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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, 2001        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                                     06-1458056
             --------                                     ----------
    State of other jurisdiction                        (I.R.S. Employer
   incorporation or organization                      Identification No.)

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

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

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

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

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

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

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

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 18, 2002 of $40.25 per share) was  $87,400,903.
(In  determining  this  figure,  the  Registrant  has  assumed  that  all of the
Registrant's directors and officers are affiliates. This assumption shall not be
deemed conclusive for any other purpose.)

The number of outstanding shares of the Registrant's Common Stock was 2,816,551
as of March 18, 2002.


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<PAGE>

                      DOCUMENTS INCORPORATED BY REFERENCE:

Part III: Certain  portions of Registrant's  Proxy Statement for the 2002 Annual
     Meeting of Shareholders.

FORWARD LOOKING INFORMATION

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

                                     PART I

ITEM 1. BUSINESS

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

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


I.  MULTIMEDIA

A.  Telecommunications

Operations.  Interactive  conducts  its  telecommunications  operations  through
subsidiary companies. The telecommunications group has been expanded through the
selective  acquisition of local exchange telephone companies serving rural areas
and by offering  additional  services  such as Internet  service,  long distance
service and competitive local exchange carrier service.  From 1989 through 2001,
Interactive has acquired twelve telephone companies, four of which have indirect
minority   ownership  of  2%  to  19%,  whose  operations  range  in  size  from
approximately  800  to  over  10,000  access  lines.  The  Company's   telephone
operations are located in Iowa, Kansas, Michigan, New Hampshire, New Mexico, New
York,  North Dakota,  Utah and Wisconsin.  As of December 31, 2001, total access
lines were approximately 53,800, 100% of which are served by digital switches.

In June 2001,  Interactive  acquired Central Utah Telephone Inc., a 7,000-access
line telephone company located in Fairview,  Utah. The combined  aggregate $15.6
million purchase price was financed primarily through the issuance of additional
debt,  with the  remaining  amount  funded from  available  cash. As part of the
Central Utah transaction,  Interactive acquired Central Telecom Services, LLC, a
related entity that owns certain  Personal  Communications  Services ("PCS") and
Multichannel  Multipoint  Distribution  Service ("MMDS") interests and Internet,
long distance, and telephone equipment businesses in Utah.
<PAGE>

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

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

We  expect  future  growth  in  telephone  operations  to be  derived  from  the
acquisition of additional  telephone  companies,  from providing  service to new
customers or additional services to existing customers,  from upgrading existing
customers to higher grades of service, and from new service offerings.

The following  table  summarizes  certain  information  regarding  Interactive's
multimedia operations:
<TABLE>
<CAPTION>
                                                   Years Ended December 31,
                                                 1999          2000       2001
                                                --------    ---------   --------
Telecommunications Operations
<S>                                              <C>         <C>         <C>
Access lines (a) ...........................     45,126      46,312      53,804
  % Residential ............................         75%         75%         75%
  % Business ...............................         25%         25%         25%
Internet Subscribers .......................     15,524      19,535      23,558
Cable Subscribers ..........................      4,642       4,515       2,959

Total Multimedia Revenues
Telecommunications Operations
 Local Service .............................         16%         15%         14%
 Network Access & Long Distance ............         64%         61%         60%
 Non-Regulated & Other (b) .................         17%         21%         24%
                                               --------    --------    --------
 Total Telecommunications Operations .......         97%         97%         98%
Cable Operations ...........................          3%          3%          2%
                                               --------    --------    --------
Total Multimedia Revenues ..................        100%        100%        100%
                                               ========    ========    ========
($ in 000)
Total Revenues .............................   $ 59,011    $ 66,983    $ 79,352
EBITDA of Telecommunications Operations(c) .     31,443      34,699      41,274
Depreciation & Amortization ................     14,115      15,781      18,268
Capital Expenditures .......................     11,742      17,196      20,524
Total Assets ...............................   $211,622    $211,562    $247,034
-----------
<FN>
(a)  An "access line" is a  telecommunications  circuit  between the  customer's
     establishment and the central switching office.

(b)  Non-regulated  and other  revenues  include  Internet,  PCS, CLEC and other
     non-regulated  revenues.

(c)  EBITDA is earnings before interest,  taxes,  depreciation and amortization,
     and  corporate  overhead  allocation.  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 profit ($16,057,000,
     $17,531,000 and $21,534,000 for the years ended December 31, 1999, 2000 and
     2001,   respectively)   or  net  cash  provided  by  operating   activities
     ($16,324,000,  $13,619,000 and $24,348,000 for the years ended December 31,
     1999, 2000 and 2001,  respectively)  in accordance with generally  accepted
     accounting principles.
</FN>
</TABLE>

Telephone  Acquisitions.  Interactive  pursues an active  program  of  acquiring
operating telephone  companies.  From January 1, 1989 through December 31, 2001,
Interactive acquired twelve telephone companies serving a total of approximately
45,600  access  lines,  at the  time of  these  acquisitions,  for an  aggregate
consideration  totaling  approximately  $153.6 million.  Such  acquisitions  are
summarized in the following table:



<PAGE>

<TABLE>
<CAPTION>
                                                        Number of      Number of
                                            Year of    Access Lines    Access Lines   Ownership
Company                                   Acquisition    Yr. of Acq.     12/31/01     Percentage
                                          ----------- --------------   -------------- ----------

<S>                                            <C>        <C>            <C>            <C>
Western New Mexico Telephone Co. ..........    1989       4,200          6,741          83.1
Inter-Community Telephone Co. (a) .........    1991       2,550          2,601         100.0
Cuba City Telephone Co. &
    Belmont Telephone Co. .................    1991       2,200          2,769          81.0
Bretton Woods Telephone Co. ...............    1993         250            808         100.0
JBN Telephone Co. (b) .....................    1993       2,300          2,858          98.0
Haviland Telephone Co. ....................    1994       3,800          3,927         100.0
Dunkirk & Fredonia Telephone Co. ..........
    & Cassadaga Telephone Co. .............    1996      11,100         13,121         100.0
Upper Peninsula Telephone Co. .............    1997       6,200          7,278         100.0
Central Scott Telephone Co. ...............    1999       6,000          6,334         100.0
Central Utah Telephone Co. ................    2001       7,000          7,367         100.0
<FN>
(a) Includes 1,350 access lines acquired in 1996.
(b) Includes 354 access lines acquired in 1996.
</FN>
</TABLE>

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

Related  Services  and  Investments   Interactive  also  provides  non-regulated
telephone related services,  including internet access service and long distance
resale  service,  in certain of its  telephone  service  (and  adjacent)  areas.
Interactive  also provides and intends to provide more local telephone and other
telecommunications   service   outside   certain  of  its  franchise   areas  by
establishing  competitive  local exchange  carrier (CLEC)  operations in certain
nearby areas.  Affiliates of nine of Interactive's telephone companies now offer
Internet access service. At December 31, 2001, Internet access customers totaled
approximately  23,558  compared to  approximately  19,535 at December  31, 2000.
Affiliates of four of Interactive's  telephone companies now offer long distance
service, and an affiliate of one of Interactive's telephone companies now offers
CLEC services.

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

DFT Security  Systems,  Inc.,  another affiliate of DFT, acquired American Alarm
Company in December 2001.  American Alarm provides alarm services to western New
York,  including  the Buffalo  area.  With the addition of American  Alarm,  DFT
Security Systems now services over 6,000 alarm customers.
<PAGE>

Affiliates of Inter-Community Telephone Company in North Dakota, and Western New
Mexico  Telephone  Company  in New Mexico  have filed with the state  regulatory
commissions to provide CLEC services in those states.  Final plans to offer CLEC
service in areas adjacent to Interactive's  telephone operations in those states
have not been completed.

There is no assurance that Interactive can successfully develop these businesses
or that  these  new or  expanded  businesses  can be made  profitable  within  a
reasonable  period of time.  Such  businesses,  in particular any CLEC business,
would be expected to operate at losses initially and for a period of time.

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

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

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

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

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

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

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

Interactive  cannot  predict  the  effects  of the  1996 Act  state  legislative
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 subsidies.  However,  the regulatory
environment for LEC operations has begun to change.  A principal  purpose of the
1996 Act was to encourage competition in local telephone services.  Although the
1996 Act  reaffirmed  the  Federal  policy of  maintaining  universal  telephony
service at fair and reasonable rates, the 1996 Act and related  proceedings also
promote  competition and USF portability.  Similar  regulatory changes have also
been initiated in many of the states in which Interactive  operates.  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.

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

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

B.  Cable Television/Broadcasting

Cable Television

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

CLR Video, L.L.C. - CLR Video, L.L.C., a 98% owned subsidiary of Interactive, is
a provider of cable  television  in northeast  Kansas with  approximately  2,800
subscribers. During 2001, Interactive acquired 40% in CLR by distributing to its
two previous  partners their respective 20% ownership in exchange for net assets
of CLR and transferred its entire interest to Lynch Telephone Corporation VI.

Broadcasting

Station  WHBF-TV - Lynch  Entertainment,  L.L.C.  ("Lynch  Entertainment  I"), a
wholly-owned  subsidiary  of  Interactive,  and Lombardo  Communications,  Inc.,
wholly-owned  by  Philip  J.  Lombardo,  are the  general  partners  of  Coronet
Communications Company ("Coronet").  Lynch Entertainment I has a 20% interest in
Coronet and Lombardo  Communications,  Inc. has an 80% interest.  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.
<PAGE>

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.

C.  Personal Communications and Other Wireless Services.

In February  2001,  Interactive  spun off its 49.9%  interest  in  Sunshine  PCS
Corporation ("Sunshine") to its shareholders. Sunshine PCS Corporation succeeded
by merger  to the  assets  and  liabilities  of  Fortunet  Communications,  L.P.
Sunshine  holds 15 MHz PCS  licenses  in  Tallahassee,  Panama  City and  Ocala,
Florida.  Interactive  currently  holds  $16.1  million of 9%  (payable in kind)
subordinated  debt of Sunshine,  10,000 shares of 7% preferred stock of Sunshine
(payable  in  kind  through  February  2006,  and  in  cash  thereafter)  with a
liquidation value of $10.0 million, warrants expiring February, 2006 to purchase
4,300,000  shares of Class A Common Stock of Sunshine at $0.75 per share,  which
represents  approximately  43% of the common equity on a fully diluted basis. In
addition,  Interactive  owns 235,294 shares of Sunshine's  Class A Common Stock,
which are held in escrow for the benefit of Cascade  Investment LLC in the event
Cascade  converts  any part of the  Convertible  Notes into  Interactive  common
stock,  in which  case  Cascade  would  receive  an equal  number  of  shares of
Sunshine's Class A Common Stock from such escrow. The Company's total book basis
in its Sunshine  investment is $3.2 million.  In February 2002,  Sunshine issued
rights to its  shareholders  to purchase up to  1,531,593  shares of its Class A
Common Stock at a price of 1.00 per share.  To date,  Interactive has subscribed
for 58,824 shares of Class A Common Stock by exercising its rights in respect of
235,294  shares of  Sunshine,  which  Interactive  holds in escrow.  Taking into
account the warrants, the shares held in escrow and the subscription pursuant to
the rights  offering,  Interactive  beneficially  owns 43.8% of the  outstanding
Class A Common  Stock of Sunshine and 61.9% of the total  outstanding  shares of
Sunshine.  In September 2001,  Sunshine met the FCC requirement  that it provide
service  coverage to at least  one-quarter  of the  population  in its  licensed
areas.  However,  Sunshine does not presently have the funds  necessary to fully
build out the  system  necessary  to  provide  commercial  operations,  which it
estimates would cost between $20 and $50 million; moreover,  obtaining financing
from third  parties may be difficult,  because of  Sunshine's  lack of operating
history and the  substantial  indebtedness  that it has  incurred to acquire its
licenses.  Sunshine has disclosed that it would consider selling its licenses or
entering into a joint  venture with a company that provides  service to a nearby
area and then developing our licenses  together.  However,  Sunshine has not yet
adopted a business plan and there can be no assurance of  Sunshine's  ability to
achieve any of its potential objectives. Moreover, because Sunshine has incurred
losses  since  its  inception  and has not yet  determined  how to  finance  its
operations,   the  latest  report  of  its  independent   auditors  contains  an
explanatory  paragraph,  which  expresses  substantial  doubt  as to  Sunshine's
ability to continue as a going concern.
<PAGE>

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

As part of the  acquisition of Central Utah Telephone  Company by Interactive in
June 2001, Interactive acquired Central Telecom Services,  LLC, a related entity
that has a  contractual  right to acquire 7.5 MHz of a 10 MHz PCS license in the
Logan,  Utah,  BTA,  which has a population of  approximately  102,702.  Central
Telecom  Services  believes that such license has been build out sufficiently to
meet  the FCC  requirement  that  service  coverage  be  available  to at  least
one-quarter of the population in this BTA.  Interactive intends to donate 20% of
the net equity sales  proceeds  from any sale of the Logan license to the Church
of Jesus Christ of Latter Day Saints.

In addition,  Central Scott has a 10 MHz PCS License for its wireline  territory
covering a population of 11,470.

At December 31, 2001,  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  413,000,  of which  Interactive's  proportionate  interest is
approximately 57,000. In March 2002, Interactive sold its interest in New Mexico
RSA 1 for $5.5 million to Verizon Wireless,  and in connection therewith prepaid
certain  outstanding  indebtedness  to Verizon.  The Company expects to report a
pre-tax gain of $4.9  million in the first  quarter of 2002.  Interactive  owned
approximately  20.8%  of  New  Mexico  RSA 1,  which  had  approximately  10,000
customers at December 31, 2001.

Central Scott is also an approximately  14% minority owner of an entity that has
a 10 MHz PCS license for portions of Clinton and Jackson  Counties in Iowa, with
a total  population  at  December  31,  2001 of 68,470,  of which  Interactive's
proportionate share is 9,852.

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  with  BCK\Rivgam  L.L.C.  in which GFI has a 49.9%
equity  interest which won licenses in the FCC's Local  Multipoint  Distribution
Services ("LMDS") Auction, which ended on March 25, 1998, received 5% of the net
profits of BCK\Rivgam  (after an assumed cost of capital).  BCK/Rivgam won three
licenses  covering a population  of 1.3 million  with an aggregate  cost of $6.1
million.  Betapage  Communications,  L.L.C.,  a 49.9%  owned  limited  liability
company,  was a winning  bidder in the FCC auction for 929 MHz paging  licenses,
which  was  conducted  in 2000.  Betapage  won 24  paging  licenses  covering  a
population  of 76.7 million at a cost of  approximately  $77,000.  Interactive's
subsidiary  also has the right to receive a fee equal to 20% of the realized net
profits of Betapage  (after an assumed  cost of  capital).  While no  impairment
reserve is required for investment in these licenses,  management  would caution
that the  utilization  of this  spectrum is still in the  development  stage and
there are a limited number of likely purchasers.
<PAGE>

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

Another  subsidiary of Interactive is a 49.9% owner of PTPMS  Communications II,
L.L.C  ("PTPMS II"),  which was a winning  bidder in the FCC auction of licenses
for 700 MHz Guard Band  spectrum for  wireless  data  transmission  and wireless
Internet  services,  which was  conducted in 2000.  PTPMS II won three  licenses
covering a population  of 6.4 million in BTAs  including  the cities of Buffalo,
NY,  Des  Moines-Quad-Cities,  IA and El  Paso,  TX,  at an  aggregate  cost  of
approximately  $6.3 million.  Interactive has loaned PTPMS II approximately $6.1
million, $5.0 million of which was loaned in 2001.  Interactive's subsidiary has
the right to receive a fee equal to 20% of the  realized net profits of PTPMS II
(after an assumed cost of capital).

Another  subsidiary  of  Interactive  is  an  approximate  10%  owner  of  Theta
Communications,  L.L.C., which won a 10 MHz PCS license for Gainesville, Florida
in the FCC's  reauction of PCS  licenses,  which ended on January 26, 2001.  The
cost of the license was approximately $4 million.  Interactive's  subsidiary has
committed to fund a portion (an  additional  $0.3  million) of such license cost
and to receive a 5% realized net profits fee (after an assumed cost of capital).

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

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

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

Interactive  owns 1,000,000 shares of Spinnaker  Industries,  Inc. common stock.
Spinnaker  is a  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.  As described in the Notes to the  accompanying
financial  statements,  Interactive  accounts  for  this  investment  under  the
provision of Statement of Financial Accounting Standards No. 115 "Accounting for
Certain  Investments in Debt and Equity Securities." Under the provision of this
standard,  Interactive  records this  investment  at its publicly  traded market
price at the end of each accounting  period and records the change in unrealized
gain  (loss) in that  period's  comprehensive  income.  In  addition,  under the
provisions of this statement,  if the quoted market  indicated by that valuation
is below Interactive's basis,  management is required to consider if the decline
in  value  is  other  than  temporary  and,  if so  determined,  write  down the
investment  to its publicly  traded value by recording the loss in the Statement
of Operations.  As of December 31, 2000,  the basis of the Spinnaker  shares was
$3.2 million, or $3.19 per share. On November 13, 2001, Spinnaker announced that
it had commenced  voluntary  proceedings under Chapter 11 of the U.S. Bankruptcy
Code  for  the  purpose  of   facilitating   and   accelerating   its  financial
restructuring.  Spinnaker also announced that is had reached agreement,  subject
to Bankruptcy  Court  approval,  with its existing  lenders to provide up to $30
million in debtor-in possession  financing,  which Spinnaker believes will allow
it to continue operating its business in the ordinary and customary manner. As a
result of Spinnaker's  bankruptcy filing,  Interactive believes that the decline
on quoted value of  Spinnakers's  stock is not temporary and,  accordingly,  has
recorded a loss of $3.2 million  during the year ended  December  31,  2001,  to
write down its investment in Spinnaker to $0 at December 31, 2001.

For further  information on Spinnaker,  reference is made to Spinnaker's filings
with the Securities and Exchange Commission.

III.  OTHER INFORMATION

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

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

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

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

Interactive  had a total of  approximately  328  employees at December 31, 2001,
compared to approximately 280 employees at December 31, 2000.

IV.   EXECUTIVE OFFICERS OF THE REGISTRANT

Pursuant  to General  Instruction  G (3) of Form  10-K,  the  following  list of
executive officers of the Registrant is included in Part 1 of this Annual Report
on Form  10-K in lieu of being  included  in the  Proxy  Statement  for the 2002
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.
<PAGE>

<TABLE>
<CAPTION>

             Name                                Offices and Positions Held                             Age

<S>                             <C>                                                                     <C>
Mario J. Gabelli                Chairman  and  Chief  Executive   Officer  (since  September            59
                                1999);  Vice Chairman (and from 1986 to August 2001 Chairman
                                and  Chief   Executive   Officer)   of  Lynch   Corporation;
                                Chairman,  Chief Executive Officer, Chief Investment Officer
                                and a director  of Gabelli  Asset  Management  Inc.  and its
                                predecessors  (since  November 1976) (and in connection with
                                those  responsibilities,  he serves as  director  or trustee
                                and/or  an  officer  of  registered   investment   companies
                                managed  by  subsidiaries  of  Gabelli  Asset   Management);
                                Chairman  and  Chief  Executive  Officer  of  Gabelli  Group
                                Capital Partners, Inc., a private company.

Robert E. Dolan                 Chief  Financial  Officer and  Controller  (since  September            50
                                1999);  Chief Financial  Officer  (1992-2000) and Controller
                                (1990-2000) of Lynch Corporation.

John Fikre                      Vice  President--Corporate  Development,  General Counsel and           37
                                Secretary  (since  August 2001);  Associate,  Willkie Farr &
                                Gallagher (since August 1994).
</TABLE>
The executive  officers of the Registrant  are elected  annually by the Board of
Directors at its meeting in May and hold office until the organizational meeting
in the next subsequent year and until their respective successors are chosen and
qualified.
<PAGE>

ITEM 2. PROPERTIES

Interactive  leases  approximately  3,400  square  feet of office  space from an
affiliate of its Chairman for its executive offices in Rye, New York.

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

Inter-Community  Telephone  Company owns 12 acres of land at 10 sites.  Its main
office at Nome, ND,  contains 4,326 square feet of office and storage space.  In
addition,  it has 4,400  square  feet of garage  space  and  5,035  square  feet
utilized for its switching facilities. Inter-Community has 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 Co-Bank.

Cuba City Telephone  Company is located in a 3,800 square foot brick building on
0.4 of an acre of land. The building  serves as the central  office,  commercial
office,  and garage for vehicle and  material  storage.  The company also owns a
cement  block  storage  building  of 1,490  square  feet on 0.1 of an  acre.  In
Madison,  Wisconsin,  Cuba  City  leases  900  square  feet  for  administrative
headquarters and financial functions.  Belmont Telephone Company is located in a
cement  block  building  of 800  square  feet on .5  acre  of  land in  Belmont,
Wisconsin.  The building  houses the central office  equipment for Belmont.  The
companies  own a  combined  total of 340 miles of  copper  cable and 33 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 is located in Holton,  Kansas and a 3,000 square
feet  garage  warehouse  facility is located in Wetmore,  Kansas.  In  addition,
J.B.N.  owns  thirteen  smaller  facilities  housing  central  office  switching
equipment  and over  1,186  miles of copper  cable and 186 miles of fiber  optic
cable.  All properties  described  herein are encumbered under mortgages held by
the RUS.

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

Dunkirk & Fredonia  Telephone Company  (including its subsidiaries) owns a total
of  approximately  16.4 acres at six  locations  in western  New York.  Its host
central  office  switching  equipment,  administrative  and  commercial  offices
consisting of 18,297 square feet is located in Fredonia,  New York. In addition,
Dunkirk & Fredonia owns five other  properties,  including a service  garage,  a
paging tower site, a small central office housing switching equipment, sales and
service center in Jamestown,  New York, and one rental property in Ashville, New
York.  Dunkirk & Fredonia also owns 362 miles of copper  telephone  cable and 54
miles of fiber optic cable. All properties described herein are encumbered under
a mortgage held by RUS.
<PAGE>

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 353
miles of copper  cable and 24.09  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.I.B. Cable Television.

Central Utah Telephone,  Inc., and its subsidiaries own a total of 8.25 acres at
sixteen sites and have an  additional  1.12 acres at fourteen  sites,  which are
under  leases,  permits or  easements.  These sites are located in the  central,
northeastern and mid-western areas of Utah.  Central Utah Telephone's  principal
operating  facilities are located in Fairview,  Utah, where it owns a commercial
office and central office building  containing 5,200 square feet. In addition it
has 720 square feet of office space, 1,080 square feet of warehouse space, 3,025
square feet of vehicle  maintenance  facility,  4,252 square feet of  protective
cover, 1,584 square feet of leased corporate office facility and 2 rental homes.
Central Utah Telephone owns smaller  facilities  used mainly for housing central
office  switching  equipment  with a total of 9,405  square  feet in 25  various
locations.  In addition,  Central Utah  Telephone owns 820 miles of copper cable
and 151 miles of fiber  optic cable  running  through  rights-of-way  within its
6,867  square mile service  area.  All of Central  Utah  Telephone's  properties
described herein are encumbered under mortgages held by the RUS and CoBank.

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

ITEM 3.  LEGAL PROCEEDINGS

Interactive  is a  party  to  ordinary  routine  litigation  incidental  to  its
business.  Based on information  currently available,  Interactive believes that
none  of  this  ordinary  routine  litigation,  either  individually  or in  the
aggregate, will have a material effect on its business.

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

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

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


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 for the last two years are as follows
adjusted for the two-for-one stock split which occurred on September 11, 2000:
<TABLE>
<CAPTION>
                                                           2001
                                                     Three Months Ended
                            March 31              June 30             September 30          December 31
                            --------              -------             ------------          -----------
<S>                           <C>                  <C>                   <C>                   <C>
High                          48.25                63.01                 73.50                 69.00
Low                           34.50                40.00                 48.03                 43.50
</TABLE>


<TABLE>
<CAPTION>
                                                            2000
                                                      Three Months Ended
                            March 31              June 30             September 30          December 31
                            --------              -------             ------------          -----------
<S>                           <C>                  <C>                   <C>                   <C>
High                          66.00                64.00                 56.00                 57.00
Low                           49.00                46.00                 45.00                 43.00
</TABLE>

At March 18, 2002,  Interactive  had 864  shareholders of record and the closing
price of our Common Stock was $40.25.

Neither  Interactive nor Lynch  Corporation,  the company from which Interactive
was spun off,  has paid any cash  dividends  on its  common  stock  since  1989.
Interactive  does not expect to pay cash  dividends  on its common  stock in the
foreseeable  future.  Interactive  currently intends to retain its earnings,  if
any,  for use in its  business.  Current  and  future  financings  may  limit or
prohibit the payment of dividends.
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA
<TABLE>

                          LYNCH INTERACTIVE CORPORATION
                             SELECTED FINANCIAL DATA
                      (In Thousands, Except Per Share Data)

<CAPTION>
                                                                           Years Ended December 31, (a)
                                                           --------------------------------------------------------------
                                                              1997        1998         1999         2000         2001
                                                           ----------- ------------ ------------ ------------ -----------
<S>                                                      <C>          <C>          <C>          <C>          <C>
Revenues .............................................   $  47,908    $  54,622    $  59,011    $  66,983    $  79,352

Operating profit (b) .................................      10,273       14,650       12,299       15,331       19,985
Net financing activities (c) .........................      (7,189)      (7,656)      (7,732)      (8,639)     (10,142)
Impairment of investment in Spinnaker Industries, Inc.        --           --           --           --         (3,194)
Reserve for impairment of investment in PCS
  license holders (d) ................................      (7,024)        --        (15,406)        --           --
Gain on sale of subsidiary stock and other
  assets (e) .........................................         260        2,709         --          4,187         --
                                                         ---------    ---------    ---------    ---------    ---------
Income (loss) before income taxes, minority
  interests, extraordinary item and
  operations of Morgan ...............................      (3,680)       9,703      (10,839)      10,879        6,649
(Provision) benefit for income taxes .................         836       (4,453)       2,478       (4,971)      (3,454)
Minority interests ...................................        (504)        (763)        (686)        (877)        (661)
                                                         ---------    ---------    ---------    ---------    ---------
  Income (loss) from continuing operations before
    extraordinary item and operations of Morgan ......      (3,348)       4,487       (9,047)       5,031        2,534
 Extraordinary item (f) ..............................        --           --           (160)        --           --

(Loss) from operations of Morgan
  to be distributed to shareholders (j) ..............          69          442           (9)      (2,666)      (1,386)
                                                         ---------    ---------    ---------    ---------    ---------
  Net income (loss) ..................................   $  (3,279)   $   4,929    $  (9,216)   $   2,365    $   1,148
                                                         =========    =========    =========    =========    =========
Basic and diluted earnings
Per common share (g) (h)
  Income (loss) from continuing operations before
    extraordinary item and operations of Morgan ......   $   (1.18)   $    1.58    $   (3.21)   $    1.78    $    0.90
  Income (loss) from operations of Morgan
    to be distributed to shareholders (j) ............   $    0.02    $    0.16    $   (0.00)   $   (0.94)   $   (0.49)
  Net income (loss) ..................................   $   (1.16)   $    1.74    $   (3.27)   $    0.84    $    0.41
Cash, securities and short-term investments ..........   $  27,663    $  26,498    $  29,094    $  26,900    $  31,233
Total assets .........................................   $ 219,897    $ 212,705    $ 221,705    $ 217,742    $ 256,350
Long-term debt .......................................   $ 131,687    $ 126,183    $ 164,736    $ 162,304    $ 193,202
Shareholders' equity (i) .............................   $  26,693    $  32,285    $  20,211    $  19,391    $  19,734

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

(b)  Operating  profit is sales and  revenues  less  operating  expenses,  which
     excludes  investment  income,  interest  expense,  equity  in  earnings  of
     affiliated companies, reserve for impairment in PCS license holders in 1997
     and 1999,  gains on sales of subsidiary  stock and other  assets,  minority
     interests and taxes, and extraordinary items and operations of Morgan.

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

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

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

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

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

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

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

(j)  Net of income tax and minority interest.
</FN>
</TABLE>


<PAGE>

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

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

RESULTS OF OPERATIONS

Year 2001 compared to 2000

Overview

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

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

Revenues

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

EBITDA

Earnings  before  interest,  taxes,  depreciation  and  amortization  ("EBITDA")
increased to $38.3  million in 2001 from $31.0  million in 2000,  an increase of
$7.3  million,  or 23.3%.  EBITDA is  presented  because  it is widely  accepted
financial  indicator of value and ability to incur and service  debt.  EBITDA is
not a substitute for operating  income,  see below, or cash flows from operating
activities,  $24.3  million and $13.6  million for the years ended  December 31,
2001 and 2000  respectively,  in accordance with generally  accepted  accounting
principles. Of the $7.3 million increase in EBITDA, $2.6 million of the increase
was due to the  acquisition  of Central  Utah  Telephone  Company.  In addition,
during 2001, the Company recorded $2.8 million of administrative fee income. The
remaining increase was primarily due to the increase in regulated operations and
reduced losses by the Company's CLEC operations.

Operating Profit

Operating profit for 2001 increased to $19.9 million from $15.3 million reported
for 2000,  an increase of $4.6 million.  This  increase in operating  profits is
principally  attributable  to the  inclusion  of the  results of  operations  of
Central Utah from the date of  acquisition  and the $2.8 million  administrative
fee.

Other Income (Expense)

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

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

During  2001,  the  Company  recorded  approximately  $0.9  million of equity in
earnings of affiliated  entities  compared to $1.7 million in 2000. The decrease
of $0.8 million was  primarily  due to a net gain of $0.7 million in 2000 on the
sale of cellular towers at two of the Registrant's  cellular  telephone  company
investments.

On  February  25,  2000,  Omnipoint  acquired  through  a  merger,  all  of  the
outstanding shares of East/West Communications,  Inc. At the time of the merger,
Interactive held a redeemable preferred stock of East/West Communications,  Inc.
with a liquidation value of $8.7 million, including payment in kind of dividends
to date. In accordance  with its terms,  the preferred stock was redeemed at its
liquidation  value and as a result,  Registrant  recorded a pre-tax gain of $4.2
million in the year ended December 31, 2000.

The Company owns 1,000,000 shares of Spinnaker Industries, Inc. common stock. As
described in the Notes to the  accompanying  financial  statements,  the Company
accounts  for this  investment  under the  provision  of  Statement of Financial
Accounting  Standards No. 115 "Investment and Debt and Equity Securities." Under
the  provision of this  standard,  the Company  records this  investment  at its
publicly  traded market price at the end of each  accounting  period and records
the change in unrealized gains (loss) in that period's  comprehensive income. In
addition, under the provisions of this statement, if the quoted market indicated
by that  valuation  is below the  Company's  basis,  management  is  required to
consider if the decline in value is other than  temporary and, if so determined,
write down the investment to its publicly  traded value by recording the loss in
the Statement of Operations. As of December 31, 2000, the basis of the Spinnaker
shares was $3.2 million,  or $3.19 per share.  At December 31, 2001,  the quoted
market  price of these shares was $0 per share.  During the year ended  December
31, 2000, Spinnaker recorded a loss from continuing operations of $17.7 million.
Losses of $5.2  million  and $2.8  million  were  recorded  for the years  ended
December 31, 1999 and 1998, respectively. In the nine months ended September 30,
2001, Spinnaker recorded a net loss of $53.9 million, including $41.2 million of
restructuring  and  asset  impairment  reserves  related  to  the  close  of its
Spinnaker Coating facility in Westbrook,  Maine. On October 15, 2001,  Spinnaker
Industries  announced that it would not be making that day's scheduled  interest
payment with regard to its 10 3/4% Senior  Notes and it was actively  engaged in
discussion  with a majority  of the  holders of those  notes for the  purpose of
negotiating a consensual restructuring of its indebtedness.

On November  13,  2001,  Spinnaker  announced  that it has  commenced  voluntary
proceedings  under  Chapter 11 of the U.S.  Bankruptcy  Code for the  purpose of
facilitating  and  accelerating  its  financial  restructuring.  Spinnaker  also
announced that it had reached  agreement,  subject to Bankruptcy Court approval,
with its existing  lenders to provide up to $30 million in debtor-in  possession
financing,  which  Spinnaker  believes  will allow it to continue  operating its
business in the ordinary and customary manner.
<PAGE>

On January 9, 2002,  both classes of  Spinnaker's  stock were de-listed from the
American  Stock  Exchange.  The  stock is now  traded  on the  over the  counter
"bulletin  board" (pink sheets).  There has been no quoted price since the stock
was de-listed in 2002. The Company  believes that the decline in quoted value is
other than  temporary  and,  accordingly,  has  recorded a loss of $3.2  million
during 2001 to write down its  investment  in  Spinnaker  to $0 at December  31,
2001.

In June 2001,  the Financial  Accounting  Standards  Board issued  Statements of
Financial Accounting Standards ("SFAS") No. 141, Business Combinations,  and No.
142, Goodwill and Other Intangible Assets,  effective for fiscal years beginning
after December 15, 2001.  Under the new rules,  goodwill and  intangible  assets
deemed to have indefinite  lives will no longer be amortized but will be subject
to annual  impairment tests in accordance with the Statements.  Other intangible
assets will continue to be amortized  over their useful  lives.  The Company has
not yet completed  its analysis on how the new rules will affect its  accounting
for goodwill and other intangible assets, for which,  implementation is required
beginning  in the first  quarter  for  2002.  Based on a  preliminary  analysis,
application  of the  nonamortization  provisions  of SFAS  No.  142  would  have
resulted in an increase in income from  continuing  operations  of $2.2 million,
$0.74 per share,  for the year ended  December 31, 2000 and $2.4 million,  $0.86
per share,  for the year ended December 31, 2001 and is expected to increase Net
income in 2002 by $2.9 million.  The Company expects to perform the first of the
required  impairment tests of goodwill and indefinite lived intangible assets as
of January 1, 2002 in the first quarter of 2002. Any impairment charge resulting
from these  transitional  impairment  tests will be reflected as the  cumulative
effect of a change in  accounting  principle in the first  quarter of 2002.  The
Company  has not yet  determined  what the effect of these  tests will be on the
earnings and financial position of the Company.

In October 2001, the FASB issued Statement of Financial  Accounting Standard No.
144,  Accounting for Impairment or Disposal of Long-Lived Assets,  effective for
fiscal years  beginning  after  December 15, 2001. The FASB's new rules on asset
impairment  supersede FASB  Statement No. 121,  Accounting for the Impairment of
Long-Lived  Assets and for  Long-Lived  Assets to be Disposed  Of, and provide a
single  accounting  model  for  long-lived  assts to be  disposed  of.  Although
retaining many of the fundamental  recognition and measurement provision of FASB
Statement 121, the new rules  significantly  change the criteria that would have
to be met to  classify  an asset  as  held-for-sale.  The new  rules  also  will
supersede the  provisions of APB opinion 30 with regard to reporting the effects
of a disposal  of a segment  of a  business  and will  require  expected  future
operating  losses from  discontinued  operations to be displayed in discontinued
operations  in the  periods in which the losses are  incurred  (rather as of the
measurement  date  as  presently   required  by  APB  30).  In  addition,   more
dispositions  will qualify for discontinued  operations  treatment in the income
statement.  The Company has not yet determined  what the effect of FASB 144 will
be on the earnings and financial position of the Company.

Tax Provision

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

Minority Interest

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

Net Income

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

Year 2000 compared to 1999

Overview

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

The narrative  below has been restated to reflect the  distribution of Morgan to
shareholders.

Revenues

2000 total revenues were $67.0 million,  an increase of $8.0 million,  or 13.5%,
from the $59.0 million  recorded in 1999,  primarily due to the  acquisition  of
Central  Scott  Telephone  Company,  which was  acquired  on July 16, 1999 ($3.0
million effect) and the growth in both regulated  telecommunications services as
well as the provision of  non-traditional  revenue services as:  Internet,  long
distance service and competitive local exchange carrier.

EBITDA

Earnings  before  interest,  taxes,  depreciation  and  amortization  ("EBITDA")
increased to $31.0  million in 2000 from $26.3  million in 1999,  an increase of
$4.7 million, or 17.8%. For purposes of this discussion, EBITDA does not include
SARs expense (see below).  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,  see below, or cash flows from operating
activities,  $13.6  million and $16.3  million for the years ended  December 31,
2000 and 1999,  respectively,  in accordance with generally accepted  accounting
principles.  EBITDA for the  multimedia  segment  increased by $3.2 million,  or
10.2% to $34.7 million from $31.5 million in 1999. $1.7 million of this increase
was due to the  acquisition of Central Scott  Telephone  Company.  The remaining
increase was primarily due to the  increases in regulated  operations  offset by
losses in the start-up of the CLEC operation ($0.7 million).

Operating Profit

Operating  profits  for 2000  increased  to $15.3  million  from  $12.3  million
reported  for 1999,  an increase of $3.0  million.  This  increase in  operating
profits is principally  attributable  to the absence of SAR expense during 2000.
In 1999,  the company  reported a SAR expense of $2.9 million,  see  description
below.  The absence of the SAR expense in 2000 coupled with the increase of $0.3
million from the multimedia  segment,  resulting from the acquisition of Central
Scott Telephone Company, accounted for the operating profit increase.
<PAGE>

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 $32 to $43
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 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
million) on the basis of the relative market value of December 31, 1999.

Other Income (Expense)

Investment  income was  approximately  $3.3 million  compared to $2.0 million in
1999.  Realized  gains  on  sales  of  "available-for-sale-securities,"  was the
primary cause of the increase.

Interest expense  increased by $2.8 million to $13.6 million in 2000 compared to
$10.8  million in 1999.  The  increase is due  primarily to the  acquisition  of
Central Scott Telephone Company on July 16, 1999 ($0.8 million) and the issuance
by the  Company  of a $25.0  million  Convertible  Note in  December  1999 ($2.0
million)  including  interest  paid and accretion of option to sell premium (see
Note 5 to the Consolidated Financial Statements).

During  2000,  the  Company  recorded  approximately  $1.7  million of equity in
earnings of affiliated  entities  primarily due to operating income from its New
Mexico  cellular RSA interests,  including a gain of $0.7 million on the sale of
certain cellular towers.

On  February  25,  2000,  Omnipoint  acquired  through  a  merger,  all  of  the
outstanding shares of East/West Communications,  Inc. At the time of the merger,
Interactive held a redeemable preferred stock of East/West Communications,  Inc.
with a liquidation value of $8.7 million, including payment in kind of dividends
to date. In accordance  with its terms,  the preferred stock was redeemed at its
liquidation  value and as a result,  the  Registrant  recorded a pre-tax gain of
$4.2 million in the year ended December 31, 2000.

A subsidiary of Lynch  Interactive  has  investments  in, loans to, and deferred
costs associated with a 49.9% equity ownership in Fortunet Communications,  L.P.
("Fortunet"),  a partnership  formed to acquire,  construct and operate licenses
for the provision of personal  communications  services  ("PCS") acquired in the
FCC's C-Block PCS auction.  Fortunet  holds  licenses to provide PCS 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 of
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.  In 2001,
Interactive spun-off its 49.9% equity interest in Fortunet,  but retained a note
receivable with a net book value of $3.4 million.
<PAGE>

Tax Provision

The 2000 tax provision of $5.0 million includes  federal,  state and local taxes
and represents an effective rate of 45.7% versus 22.9%  effective tax benefit of
$2.5 million in 1999. Differences in the effective rates are attributable to the
amortization  of  non-taxable  goodwill  and tax  effect on  losses  of  certain
subsidiaries.

Minority Interest

Minority  interest  was a reduction  to  earnings of $0.7  million in 1999 and a
reduction to earnings of $0.9 million in 2000. Increased net income at telephone
operations in which there is a minority  ownership was the cause of the variance
between years.

Net Income

Income from  continuing  operations  was $5.0 million  ($1.78 per share) in 2000
compared to a loss from continuing  operations of $9.0 million ($3.21 per share)
in 1999 and net income for year ended  December  31, 2000 was $2.4  million,  or
$0.84 per share,  as compared to a net loss of $9.2 million,  or $3.27 per share
for the year ended  December 31, 1999.  The impairment  charge  associated  with
Fortunet was the primary item affecting the net loss in 1999.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2001,  Lynch  Interactive  Corporation  has current assets of
$59.1 million and current  liabilities  of $67.9  million.  Working  capital was
therefore a negative  $8.8  million as compared to $6.8  million at December 31,
2000. The debt  restructurings  discussed below, the acquisition of Central Utah
Telephone Company and related entities,  increased capital  expenditures and the
additional investment in Morgan were the primary causes of the change in working
capital.

Capital  expenditures  were  $20.5  million  in 2001 and $17.2  million in 2000.
Anticipated capital expenditures in 2002 are approximately $25.0 million.

On December  12,  1999,  Interactive  completed  the private  placement of a $25
million 6% five-year note,  convertible into Interactive  common stock at $42.50
per share (adjusted for subsequent 2 to 1 stock split).  At that time, to assist
the Company with the private  placement to Cascade  Investment LLC  ("Cascade"),
the Chairman and CEO of Interactive,  agreed to give the acquirer of the note, a
one-time option to sell the note to him at 105% of the principal amount thereof.
The exercise  period was from November 15, 2000 to December 1, 2000. 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 legal
fees in connection with the option to sell agreement and obtaining the letter of
credit.

On January 16, 2001, the above option to sell agreement was amended. As amended,
Cascade  had the  right  to  sell up to $15  million  of the  notes  back to the
Chairman  at any  time  prior to  January  31,  2001  and the  right to sell the
remaining $10 million of the note between  November 15 and December 1, 2002. The
option to sell is at 105% of the  principal  amount of  Convertible  Notes  plus
accrued and unpaid  interest.  As a condition to  modifying  and  extending  the
option to sell, the Company entered into an agreement in December 2000, with its
Chairman whereby it will pay for and acquire,  on the same terms and conditions,
any portion of the Convertible  Notes sold by Cascade under this option.  During
January 2001,  Cascade  exercised  this option with regard to the $15 million of
Convertible  Notes  and  pursuant  to the  agreement  between  the  Company  and
Chairman,  on February  14,  2001,  the  Company  transferred  $15.9  million to
Cascade,  including the 5% premium plus accrued and unpaid  interest in exchange
for $15.0 million of notes held by Cascade.
<PAGE>

The option to sell the  remaining  $10  million  is secured by a  collateralized
letter of credit in which the  collateral  is  provided by an  affiliate  of the
Chairman.  The Company  has agreed to pay all legal fees,  letter of credit fees
and a 10% per annum collateral fee on the amount of collateral  provided,  $10.5
million.  The Company can replace the  collateral at any time and the collateral
fee would be eliminated  from  thereafter.  As of December 31, 2001, the Company
has  replaced  $7.5  million of the escrow  collateral  securing the above noted
letter of credit by  segregating  $7.5  million of Treasury  Bills in a separate
account  and  pledging  this  account  to the  issuer of the  letter of  credit.
Subsequent to December 31, 2001,  the  remaining  collateral of $3.0 million was
replaced by the Company.  Management is currently unaware of Cascade's intention
with  regard to their  potential  exercise of the option to sell the $10 million
but because the decision is beyond the control of  management  the debt has been
classified as current in the accompanying balance sheet.

At  December  31,  2001,  total debt was $203.5  million,  an  increase of $36.9
million from December 31, 2000. At December 31, 2001 there was $137.1 million of
fixed interest rate debt outstanding  averaging 7% and $66.4 million of variable
interest rate debt averaging  4.8%. In January 2001, a subsidiary of the Company
borrowed  $27.0  million  secured by the stock of Western  New Mexico  Telephone
Company.  The loan is to be repaid in equal  monthly  installments  over  twelve
years beginning in April 2001,  bearing interest at either the bank's prime rate
or LIBOR plus 2.5%,  or at the Company's  option,  it can be fixed for its term.
$15.9 million of the proceeds were used to acquire the  Convertible  Note of the
Company  owned by Cascade  Investment  L.L.C.  The stock of  Western  New Mexico
Telephone  Company had previously been used to secure the acquisition  facility,
the balance of which was $7.9 million prior to its  repayment in December  2000.

As of December 31,  2001,  a subsidiary  of the Company was in default of a term
loan totaling  $4.8 million.  The  subsidiary is currently  restructuring  their
facility and management expects to have a new facility in place with the current
lender by April 2002.  If such is not  accomplished,  Interactive  expects to be
able to refinance the subsidiary as well as other  subsidiaries  to generate the
funds necessary to repay the current lender.

A subsidiary of the Company has guaranteed $3.8 million of an equity  investees'
total debt of $10.6  million.

The parent  company of  Interactive  has a short-term  line of credit  facility,
which expires August 31, 2002, with maximum availability  totaling $10.0 million
of which $7.6  million was  outstanding  at December  31,  2001.  The Company is
pursuing various financing alternatives including renewal of the line of credit,
refinancing  substantially all or individual pieces of its currently outstanding
debt,  and sale of certain  investments.  The Company  expects that this line of
credit  facility  will  be  renewed  in  August  2002  when  it  expires.  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.

In  general,  the  long-term  debt  facilities  at  subsidiaries  are secured by
substantially all of the Company's  property,  plant and equipment,  receivables
and  common  stock  of  certain   subsidiaries  and  contain  certain  covenants
restricting  distribution to Lynch  Interactive.  At December 31, 2000 and 2001,
substantially all of the subsidiaries' net assets are restricted.

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, 2001, 4,900 shares had been purchased at an
average cost of $49.03 per share.  Subsequent to year-end,  an additional  5,300
shares have been acquired at an average cost of $42.98 per share.

Lynch Corporation, the Company's predecessor, has not paid any cash dividends on
its common stock since 1989. The Company has not paid any cash  dividends  since
its  inception  in 1999 and does not expect to pay cash  dividends on its common
stock in the foreseeable  future.  Interactive  currently  intends to retain its
earnings,  if any,  for use in its  business.  Further  financing  may  limit or
prohibit the payment of dividends.
<PAGE>

Interactive  has a high degree of financial  leverage.  As of December 31, 2001,
the ratio of total debt to equity was 9.6 to 1. Certain  subsidiaries  also have
high debt to equity  rations.  In  addition,  the debt at  subsidiary  companies
contains  restrictions  on the  amount of funds that can be  transferred  to the
respective parent of the subsidiaries.

The Company has a need for resources  primarily to fund future  long-term growth
initiatives.  The Company  considers  various  alternative  long-term  financing
sources:  debt, equity, or sale of an investment asset. While management expects
to obtain  adequate  financing  resources  to  enable  the  Company  to meet its
obligations,  there is no  assurance  that such can be  readily  obtained  or at
reasonable  costs.  The Company is obligated under long-term debt provisions and
lease  agreements to make certain cash payments over the term of the agreements.
The following table  summarizes  these  contractual  obligations for the periods
shown:
<TABLE>
<CAPTION>
                                                       Payments Due by Period
                                                         (In thousands)
                                                Less than
                                      Total       1 year     1 - 3 years  4 - 5 years  After 5 years
                                     --------   -----------   ----------   ---------   ------------
<S>                                  <C>        <C>            <C>        <C>          <C>
Long-term Debt (a) ...............   $193,202   $   28,126(b)  $ 44,476   $ 43,703     $ 76,897

Operating Leases .................        969          326          400        243         --
                                     --------   ------------   --------   --------     --------
Total Contractual Cash Obligations   $194,171   $   28,452     $ 44,876   $ 43,946     $ 76,897
                                     ========   ==========     ========   ========     ========
<FN>
(a)  Does not  include  interest  payments on debt
(b)  Contains $10 million of convertible subordinated debt due in 2004, that has
     a put  option  that if  exercised,  would  accelerate  the debt to the last
     quarter of 2002.
</FN>
</TABLE>

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

<TABLE>
<CAPTION>
                                                                   Amount of Commitment Expiration
                                                                             Per Period
                                                                           (In thousands)


                                            Total Amounts     Less than
Other Commercial Commitments                  Committed         1 year        1-3 years     4-5 years     Over 5 years
                                           --------------- --------------- -------------   ------------   ------------
<S>                                           <C>             <C>
Lines of Credit                               $14,336         $14,336            -             -               -

Standby Letter of Credit                       10,500          10,500            -             -               -

Guarantees

Standby Repurchase Obligations

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

Total Commercial Commitments                  $24,836         $24,836            -             -               -
                                           =============== =============== ================ =============== ===============
</TABLE>

On June 22, 2001, a subsidiary of the Company  acquired  Central Utah  Telephone
Company,  Inc. and its  subsidiaries,  a  7,000-access  line  telephone  company
located in Utah. The Company has also acquired Central Telecom Services,  LLC, a
related  entity,  which has certain PCS and MMDS  interests and  Internet,  long
distance  and  telephone  equipment  businesses.  The combined  aggregate  $15.6
million purchase price was financed primarily through the issuance of additional
debt.
<PAGE>

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

Critical Accounting Policies and Estimates

General

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

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

Revenue Recognition

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

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

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

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

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

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

Purchase Price Allocation

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

Depreciation and Amortization

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

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company is exposed to market risks  relating to changes in the general level
of U.S. interest rates.  Changes in interest rates affect the amount of interest
earned  on  the  Company's   cash   equivalents   and   short-term   investments
(approximately  $31.2 million at December 31, 2001 and $24.8 million at December
31, 2000). The Company generally finances the debt portion of the acquisition of
long-term  assets  with  fixed  rate,  long-term  debt.  The  Company  generally
maintains  the  majority of its debt as fixed rate in nature by  borrowing  on a
fixed long-term basis. The Company does not use derivative financial instruments
for trading or speculative purposes. Management does not foresee any significant
changes in the strategies  used to manage interest rate risk in the near future,
although the strategies may be reevaluated as market conditions dictate.

At December 31, 2001,  approximately  $66.4 million,  or 32.6% of  Interactive's
long-debt and notes payable bears interest at variable rates.  Accordingly,  the
Company's  earnings  and cash flows are  affected by changes in interest  rates.
Assuming the current level of  borrowings  for variable rate debt and assuming a
one  percentage  point  change in the 2001  average  interest  rate under  these
borrowings,  it is estimated that Interactive's 2001 interest expense would have
changed by  approximately  $0.7  million.  In the event of an adverse  change in
interest  rates,  management  would likely take actions to further  mitigate its
exposure. However, due to the uncertainty of the actions that would be taken and
their  possible  effects,  the analysis  assumes no such actions.  Further,  the
analysis  does not  consider  the  effects of the change in the level of overall
economic activity that could exist in such an environment.

<PAGE>

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  2002,  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 2002,
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  2002,  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
2002, 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 Financial
              Statements of the Company are included herein:

              Consolidated Balance Sheets - December 31, 2000 and 2001
              Consolidated Statements of Operations - Years ended December 31,
              1999, 2000, and 2001 Consolidated Statements of Shareholders'
              Equity - Years ended December 31, 1999, 2000, and 2001
              Consolidated Statements of Cash Flows - Years ended December 31,
              1999, 2000, and 2001 Notes to Consolidated Financial Statements

(a)(2)        Financial Statement Schedules:
                Schedule I - Condensed Financial Information of Registrant
                Schedule II - Valuation and Qualifying Accounts

(a)(3)        Exhibits: See the Exhibit Index on pages 52 through 54

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.
<PAGE>

See Page 2 above re Forward Looking Information.

(b)             Reports  on Form 8-K:  There were no  Current  Reports  on Form
                8-K filed  during the fourth quarter of 2001.

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

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

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

21      -       Subsidiaries of Registrant

24     -        Powers of Attorney

99     -        Report of Independent Auditors

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

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

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

(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  sheets  of  Lynch
Interactive Corporation and subsidiaries (the "Company") as of December 31, 2000
and 2001 and the related  consolidated  statements of operations,  shareholders'
equity,  and cash flows for each of the three years in the period ended December
31, 2001. 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 financial statements of Cuba
City Telephone Exchange Company and Belmont Telephone  Company,  indirect wholly
owned  subsidiaries of Lynch Interactive  Corporation,  which statements reflect
total assets of $4,149,000 in 2000 and $4,347,000 in 2001, and total revenues of
$2,070,000  in 1999,  $2,076,000  in 2000,  and  $2,139,000 in 2001 nor the 2001
financial  statements  of  Lynch  Michigan  Telephone  Holding  Corporation,  an
indirect  wholly-owned  subsidiary  of  Lynch  Interactive  Corporation,   which
statements reflect total assets of $33,147,000 and total revenues of $11,246,000
for the year then ended.  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, 2000 and 2001 and Lynch Michigan  Holding  Corporation in 2001,
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
financial statements referred to above present fairly, in all material respects,
the  consolidated  financial  position  of  Lynch  Interactive  Corporation  and
subsidiaries  at December  31, 2000 and 2001,  and the  consolidated  results of
their  operations and their cash flows for each of the three years in the period
ended  December 31, 2001, 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.




Stamford, Connecticut
March 12, 2002
<PAGE>

<TABLE>
                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


<CAPTION>
                                                           December 31,
                                                     -----------  ------------
                                                        2000          2001
                                                     -----------  ------------
                                                           (In Thousands)
ASSETS

CURRENT ASSETS:
<S>                                                  <C>          <C>
  Cash and cash equivalents ......................   $  24,834    $  31,233
  Marketable securities ..........................       2,066         --
  Receivables, less allowances of $155 and
   $424, respectively ............................       7,266        9,963
  Material and supplies ..........................       3,387        3,373
  Prepaid expenses and other current assets ......       2,529        1,757
  Current assets of Morgan Group Holding Co.
    to be distributed to shareholders ............      11,619       12,757
                                                     ---------    ---------
TOTAL CURRENT ASSETS .............................      51,701       59,083

PROPERTY, PLANT AND EQUIPMENT:
  Land ...........................................         490          840
  Buildings and improvements .....................       8,559       10,858
  Machinery and equipment ........................     151,481      182,109
                                                     ---------    ---------
                                                       160,530      193,807
  Accumulated Depreciation .......................     (64,961)     (74,530)
                                                     ---------    ---------
                                                        95,569      119,277

EXCESS OF COST OVER FAIR VALUE OF NET ASSETS
  ACQUIRED, NET ..................................      52,222       63,936
INVESTMENTS IN AND ADVANCES TO AFFILIATED ENTITIES      13,284       14,277
INVESTMENT IN SPINNAKER INDUSTRIES, INC ..........       5,250         --
OTHER ASSETS .....................................      11,335       12,534
NON CURRENT ASSETS OF MORGAN GROUP HOLDING CO.
  TO BE DISTRIBUTED TO SHAREHOLDERS ..............      11,049       10,241
                                                     ---------    ---------

TOTAL ASSETS .....................................   $ 240,410    $ 279,348
                                                     =========    =========


See accompanying notes.

</TABLE>

<PAGE>

<TABLE>


                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<CAPTION>
                                                              December 31,
                                                      -------------------------
                                                          2000         2001
                                                      -----------  -------------
                                                            (In Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
<S>                                                     <C>          <C>
  Notes payable to banks ............................   $   4,333    $  10,336
  Trade accounts payable ............................         424          921
  Accrued interest payable ..........................       2,504        1,579
  Accrued liabilities ...............................      14,472       15,700
  Current maturities of long-term debt ..............      12,365       28,126
  Current liabilities of Morgan Group Holding Co.
    to be distributed to shareholders ...............      10,801       11,281
                                                        ---------    ---------
     TOTAL CURRENT LIABILITIES ......................      44,899       67,943



LONG-TERM DEBT ......................................     149,939      165,076
DEFERRED INCOME TAXES ...............................       8,347        8,515
OTHER LIABILITIES ...................................         502          887
MINORITY INTEREST ...................................       5,539        6,120
NON CURRENT LIABILITIES AND MINORITY
  INTERESTS OF MORGAN GROUP HOLDING CO
  TO BE DISTRIBUTED TO SHAREHOLDERS .................       7,785        6,290

COMMITMENTS AND CONTINGENCIES (Note 13)

SHAREHOLDERS' EQUITY
  COMMON STOCK, $0.0001 PAR VALUE-10,000,000
    SHARES AUTHORIZED; 2,824,766 ISSUED; 2,821,666
    and 2,820,051 outstanding .......................        --           --
  ADDITIONAL PAID-IN CAPITAL ........................      21,404       21,406
  RETAINED EARNINGS .................................         652        1,800
  ACCUMULATED OTHER COMPREHENSIVE INCOME ............       1,495        1,542
  TREASURY STOCK, 3,100 and 4,715 shares, at cost ...        (152)        (231)
                                                        ---------    ---------
                                                           23,399       24,517
                                                        ---------    ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..........   $ 240,410    $ 279,348
                                                        =========    =========

See accompanying notes.
</TABLE>



<PAGE>

<TABLE>


                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<CAPTION>

                                                          Years Ended December 31,
                                                     ----------------------------------
                                                       1999          2000         2001
                                                     --------      --------     -------
                                                    (In Thousands, except per share data)
<S>                                                   <C>         <C>         <C>
SALES AND REVENUES ................................   $ 59,011    $ 66,983    $ 79,352

COSTS AND EXPENSES:
  Multimedia cost of sales ........................     41,671      48,477      57,019
  Selling and administrative ......................      5,041       3,175       2,348
                                                      --------    --------    --------
OPERATING PROFIT ..................................     12,299      15,331      19,985
                                                      --------    --------    --------
Other income (expense):
  Investment income ...............................      2,013       3,260       2,862
  Interest expense ................................    (10,802)    (13,568)    (13,936)
  Equity in earnings of affiliated companies ......      1,057       1,669         932
  Impairment of investment in Spinnaker
    Industries, Inc. ..............................       --          --        (3,194)
  Reserve for impairment of investment
    in PCS license holders ........................    (15,406)       --          --
  Gain on sales of subsidiary stock
    and other assets ..............................       --         4,187        --
                                                      --------    --------    --------
                                                       (23,138)     (4,452)    (13,336)
                                                      --------    --------    --------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY
  INTERESTS, EXTRAORDINARY ITEM AND
  OPERATIONS OF MORGAN ............................    (10,839)     10,879       6,649
(Provision) benefit for income taxes ..............      2,478      (4,971)     (3,454)
Minority interests ................................       (686)       (877)       (661)
                                                      --------    --------    --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
    EXTRAORDINARY ITEM AND
    OPERATIONS OF MORGAN GROUP HOLDING CO
    TO BE DISTRIBUTED TO SHAREHOLDERS .............     (9,047)      5,031       2,534

LOSS FROM EARLY EXTINGUISHMENT OF DEBT, NET .......       (160)       --          --

LOSS FROM OPERATIONS OF MORGAN GROUP HOLDING
   CO. TO BE DISTRIBUTED TO SHAREHOLDERS NET OF
   TAXES $193, $2,451, $(166) AND MINORITY
   INTEREST $28, $2,133, $603 .....................         (9)     (2,666)     (1,386)
                                                      --------    --------    --------
NET INCOME (LOSS) .................................   $ (9,216)   $  2,365    $  1,148
                                                      ========    ========    ========

Basic and diluted weighted average
   shares outstanding .............................  2,824,000   2,823,000   2,822,000
                                                   ===========   =========   =========


BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:

INCOME (LOSS) BEFORE EXTRAORDINARY ITEM
  AND OPERATIONS OF MORGAN GROUP HOLDING
  CO. TO BE DISTRIBUTED TO SHAREHOLDERS ..........   $  (3.21)     $   1.78   $   0.90
EXTRAORDINARY ITEM, NET ..........................      (0.06)           --         --
LOSS FROM OPERATIONS OF MORGAN GROUP HOLDING
  CO. TO BE DISTRIBUTED TO SHAREHOLDERS ..........         --         (0.94)     (0.49)
                                                        -----         -----      -----
NET INCOME (LOSS) ................................   $  (3.27)      $  0.84   $   0.41
                                                        =====         =====      =====


See accompanying notes.
</TABLE>


<PAGE>
<TABLE>



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

<CAPTION>
                                                                                Accumulated               Investments
                                  Shares of                                        Other                     By and
                                   Common               Additional                Compre-                Advances from
                                    Stock     Common     Paid-in     Retained      hensive     Treasury      Lynch
                                 Outstanding  Stock      Capital     Earnings      Income       Stock     Corporation      Total
                                 ----------  ---------- ----------- ------------ ----------- -----------  -------------- ----------
<S>                                <C>        <C>        <C>        <C>         <C>         <C>           <C>           <C>
Balance at December 31, 1998 ..         --    $     --   $     --   $     --    $     --    $     --      $   39,314    $   39,314
Investment by and advances (to)
  from Lynch Corporation ......         --          --         --         --          --          --          (1,980)       (1,980)
Net loss for the period .......         --          --         --         --          --          --          (7,503)       (7,503)
Unrealized loss on available
 for sale securities (net of tax
 benefit of $739) .............         --          --         --         --          --          --          (1,020)       (1,020)

  Comprehensive loss ..........         --          --         --         --          --          --            --          (8,523)
                                  ----------  ---------- ----------   ----------  ----------  ----------    ----------    ----------
Balance at August 31, 1999 ....         --          --         --         --          --          --          28,811        28,811
Distribution by Lynch .........    1,412,383        --   $   21,404       --    $    7,407        --         (28,811)         --
Corporation
Net loss for the period .......         --          --         --    $  (1,713)       --          --            --          (1,713)
Unrealized loss on available
for sale securities (net of tax
benefit of $121) ..............         --          --         --         --          (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
Two-for-one stock split .......    1,412,183        --         --         --          --          --            --            --
Net income for the period .....         --          --         --        2,365        --          --            --           2,365
Unrealized loss on available
for sale securities ...........         --          --         --         --        (4,699)       --            --          (4,699)
Reclassification adjustment ...         --          --         --         --          (480)       --            --            (480)

  Comprehensive income ........         --          --         --         --          --          --            --          (2,814)

Adjustment relating to
acquisition ...................         --          --         --         --          (566)       --            --            (566)
  cost

Purchase of treasury stock ....       (2,700)       --         --         --          --          (132)         --            (132)
                                  ----------  ---------- ---------- ----------  ----------  ----------    ----------    ----------

Balance at December 31, 2000 ..    2,821,666           0     21,404          652     1,495        (152)            0        23,399
Net income for the period .....         --          --         --          1,148      --          --            --           1,148
Unrealized loss on available
for sale securities ...........         --          --         --           --      (1,688)       --            --          (1,688)

Reclassification adjustment....         --          --         --           --       1,735        --            --           1,735

    Comprehensive income ......         --          --         --           --        --          --            --           1,195

Issuance of Treasury Shares ...          185        --            2         --        --             9          --              11
Purchase of Treasury Stock ....       (1,800)       --         --           --        --           (88)         --             (88)
                                  ----------  ----------  ---------   ---------- ----------  ----------    ----------    ----------
Balance at December 31, 2001 ..    2,820,051  $       0   $  21,406   $    1,800 $   1,542   $    (231)   $        0    $   24,517
                                  ==========  =========   =========   ========== =========   ==========    ==========    ==========


See accompanying notes.
</TABLE>


<PAGE>
<TABLE>



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

                                                           Years Ended December 31,
                                                      ----------------------------------
                                                         1999        2000         2001
                                                      ----------------------------------
                                                                 (In Thousands)
OPERATING ACTIVITIES
<S>                                                     <C>         <C>         <C>
Net income (loss) ...................................   $ (9,216)   $  2,365    $  1,148
Depreciation and amortization .......................     14,131      15,797      18,283
Unrealized gain on trading securities ...............       (620)       (479)       --
Net proceeds from sale of trading securities ........       --          --         2,066
Minority interests ..................................        686         877         661
Equity in Earnings of affiliated companies ..........     (1,057)     (1,669)       (932)
Reserve for impairment of investment
  in PCS license holders ............................     15,406        --          --
Gain on redemption of East/West preferred stock .....       --        (4,125)       --
Impairment of investment in Spinnaker
  Industries, Inc. ..................................       --          --         3,194
Gain on sale of securities ..........................       --          (909)       (198)
Deferred income taxes ...............................     (5,226)     (2,101)       (724)
Non-cash items and changes in operating
  assets and liabilities
  from operations of Morgan Group Holding Co. to
  be distributed to shareholders ....................      2,511       3,539       1,032
Assets transferred in settlement
  of litigation .....................................       --          --           415
Changes in operating assets and liabilities,
  net of effects of acquisitions:
    Trade accounts receivable .......................       (511)       (834)     (1,082)
    Trade accounts payable and accrued liabilities ..      1,291       2,850        (629)
    Other ...........................................     (1,071)       (658)      1,326
Other ...............................................       --        (1,034)       (212)
                                                         --------    --------    --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ...........     16,324      13,619      24,348
                                                         --------    --------    --------

INVESTING ACTIVITIES
Acquisition (total cost less debt assumed and
  cash equivalents acquired):
    Central Scott Telephone Company .................    (23,985)       --          --
    Central Utah Telephone Company ..................       --          --        (6,914)
    American Alarm Company ..........................       --          --        (3,085)
Investment in Personal Communications Services
  Partnerships, net .................................       --        (7,988)       (186)
Proceeds from redemption of East/West preferred stock       --         8,712        --
Capital expenditures ................................    (11,742)    (17,208)    (20,533)
Proceeds from sale of securities ....................       --         1,563         494
Cash received from liquidation of partnership .......       --          --           550
Investing activities of operations of
  Morgan Group Holding Co. to be
  distributed to shareholders .......................       (839)       (104)     (2,718)
Other ...............................................     (1,342)        896       1,276
                                                         --------    --------    --------

NET CASH USED IN INVESTING ACTIVITIES ...............    (37,908)    (14,129)    (31,116)
                                                         --------    --------    --------

FINANCING ACTIVITIES
Issuance of long-term debt ..........................     51,563      13,489      30,847
Payments to reduce long-term debt ...................    (13,010)    (16,021)    (24,499)
Net borrowings, lines of credit .....................      2,718       1,062       6,003
Purchase of Treasury stock ..........................        (20)       (132)        (88)
Advances to Lynch Corporation .......................    (15,987)       --          --
Financing activities of operations
 of Morgan Group Holding Co. to be
 distributed to shareholders ........................     (1,663)       (769)        439
Other ...............................................        (41)        208         465
                                                         --------    --------    --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES       23,560      (2,163)     13,167
                                                         --------    --------    --------
Net increase (decrease) in cash
  and cash equivalents ..............................      1,976      (2,673)      6,399
Cash and cash equivalents at beginning of year ......     25,531      27,507      24,834
                                                         --------    --------    --------
Cash and cash equivalents at end of year ............   $ 27,507    $ 24,834    $ 31,233
                                                        ========    ========     ========


See accompanying notes.
</TABLE>


<PAGE>



                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                   Notes to Consolidated Financial Statements
                                December 31, 2001

1.       Accounting and Reporting Policies

Organization

On August 12,  1999,  the Board of Directors  of Lynch  Corporation  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," 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  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  Interactive  also assumed  certain  short-term and long-term debt
obligations of Lynch Corporation.  Prior to the Spin-Off,  Interactive succeeded
to the credit facilities established by Lynch Corporation.

In April 1999,  Lynch  Corporation  received an Internal Revenue Service private
letter  ruling  that  the  distribution  to its  shareholders  of the  stock  of
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 Corporation made certain  representations
to the IRS, which include, among other things, certain representations as to how
Lynch  Corporation  and  Interactive  intend to conduct their  businesses in the
future.

Interactive and Lynch Corporation have entered into certain agreements governing
various ongoing relationships, including the provision of support services and a
tax  allocation  agreement.  The  tax  allocation  agreement  provides  for  the
allocation of tax  attributes  to each company as if it had actually  filed with
the respective  tax  authority.  At the spin off, the employees of the corporate
office  of  Lynch   Corporation   became  the  employees  of  Lynch  Interactive
Corporation and Lynch  Interactive  Corporation  began providing certain support
services to Lynch.  The Company  charged a management  fee for these services to
Lynch Corporation amounting to approximately  $200,000 in 1999, $265,000 in 2000
and  $208,000  in 2001.  In  September  2001,  Interactive  stopped  charging  a
management  fee to  Lynch  Corporation  since  the  corporate  offices  of Lynch
Corporation were relocated at that time.

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

Basis of Presentation

As of December  31, 2000 and 2001,  the years ended  December 31, 2000 and 2001,
and for the period from September 1, 1999 to December 31, 1999, the accompanying
financial statements represent 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,  on a combined basis.  Accordingly,  the
results  for the year ended  December  31,  1999,  represent  a  combination  of
consolidated and combined financial  information for the respective  periods. As
the historical financial  information prior to September 1, 1999 herein reflects
periods  during  which the  Company  did not  operate as an  independent  public
company,  certain assumptions were made in preparing such financial information.
Such  information,  therefore,  may  not  necessarily  reflect  the  results  of
operations,  financial  condition  or cash flows of the Company in the future or
what they would have been had the Company  been an  independent  public  company
during the reporting periods.
<PAGE>

The Company  consolidates the operating results of its telephone (81%-100% owned
during each of the three years ended  December  31,  2001) and cable  television
(60% at December 31, 2000 and 100% owned at December 31, 2001) subsidiaries. All
material   intercompany   transactions   and  balances  have  been   eliminated.
Investments  in affiliates in which the Company does not have a majority  voting
control are  accounted  for in accordance  with the equity  method.  The Company
accounts  for  the  following  affiliated  companies  on  the  equity  basis  of
accounting:

Coronet  Communications  Company  (20%  owned at  December  31,  2001),  Capital
Communications  Company,  Inc.  (49%  owned  at  December  31,  2001),  Fortunet
Communications,  L.L.P.  (49.9%  owned at December 31,  2001),  and the cellular
operations  in New Mexico,  Iowa and North  Dakota (17% to 21% owned at December
31, 2001).

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."  At December 31, 2001,  the quoted market price of
these  shares  was $0 per  share.  During  the year  ended  December  31,  2000,
Spinnaker recorded a loss from continuing operations of $17.7 million. Losses of
$5.2  million and $2.8 million  were  recorded for the years ended  December 31,
1999 and 1998,  respectively.  In the nine  months  ended  September  30,  2001,
Spinnaker  recorded  a net loss of $53.9  million,  including  $41.2  million of
restructuring  and  asset  impairment  reserves  related  to  the  close  of its
Spinnaker Coating facility in Westbrook,  Maine. On October 15, 2001,  Spinnaker
Industries  announced that it would not be making that day's scheduled  interest
payment with regard to its 10 3/4% Senior  Notes and it was actively  engaged in
discussion  with a majority  of the  holders of those  notes for the  purpose of
negotiating a consensual restructuring of its indebtedness.

On November  13,  2001,  Spinnaker  announced  that it has  commenced  voluntary
proceedings  under  Chapter 11 of the U.S.  Bankruptcy  Code for the  purpose of
facilitating  and  accelerating  its  financial  restructuring.  Spinnaker  also
announced that it had reached  agreement,  subject to Bankruptcy Court approval,
with its existing  lenders to provide up to $30 million in debtor-in  possession
financing,  which  Spinnaker  believes  will allow it to continue  operating its
business in the ordinary and customary manner.

On January 9, 2002,  both classes of  Spinnaker's  stock were de-listed from the
American  Stock  Exchange.  The  stock is now  traded  on the  over the  counter
"bulletin  board" (pink sheets).  There has been no quoted price since the stock
was de-listed in 2002. The Company  believes that the decline in quoted value is
other than  temporary  and,  accordingly,  has  recorded a loss of $3.2  million
during 2001 to write down its  investment  in  Spinnaker  to $0 at December  31,
2001.
<PAGE>

Use of Estimates/Reclassifications

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

Cash Equivalents

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

At December 31, 2000 and 2001, assets of $18.7 million and $14.6 million,  which
are  classified  as cash and cash  equivalents,  are  invested in United  States
Treasury  money  market  funds  for which  affiliates  of the  Company  serve as
investment managers to the respective funds.

At December 31, 2001, the Company has segregated  $7.5 million of U.S.  Treasury
Bills in a separate  account and pledged this account as  collateral on a letter
of credit that secures a put (option to sell) on certain of the Company's  debt.
(See Note 6-Notes Payable and Long-term Debt).

Marketable Securities

Marketable securities consist principally of common stocks. At December 31, 2000
and 2001, 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 $7.3 million and $3.8 million
at   December   31,   2000  and   2001,   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 on
available-for-sale  securities were $12.4 million, $2.6 million and $2.6 million
for the years ended December 31, 1999, 2000 and 2001, respectively.  The changes
in  unrealized  gains in each of the periods  presented,  net of tax,  have been
included in the Consolidated  Statements of Shareholder's Equity,  Investment by
and Advances from Lynch  Corporation prior to September 1, 1999 and "Accumulated
other comprehensive income" thereafter.

The  cost  of  marketable   securities   sold  is  determined  on  the  specific
identification  method.  Realized  gains  included  in  investment  income  were
$37,000, $909,000 and $1,355,000 for the years ended December 31, 1999, 2000 and
2001, 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 Acquired, Net

Excess  of cost over  fair  value of net  assets  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 acquired of $52.2 million and $63.9
million  are net of  accumulated  amortization  of $13.1  million  and  $15.8 at
December 31, 2000 and 2001, respectively.
<PAGE>

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  Corporation,
which were contributed at the time of the Spin-Off.

Revenues

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

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

Earnings (Loss) Per Share

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

Comprehensive Income

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

Segment Information

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

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 is less than carrying  amount.  The
calculation  of impairment  would then be based on appropriate  discounted  cash
flows. (See recent accounting pronouncements below--SFAS No. 144).
<PAGE>

Stock Based Compensation

The Company applies the disclosure only provisions 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  in accounting  for its
equity awards. Under APB No. 25, if the exercise price of the Company's employee
stock options was not less than the market price of the underlying  stock on the
date of grant, no compensation expense is recognized. 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.

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.

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

The Company will apply  Statement  142  beginning in the first  quarter of 2002.
Application  of the  nonamortization  provisions of Statement 142 is expected to
result in an  increase in net income of $2.9  million,  $1.03 per share in 2002,
and would have resulted in an increase in net income of $1.7 million,  $0.60 per
share, $2.1 million,  $0.74 per share and $2.4 million,  $0.86 per share for the
years ended  December 31, 1999,  2000 and 2001,  respectively.  The Company will
test goodwill for impairment using the two-step process  prescribed in Statement
142. The first step is a screen for potential impairment,  while the second step
measures the amount of  impairment,  if any. The Company  expects to perform the
first  of the  required  impairment  tests  of  goodwill  and  indefinite  lived
intangible  assts as of  January  1, 2002 in the  second  quarter  of 2002.  Any
impairment  charge  resulting from these  transitional  impairment tests will be
reflected as the  cumulative  effect of a change in accounting  principle in the
first  quarter of 2002.  The company has not yet  determined  what the effect of
these tests will be on the earnings and financial position of the Company.

In October 2001, the FASB issued Statement of Financial  Accounting Standard No.
144, "Accounting for Impairment or Disposal of Long-Lived Assets", effective for
fiscal years  beginning  after  December 15, 2001. The FASB's new rules on asset
impairment  supersede FASB  Statement No. 121, "Accounting for the Impairment of
Long-Lived  Assets and for Long-Lived  Assets to be Disposed  Of," and provide a
single  accounting  model  for  long-lived  assts to be  disposed  of.  Although
retaining many of the fundamental  recognition and measurement provision of FASB
Statement 121, the new rules  significantly  change the criteria that would have
to be met to  classify  an asset  as  held-for-sale.  The new  rules  also  will
supersede the  provisions of APB opinion 30 with regard to reporting the effects
of a disposal  of a segment  of a  business  and will  require  expected  future
operating  losses from  discontinued  operations to be displayed in discontinued
operations  in the  periods in which the losses are  incurred  (rather as of the
measurement  date  as  presently   required  by  APB  30).  In  addition,   more
dispositions  will qualify for discontinued  operations  treatment in the income
statement.  The Company has not yet determined  what the effect of FASB 144 will
be on the earnings and financial position of the Company.
<PAGE>

2.            Spin-off of Morgan

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

On August 17, 2001, the Board of Directors of Interactive  authorized management
to distribute its holdings in Morgan to Interactive's shareholders.

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

Morgan  currently  has on file with the  Securities  and  Exchange  Commission a
preliminary  registration  statement registering warrants that will be issued to
all of its current  shareholders  to acquire  newly  issued share of Class A and
Class B Morgan common stock.  The warrants that are to be issued to  Interactive
will  also  be  placed  in  Morgan  Holding.  Pursuant  to the  spin  off,  each
Interactive shareholder would receive one share of Morgan Holding for each share
of Interactive owned.

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

Interactive  has restated  its prior year  financial  statements  to present the
operating results of Interactive on a comparable basis.  Morgan's net sales were
$101.2 million,  $128.4 million, and $172.5 million for the years ended December
31, 2001, 2000 and 1999, respectively.

The net  assets of Morgan  included  in the  accompanying  consolidated  balance
sheets as of December 31, 2000 and 2001, consist of the following:
<TABLE>
<CAPTION>

(In thousands)                                                      December 31,
                                                                 2000        2001
                                                                --------  --------
<S>                                                              <C>       <C>
Cash and cash equivalents ....................................   $ 2,092   $ 1,017
Accounts receivable, net .....................................     7,881     6,322
Prepaids and other (includes restricted cash
  of $2.6 million in 2001) ...................................     1,646     5,418
                                                                 -------   -------
Current assets to be distributed to shareholders .............   $11,619   $12,757
                                                                 =======   =======
Property, plant and equipment, net ...........................   $ 3,688   $ 3,385
Excess of cost over net fair value of net assets acquired, net     6,727     6,256
Other assets .................................................       634       600
                                                                 -------   -------
Non-current assets to be distributed to shareholders .........   $11,049   $10,241
                                                                 =======   =======

Notes payable ................................................       $--   $   580
Accounts payable .............................................     2,299     4,505
Accrued liabilities ..........................................     8,285     6,027
Current portion of long term debt ............................       217       169
                                                                 -------   -------
Current liabilities to be distributed to shareholders ........   $10,801   $11,281
                                                                 =======   =======

Long term debt ...............................................   $    71   $    13
Other liabilities ............................................     4,521     4,078
Minority interest ............................................     3,193     2,199
                                                                 -------   -------
Non-current liabilities and minority interest to be
  distributed to shareholders ................................   $ 7,785   $ 6,290
                                                                 =======   =======
</TABLE>
The report of Ernst & Young LLP, Morgan's independent auditors,  with respect to
its financial  statements as of December 31, 2001 and 2000,  and for each of the
three years ended in the period ended December 31, 2001, contains an explanatory
paragraph which expresses  substantial  doubt as to Morgan's ability to continue
as a going concern.

<PAGE>
3.       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, through December 31, 2001 (see Note 1). The Company had
agreed  to  pay a fee  to an  affiliate  of  the  Chairman  of  Interactive  for
performance  of services in connection  with the  acquisition.  (During 2000, in
settlement of the fee, the Company  transferred to that firm its stock ownership
in Lynch Capital Corporation.  Lynch Capital Corporation is a broker dealer that
recorded  revenues  of $6,000  and a net loss of $16,000  in 2000.  The  Company
recorded a $61,000 pre-tax gain from this transfer in 2000.)

On June 22, 2001,  Lynch  Telephone  Corporation X, a subsidiary of Interactive,
acquired Central Utah Telephone,  Inc. and its subsidiaries,  and Central Telcom
Services, LLC, a related entity, for approximately $6.9 million in cash and $8.7
million in notes.  The  Company  has  recorded  approximately  $11.7  million of
goodwill, which is being amortized over 25 years, through December 31, 2001 (see
Note 1).

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 the dates of acquisition. The operating results of the acquired
companies are included in the  Statements of  Operations  from their  respective
acquisition dates.

The following unaudited  consolidated pro forma information shows the results of
the  Company's  operations  presented  as if the Central  Scott and Central Utah
acquisitions  and the distribution of Morgan were made at the beginning of 1999.
The unaudited pro forma information is not necessarily indicative of the results
of operations that would have occurred had the  transactions  been made at these
dates nor is it necessarily indicative of future results of operations.

<TABLE>
<CAPTION>

                                                Years Ended December 31,
                                          ---------------------------------
                                              1999       2000       2001
                                           ---------   --------   --------
<S>                                        <C>         <C>        <C>
Sales ..................................   $ 66,342    $ 71,705   $ 82,129
Income (loss) from continuing operations
  before extraordinary item ............   $ (9,626)   $  5,361   $  2,491
Net income (loss) ......................     (9,786)      5,361      2,491
Basic and diluted earnings per share:
   Net income (loss) ...................   $  (3.47)   $   1.90   $   0.88
</TABLE>

4.       Wireless Communications Services

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.  The licensee must construct
personal  communication  service  networks that provide  adequate  service to at
lease  one-quarter  of the  population  in the related  personal  communications
service  market,  or make a showing of  substantial  service in a licensed  area
within five years of the license grant date. Failure to comply may result in the
forfeiture of the license. 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.
<PAGE>

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  (based on 1999 census  data) 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 February 2001,  Fortunet converted from a partnership to a
corporation  with  Interactive  receiving  49.9% of the  common  stock.  It also
changed its name to  Sunshine  PCS  Corporation.  On February  22,  2001,  Lynch
Interactive spun-off its common stock of Sunshine to its shareholders.  Prior to
the conversion,  Interactive  contributed a portion of the debt owned to it as a
contribution  to capital and  restructured  the terms of the remaining debt. The
face value of the  restructured  debt is $16.1 million and the carrying value is
$3.4 million at December 31, 2000 and 2001. In addition,  in exchange for a cash
infusion of $250,000,  Lynch Interactive acquired (1) 10,000 shares of preferred
stock in Sunshine with an aggregate liquidation  preference of $10.0 million and
(2) warrants to purchase  4,300,000  shares of Sunshine  Class A common stock at
$0.75 per share and 235,294 shares of Sunshine  common stock which are currently
held in  escrow  (see Note 6). At the  time,  Interactive's  obligation  to make
further  loans was  terminated.  Subsequent  to December 31,  2001,  Interactive
advanced  $550,000  to  Sunshine.  It will be used to buy  additional  shares of
Sunshine or be returned to the Company. In February 2002, Sunshine issued rights
to its  shareholders  to purchase up to  1,531,593  shares of its Class A Common
Stock at a price of 1.00 per share.  To date,  Interactive  has  subscribed  for
58,824  shares of Class A Common  Stock by  exercising  its rights in respect of
235,294 shares of Sunshine, which Interactive holds in escrow.

During 2000,  Interactive  invested in four limited liability  companies,  which
participated  in  four  separate  auctions.  In  the  paging  auction,  Betapage
Communications,   L.L.C.  acquired  24  licenses  at  a  net  cost  of  $77,000;
Interactive  owns  49.9% of  Betapage's  equity.  In the 39 MHz  auction,  PTPMS
Communications,  L.L.C.  acquired  22 licenses  for a net cost of $1.5  million;
Interactive  has loans to PTPMS of $1.4 million and owns 49.9% of PTPMS  equity.
In the Guard  Band  auction,  PTPMS II  Communications,  L.L.C.  acquired  three
licenses  at a net cost of $6.3  million;  Interactive  has loans to PTPMS II of
$6.1 million, $5.0 million of which was funded in the first quarter of 2001, and
owns 49.9% of PTPMS II equity.  In the C&F Block PCS  Reauction,  which ended on
January 26, 2001, Theta  Communications,  LLC acquired one license at a net cost
of $4.0 million.  The license has not yet been awarded,  and, as required  under
Federal  Communications  Commission  rules,  Theta  has  20% of the  cost of the
license on deposit.  During the year ended  December 31,  2001,  $5.0 million of
loans from  Interactive to Theta were returned.  Lynch  Interactive  owns 10% of
Theta and has  committed to fund a portion of the  remaining  license  cost.  An
affiliate of Interactive also has invested in Theta.
<PAGE>
On February 25, 2000, Omnipoint Incorporated acquired,  through a merger, all of
the  outstanding  shares of  East/West  Communications,  Inc. At the time of the
merger,   the  Registrant  held  a  redeemable   preferred  stock  of  East/West
Communications, Inc. with a liquidation value of $8.7 million, including payment
in kind of dividends to date. In accordance with its terms,  the preferred stock
was redeemed at its liquidation  value and as a result,  Interactive  recorded a
pre-tax gain of $4.2 million in the first quarter of 2000.

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

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

5.       Investments in Affiliated Companies

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

At December 31, 2000 and 2001,  LENCO's  investment  in Coronet was carried at a
negative  $867,000  and  a  negative  $946,000,  respectively,  due  to  LENCO's
guarantee  of $3.8  million of  Coronet's  third party debt.  Long-term  debt of
Coronet, at December 31, 2001, totaled $10.6 million due to a third party lender
which is due quarterly through December 31, 2005.

At December 31, 2000 and 2001,  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
$1.8 million at December  31, 2000 and $2.6  million at December  31,  2001.  In
January  2002,  the Company  sold its interest in RSA #1 for $5.5  million,  and
expects  to record a pre-tax  gain of  approximately  $4.9  million in the first
quarter of 2002.

Undistributed  earnings of companies  accounted for using the equity method that
are included in consolidated  retained earnings are $.5 million and $1.0 million
at December 31, 2000 and 2001, respectively.
<PAGE>

Summarized  financial  information  for  companies  accounted  for by the equity
method is as follows:
<TABLE>
<CAPTION>
                                                     Consolidated Information
                                                   1999(a)    2000(a)    2001
                                                  --------   --------  --------
                                                        (In Thousands)
<S>                                                <C>       <C>       <C>
Current assets .................................   $ 9,176   $10,955   $11,139
Property, plant & equipment, intangibles & other    26,072    41,899    44,606
Total Assets ...................................    35,248    52,854    55,745
Current liabilities ............................     7,904     6,651     5,720
Long term liabilities ..........................    24,507    36,628    36,641
Minority interest ..............................     1,211     1,819     3,024
Equity .........................................     1,626     7,755    10,359
Total liabilities & equity .....................    35,248    52,854    55,745
Revenues .......................................    27,344    37,442    39,837
Gross profit ...................................    10,429    11,306    18,636
Net income .....................................     4,399     4,679     4,712
<FN>
(a) Prior years have been restated to conform with current year presentation.
</FN>
</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,
                                                                                  2000             2001
                                                                                -------------------------
                                                                                       (In Thousands)
Long-term debt consists of (all interest rates are at December 31, 2001):
<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% (4.9% weighted average), secured by
assets of the telephone companies of $148 million .............................   $  52,188    $  55,499

Bank credit facilities utilized by certain telephone and telephone holding
companies through 2016, $33.4 million at fixed interest rates averaging
7.9% and $53.7 million at variable interest rates averaging 5.0% ..............      54,799       87,127

Unsecured notes issued in connection with acquisitions through 2008, all at
fixed interest rates averaging 10% ............................................      27,259       34,512

Convertible subordinated note due in December, 2004 at fixed interest rate
of 6% .........................................................................      25,000       10,000

Other .........................................................................       3,058        6,064
                                                                                   --------    ---------
                                                                                    162,304      193,202
Current maturities ............................................................     (12,365)     (28,126)
                                                                                   --------    ---------
                                                                                    149,939      165,076
                                                                                   ========    =========
</TABLE>
REA debt of $10.8 million bearing  interest at 2% has been reduced by a purchase
price  allocation  of $1.9 million  reflecting  an imputed  interest rate of 5%.
Unsecured notes issued in connection with the telephone company acquisitions are
predominantly  held  by  members  of  management  of  the  telephone   operating
companies.

The parent company of Interactive  maintains a $10.0 million  short-term line of
credit  facility,  which expires in August 2002.  There were no borrowings under
this line at December 31, 2000 and $7.6 million was  outstanding at December 31,
2001.  Management  expects that such line will be renewed by its expiration date
although  there are no  assurances  that this will be  accomplished.  In such an
event, the company has other financing alternatives to continue its operations.

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,  2000  and  2001,  substantially  all the
subsidiaries' net assets are restricted.
<PAGE>
On December  12,  1999,  Interactive  completed  the private  placement of a $25
million 6% five-year unsecured,  convertible subordinated note, convertible into
Interactive  common stock at $42.50 per share,  (adjusted for subsequent 2 for 1
stock split).  At that time, to assist the Company with the private placement to
Cascade Investment LLC ("Cascade"),  the Chairman and CEO of the Company, agreed
to give the acquirer of the note,  a one-time  option to sell the note to him at
105% of the principal amount thereof.  The exercise period was from November 15,
2000 to  December  1,  2000.  Under  generally  accepted  accounting  principles
relating to significant  shareholders,  during 2000,  Interactive recorded $1.25
million in interest  expense to  recognize  the 5% premium  incorporated  in the
option to sell. This option to sell is secured by a bank letter of credit, 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.

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

The option to sell the  remaining  $10  million  is secured by a  collateralized
letter  of  credit  in which a  portion  of the  collateral  is  provided  by an
affiliate of the Chairman.  The company has agreed to pay all legal fees, letter
of credit fees and a 10% per annum  collateral  fee on the amount of  collateral
provided,  which at December  31, 2001 was valued at $3.0  million.  The Company
expensed  $0.2  million  and $0.8  million  in 2000 and  2001  relating  to this
agreement.  Amounts  payable  at  December  31,  2000 and 2001  were $0 and $0.3
million,  respectively.  The Company can replace the  collateral at any time and
the fees would be eliminated  thereafter.  As of December 31, 2001,  the company
has  replaced  $7.5  million of the escrow  collateral  securing the above noted
letter  of  credit by  segregating  $7.5  million  of U.S.  Treasury  Bills in a
separate  account  and  pledging  this  account to the  issuers of the letter of
credit.  Subsequent  to December  31, 2001,  the  remaining  collateral  of $3.0
million was replaced by the Company.  The remaining  balance of the  convertible
subordinated  note is  classified  as current at December 31, 2001 as the holder
has the ability to demand payment of such amount,  plus the $.5 million premium,
prior to  December  31,  2002.  Management  is  currently  unaware of  Cascade's
intention with regard to their potential  exercise of the option to sell the $10
million.

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

As of December 31,  2001,  a subsidiary  of the Company was in default of a term
loan totaling  $4.8 million.  The  subsidiary is currently  restructuring  their
facility and management expects to have a new facility in place with the current
lender by April 2002.  If such is not  accomplished,  Interactive  expects to be
able to refinance the subsidiary as well as other  subsidiaries  to generate the
funds necessary to repay the current lender.

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

Cash payments for interest were $10.6  million,  $11.6 million and $14.6 million
for the years ended December 31, 1999, 2000 and 2001, respectively.
<PAGE>

Aggregate  principal  maturities of long-term debt at December 31, 2001 for each
of the next five years are as follows: 2002--$28.1 million, 2003--$17.8 million,
2004--$26.7 million, 2005--$11.0 million and 2006--$32.7 million.

7.       CLR Video, L.L.C.

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

8.       Related Party Transactions

Interactive  leases its corporate  headquarters for an annual payment of $70,000
including  utilities  with an  affiliate  of its  Chairman  and Chief  Executive
Officer.   In   addition,   expenses   relating   to   administrative   support,
transportation, and communications (approximately $75,000, $124,000 and $104,000
for the years ended December 31, 1999, 2000 and 2001,  respectively) are paid to
an affiliate of its Chairman and Chief Executive  Officer.  See Notes 1, 4 and 6
for additional references to related party transactions.

9.       Shareholder's Equity

Subsequent to the spin-off by Lynch, the Board of Directors of Lynch Interactive
authorized  the purchase of up to 100,000  shares of its common  stock.  Through
December 31, 2001, 4,900 shares have been purchased at an average cost of $49.03
per share. Subsequent to year-end, the Company has purchased an additional 5,300
shares at an average cost of $42.98 per share.

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

10.      Income Taxes

Lynch Corporation filed consolidated federal and state income tax returns, which
included 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  prior to the spin-off have been computed
assuming  Interactive  was filed on a  separate  company  basis.  All income tax
payments  during the period were made by Interactive  through  Lynch.  Effective
September 1, 1999,  the 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 2000 and 2001 are provided for the temporary
differences between the financial reporting bases and the tax bases of the
Company's assets and liabilities. Cumulative temporary differences at December
31, 2000 and 2001 are as follows:
<TABLE>
<CAPTION>
                                                       Dec. 31, 2000        Dec. 31, 2001
                                                        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 .....   $  --     $ 6,279    $  --     $ 7,283
Discount on long-term debt .......................      --         826       --         734
Basis difference in subsidiary and affiliate stock      --       2,568       --       2,499
Unrealized gains on marketable securities ........      --       1,869       --       2,153
Partnership tax losses in excess of book losses ..      --      (4,547)      --      (4,547)
Other reserves and accruals ......................      --       1,057       --         393
Other ............................................      --         295       --        --
                                                     -------   -------    -------   -------
    Total deferred income taxes ..................   $     0   $ 8,347    $     0   $ 8,515
                                                     =======   =======    =======   =======
</TABLE>
<PAGE>

The provision (benefit) for income taxes before extraordinary item is summarized
as follows:
<TABLE>
<CAPTION>
                           1999      2000        2001
                        --------------------------------
                               (In Thousands)
Current payable taxes:
<S>                      <C>        <C>        <C>
  Federal ............   $ 2,067    $ 5,728    $ 3,438
  State and local.....       681      1,344        740
                         -------    -------    -------
                           2,748      7,072      4,178
Deferred taxes:
 Federal .............    (5,381)    (1,891)      (671)
 State and local .....       155       (210)       (53)
                         -------    -------    -------
                          (5,226)    (2,101)      (724)
                         -------    -------    -------
                         $(2,478)   $ 4,971    $ 3,454
                         =======    =======    =======
</TABLE>

A   reconciliation   of  the   provision   (benefit)  for  income  taxes  before
extraordinary  item and the amount  computed by applying the  statutory  federal
income  tax  rate  to  income  before  income  taxes,  minority  interest,   and
extraordinary item follows:
<TABLE>
<CAPTION>
                                                 1999       2000       2001
                                              ---------------------------------
                                                       (In Thousands)
<S>                                             <C>        <C>        <C>
Tax at statutory rate .......................   $(3,685)   $ 3,673    $ 2,261
Increases (decreases):
State and local taxes, net of federal benefit       522        779        453
Amortization of non-deductible goodwill .....       556        880        596
Other .......................................       129       (361)       144
                                                -------    -------    -------
                                                $(2,478)   $ 4,971    $ 3,454
                                                =======    =======    =======
</TABLE>

Net cash  payments  for income  taxes were $3.0  million,  $4.9 million and $4.9
million for the years ended December 31, 1999, 2000 and 2001, respectively.

11.      Accumulated Other Comprehensive Income


Balances of accumulated other  comprehensive  income, net of tax, which consists
of unrealized gains (losses) on available for sale of securities at December 31,
2000 and 2001 are as follows (in thousands):

<TABLE>
<CAPTION>
                                       Unrealized Gain
                                           (Loss)    Tax Effect     Net
                                         ---------   ---------- ---------
<S>                                        <C>        <C>        <C>
Balance at December 31, 2000 ...........   $ 2,576    $(1,081)   $ 1,495
Reclassification adjustment ............     2,994     (1,259)     1,735
Change in unrealized gains (losses), net    (2,971)     1,283     (1,688)
                                           -------    -------    -------
  Balance at December 31, 2001 .........   $ 2,599    $(1,057)   $ 1,542
                                           =======    =======    =======
</TABLE>

As of March  21,  2002,  accumulated  other  comprehensive  income,  net of tax,
declined to $1,086,000.
<PAGE>

12.      Employee Benefit Plans

Interactive  maintains  several  defined  contribution  plans  at its  telephone
subsidiaries  and  corporate  office.  Interactive's  contributions  under these
plans,  which  vary  by  subsidiary,   are  based  primarily  on  the  financial
performance  of the business units and employee  compensation.  Total expense of
these  plans for the  years  ended  December  31,  1999,  2000 and 2001 was $0.7
million, $0.9 million and $0.9 million, respectively.

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

In addition,  three of the Company's  telephone  subsidiaries  participate  in a
multi-employer  defined  benefit  plan,  which is  administrated  by a telephone
industry  association.  Under this plan accumulated benefits and plan assets are
not  determined or allocated  separately by individual  employees.  Accordingly,
such data is not currently  available.  Total  expenses of these plans were $0.1
million for each of the three years in the period ended December 31, 2001.

13.      Commitments and Contingencies

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 2006.  Certain leases have renewal  options
and escalation clauses.  Rental expense under operating leases was $0.2 million,
$0.4 million and $0.3 million for years ended December 31, 1999,  2000 and 2001,
respectively.   The  table  below  shows  minimum   lease   payments  due  under
non-cancelable  operating  leases at December  31,  2001.  Such  payments  total
approximately $1.0 million.
<TABLE>
<CAPTION>
                                      Years Ended December 31,

                          2002       2003       2004       2005       2006
                        --------   --------   --------   --------   -------
<S>                    <C>        <C>        <C>        <C>        <C>
Operating leases       $326,000   $216,000   $184,000   $145,000   $98,000
</TABLE>

Interactive  is a  party  to  ordinary  routine  litigation  incidental  to  its
business.  Based on information  currently available,  Interactive believes that
none  of  this  ordinary  routine  litigation,  either  individually  or in  the
aggregate, will have a material effect on its business.

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

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

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

As a result of the decision to spin off its  investment  in Morgan (see Note 2),
the Company is engaged in one business segment:  multimedia.  All businesses are
located domestically, and substantially all revenues are domestic. The Company's
operations include local telephone companies, a cable TV company,  investment in
PCS entities and investment in two  network-affiliated  television stations. The
Company's  primary  operations  are  located  in the  states  of  Iowa,  Kansas,
Michigan,  New  Hampshire,  New  Mexico,  New  York,  North  Dakota,  Utah,  and
Wisconsin.  75%  of the  Company's  telephone  customers  are  residential.  The
remaining customers are businesses.

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

Operating  profit  is equal  to  revenues  less  operating  expenses,  including
unallocated general corporate  expenses,  interest and income taxes. The Company
allocates a portion of its general corporate  expenses to its operating segment.
Such  allocation  was $1.2 million,  $1.3 million and $1.3 million for the years
ended December 31, 1999, 2000 and 2001, respectively. Identifiable assets of the
operating segment are the assets used by the segment in its operations excluding
general corporate assets. General corporate assets are principally cash and cash
equivalents,   short-term   investments   and  certain  other   investments  and
receivables.

<TABLE>
<CAPTION>
                                                    Years Ended December 31,
                                              -----------------------------------
                                                  1999         2000        2001
                                              -----------------------------------
                                                      (In thousands)
<S>                                            <C>          <C>          <C>
Sales and revenues .........................   $  59,011    $  66,983    $  79,352
                                               =========    =========    =========
EBITDA (before corporate allocation)
  Operations ...............................   $  31,443    $  34,699       41,274
  Unallocated corporate expense ............      (5,113)      (3,671)      (3,006)
                                               ---------    ---------    ---------
  Consolidated total .......................   $  26,330    $  31,028    $  38,268
                                               =========    =========    =========
Operating Profit
  Operations ...............................   $  16,057    $  17,531    $  21,534
  Corporate expense, net ...................      (3,758)      (2,200)      (1,549)
                                               ---------    ---------    ---------
  Consolidated total .......................   $  12,299    $  15,331    $  19,985
                                               =========    =========    =========
Depreciation and amortization
  Operations ...............................   $  14,115    $  15,781    $  18,268
  General corporate ........................          16           16           15
                                               ---------    ---------    ---------
  Consolidated total .......................   $  14,131    $  15,797    $  18,283
                                               =========    =========    =========
Capital expenditures
  Operations ...............................   $  11,742    $  17,196    $  20,524
  General corporate ........................        --             12            9
                                               ---------    ---------    ---------
  Consolidated total .......................   $  11,742    $  17,208    $  20,533
                                               =========    =========    =========
Total assets (excludes total assets of
  Morgan Group Holding Co. of $32,264,
    $22,668 and $22,998, respectively)
  Operations ...............................   $ 211,622    $ 211,562    $ 247,034
  General corporate ........................      10,083        6,180        9,316
                                               ---------    ---------    ---------
 Consolidated total .......................    $ 221,705    $ 217,742    $ 256,350
                                               =========    =========    =========
Operating profit for reportable segments ...   $  12,299    $  15,331    $  19,985
Other profit or loss:
  Investment income ........................       2,013        3,260        2,862
  Interest expense .........................     (10,802)     (13,568)     (13,936)
  Equity in earnings of affiliated companies       1,057        1,669          932
  Reserve for impairment of investment
    in PCS license holders .................     (15,406)        --           --
  Gain on sales of subsidiary and
    affiliate stock and other assets .......        --          4,187         --
  Impairment of Spinnaker Industries, Inc. .        --           --         (3,194)
                                               ---------    ---------    ---------
  Income (loss) before income taxes,
    minority interest and extraordinary item
    and operations of Morgan ...............   $ (10,839)   $  10,879    $   6,649
                                               =========    =========    =========
</TABLE>
<PAGE>

15.      Quarterly Results of Operations (Unaudited)

<TABLE>
<CAPTION>
                                                       2001-Three Months Ended (a)
                                             ------------------------------------------------
                                             March 31  June 30  September 30(d)  December 31(f)
                                             -----------------------------------------------
                                                (In thousands, except per share amounts)

<S>                                            <C>        <C>        <C>        <C>
Sales and revenues .........................   $ 17,209   $ 17,451   $ 23,934   $ 20,758
Operating profit ...........................      3,649      4,230      8,365      3,741
Income (loss) from continuing operations (e)        610        971      1,785       (832)

Basic and diluted earnings per share:(b)
Income (loss) from continuing operations (e)   $   0.22   $   0.34   $   0.63   $  (0.30)
</TABLE>
<TABLE>

<CAPTION>
                                                   2000-Three Months Ended (a)
                                            --------------------------------------------
                                            March 31(c) June 30 September 30 December 31
                                            --------------------------------------------
                                               (In thousands, except for per share amounts)

<S>                                            <C>       <C>       <C>       <C>
Sales and revenues .........................   $15,571   $16,019   $17,899   $17,494
Operating profit ...........................     3,736     3,650     4,702     3,243
Income (loss) from continuing operations (e)     2,622       904       933       572

Basic and diluted earnings per share (b):
Income (loss) from continuing operations (e)   $  0.93   $  0.32   $  0.33   $  0.20
<FN>
(a)  Quarterly  results for the periods March 31, 2001,  June 30, 2001,  and all
     periods in 2000 have been restated to reflect the spin off of Morgan.

(b)  Earnings  per share for all  periods are  adjusted  to reflect  two-for-one
     stock split on record date of August 28, 2000.


(c)  The three months ended March 31, 2000,  includes a $2.5 million net gain on
     redemption on East/West Communications, Inc. preferred stock.

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

(e)  Reflects income before extraordinary item and operations of Morgan.

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


16.      Earnings (Loss) Per Share

For the period through the September 1999 spin-off from Lynch  Corporation,  the
following  table  sets  forth the  computation  of pro forma  basic and  diluted
earnings (loss) per share before  extraordinary  item. Pro forma earnings (loss)
per share for these periods are calculated  assuming that the shares outstanding
for  1999  are  the  same  as the  shares  outstanding  for  Lynch  Corporation.
Subsequent to September 1999, basic and dilutive earnings per share are based on
the average weighted number of shares outstanding.

On December  13, 1999,  Lynch  Interactive  issued a $25 million 6%  convertible
promissory  note,  which was  convertible  into 588,235  shares of the Company's
common  stock.  Such  securities  were excluded for the  calculation  of diluted
earnings  (loss)  per  share in 1999 and 2000 as  assuming  conversion  would be
anti-dilutive.  In  January  2001,  $15  million  of the  note was  repaid.  The
resulting $10 million convertible note is convertible into 235,294 shares of the
Company's  common stock.  Such  securities  were excluded for the calculation of
dilutive  earnings (loss) per share in 2001, since assuming  conversion would be
anti-dilutive.



<PAGE>

<TABLE>



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

<CAPTION>

                                                                 Years Ended December 31,
                                                             ---------------------------------
                                                                1999       2000       2001
                                                             ----------------------------------
                                                                       (In Thousands)

<S>                                                            <C>        <C>        <C>
Interest, Dividends & Gains on Sale of Marketable Securities   $    86    $   278    $   891
Interest & Other Income from Securities ....................        49        280        313
                                                               -------    -------    -------
     TOTAL INCOME ..........................................       135        558      1,204

Cost and Expenses:
  Unallocated Corporate Administrative Expense .............     3,414      2,248      1,549
  Interest Expense .........................................     2,134      4,115      4,612
                                                               -------    -------    -------
      TOTAL COST AND EXPENSES ..............................     5,548      6,363      6,161
                                                               -------    -------    -------

LOSS BEFORE INCOME TAXES AND EQUITY IN
INCOME (LOSS) OF SUBSIDIARIES ..............................    (5,413)    (5,805)    (4,957)

Income Tax Benefit .........................................     1,840      1,974      1,685
Equity in Income (Loss) of Subsidiaries ....................    (5,634)     8,862      5,806
Loss from operations of Morgan - Net .......................        (9)    (2,666)    (1,386)
                                                               -------    -------    -------
NET INCOME .................................................   $(9,216)   $ 2,365    $ 1,148
                                                               =======    =======    =======
</TABLE>


NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE A - BASIS OF PRESENTATION

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

NOTE B - DIVIDENDS FROM SUBSIDIARIES

          No dividends were received from subsidiaries in any period.

NOTE C - LONG-TERM DEBT

          Lynch Interactive Corporation  ("Interactive") was spun-off from Lynch
          Corporation on September 1, 1999.  Interactive has a note payable to a
          subsidiary with a principal amount of $9.2 million at a fixed interest
          rate of 6% per  annum,  due in 2003.  The note is  convertible  at the
          subsidiary's  option into common stock of Lynch  Corporation (1 share)
          and Interactive (2 shares) with a combined  exercise price of $120 per
          share.

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

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


<PAGE>

<TABLE>



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

                                                                     Years Ended December 31,
                                                                       --------------------
                                                                         2000         2001
                                                                       --------------------
                                                                        (In Thousands)
ASSETS
CURRENT ASSETS
<S>                                                                     <C>       <C>
   Cash and Cash Equivalents ........................................   $ 2,451   $ 7,631
   Deferred Income Taxes ............................................       804        85
   Other current assets .............................................       444       158
                                                                        -------   -------
                                                                          3,699     7,874

OFFICE EQUIPMENT (Net) ..............................................        31        24

OTHER ASSETS (Principally Investment in and Advances to Subsidiaries)    71,682    84,543
                                                                        -------   -------
TOTAL ASSETS ........................................................   $75,412   $92,441
                                                                        =======   =======


LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES .................................................   $ 5,910   $21,778

LONG TERM DEBT ......................................................    41,437    44,100

DEFERRED INCOME TAX LIABILITIES .....................................     2,453      --

DEFERRED CREDITS ....................................................     2,213     2,046

TOTAL SHAREHOLDERS' EQUITY ..........................................    23,399    24,517
                                                                        -------   -------

Total Liabilities and Shareholders' Equity ..........................   $75,412   $92,441
                                                                        =======   =======

</TABLE>



<PAGE>

<TABLE>


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

                                                           Years Ended December 31,
                                                       -----------------------------------
                                                          1999       2000       2001
                                                       -----------------------------------
                                                                (In Thousands)

<S>                                                     <C>         <C>         <C>
Cash Provided by (Used In) Operating Activities .....   $    639    $  1,355    $ (3,924)
                                                        --------    --------    --------

INVESTING ACTIVITIES:
   Investment and Advances to Brighton Communications     (5,858)        843     (12,861)
   Proceeds from sale of securities .................       --          --         1,679
                                                        --------    --------    --------

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
                                                          (5,858)        843     (11,182)
                                                        --------    --------    --------
FINANCING ACTIVITIES:
  Net Borrowings Under:
    Lines of Credit .................................    (15,150)       --         7,700
    Issuance of Long Term Debt ......................     25,000         171      27,784
    Repayment of Long Term Debt .....................       --          --       (15,121)
    Advances (To) From Lynch Corporation ............     (1,980)       --          --
    Purchase of Treasury Stock ......................       --          --           (88)
    Other ...........................................        (18)       (132)         11
                                                        --------    --------    --------

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
                                                           7,852          39      20,286
                                                        --------    --------    --------
TOTAL INCREASE (DECREASE) CASH AND CASH
   EQUIVALENTS ......................................      2,633        (473)      5,180

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ......        291       2,924       2,451
                                                        --------    --------    --------

CASH AND CASH EQUIVALENTS AT END OF YEAR ............   $  2,924    $  2,451    $  7,631
                                                        ========    ========    ========
</TABLE>


<PAGE>
<TABLE>





                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                          LYNCH INTERACTIVE CORPORATION
                  YEARS ENDED DECEMBER 31, 1999, 2000, AND 2001


<CAPTION>
COLUMN A                              COLUMN  B                     COLUMN C - ADDITIONS             COLUMN D         COLUMN E
                                                                                   CHARGED TO
DESCRIPTION                           BALANCE AT              CHARGED TO             OTHER                             BALANCE AT
                                       BEGINNING              COSTS AND            ACCOUNTS         DEDUCTIONS          END OF
                                       OF PERIOD               EXPENSES            DESCRIBE          DESCRIBE           PERIOD
                                      ---------------- --------------------------------------- ------------------ -----------------
<S>                                          <C>                 <C>               <C>                <C>                 <C>
Year Ended December 31, 2001
Allowance for Uncollectible Accounts         $155,000            $276,000          $22,000(B)         $29,000(A)          $424,000

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

Year Ended December 31, 1999
Allowance for Uncollectible Accounts
                                             $112,000             $55,000               $   0         $65,000(A)          $102,000
<FN>
(A) UNCOLLECTIBLE ACCOUNTS WRITTEN OFF ARE NET OF RECOVERIES.
(B) BEGINNING BALANCE OF ACQUIRED SUBSIDIARY
</FN>

</TABLE>




<PAGE>



                                   SIGNATURES

Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities  and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

LYNCH INTERACTIVE CORPORATION

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

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

         Signature                        Capacity                                       Date

<S>                                 <C>                                                 <C>
* MARIO J. GABELLI                  Chairman of the Board of                            March 27, 2002
-------------------
   MARIO J. GABELLI                 Directors and Chief Executive
                                      Officer (Principal Executive Officer)

* PAUL J. EVANSON                   Director                                            March 27, 2002
------------------
   PAUL J. EVANSON

 JOHN C. FERRARA                    Director                                            March 27, 2002
-----------------
   JOHN C. FERRARA

* DANIEL R. LEE                     Director                                            March 27, 2002
-------------------
   DANIEL R. LEE

* DAVID C. MITCHELL                 Director                                            March 27, 2002
-------------------
   DAVID C. MITCHELL

* SALVATORE MUOIO                   Director                                            March 27, 2002
-----------------
   SALVATORE MUOIO

* RALPH R. PAPITTO                  Director                                            March 27, 2002
------------------
   RALPH R. PAPITTO

* VINCENT TESE                      Director                                            March 27, 2002
------------------
   VINCENT TESE


s/ROBERT E. DOLAN                   Chief Financial Officer                             March 27, 2002
------------------
   ROBERT E. DOLAN                   (Principal Financial
                                     and Accounting Officer)


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


<PAGE>





                                  EXHIBIT INDEX

Exhibit No.                  Description

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 (filed as
                             Exhibit 3.1 hereto)

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, Inc.,
                             the United States of America and the Rural
                             Telephone Bank.**

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 Investment
                             LLC ("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 Cascade.+++

4.6           (iv)           Agreement between Registrant and Mario J. Gabelli
                             dated as of December 26, 2000 (incorporated by
                             reference to Exhibit 10(a) to Registrant's Form 8-K
                             dated January 16, 2001).

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 Corporation's Form 10-K for the year ended
                             December 31, 1995).

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

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


<PAGE>





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

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

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

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

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

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

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

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

10            (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 Company,
                             Brighton Communications Corporation and Brighton
                             Iowa Acquisition Corporation (schedules omitted)
                             (incorporated by reference to Exhibit 10.1 to
                             Lynch's Form 8-K dated July 16, 1999).  Registrant
                             agrees to furnish to the Securities and Exchange
                             Commission the schedules upon receipt.

10            (m)            Principal Executive Bonus Plan.

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


10            (o)            Employment Agreement, dated as of August 1, 2001,
                             between John Fikre and Lynch Interactive
                             Corporation.+

21                           Subsidiaries of Registrant+

24                           Powers of Attorney+


<PAGE>

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

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.