financial Statements of the Company are

                Balance Sheets - December 31, 1998 and 1999
                Statements of Operations - Years ended December 31,
                1997,  1998, and 1999 Statements of Shareholders'
                Equity  -  Years  ended  December  31,  1999,   1998,  and  1997
                Statements of Cash Flows - Years ended December 31,
                1999, 1998, and 1997 Notes to 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 56-57.

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.

(b)              Reports  on Form 8-K:  Registrant  filed a Form 8-K  dated
                 December  10,  1999,  relating  to a $25 million private
                 placement of a convertible note.

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



21 -             Subsidiaries of Registrant

23 -             Consents of Independent Auditors
                 -      Siepert & Company LLC (2)
                 -      McGladrey & Pullen, LLP (2)
                 -      Warinner, Gensinger & Associates, LLC

24 -             Powers of Attorney

27 -             Financial Data Schedule

99 -             Report of Independent Auditors
                 -        Report of Siepert & Co.,  L.L.P.  of financial
                          statements of Cuba City Telephone  Exchange
                          Company for the year ended December 31, 1999
                 -        Report of Siepert & Co., L.L.P. on the financial
                          statements of Belmont  Telephone  Company
                          for the year ended December 31, 1999
                 -        Report of  McGladrey  & Pullen,  LLP on the  financial
                          statements of Capital  Communications  Company for the
                          year ended December 31, 1997
                 -        Report of  McGladrey  & Pullen,  LLP on the  financial
                          statements of Coronet  Communications Company the year
                          ended December 31, 1997
                 -        Report of Frederick & Warinner on the  financial
                          statements of CLR Video,  L.L.C.  for the
                          year ended December 31, 1997


(d)              Financial Statement  Schedules:  Financial  Statement
                 Schedules  are  listed in  response  to Item 14(a)(2)


<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
Lynch Interactive Corporation

We have audited the accompanying consolidated balance sheet of Lynch Interactive
Corporation and subsidiaries ("Lynch Interactive  Corporation" or the "Company")
as of December 31, 1999 and the related  consolidated  statements of operations,
shareholders'  equity,  and  cash  flows  for  the  year  then  ended,  and  the
accompanying  combined  balance  sheet of the net  assets and  operations  to be
contributed  to Lynch  Interactive  Corporation  (see Note 1) as of December 31,
1998 and the related combined statements of operations,  equity,  investments by
and advances from Lynch  Corporation and cash flows for each of the two years in
the period  ended  December  31, 1998.  Our audits also  included the  financial
statement  schedules  listed  in  the  index  at  Item  14(a).  These  financial
statements  and  schedules  are the  responsibility  of the  management of Lynch
Interactive  Corporation.  Our  responsibility is to express an opinion on these
financial  statements  and schedules  based on our audits.  We did not audit the
1999 financial  statements of Cuba City Telephone  Exchange  Company and Belmont
Telephone  Company,  indirect  wholly-owned  subsidiaries  of Lynch  Interactive
Corporation,  which statements reflect total revenues of $2,070,000 for the year
ended December 31, 1999, the 1997 financial  statements of CLR Video,  L.L.C., a
wholly-owned  subsidiary of Lynch Multimedia (a wholly-owned subsidiary of Lynch
Interactive  Corporation)  which statements reflect total revenues of $1,505,000
for the year  ended  December  31,  1997 and the 1997  financial  statements  of
Coronet  Communications  Company  and of Capital  Communications  Company,  Inc.
(entities in which the Company has a 20% and 49% interest, respectively).  Those
statements  were audited by other  auditors whose reports have been furnished to
us,  and our  opinion,  insofar as it  relates  to data  included  for Cuba City
Telephone  Exchange  Company and Belmont  Telephone  Company in 1999, CLR Video,
L.L.C. in 1997, and Coronet  Communications  Company and Capital  Communications
Company, Inc. in 1997, is based solely on the reports of 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
consolidated balance sheet of Lynch Interactive  Corporation and subsidiaires at
December  31,  1999  and the  related  consolidated  statements  of  operations,
shareholders'  equity and cash flows for the year then ended,  and the  combined
balance  sheet of the net  assets  and  operations  to be  contributed  to Lynch
Interactive  Corporation  (see  Note 1) at  December  31,  1998 and the  related
combined  statements of  operations,  equity,  investments  by and advances from
Lynch  Corporation  and cash flows for each of the two years in the period ended
December 31, 1998,  present fairly, in all material  respects,  the consolidated
financial position of Lynch Interactive Corporation and subsidiaries at December
31, 1999 and the  consolidated  results of their operations and their cash flows
for the year then ended, and the combined  financial  position of the net assets
and operations to be contributed to Lynch  Interactive  Corporation (see Note 1)
at December 31, 1998 and the  combined  results of its  operations  and its cash
flows  for each of the two years in the  period  ended  December  31,  1998,  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.


                                                    /s/ERNST & YOUNG LLP

Stamford, Connecticut
March 30, 2000



<PAGE>

<TABLE>


                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                               BALANCE SHEETS
<CAPTION>
                                                                  December 31,
                                                             ----------    ----------
                                                                1998          1999
                                                             ------------------------
                                                                   (In Thousands)
ASSETS
CURRENT ASSETS:
<S>                                                           <C>          <C>
  Cash and cash equivalents ...............................   $  27,021    $  31,354
  Marketable securities ...................................         967        1,587
  Trade accounts receivable less allowances of $320 in 1998
    and $415 in 1999.......................................      18,853       16,875
  Deferred income taxes ...................................       4,265        3,404
  Other current assets ....................................       6,941        7,573
                                                              ---------    ---------
  TOTAL CURRENT ASSETS                                           58,047       60,793

PROPERTY, PLANT AND EQUIPMENT:
  Land ....................................................       1,247        1,347
  Buildings and improvements ..............................       9,591       10,522
  Machinery and equipment .................................     129,251      142,558
                                                              ---------    ---------
                                                                140,089      154,427
  Accumulated Depreciation ................................     (48,906)     (58,497)
                                                              ---------    ---------
                                                                 91,183       95,930
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS
   ACQUIRED, NET...........................................      47,740       62,845
INVESTMENTS IN AND ADVANCES TO AFFILIATED ENTITIES ........      24,438        9,479
INVESTMENT IN SPINNAKER INDUSTRIES, INC ...................      17,750       11,875
OTHER ASSETS ..............................................       6,934       13,047
                                                              ---------    ---------
TOTAL ASSETS ..............................................   $ 246,092    $ 253,969
                                                              =========    =========
</TABLE>


See accompanying notes.


<PAGE>
<TABLE>


                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                               BALANCE SHEETS

<CAPTION>
                                                         December 31,
                                                    ----------  ----------
                                                       1998        1999
                                                    ----------------------
                                                        (In Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
<S>                                                 <C>         <C>
  Notes payable to banks ........................   $   2,037   $   3,271
  Notes payable to Lynch ........................      15,150        --
  Trade accounts payable ........................       4,662       4,465
  Accrued interest payable ......................         889         805
  Accrued liabilities ...........................      19,017      21,751
  Customer advances .............................       1,996       1,974
  Current maturities of long-term debt ..........       8,639      16,445
                                                    ---------   ---------
    TOTAL CURRENT LIABILITIES ..................       52,390      48,711
                                                    ---------   ---------
LONG-TERM DEBT ..................................     119,024     149,256
DEFERRED INCOME TAXES ...........................      19,850      13,220
OTHER LIABILITIES ...............................       4,987       5,817
MINORITY INTEREST ...............................      10,527      10,054
COMMITMENT AND CONTINGENCIES
SHAREHOLDERS' EQUITY
    COMMON STOCK,  NO PAR VALUE-10,000,000 SHARES
    AUTHORIZED: 1,471,171 SHARES, ISSUED (AT STATED
      VALUE): 1,412,183 SHARES OUTSTANDING.......        --          --
    ADDITIONAL PAID-IN CAPITAL ..................        --        21,404
    INVESTMENT BY AND ADVANCES (TO) FROM
      LYNCH CORPORATION..........................      30,813        --
    RETAINED EARNINGS (ACCUMULATED DEFICIT) .....        --        (1,713)
    ACCUMULATED OTHER COMPREHENSIVE INCOME ......       8,501       7,240
    TREASURY STOCK, 200 SHARES AT COST ..........        --           (20)
                                                    ---------   ---------
                                                       39,314      26,911
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ......   $ 246,092   $ 253,969
                                                    =========   =========

</TABLE>


<PAGE>

<TABLE>

                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                            STATEMENTS OF OPERATIONS
<CAPTION>
                                                                        Years Ended December 31,
                                                                 -----------    -----------    ------------
                                                                     1997           1998           1999
                                                                 -----------    -----------    ------------
                                                                     (In Thousands, except share data)
SALES AND REVENUES:
<S>                                                              <C>            <C>            <C>
  Multimedia .................................................   $    47,908    $    54,622    $    59,011
  Services ...................................................       146,154        150,454        145,629
                                                                 -----------    -----------    -----------
                                                                 $   194,062    $   205,076    $   204,640
                                                                 -----------    -----------    -----------
COSTS AND EXPENSES:
  Multimedia .................................................        35,363         38,176         41,671
  Services ...................................................       135,431        138,193        134,989
  Selling and administrative .................................        11,980         12,050         15,131
                                                                 -----------    -----------    -----------
OPERATING PROFIT .............................................        11,288         16,657         12,849
                                                                 -----------    -----------    -----------
Other income (expense):
  Investment income ..........................................         1,678          1,865          2,013
  Interest expense ...........................................        (9,740)       (10,383)       (11,140)
  Equity in earnings of affiliated companies .................           154            317          1,057
  Reserve for impairment of investment in PCS license holders         (7,024)          --          (15,406)
  Gain on sales of subsidiary stock and other operating assets           260          2,709           --
                                                                 -----------    -----------    -----------
                                                                     (14,672)        (5,492)       (23,476)
                                                                 -----------    -----------    -----------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY INTERESTS AND
  EXTRAORDINARY ITEM..........................................        (3,384)        11,165        (10,627)
Benefit (provision) for income taxes .........................           736         (5,012)         2,285
Minority interests ...........................................          (631)        (1,224)          (714)
                                                                 -----------    -----------    -----------
(LOSS) INCOME BEFORE EXTRAORDINARY ITEM ......................   $    (3,279)   $     4,929    $    (9,056)

LOSS FROM EARLY EXTINGUISHMENT OF DEBT,
    NET OF TAX BENEFIT OF $105                                            --             --           (160)
                                                                 -----------    -----------    -----------
NET INCOME (LOSS) ............................................   $    (3,279)   $     4,929    $    (9,216)
                                                                 ===========    ===========    ===========

Weighted average shares outstanding ..........................     1,415,000      1,418,000      1,412,000
                                                                 ===========    ===========    ===========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:

INCOME (LOSS) BEFORE EXTRAORDINARY ITEM ......................   $     (2.32)   $      3.48    $     (6.42)
EXTRAORDINARY ITEM ...........................................          --             --            (0.11)
                                                                 -----------    -----------    -----------

NET INCOME (LOSS) ............................................   $     (2.32)   $      3.48    $     (6.53)
                                                                 ===========    ===========    ===========
</TABLE>


See accompanying notes.


<PAGE>

<TABLE>

                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIAIRES
                       STATEMENTS OF SHAREHOLDERS' EQUITY
                                                                                                               Equity,
                                                                                                             Investments
<CAPTION>

                                                                                 Accumulated                   By and

                                 Common                Additional                   Other                     Advances
                                  Stock     Common       Paid-in    Retained    Comprehensive    Treasury    from Lynch
                               Outstanding    Stock      Capital    Earnings        Income         Stock     Corporation      Total
                               ------------ ---------- ------------ ---------- ----------------- ---------- -------------- --------
                                                                (Thousands, except share data)
<S>                              <C>        <C>          <C>          <C>           <C>           <C>         <C>           <C>
Balance at January 1, 1997 .      --        --           --           --            --            --          45,068        45,068
Investment by and advances
  (to) from Lynch Corporation     --        --           --           --            --            --           1,066         1,066
Net loss for year ..........      --        --           --           --            --            --          (3,279)       (3,279)
Unrealized loss on available
for sale securities ........      --        --           --           --            --            --          (9,900)       (9,900)
   Comprehensive loss ......      --        --           --           --            --            --         (13,179)      (13,179)
                                                                                                          ----------    ----------
Balance at December 31, 1997 .    --        --           --           --            --            --          32,955        32,955
Investment by and advances
(to) from Lynch Corporation .     --        --           --           --            --            --           2,930         2,930
Net income for year ........      --        --           --           --            --            --           4,929         4,929
Unrealized gains on
available for sale securities     --        --           --           --            --            --          (1,500)       (1,500)
 Comprehensive income ...         --        --           --           --            --            --           3,429         3,429
                                                                                                          ----------    ----------

Balance at December 31, 1998      --        --           --           --            --            --          39,314        39,314
Investment by and advances
(to)from Lynch Corporation ...    --        --           --           --            --            --          (1,980)       (1,986)
Net loss for the period ....      --        --           --           --            --            --          (7,503)       (7,503)
Unrealized gains on
available for sale securities     --        --           --           --            --            --          (1,020)       (1,020)
Comprehensive loss .....          --        --           --           --            --            --          (8,523)       (8,523)
                                                                                                          ----------    ----------
Balance at August 31, 1999 .      --        --           --           --            --            --          28,811        28,811
Distribution from
Lynch Corporation               1,412,383   --       21,404           --           7,407          --         (28,811)           --
Net losss for the period ....     --        --           --         (1,713)         --            --            --          (1,713)
Unrealized loss on available
for sale securities .........      --       --           --           --            (167)         --            --            (167)
 Comprehensive loss ......         --       --           --           --            --            --            --          (1,880)
Purchase of treasury stock       (200)      --           --           --            --             (20)         --             (20)
                               ---------- ----------   ----------   ----------    ----------    ----------  ----------  ----------
Balance at December 31, 1999    1,412,183         0       21,404       (1,713)      7,240          (20)           0        26,911
                               ========== ==========   ==========   ==========    ==========    ==========  ==========  ==========

</TABLE>


<PAGE>
<TABLE>


                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                             STATEMENTS OF CASH FLOWS

<CAPTION>
                                                                      Years Ended December 31,
                                                                ------------------------------------
                                                                  1997           1998           1999
                                                                -------------------------------------
                                                                          (In Thousands)
OPERATING ACTIVITIES

<S>                                                               <C>         <C>         <C>
Net income (loss) .............................................   $ (3,279)   $  4,929    $ (9,216)
Depreciation and amortization .................................     13,258      14,243      15,346
Net effect of purchases and sales of trading
    securities................................................       1,171          18        (620)
Minority interests ............................................        631       1,224         714
Earnings of affiliates ........................................       (154)       (317)     (1,057)
Reserve for impairment in PCS license holders .................      7,024        --        15,406
Deferred income taxes .........................................     (1,647)     (1,707)     (5,646)
Changes in operating assets and liabilities, net of effects of
acquisitions:
    Trade accounts receivables ................................     (1,858)         54       2,448
    Trade accounts payable and accrued liabilities ............        118       3,173       1,812
    Other .....................................................      2,620         752        (506)
Other .........................................................       (979)     (2,654)       --
                                                                   --------   ---------    --------
NET CASH PROVIDED BY OPERATING ACTIVITIES .....................     16,905      19,715      18,681
                                                                   --------   ---------    --------
INVESTING ACTIVITIES

Acquisitions (total cost less debt assumed and cash equivalents
   Upper Peninsula Telephone Company ..........................    (24,568)       --          --
   Central Scott Telephone Company ............................       --          --       (23,985)
Investment in Personal Communications Services
   Partnerships, net...........................................      1,644       3,692        --
Capital expenditures ..........................................    (11,837)    (11,642)    (12,553)
Investment in Coronet Communications Company ..................      2,995        --          --
Sale of investments in cellular partnerships ..................      8,576        --          --
Other .........................................................      1,573         272      (1,370)
                                                                   --------   ---------    --------
NET CASH USED IN INVESTING ACTIVITIES .........................    (21,617)     (7,678)    (37,908)
                                                                   --------   ---------    --------
FINANCING ACTIVITIES
Issuance of long-term debt ....................................     23,765         964      51,712
Payments to reduce long-term debt .............................    (24,643)     (7,501)    (13,674)
Net borrowings (payments), lines of credit ....................      8,742      (9,812)      2,718
Purchase of treasury stock ....................................       --          --           (20)
Advances from Lynch Corporation ...............................      1,066       2,930     (15,987)
Other .........................................................       (545)      1,345      (1,189)
                                                                   --------   ---------    --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                  8,385     (12,074)     23,560
                                                                   --------   ---------    --------
Net increase (decrease) in cash and cash equivalents ..........      3,673         (37)      4,333
Cash and cash equivalents at beginning of year ................     23,385      27,058      27,021
                                                                   --------   ---------    --------
Cash and cash equivalents at end of year ......................   $ 27,058    $ 27,021    $ 31,354
                                                                  =========   =========    =========
</TABLE>

See accompanying notes.


<PAGE>



<PAGE>

                      LYNCH INTERACTIVE CORPORATION & SUBSIDIARIES
                              Notes to Financial Statements
                                December 31, 1999

1.       Accounting and Reporting Policies

Organization

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

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

Basis of Presentation

As of December  31, 1999 and for the period from  September  1, 1999 to December
31, 1999, the  accompanying  financial  statements  represents the  consolidated
accounts of  Interactive.  Prior to September 1, 1999, the financial  statements
have been prepared  using the  historical  basis of assets and  liabilities  and
historical  results of operations of the multimedia and services  businesses and
other  assets  and   liabilities,   which  were   contributed  to   Interactive.
Accordingly,  the  results for the year ended  December  31,  1999,  represent a
combination  of  consolidated  and  combined   financial   information  for  the
respective periods. However, the historical financial information as of December
31, 1998 for the two years presented  herein  reflects  periods during which the
Company did not  operate as an  independent  public  company  and,  accordingly,
certain  assumptions  were made in preparing  such financial  information.  Such
information,  therefore,  may not necessarily reflect the results of operations,
financial  condition  or cash  flows of the  Company  in the future or what they
would have been had the Company been an  independent  public  company during the
reporting periods.  Investments in affiliates in which the Company does not have
a majority voting control is accounted for in accordance with the equity method.
All material  intercompany  transaction and balances have been  eliminated.  The
Company consolidates the operating results of its telephone and cable television
subsidiaries  (60-100%  owned at December 31, 1999) and The Morgan  Group,  Inc.
("Morgan"),  in which,  at December  31,  1999,  the Company  owned 70.1% of the
voting power and 55.4% of common  equity.  The Company  accounts  for  following
affiliated companies on the equity basis of accounting:

Coronet  Communications  Company  (20%  owned at  December  31,  1999),  Capital
Communications  Company,  Inc.  (49%  owned  at  December  31,  1999),  Fortunet
Communications,  L.L.P.  (49.9%  owned at December  31,  1999,  and the cellular
operations in New Mexico (17% to 21% owned at December 31, 1999).

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

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

At the Spin-Off,  the employees of the  corporate  office of Lynch Corp.  became
employees of Interactive and Interactive  began providing  corporate  management
services to Lynch,  which are charged a management fee for these services,  this
allocation  was $186,000  for the period from  September 1, 1999 to December 31,
1999.

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

Use of Estimates

The  preparation  of  consolidated   financial  statements  in  conformity  with
generally  accepted   accounting   principles  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.

Cash Equivalents

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

At December  31,  1998 and 1999,  assets of $20.8 and $21.3  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.

Marketable Securities

Marketable  securities  consist  principally of common  stocks.  At December 31,
1997,  1998 and 1999,  respectively,  certain  marketable  securities and United
States  Treasury  money  market  funds,  classified  as cash  equivalents,  were
classified as trading.  Interactive's  investment in Spinnaker Industries,  Inc.
and certain  other  equity  securities  included in other  assets with  carrying
values of $1.0  million,  $1.2  million and $16.8  million at December 31, 1997,
1998   and  at   December   31,   1999,   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) of  $169,000,  $82,000 and  $726,000  on trading  securities  have been
included  in earnings  for the years ended  December  31,  1997,  1998 and 1999,
respectively.  Unrealized  gains on  available-for-sale  securities  were  $19.5
million,  $14.7 million and $12.4 million for the years ended December 31, 1997,
1998 and 1999,  respectively.  The  changes in  unrealized  gains in each of the
periods presented, net of tax, have been included in the Consolidated Statements
of Change in  Equity,  Investment  by and  Advances  from Lynch  Corporation  as
"change in accumulated other comprehensive income (loss)."

The  cost  of  marketable   securities   sold  is  determined  on  the  specific
identification  method.  Realized gains of $229,000,  $382,000 and $37,000,  and
realized losses of $9,000,  $0 and $0, are included in investment income for the
years ended December 31, 1997, 1998 and 1999, respectively.

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  multimedia  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.

Excess of Cost Over Fair Value of Net Assets of Companies Acquired, Net

Excess of cost over fair value of net assets of companies acquired (goodwill) is
being  amortized on a  straight-line  basis over periods  ranging from twenty to
forty years. The Company periodically reviews goodwill to assess recoverability,
and  impairments  would  be  recognized  in  operating  results  if a  permanent
diminution in value were to occur. The Company measures the potential impairment
of recorded goodwill by the undiscounted  value of expected future cash flows in
relation to its net capital  investment in the subsidiary.  Based on its review,
the Company does not believe that an  impairment  of its goodwill has  occurred.
Excess of cost over fair value of net assets of companies  acquired of $47.7 and
$62.8  million are net of  accumulated  amortization  of $11.4 million and $14.2
million at December 31, 1998 and 1999, respectively.

Equity, Investment By and Advances From Lynch Corporation

Equity  represents  the net  investment in and advances to  Interactive by Lynch
through the date of the spin-off.  It includes common stock,  additional paid in
capital,  net  earnings and net  intercompany  balances  with Lynch,  which were
contributed at the time of the Spin Off.

Multimedia

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.

Services

Service revenues and related  estimated costs of  transportation  are recognized
when transportation of the manufactured  housing,  recreational vehicle or other
product is completed. Other operating expenses are recognized when incurred.

Morgan  maintains  personal injury and property damage insurance per occurrence;
with a deductible of $250,000,  $150,000 and $250,000 for the policy  periods of
April 1 to March 31, for the years of 1997,  1998, 1999 and prior  respectively.
Morgan maintains cargo damage insurance with a deductible of $250,000, $150,000,
and  $1,000,000  for the  policy  periods  of April 1 to March 31, for the years
1997,  1998,  1999 and prior  respectively.  Morgan's  insurance  policy for the
period of April 1, 1998 to March 31, 1999 included a stop-loss provision,  under
which Morgan has recorded a receivable  of $30,900 at December 31, 1999.  Morgan
carries statutory insurance limits on workers  compensation with a deductible of
$50,000.  Claims and insurance  accruals reflect the estimated  ultimate cost of
claims for cargo  loss and  damage,  personal  injury  and  property  damage not
covered by insurance.  Morgan  believes that its current  insurance  coverage is
adequate  to cover  its  liability  risks.  Morgan  accrues  its  self-insurance
liability  using a case reserve method based upon claims  incurred and estimates
of unasserted and unsettled claims. These liabilities have not been discounted.

Earnings Per Share

In  December  1997,  the  Company  adopted  Statement  of  Financial  Accounting
Standards  ("SFAS") No. 128, Earnings Per Share which changed the methodology of
calculating  earnings per share.  Basic  earnings  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 option,
warrants and convertible  securities,  using the treasury stock and if converted
methods as applicable.

Comprehensive Income

Effective  January  1,  1998,  the  Company  adopted  SFAS  No.  130,  Reporting
Comprehensive  Income.  SFAS No. 130  establishes  standards  for  reporting and
display of  comprehensive  income and its components;  however,  the adoption of
SFAS No. 130 had no impact on the Company's  net income or equity.  SFAS No. 130
requires  unrealized  gains or  losses  on the  Registrant's  available-for-sale
securities,  which prior to adoption were reported  separately in  shareholders'
equity to be included in other comprehensive income.

Segment Information

Effective  December 1998, the Company  adopted SFAS No. 131,  Disclosures  About
Segments of an Enterprise and Related Information.  SFAS No. 131 superseded SFAS
No. 14, Financial Reporting for Segments of a Business Enterprise.  SFAS No. 131
establishes new standards for reporting  information  about operating  segments.
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.  The adoption of SFAS No. 131 did not affect results of operations or
financial position, but did affect the disclosure of segment information.  Prior
year amounts have been  reclassified to conform to the  requirements of SFAS No.
131. See Note 14.

Pension and Other Post-Retirement Benefits

In February  1998,  the FASB issued SFAS No. 132,  Employers  Disclosures  About
Pensions and Other Post-Retirement  Benefits, which is an amendment to SFAS Nos.
87, 88, and 106.  This SFAS revises  employers'  disclosures  about  pension and
other  post-retirement  benefit  plans.  It does not change the  measurement  or
recognition of those plans.  The adoption of SFAS No. 132 in 1998 did not have a
significant  impact  on the  Company's  financial  statements  as the  Company's
benefit plans are not material.

Impairments

The Company accounts for its long-lived  assets in accordance with the provision
of SFAS No. 121,  Accounting  for the  Impairment of  Long-Lived  Assets and for
Long-Lived Assets to be Disposed Of. The Company  periodically  assesses the net
realizable  value  of its  long-lived  assets  and  evaluates  such  assets  for
impairment  whenever  events or changes in  circumstances  indicate the carrying
amount of an asset may not be recoverable.  For assets to be held, impairment is
determined  to exist if estimated  undiscounted  future cash flows are less than
the carrying amount.  For assets to be disposed of,  impairment is determined to
exist if the estimated net realizable value if less than carrying amount.

Stock Based Compensation

The Company  applies the provision of SFAS No. 123,  Accounting  for Stock Based
Compensation.  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,  the  Company  elected  to  continue  to apply the  provision  of
Accounting  Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued
to  Employees  and related  interpretations.  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.  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  made on or after  January  1,  1995  (see
Note 9).

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.  A subsidiary of the Company is a party
to an interest rate swap  agreement  (which is accounted for as an adjustment to
interest  expense)  with a principal  amount of $9.3 million and $8.5 million at
December 31, 1998 and 1999, which expires in December 2000. At December 31, 1998
and 1999,  the  Company  estimated  it would have paid  $390,000  and  $106,000,
respectively, to terminate the swap agreement.

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.

Recent Accounting Pronouncements

In June 1998,  the  Financial  Accounting  Standard  Board  issued SFAS No. 133,
Accounting for Derivative  Instruments and Hedging  Activities.  SFAS No. 133 is
required  to be adopted in years  beginning  after June 15,  2000.  SFAS No. 133
requires the Company to recognize all  derivatives  on the balance sheet at fair
value.  Derivatives  that are not hedges must be adjusted to fair value  through
income.  If the  derivative  is a hedge,  depending  on the nature of the hedge,
changes in fair value are either  offset  against  the  changes in fair value of
assets and  liabilities  through  earnings or recognized in other  comprehensive
income until the hedged item is recognized in earnings. Because of the Company's
minimal use of derivatives,  management does not anticipate the adoption of SFAS
No. 133 will have a significant  effect on  Interactive's  earnings or financial
position.

2.       Acquisitions and Dispositions

Acquisitions

On July 16, 1999,  Lynch Telephone  Corporation IX, a subsidiary of Interactive,
acquired  by merger,  all of the stock of Central  Scott  Telephone  Company for
approximately  $28.1  million  in cash.  As a result  of this  transaction,  the
Company  recorded  approximately  $17.9  million  in  goodwill,  which  is being
amortized over 25 years.  The Company has agreed to pay a fee to an affiliate of
the Chairman of Interactive  for  performance of services in connection with the
acquisition.  Subsequnent to year end, in settlement of the fee, the Company has
agreed  to  transfer  to  that  firm,  it  stock   ownership  in  Lynch  Capital
Corporation. Lynch Capital Corporation is a broker dealer that recorded revenues
of $1.0 thousand and a net loss of $20,000 in 1999.


On March 18, 1997,  Lynch Michigan  Telephone  Holding  Company,  a wholly owned
subsidiary of Lynch  acquired  approximately  60% of the  outstanding  shares of
Upper  Peninsula   Telephone   Company  for  $15.2  million  and  completed  the
acquisition  of  the  remaining  40% on  May  23,  1997  (the  "Upper  Peninsula
Acquisition").  The total cost of the acquisition was $26.5 million. As a result
of this  transaction,  the Company  recorded $7.4 million in goodwill,  which is
being  amortized  over 25  years.

All of the above acquisitions were accounted for as purchases,  and accordingly,
the assets  acquired and  liabilities  assumed were recorded at their  estimated
fair market  values on their  respective  dates of  acquisition.  The  operating
results of the acquired  companies are included in the  Statements of Operations
from their respective acquisition dates.

Disposition

As of December 9, 1998, WNM Communications,  Inc. a Lynch Telephone  Corporation
subsidiary sold the assets of its direct  broadcast  satellite  business serving
portions of New Mexico for approximately  $3.1 million (the "DBS  Disposition").
As a result  of the  transaction,  a pre-tax  gain on the sale of the  assets of
approximately  $2.7 million was  recognized  and  classified  as gain on sale of
subsidiary stock and other operating  assets in the  Consolidated  Statements of
Operations.

The following unaudited  consolidated pro forma information shows the results of
the Company's  operations presented as if the Central Scott Acquisition was made
at the beginning of 1998, Upper Peninsula  Acquisition was made at the beginning
of 1997,  and DBS  Disposition  was made at the beginning of 1997. The unaudited
pro forma information is not necessarily indicative of the results of operations
that would have  occurred had the  transaction  been made at that date nor is it
necessarily indicative of future results of operations.


<PAGE>
<TABLE>
<CAPTION>

                                                   Years Ended December 31,
                                             ----------    ---------   ---------
                                                1997         1998        1999
                                             ----------    ---------   ---------
<S>                                           <C>          <C>         <C>
Sales .....................................   $ 195,816    $ 208,676   $ 207,482
Net income (loss) before extraordinary item   $  (3,215)   $   2,439   $ (10,147)
Earnings per share ........................   $   (2.27)   $    1.72   $   (7.19)
</TABLE>


3.       Special Charges

Morgan  recorded a special charge in the Company's  Operating  Profit in 1997 of
$985,000 before taxes related to driver pay.

4.       Wireless Communications Services

Lynch Interactive,  through limited  partnerships,  participated in the auctions
conducted by the Federal Communications  Commission ("FCC") for 30 megahertz and
10  megahertz  of  broadband  spectrum  to be used for  personal  communications
services,  the  "C-Block"  and  "F-Block"  auctions,   respectively.  These  two
auctions,  which were part of six  auctions  conducted by the FCC for a total 90
megahertz of spectrum,  were specially  designated by the FCC to encourage small
businesses to participate in the wireless telecommunications industry, so-called
"entrepreneurial   blocks."  To  effectuate   this,  the  FCC  provided  certain
qualifying bidders a 25% bidding credit to be used during the auction as well as
long-term  financing  for a  substantial  portion  of the  cost of the  licenses
acquired.  The licenses  represent the right to provide wireless  communications
services  to  territorial  areas of the United  States.  Under FCC  regulations,
service must be provided to one-third of the  population  within the area of the
license  within  five  years of the date of the award and to  two-thirds  of the
population  within ten years of the date of award.  Failure to comply may result
in the  forfeiture  of the  license.  Lynch  Interactive  held a  49.9%  limited
partnership  interest in each of these partnerships and had committed to funding
the government  interest and certain other expenses up to a specified  amount as
discussed below.

In the C-Block  auction,  which ended in May 1996,  a  subsidiary  was a limited
partner  in  Fortunet  Communications,  L.P.  ("Fortunet"),  which  acquired  31
licenses  at a net cost,  after  the  bidding  credit,  of $216  million.  These
licenses were awarded in September  1996.  The FCC provided 90% of the financing
of the cost of these licenses. A subsidiary had agreements to provide a total of
$41.8 million of funding to such partnership,  of which $21.6 million was funded
through  December 31, 1998.  For  accounting  purposes,  all cost and  expenses,
including interest expense,  associated with the licenses were being capitalized
until  service is provided.  The Company  ceased  capitalizing  interest in this
investment on January 1, 1999.

Events during and subsequent to the auction,  as well as other externally driven
technological  and market  forces,  made  financing the  development  of C-Block
licenses  through  the  capital  markets  much more  difficult  than  previously
anticipated. Fortunet, as well as many of the license holders from this auction,
petitioned  the FCC for  certain  forms of  financial  and  ownership  structure
relief.  The response  from the FCC,  which was  announced  in  September  1997,
afforded  license  holders  a  choice  of four  options,  one of  which  was the
resumption  of current debt  payments,  which had been  suspended  in 1997.  The
ramifications  of choosing the other three courses of action could have resulted
in Lynch  Interactive  ultimately  forfeiting  either  30%,  50%, or 100% of its
investment in these licenses.

During 1997, Lynch Interactive  provided a reserve on its investment in Fortunet
of  $7.0  million,  representing  30% of its  investment,  Lynch's  management's
estimate of its impairment at the time.

On June 8, 1998,  Fortunet elected to apply its eligible credits relating to its
original deposit to the purchase of three licenses for 15 MHZ of PCS spectrum in
Tallahassee, Panama City and Ocala, Florida. Fortunet returned all the remaining
licenses and forfeited 30% of its original  deposit in full  satisfaction of the
government debt.  Accordingly,  Fortunet is currently the licensee for 15 MHZ of
spectrum  in  the  three  Florida  markets  covering  a  population  ("POP")  of
approximately 785,000 at a net cost at auction of $20.09 per POP.


On April 15, 1999, the Federal  Communications  Commission completed a reauction
of all the  "C-Block"  licenses  that  were  returned  to it  subsequent  to the
original auction, including the 15MHz licenses that Fortunet returned on June 8,
1998,  in the basic  trading  areas of  Tallahassee,  Panama  City,  and  Ocala,
Florida. In that reauction,  the successful bidders paid a total of $2.7 million
for the three  licenses  as  compared to the $18.8  million  carrying  amount of
Interactive's  investment in Fortunet at December 31, 1998. Accordingly,  in the
quarter ended March 31, 1999, Interactive recorded a reserve of $15.4 million to
write down its  investment  in  Fortunet  to reflect  the amount bid for similar
licenses  in the  reauction,  plus an  additional  $0.7  million of  capitalized
expenses  and  interest,  with a carrying  value of $3.4 million at December 31,
1999.

In the F-Block Auction,  East/West  Communications,  Inc. ("East/West," formerly
Aer Force  Communications  B L.P.),  acquired five licenses to provide  personal
communications  services in  geographic  areas of the United States with a total
population  of 20  million  at a net bid of  $19.0  million.  In  order  to fund
East/West's  participation  in the auction,  the Company  borrowed $11.8 million
under a short-term  facility from Gabelli Funds, Inc.  ("GFI"),  an affiliate of
the Chairman and CEO of the Company.  The money was repaid after  completion  of
the auction.  $10.0 million of this was repaid with monies returned from the FCC
upon completion of the auction. In May and July 1997, the licenses were awarded.
$15.2  million of the cost of the  licenses  was  financed  with a loan from the
United  States  Government.  As of November  30,  1997,  Lynch  Interactive  had
invested $225,000 in partnership equity and provided the partnership with a loan
of $3.5 million.  In December 1997, the partnerships  converted to a corporation
with Lynch  Interactive  receiving 49.9% of the common stock.  Lynch Interactive
spun off  39.9%  of the  common  stock  of  East/West  to its  shareholders  and
transferred  10% of East/West  stock to GFI in  satisfaction of an obligation to
pay it 10% of the net profits (after a capital  charge) as partial  compensation
for a loan. Prior to the conversion,  Lynch Interactive contributed a portion of
the debt owed to it as a  contribution  to  capital  and  immediately  after the
conversion the remaining debt owed to it ($4.5 million book value) was converted
into 7,800 shares ($7,800,000  liquidation  preference) of Redeemable  Preferred
Stock.  At that time Lynch  Interactive's  obligation  to make further loans was
terminated. The Redeemable Preferred Stock has a 5% payment-in-kind dividend and
is  mandatorially  redeemable  in 2009  subject  to  earlier  payment in certain
circumstances.  As a result of a merger with  Omnipoint,  Inc., in February 2000
the preferred stock was redeemed at $8.7 million including accrued dividends. As
a result of this redemption, the Company will record a gain of $4.2 million on a
pre-tax basis or $1.83 per share in the first quarter of 2000 after-tax.

During  1998,  Rivgam  Communicators,  LLC  ("Rivgam"),  a  subsidiary  of  GFI,
transferred  to Lynch PCS  Corporation  G ("Lynch PCS G") a subsidiary  of Lynch
Interactive, its 10 MHZ PCS license covering the Rand-McNally basic trading area
of Las Cruces, New Mexico.  This transfer was in full settlement of an agreement
between Lynch PCS G and Rivgam.  This agreement  provided that Lynch PCS G would
be compensated  for certain bidding and  administrative  services it provided to
Rivgam in the PCS D and E Block Auctions by receiving a 10% net profit  interest
(after capital charges) in any PCS licenses acquired by Rivgam. The transfer was
accounted for as a non-monetary  transaction  and resulted in Lynch  Interactive
recognizing  management  service  income of $1.0  million in 1998 based upon the
estimated fair value of the license.  Lynch PCS G has similar  arrangements with
two separate  entities in which GFI has minority  interests in which Lynch PCS G
is  entitled  to receive a 5% net profit  interest  (after  capital  charges) in
licenses acquired in the WCS and LMDS Auctions.

5.       Investments in Affiliated Companies

Lynch  Entertainment  Corporation  ("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, 1998 and 1999,  LENCO's  investment  in Coronet was carried at a
negative  $1,262,000  and a negative  $1,037,000,  respectively,  due to LENCO's
guarantee of $3.8 million of $12.2  million of  Coronet's  third party debt.  In
1997,  Coronet  repaid a $2.9  million  loan to  LENCO  plus  accrued  interest.
Long-term debt of Coronet, at December 31, 1999, totaled of $12.2 million due to
a third party lender which is due quarterly through December 31, 2003.

At December 31, 1998 and 1999,  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 three
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 three  RSA's is as  follows:  RSA #1 - 20.8%,  RSA #3 - 21.1%,  and RSA #5 -
17.0%.  Lynch Telephone  Corporation's  net investment in these  partnerships is
$1.5 million.

Summarized  financial  information  for  companies  accounted  for by the equity
method is as follows:
<TABLE>
<CAPTION>

                                                     Consolidated Information
                                                     1997      1998      1999
                                                   -------    ------    -------
                                                         (In Thousands)
<S>                                                <C>       <C>       <C>
Current assets .................................   $ 7,960   $ 6,963   $ 7,870
Property, plant & equipment, intangibles & other    24,119    23,433    23,315
Current liabilities ............................     7,419     7,621     7,064
Long term debt & other long term liabilities ...    31,133    26,275    24,124
Net revenues ...................................    14,740    15,041    14,042
Gross profit ...................................     6,809     8,650     9,119
Net income before extraordinary item ...........     1,403     3,084     3,398
Net income .....................................     1,403     3,084     3,398
</TABLE>

6.       Notes Payable and Long-term Debt

Long-term  debt   represents   borrowings  by  specific   entities,   which  are
subsidiaries of Interactive.
<TABLE>
<CAPTION>
                                                                                       December 31,
                                                                                     1998         1999
                                                                                  -----------------------
                                                                                       (In Thousands)
Long-term debt consists of (all interest rates are at December 31, 1999):
<S>                                                                               <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% (4.8% weighted average), secured by
assets of the telephone companies of $113.9 million ............................   $  45,264    $  48,892

Bank credit  facilities  utilized by certain  telephone  and  telephone  holding
companies through 2009, $46.9 million at fixed interest rates averaging

8.2% and $13.8 million at variable interest rates averaging 8.1% ...............      50,623       60,740

Unsecured notes issued in connection with acquisitions through 2006, all at
fixed interest rates averaging 10% .............................................      28,003       27,654

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

Other ..........................................................................       3,773        3,415
                                                                                    ---------   ---------
                                                                                     127,663      165,701
Current maturities .............................................................      (8,639)     (16,445)
                                                                                    ---------   ---------
                                                                                   $ 119,024    $ 149,256
                                                                                    =========   =========
</TABLE>

REA debt of $11.5 million bearing  interest at 2% has been reduced by a purchase
price  allocation  of $2.4 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.

On a consolidated basis, at December 31, 1999, the company maintains  short-term
and long-term  line of credit  facilities  totaling  $43.8  million  (subject to
limitations  that  reduce the  availability  to $34.9  million),  of which $23.6
million was available for future borrowings. Interactive maintains $20.0 million
short-term  line of credit  facilities  (which  were  transferred  from Lynch in
connection with the spin-off),  of which $20.0 million was available at December
31, 1999.  Borrowings under these facilities  during 1998, which are at the same
terms as between Lynch and third party  lenders,  are included under the caption
"Notes  Payable to Lynch." On January 28, 1999,  Morgan  executed a new two-year
renewable  $20.0 million  revolving  credit  facility,  which replaces the $15.0
million line. The Morgan Group maintains lines of credit totaling $20.0 million,
$11.2 million of which was available at December 31, 1999. If not renewed,  this
credit  facility will convert to a three-year term loan. The interest rates will
be variable and adjusted quarterly.  These facilities,  as well as facilities at
other  subsidiaries of Lynch  Interactive,  generally limit the credit available
under the lines of credit to certain  variables,  such as receivables  and other
current assets,  and are secured by the operating assets of the subsidiary,  and
include  various  financial  covenants.  At December 31, 1999,  $23.8 million of
these total  facilities  expire within one year. The weighted  average  interest
rate for  short-term  borrowings at December 31, 1999 was 7.9%. The Company pays
fees ranging  from 0% to 0.375% on its unused  lines of credit.  Morgan has $8.1
million  of  letters of credit  outstanding  at  December  31,  1999,  which are
required for self-insurance retention reserves and other business needs.

Morgan has a $20,000,000  revolving  credit facility  ("Credit  Facility") which
expires February 28, 2001, and is subject to renewal  annually,  thereafter.  If
not renewed,  the Credit  Facility shall convert to a three-year  term loan. The
interest rate will be  calculated,  at Morgan's  option,  on either the lender's
base rate, or Eurodollar  rate,  all of which are adjusted on a quarterly  basis
and include a margin based upon performance ratios. A commitment fee of .375% is
required on the unused  portion.  Total  borrowings and  outstanding  letters of
credit  are  limited  to  qualified   trade   accounts   receivable,   qualified
owner-operator  loans, and cash investments (the "Borrowing Base").  Thre Credit
Facility  also  provides for excess  short-term  borrowings  of up to $5,000,000
based on a leverage test. This facility  provides  financing for working capital
and general corporate needs. At December 31, 1999, the Company had no outstading
debt  under its Crecit  Facility.  Morgan  had  $8,100,000  of letters of credit
outstanding   on  December  31,  1999.   Letters  of  credit  are  required  for
self-insurance retention reserves and other coproate needs.

The Credit Facility contains financial covenants,  the most restrictive of which
are a debt service to cash flow  coverage  ratio and interst  eaxpense  coverage
ratio.  Morgan  projected it was probable that a violation of one or more of the
financial covenants would occur at each of teh measurement dates during 2000. On
March 30, 2000,  the Company and the bank agreed to modify th ecovenants  which,
ased upon Morgan's projections,  would probably be violated. This amendment will
limit th payment of dividends  to $120,000  annually  ($142,000  was declared in
1999), prohibits the acquisition of Morgan's common stock, and limits borrowings
and letters of credit to the Borrowing  Base.  This  amendment  provides for the
payment of up front fees of $25,000 an increase of  twenty-five  basis points in
the  interst  rate and an  increase  of twelve and one half basis  points in the
commitment fee.

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,  1999  and  1998,  substantially  all the
subsidiaries' net assets are restricted.

In December 1999,  Interactive  completed the private placement of a $25 million
6%  five-year  unsecured,   convertible   subordinated  note,  convertible  into
Interactive  common  stock at $85 per  share.  To assist  the  Company  with the
private placement to Cascade Investment LLC, Mario J. Gabelli,  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 on December  15,
2000.  This  option to sell is  secured  by a bank  letter of  credit,  which is
secured by the Chairman's escrow of securities.  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.

Cash payments for interest  were $9.8  million,  $10.1 million and $10.8 million
for the years ended December 31, 1997, 1998 and 1999, respectively.

Aggregate  principal  maturities of long-term debt at December 31, 1999 for each
of the next five years are as follows: 2000--$16.4 million; 2001--$12.6 million,
2002--$9.1 million, 2003--$18.8 million and 2004--$31.4 million.

7.       Minority Interests and Other Related Party Transactions

Interactive  owns all of the Class B common stock of The Morgan Group,  Inc. and
155,900  shares  of  Morgan's  Class A  common  stock,  which  in the  aggregate
represents  70% of the  consolidated  voting  power of the  combined  classes of
Morgan's  common stock and 55% of the  economic  equity  ownership.  The Class B
Morgan common stock is entitled to two votes per common share.

Interactive has been added to a lease in 1999 for its corporate headquarters for
an annual  payment  of  $90,000  with an  affiliate  of its  Chairman  and Chief
Executive Officer.

8.       Shareholders' Equity

Subsequent to the spin-off by Lynch Corporation, the Board of Directors of Lynch
Interactive authorized the purchase of up to 100,000 shares of its common stock.
Through  December 31, 1999, 200 shares have been purchased at an average cost of
$99.16 per share.

9.       Stock Option Plans

On June 4, 1993,  the Board of  Directors  of Morgan  approved the adoption of a
stock option plan, which provides for the granting of incentive or non-qualified
stock  options  to  purchase  up to  200,000  shares of Class A Common  Stock to
officers,  including  members  of  Morgan's  Board of  Directors,  and other key
employees.  No  options  may be  granted  under  this plan at less than the fair
market  value of the Common  stock at the date of the grant,  except for certain
non-employee directors.  Although the exercise period is determined when options
are actually  granted,  an option shall not be exercised later than 10 years and
one day  after it is  granted.  Stock  options  granted  will  terminate  if the
grantee's  employment  terminates  prior to  exercise  for  reasons  other  than
retirement,  death,  or disability.  Stock options vest over a four-year  period
pursuant  to the  terms of the  plan,  except  for stock  options  granted  to a
non-employee  director,  which are immediately  vested.  The pro forma effect of
accounting  for Morgan'  stock  options  under the fair value  method would have
reduced net income,  or  increased  the net loss,  by less than $0.1 million for
each period presented. For the purposes of these computations, the fair value of
the stock options at the date of the grant was estimated  using a  Black-Scholes
option pricing model with the following  weighted  average  assumptions  for all
periods  presented:  risk-free interest rate - 5%, expected dividend yield - 1%,
volatility  factor of Morgan's  Class A common  stock - 0.25,  expected  life of
stock option - 10 years.

Employees and non-employee  directors of Morgan have been granted  non-qualified
stock options to purchase 140,875 and 40,000 shares,  respectively,  of Morgan's
Class A common  stock,  net of  cancellations  and shares  exercised.  There are
10,750 options reserved for future issuance.

In January 2000,  in  connection  with the  employment  arrangement  for the new
President and Chief Executive  Officer of Morgan,  Morgan granted such executive
ten-year  options to acquire  120,000  shares of Morgan's  Class A Common Stock,
40,000 of which have an exercise price of $5.625 per share, 40,000 of which have
an exercise  price of $7.625 per share,  and 40,000  have an  exercise  price of
$9.625 per share.

A summary of Morgan's stock option activity and related information follows:
<TABLE>
<CAPTION>
                                                                Years Ended December 31,
                                     ------------------------- ------------------------- --------------------------
                                                1997                      1998                      1999
                                     ------------------------- ------------------------- --------------------------
                                                      Weighted                  Weighted                   Weighted
                                                       Average                   Average                   Average
                                          Options     Exercise      Options     Exercise      Options      Exercise
                                           (000)        Price        (000)        Price        (000)        Price
                                      ------------ ------------ ------------ ------------ ------------ -------------
<S>                                           <C>        <C>            <C>        <C>            <C>         <C>
Outstanding at beginning of year              176        $8.40          167        $8.32          170         $8.28
    Granted                                    25         8.13           23         8.11           11          7.52
    Exercised                                (26)         8.73          (7)         8.25           --            --
    Canceled                                  (8)         8.07         (13)         8.59           --            --
                                      ------------ ------------ ------------ ------------ ------------ -------------
Outstanding at end of year                    167        $8.32          170        $8.28          181         $8.23

Exercisable at end of year                    109        $8.35          124        $8.42          149         $8.31
</TABLE>

Exercise  prices for options  outstanding  as of December 31, 1999,  ranged from
$6.20  to  $10.19.  The  weighted-average  remaining  contractual  life of those
options is 5.83 years. The weighted-average fair value of options granted during
each year was immaterial

On February  29,1996,  Lynch  Corporation  adopted a Stock  Appreciation  Rights
program  for  certain  employees.  Through  September  1, 1999,  43,000 of Stock
Appreciation  Rights  ("SAR") had been granted at prices ranging from $63 to $85
per share.  Upon the  exercise  of a SAR,  the holder is  entitled to receive an
amount  equal to the amount by which the market  value of the Lynch  Corporation
common stock on the exercise date exceeds the grant price of the SAR.  Effective
September 30, 1998, Lynch  Corporation  amended the SAR program so that the SARs
became exercisable only if the market price for the Lynch  Corporation's  shares
exceed 200% of the SAR exercise  price within five years from the original grant
date.  This amendment  eliminated the recording of the profit and loss effect of
the SARs for changes in the market price in the Company's  common stock until it
becomes probable that the SARs will become  exercisable.  At the spin off, these
SARs were allocated to Lynch and Interactive.  Lynch Corporation and Interactive
offered to the SAR holders an option of turning in their SARs in exchange  for a
payment  based upon the combined  market prices of Lynch  Corporation  and Lynch
Interactive  Corporation  and, in the case of SARs  issued  prior to December 5,
1997, East/West Communications,  Inc. East/West Communications was spun off from
Lynch  Corporation  on  December  5, 1997 on a share for  share  basis.  All SAR
holders  accepted  this  proposal  thereby  terminating  the plan and the  total
payments of $3.8 million were allocated to Lynch ($0.8 million) and  Interactive
(3.0  million) on the basis of the  relative  market value of December 31, 1999.
The net income  (expense)  relating to this program that was either allocated to
Interactive  prior to the time of the amendment or recorded by  Interactive  SAR
was $2.9  million in 1999 and $0.3 million in 1997 and $0.1 million in income in
1998.

On March 9, 2000 the Board of Directors adopted a stock option plan,  subject to
shareholder approval. The plan provides for the issuance of 83,000 shares.

10.      Income Taxes

Lynch Corporation,  including  Interactive filed consolidated  federal and state
income  tax  returns,  which  include  all  eligible   subsidiaries,   including
Interactive  through the date of the spin off.  The  provisions  (benefits)  for
income taxes in the statements of operations for all periods presented have been
computed assuming  Interactive was filed on a separate company basis. All income
tax payments are made by Interactive through Lynch.

Effective  September 1, 1999,  results of Interactive were no longer included in
the consolidated  federal and state income tax returns of Lynch Corporation.  At
that  date,  Interactive  began  filing  separate  returns  with  the  governing
authorities.

Deferred  income  taxes  for  1998  and  1999  are  provided  for the  temporary
differences  between  the  financial  reporting  basis  and the tax basis of the
Company's assets and liabilities.  Cumulative temporary  differences at December
31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
                                                        Dec. 31, 1998        Dec. 31, 1999
                                                        Deferred Tax          Deferred Tax
                                                    Asset      Liability    Asset      Liability
                                                  -----------------------------------------------
                                                                   (In Thousands)
<S>                                                  <C>        <C>          <C>       <C>
Fixed assets revalued under purchase accounting
  and tax over book depreciation .................   $   --     $  7,535         --    $  8,874
Discount on long-term debt .......................       --        1,085         --         986
Basis difference in subsidiary and affiliate stock       --        1,795         --       1,795
Unrealized gains on marketable securities ........       --        6,788         --       5,819
Partnership tax losses in excess of book losses ..       --        1,309         --      (4,165)
Other reserves and accruals ......................      4,145       --        3,227          --
Other ............................................        120      1,338        177         (89)
                                                      -------    -------    -------     -------

Total deferred income taxes ......................   $  4,265   $ 19,850   $  3,404    $ 13,220
                                                      =======    =======    =======     =======
</TABLE>

The provision (benefit) for income taxes is summarized as follows:
<TABLE>
<CAPTION>
                      1997      1998        1999
                    -------------------------------
                          (In Thousands)

Current payable taxes:
<S>                 <C>        <C>        <C>
  Federal .......   $(2,812)   $ 2,887    $ 2,582
  State and local       429        418        779
                    -------    -------    -------
                     (2,383)     3,305      3,361
Deferred taxes:
 Federal ........     1,625      1,704     (5,734)
 State and local         22          3         88
                    -------    -------     -------
                      1,647      1,707     (5,646)
                    -------    -------     -------
                    $  (736)   $ 5,012    $(2,285)
                    =======    =======    =======
</TABLE>

A reconciliation of the provision  (benefit) for income taxes from extraordinary
item operations 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>
                                                  1997       1998        1999
                                                ------------------------------------
                                                         (In Thousands)
<S>                                             <C>        <C>        <C>
Tax at statutory rate .......................   $(1,138)   $ 3,796    $(3,613)
Increases (decreases):
State and local taxes, net of federal benefit       294        558        542
Amortization of goodwill ....................       314        387        556
Operating losses of subsidiaries ............      (224)       313         --
Reduction attributable to special election by
 Captive Insurance Company                         (155)        --         --
Other .......................................       173        (42)       230
                                                -------    -------    -------
                                                $  (736)   $ 5,012    $(2,285)
                                                =======    =======    =======
</TABLE>

Net cash  payments  for income  taxes were $0.7  million,  $5.6 million and $3.0
million for the years ended December 31, 1997, 1998 and 1999, respectively.

11.      Comprehensive Income

Effective  January  1,  1998,  the  Company  adopted  SFAS  No.  130,  Reporting
Comprehensive  Income.  SFAS No. 130  established  standards  for  reporting and
display of  comprehensive  income and its components;  however,  the adoption of
SFAS No. 130 had no impact on the  Company's  net income.  SFAS No. 130 requires
unrealized gains or losses on the Company's available-for-sale securities, which
prior to  adoption  were  reported  separately  in  shareholders'  equity  to be
included  in  other  comprehensive  income.  Comprehensive  income  has not been
reported  in years  ended  1998 and 1999,  respectively,  as such  amount  was a
component of Investments In and Advances to Affiliated Entities.

The components of comprehensive  income,  net of tax, at December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
                                                                 1999
                                                                -------
<S>                                                             <C>
Balance beginning of year ...................................   $ 8,501
Current year unrealized gain on available-for-sale securities    (1,261)
                                                                -------
Accumulated other comprehensive income ......................   $ 7,240
                                                                =======
</TABLE>

The income tax effects allocated to each component of other comprehensive income
for the year ended December 31, 1999 are as follows:
<TABLE>
<CAPTION>
                                                             Tax (Benefit)/
                                                   Before Tax   Expense   After Tax
                                                   ----------  --------  ----------
<S>                                                  <C>       <C>       <C>
 Unrealized gains on available-for-sale securities   $12,435   $ 5,195   $ 7,240
                                                     -------   -------   -------
                                                     -------   -------   -------
Other comprehensive income .......................   $12,435   $ 5,195   $ 7,240
                                                     =======   =======   =======
</TABLE>

12.      Employee Benefit Plans

Lynch Interactive  maintains several defined contribution plans at its telephone
subsidiaries,  Morgan and corporate office.  Lynch  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, 1997,  1998 and 1999 was
$0.7 million, $0.7 million, and $0.8 million, respectively.

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  expense of these  plans was $0.1
million for each of the three years in the period ended December 31, 1999.

13.      Commitments and Contingencies

Lynch  Interactive has pending claims incurred in the normal course of business.
Management believes that the ultimate resolution of these claims will not have a
material  adverse  effect  on the  combined  liquidity,  financial  position  or
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 2004.  Certain leases have renewal  options
and escalation clauses. Rental expense under operating leases were $2.8 million,
$2.6 million, and $2.3 million for years ended December 31, 1997, 1998 and 1999,
respectively.   The  table  below  shows  minimum   lease   payments  due  under
non-cancelable  operating  leases at December 31, 1999. Such payments total $2.3
million.
<TABLE>
<CAPTION>
                            Years Ended
                   --------------------------------
                           (In millions)
                   2000   2001   2002   2003   2004
                   ----   ----   ----   ----   ----
<S>                <C>    <C>    <C>    <C>    <C>
Operating leases   $1.l   $0.7   $0.3   $0.1   $0.1
</TABLE>

14.      Segment Information

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

Services  provided  by  Morgan  to  Oakwood  Homes  Corporation   accounted  for
approximately  $21.6 million,  $31.8 million,  and $28.8 million of net sales in
1997,  1998,  and 1999,  respectively.  In addition,  another  Morgan  customer,
Fleetwood  Enterprises,  Inc. accounted for approximately  $28.1 million,  $26.0
million,  and $23.9  million  of  linehaul  revenues  in 1997,  1998,  and 1999,
respectively. $13.4 million and $10.4 million at 1998 and 1999, respectively, of
Lynch Interactive's  accounts receivable are related to the services segment and
are principally due from companies in the mobile home and  recreational  vehicle
industry located throughout the United States.  Lynch Interactive  believes that
its telecommunications businesses are not dependent on any single customer.

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

Operating profit (loss) is equal to revenues less operating expenses,  excluding
unallocated  general  corporate  expenses,  interest  and  income  taxes.  Lynch
Interactive  allocates  a  portion  of its  general  corporate  expenses  to its
operating segments. Such allocation to the subsidiaries were $632,000, $639,000,
and  $1,269,000  during  the  years  ended  December  31,  1997,  1998 and 1999,
respectively.  Identifiable  assets of each industry 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,
                                                                 --------------------------------
                                                                    1997       1998       1999
                                                                 --------------------------------
                                                                        (In thousands)
Revenues
<S>                                                             <C>          <C>          <C>
Multimedia ..................................................   $  47,908    $  54,622    $  59,011
Services ....................................................     146,154      150,454      145,629
                                                                ---------    ---------    ---------
Consolidated total ..........................................   $ 194,062    $ 205,076    $ 204,640
                                                                =========    =========    =========
EBITDA (before corporate allocation)
  Multimedia ................................................   $  24,666    $  29,389    $  31,443
  Services ..................................................       2,190        3,337        1,865
  Unallocated corporate expense .............................      (2,310)      (1,826)      (5,113)
                                                                ---------    ---------    ---------
  Consolidated total ........................................   $  24,546    $  30,900    $  28,195
                                                                =========    =========    =========
Operating Profit
  Multimedia ................................................   $  11,845    $  15,757    $  16,057
  Services ..................................................       1,015        2,007          550
  Unallocated corporate expense .............................      (1,572)      (1,107)      (3,758)
                                                                ---------    ---------    ---------
  Consolidated total ........................................   $  11,288    $  16,657    $  12,849
                                                                =========    =========    =========
Depreciation and amortization
  Multimedia ................................................   $  12,175    $  12,995    $  14,115
  Services ..................................................       1,075        1,230        1,215
  All other .................................................           8           18           16
                                                                ---------    ---------    ---------
  Consolidated total ........................................   $  13,258    $  14,243    $  15,346
                                                                =========    =========    =========
Capital expenditures
  Multimedia ................................................   $  10,914    $  11,028    $  11,742
  Services ..................................................         919          566          811
  General corporate .........................................           4           48         --
                                                                ---------    ---------    ---------
  Consolidated total ........................................   $  11,837    $  11,642    $  12,553
                                                                =========    =========    =========
Total assets
  Multimedia ................................................   $ 196,285    $ 195,010    $ 211,622
  Services ..................................................      33,784       33,590       32,264
  General corporate .........................................      22,963       17,492       10,083
                                                                ---------    ---------    ---------
  Consolidated total ........................................   $ 253,032    $ 246,092    $ 253,969
                                                                =========    =========    =========

Total operating profit for reportable segments ..............   $  11,288    $  16,657    $  12,849
Other profit or loss:
  Investment income .........................................       1,678        1,865        2,013
  Interest expense ..........................................      (9,740)     (10,383)     (11,140)
  Equity in earnings of affiliated companies ................         154          317        1,057
  Reserve for impairment of investment in PCS license holders      (7,024)        --        (15,406)
  Gain on sales of subsidiary and affiliate stock and
     other operating assets .................................         260        2,709         --
                                                                ---------    ---------    --------
Income (loss) before income taxes, minority interest and
    extraordinary item ......................................   $  (3,384)   $  11,165    $ (10,627)
                                                                =========    =========    =========
</TABLE>




<PAGE>


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

                                                    1999-Three Months Ended
                                          -------------------------------------------
                                         March 31(a)  June 30   September 30 December 31(b)
                                         ---------   ---------  -----------   -----------
                                                         (In thousands)
<S>                                       <C>         <C>        <C>        <C>
Sales and revenues ....................   $ 48,712    $ 54,225   $ 52,825   $ 48,878
Operating profit ......................      3,567       4,257      4,569        456
Income (loss) before extraordinary item     (9,305)      1,108      1,070     (1,929)
Net income (loss) .....................     (9,465)      1,108      1,070     (1,929)

Basic and diluted earnings per share:

Income (loss) before extraordinary item      (6.56)       0.78       0.76      (1.40)
Extraordinary item ....................      (0.11)       --         --         --
Net income (loss) .....................      (6.67)       0.78       0.76      (1.40)
</TABLE>

<TABLE>
<CAPTION>
                                                1998-Three Months Ended
                                        ---------------------------------------
                                        March 31  June 30  September 31  December 31 (c)
                                        ----------------------------------------
                                                     (In thousands)

<S>                                     <C>       <C>       <C>       <C>
Sales and revenues ..................   $46,903   $54,915   $53,331   $49,927
Operating profit ....................     2,323     5,361     4,769     4,204
Income (loss) .......................       178     1,776     1,436     1,539
Net income (loss) ...................       178     1,776     1,436     1,539

Basic and diluted earnings per share:

Net income (loss) ...................      0.13      1.25      1.01      1.09
<FN>
(a)  For the  three  months  ended  March  31,  1999,  includes  a  reserve  for
     impairment  for PCS license  holders of $15.4  million  before income taxes
     (see  Footnote 4).

(b)  For the three months ended  December  31,  1999,  includes  $2.9 million of
     expenses for termination of the SAR program (see Footnote 9).

(c)  For the three months ended December 31, 1998, includes $2.7 million gain on
     the company's sale of its DirectTV franchise.
</FN>
</TABLE>

16.      Earnings Per Share

For the years ended December 1997 and 1998,  the following  table sets forth the
computation  of pro forma  basic and  diluted  earnings  (loss)  per share  from
continuing  operations before extraordinary items. Pro forma earnings (loss) per
share for these periods are calculated  assuming that the shares outstanding for
all  periods  are the same as the  shares  outstanding  for  Lynch  Corporation.
Subsequent to the Spin-Off,  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  has been  excluded  from the  calculation  of  diluted
earnings (loss) per share as assuming conversion would be antidilitive.
<TABLE>
<CAPTION>
                                                                     Years Ended December 31,
                                                                1997           1998               1999
                                                             -----------    -----------      -----------
<S>                                                         <C>              <C>              <C>
Numerator for basic and diluted earnings per share
  Income (loss) before extraordinary item ...............   $  (3,279,000)   $   4,929,000    $  (9,056,000)
  Net income (loss)
                                                               (3,279,000)       4,929,000       (9,216,000)
Denominator for basic and diluted earnings per share-
  weighted average shares                                       1,415,000        1,418,000        1,412,000

Basic earnings (loss) per share before extraordinary item           (2.32)            3.48            (6.42)
Extraordinary item ......................................              --               --            (0.11)
Net income (loss) .......................................           (2.32)            3.48            (6.53)
</TABLE>



<PAGE>

<TABLE>

           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                          LYNCH INTERACTIVE CORPORATION
                        CONDENSED STATEMENTS OF OPERATIONS

<CAPTION>
                                                                 Years Ended December 31,
                                                             -------------------------------
                                                                1997       1998        1999
                                                             -------------------------------
                                                                      (In Thousands)

<S>                                                            <C>        <C>       <C>
Interest, Dividends & Gains on Sale of Marketable Securities   $   195    $    43   $    86
Interest & Other Income from Securities ....................        35         35        49
                                                               -------    -------   -------
     TOTAL INCOME ..........................................       230         78       135

Cost and Expenses:
  Unallocated Corporate Administrative Expense .............     1,144      1,089     3,414
  Interest Expense .........................................     1,257      1,394       449
  Interest Expense to Subsidiaries .........................       741        830     1,685
                                                               -------    -------   -------
      TOTAL COST AND EXPENSES ..............................     3,142      3,313     5,548

LOSS BEFORE INCOME TAXES, EQUITY IN
INCOME (LOSS) OF SUBSIDIARIES                                   (2,912)    (3,235)   (5,413)

Income Tax Benefit .........................................     1,105      1,581     1,840
Equity in Income (Loss) of Subsidiaries ....................    (1,472)     6,583    (5,643)
                                                               -------    -------   -------
NET INCOME (LOSS) ..........................................   $(3,279)   $ 4,929   $(9,216)
                                                               =======    =======   =======
</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 has a note payable to a subsidiary with a
         principal  amount of $6.0  million at a fixed  interest  rate of 6% per
         annum, due in 2001. The note is convertible at the subsidiary's  option
         into the Company's common stock at an exercise price of $120 per share.

NOTE D - LINES OF CREDIT

         Lynch  Corporation  maintained  short-term lines of credit  facilities,
         which were transferred to Lynch Interactive  Corporation at the time of
         the spin off (September 1, 1999). In the above presentation,  these are
         reported as Lynch Interactive Corporation lines of credit.

NOTE E - SEE NOTES TO FINANCIAL STATEMENTS FOR ADDITIONAL INFORMATION.


<PAGE>

<TABLE>

           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                          LYNCH INTERACTIVE CORPORATION
                            CONDENSED BALANCE SHEETS

<CAPTION>
                                                                           December 31,
                                                                      ------------------------
                                                                         1998          1999
                                                                      ------------------------
                                                                           (In Thousands)
ASSETS
CURRENT ASSETS
<S>                                                                     <C>       <C>
   Cash and Cash Equivalents ........................................   $   291   $ 2,924
   Deferred Income Taxes ............................................       140       600
   Other current assets .............................................        40       528
                                                                        -------   -------
  TOTAL CURRENT ASSETS                                                      471     4,052

OFFICE EQUIPMENT (Net) ..............................................        52        36

OTHER ASSETS (Principally Investment in and Advances to Subsidiaries)    73,124    71,139
                                                                        -------   -------
TOTAL ASSEST ........................................................   $73,647   $75,227
                                                                        =======   =======
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES .................................................   $22,832   $ 7,124

LONG TERM DEBT ......................................................     8,623    38,995

DEFERRED INCOME TAX LIABILITIES .....................................       980      --

DEFERRED CREDITS ....................................................     1,898     2,196

TOTAL SHAREHOLDERS' EQUITY ..........................................    39,314    26,911
                                                                        -------   -------
Total Liabilities and Shareholders' Equity ..........................   $73,647   $75,227
                                                                        =======   =======
</TABLE>




<PAGE>

<TABLE>

           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                          LYNCH INTERACTIVE CORPORATION
                        CONDENSED STATEMENT OF CASH FLOWS

<CAPTION>
                                                            Years Ended December 31,
                                                        ---------------------------------
                                                            1997       1998        1999
                                                        ---------------------------------
                                                               (In Thousands)

<S>                                                     <C>         <C>         <C>
Cash Provided by (Used In) Operating Activities .....   $    619    $  1,119    $    639
                                                        --------    --------    --------
INVESTING ACTIVITIES:
   Investment and Advances to Brighton Communications     (8,645)      3,692      (5,858)
   Other ............................................          3        (176)       --
                                                        --------    --------    --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
                                                          (8,642)      3,516      (5,858)
FINANCING ACTIVITIES:
  Net Borrowings Under:
    Lines of Credit .................................      7,779      (7,564)    (15,150)
    Issuance of Long Term Debt ......................       --          --        25,000
    Advances (To) From Lynch Corporation ............      1,066       2,930      (1,980)
    Other ...........................................          1        --           (18)
                                                        --------    --------    --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
                                                           8,245      (4,634)      7,852

TOTAL INCREASE CASH AND CASH EQUIVALENTS ............        222           1       2,633

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ......         68         290         291
                                                        --------    --------    --------
CASH AND CASH EQUIVALENTS AT END OF YEAR ............   $    290    $    291    $  2,924
                                                        ========    ========    ========
</TABLE>



<PAGE>

<TABLE>



                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                          LYNCH INTERACTIVE CORPORATION
                  YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
<CAPTION>

                                      COLUMN A      COLUMN B    COLUMN C    COLUMN D     COLUMN E
                                                          ADDITIONS
                                      BALANCE AT   CHARGED TO  CHARGED TO
                                      BEGINNING    COSTS AND OTHER ACCOUNTS  DEDUCTIONS  BALANCE AT
                                      OF PERIOD    EXPENSES     DESCRIBE     DESCRIBE    END OF PERIOD
                                      ----------   ---------  ------------   ----------- ----------
<S>                                    <C>        <C>        <C>           <C>           <C>
Year Ended December 31, 1999
Allowance for Uncollectible Accounts   $320,000   $470,000   $      0      $375,000(A)   $415,000

Year Ended December 31, 1998
Allowance for Uncollectible Accounts   $286,000   $409,000   $      0      $375,000(A)   $320,000

Year Ended December 31, 1997
Allowance for Uncollectible Accounts   $182,000   $436,000   $      0      $332,000(A)   $286,000
<FN>
(A)      UNCOLLECTIBLE ACCOUNTS WRITTEN OFF ARE NET OF RECOVERIES.
</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 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>
* MARIO J. GABELLI
-------------------                Chairman of the Board of
  MARIO J. GABELLI                 Directors and Chief Executive                  March 30, 1999
                                    Officer (Principal Executive Officer)

* PAUL J. EVANSON                  Director                                       March 30, 1999
------------------
  PAUL J. EVANSON

* JOHN C. FERRARA                  Director                                       March 30, 1999
-----------------
  JOHN C. FERRARA

* DAVID C. MITCHELL                Director                                       March 30, 1999
-------------------
  DAVID C. MITCHELL

* SALVATORE MUOIO                  Director                                       March 30, 1999
-----------------
  SALVATORE MUOIO

* RALPH R. PAPITTO                 Director                                       March 30, 1999
------------------
  RALPH R. PAPITTO

s/ROBERT E. DOLAN                 Chief Financial Officer                         March 30, 1999
------------------                (Principal Financial
  ROBERT E. DOLAN                  and Accounting Officer)

</TABLE>

*s/ROBERT A. HURWICH
--------------------
   ROBERT A. HURWICH
    Attorney-in-fact


<PAGE>

<TABLE>
                                  EXHIBIT INDEX
<CAPTION>

Exhibit No.                           Description

<S>          <C>                 <C>
2                             Separation Agreement**

3.1                           Amended and Restated Certificate of Incorporation of Interactive**

3.2                           By-laws of Interactive**

4.1                           Specimen Common Share Certificate**

4.2                           Amended and Restated Certificate of Incorporation of Interactive (fled as Exhibit 3.1

4.3                           By-laws of Interactive as amended (filed as Exhibit 3.2 hereto)

4.4                           Mortgage, Security Agreement and Financing Statement among Haviland Telephone Company,

4.5                           Restated Mortgage, Security Agreement and Financing Statement between Western New
                              Mexico Telephone Company, Inc. and the United States of America.**

4.6            (i)            Note Purchase Agreement dated as of December 19, 1999, between Registrant and Cascade

4.6            (ii)           Convertible Promissory Note dated December 10, 1999.+++

4.6            (iii)          Registration Rights Agreement dated as of December 10, 1999, between Registrant and
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 Report Form 10-K for the year ended December 31, 1995).

10             (c)            Shareholders Agreement among Capital Communications Company, Inc., Lombardo

10             (d)(i)         Loan Agreement, dated as of November 6, 1995, between Lynch PCS Corporation A and Aer

10             (d)(ii)        Amendment No. 1 to the Loan Agreement, dated as of November 6, 1995, referred to in

10             (e)(i)         Letter Agreement, dated as of August 12, 1996, between Rivgam Communicators, L.L.P.

10             (f)(ii)        Letter Agreement dated as of December 16, 1998, between Rivgam Communicators, L.L.P.

10             (f)            Letter Agreement between Lynch PCS Corporation G and Bal/Rivgam, L.L.C. (incorporated

10             (g)            Letter Agreement, dated January 20, 1998, between Lynch PCS Corporation G and

*10            (h)            Employment Agreement dated February 2, 1998, between Registrant and Mark Feldman

10             (i)            Lease Agreement between Lynch and Gabelli Funds, Inc. (incorporated by reference to

10             (j)            Letter Agreement dated November 11, 1998, between Registrant and Gabelli & Company,

10             (k)            Separation Agreement (filed as Exhibit 2 hereto)**

10             (l)            Agreement and Plan of Merger dated as of May 25, 1999, among Central Scott Telephone

21                            Subsidiaries of Registrant+

23                            Consents of Independent Auditors+
                              -        Siepert & Company LLC (2)+
                              -        McGladrey & Pullen, LLP (2)+
                                   -      Warinner, Gensinger & Associates, LLC+

24                            Powers of Attorney+

27                            Financial Data Schedule+

99                            Report of Independent Auditors+
                              -        Report  of  Siepert  & Co.,  L.L.P.  of
                                       financial  statements  of  Cuba  City
                                       Telephone Exchange Company for the year
                                       ended December 31, 1999+
                              -        Report  of  Siepert & Co.,  L.L.P.  on
                                       the  financial  statements  of  Belmont
                                       Telephone Company for the year ended
                                       December 31, 1999+
                              -        Report of McGladrey & Pullen,  LLP on the
                                       financial     statements    of    Capital
                                       Communications Company for the year ended
                                       December 31, 1997+
                              -        Report of McGladrey & Pullen,  LLP on the
                                       financial     statements    of    Coronet
                                       Communications  Company  the  year  ended
                                       December 31, 1997+
                              -        Report of  Frederick  & Warinner  on the
                                       financial statements of CLR Video, L.L.C.
                                       for the year ended December 31, 1997+
<FN>

+        Filed with this Form 10-K
++       Filed as same Exhibit number with Form 10
**       Filed as same Exhibit number with Form 10A-1
+++      Filed as the same Exhibit number to Registrant's
           Form 8-K dated December 10, 1999
*        Employee compensation document
</FN>
</TABLE>


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.