================================================================================
                        SECURITIES & EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q
(Mark One)

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

For the quarterly period ended March 31, 2004
                               --------------

                                       or

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

For the transition period from __________ to __________

Commission File No.     1-15097
                        -------


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



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


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

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

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

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

Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock, as of the latest practical date.

            Class                              Outstanding at April 30, 2004
            -----                              -----------------------------
Common Stock, $.0001 par value                          2,782,151
================================================================================
<PAGE>

                                      INDEX

                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                 ----------------------------------------------

PART I. FINANCIAL INFORMATION
-----------------------------


Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets:
  -      March 31, 2004
  -      December 31, 2003
  -      March 31, 2003

Condensed Consolidated Statements of Operations:
  -      Three months ended March 31, 2004 and 2003

Condensed Consolidated Statements of Cash Flows:
  -      Three months ended March 31, 2004 and 2003

Notes to Condensed Consolidated Financial Statements

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

Item 3. Quantitative and Qualitative Disclosure About Market Risk

Item 4. Controls and Procedures

PART II. OTHER INFORMATION
--------------------------

Item 1. Legal Proceedings

Item 6. Exhibits and Reports on Form 8-K


SIGNATURE
---------

CERTIFICATIONS
--------------




                                        i



<PAGE>



PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
        --------------------

                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      (In thousands, except share amounts)
<TABLE>
<CAPTION>

                                                               March 31,   December 31,  March 31,
                                                                 2004          2003       2003
                                                              -------------------------------------
                                                             (Unaudited)   (Audited)   (Unaudited)
<S>                                                           <C>          <C>          <C>
ASSETS
Current Assets:
  Cash and cash equivalents ...............................   $  29,572    $  26,556    $  25,744
  Receivables, less allowances of $310,
    $262 and $303, respectively ...........................       7,923        8,183        8,700
  Material and supplies ...................................       2,736        2,597        3,470
  Prepaid expenses and other current assets ...............       1,110        1,272        1,583
                                                              ---------    ---------    ---------
Total Current Assets ......................................      41,341       38,608       39,497

Property, Plant And Equipment:
  Land ....................................................         840          840          833
  Buildings and improvements ..............................      13,336       13,336       12,908
  Machinery and equipment .................................     216,855      213,939      201,002
                                                              ---------    ---------    ---------
                                                                231,031      228,115      214,743
  Less: Accumulated Depreciation ..........................    (107,683)    (102,556)     (92,717)
                                                              ---------    ---------    ---------
                                                                123,348      125,559      122,026
Goodwill ..................................................      60,580       60,580       60,580
Other intangibles .........................................      10,321        8,168        7,906
Investments in and advances to affiliated entities ........       5,310        7,223       10,462
Other assets ..............................................      13,176       12,048       12,123
                                                              ---------    ---------    ---------
Total assets ..............................................   $ 254,076    $ 252,186      252,594
                                                              =========    =========    =========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
  Notes payable to banks ..................................   $   3,535    $   3,456       10,639
  Trade accounts payable ..................................       4,457        5,336        3,462
  Accrued interest payable ................................         696          697          362
  Accrued liabilities .....................................      10,925        8,732       14,172
 Current maturities of long-term debt .....................      13,071       13,162       18,474
                                                              ---------    ---------    ---------
Total current liabilities .................................      32,684       31,383       47,109
Long-term debt ............................................     160,388      162,621      162,898
Deferred income taxes .....................................      15,812       15,517        6,573
Other liabilities .........................................       2,976        3,015        2,986
                                                              ---------    ---------    ---------
  Total liabilities .......................................     211,860      212,536      219,566

Minority Interests ........................................      10,297        9,763        9,051

Commitments and Contingencies

Shareholders' equity
  Common stock, $0.0001 par value-10,000,000
    shares authorized; 2,824,766 issued; 2,774,651
     2,779,951 and 2,790,651 outstanding ..................        --           --           --
  Additional paid-in capital ..............................      21,406       21,406       21,456
  Retained earnings .......................................      10,872        9,269        3,292
  Accumulated other comprehensive income ..................       1,253          686          467
  Treasury stock, 50,115, 44,815 and 34,115 shares, at cost      (1,612)      (1,474)      (1,238)
                                                              ---------    ---------    ---------
Total shareholder's equity ................................      31,919       29,887       23,977
                                                              ---------    ---------    ---------
Total liabilities and shareholders' equity ................   $ 254,076    $ 252,186    $ 252,594
                                                              =========    =========    =========

See accompanying Notes to Condensed Consolidated Financial Statements.

</TABLE>
                                      -1-
<PAGE>




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

<TABLE>
<CAPTION>
                                                           Three Months Ended
                                                               March 31,
                                                        ------------------------
                                                           2004       2003
                                                        ------------------------
<S>                                                        <C>         <C>
Revenues ............................................   $ 21,888    $ 21,303

Costs and expenses:
Cost of revenue .....................................      7,480       7,437
General and administrative costs at operations ......      3,326       3,407
Corporate office expenses ...........................        973         770
Depreciation and amortization .......................      5,221       4,915
                                                        --------------------
Operating profit ....................................      4,888       4,774
                                                        --------------------

Other income (expense):
   Investment income ................................        728         558
   Interest expense .................................     (2,819)     (3,026)
   Equity in earnings of affiliated companies .......        712         384
                                                        --------------------
                                                          (1,379)     (2,084)
                                                        --------------------
Income before income taxes and minority interests ...      3,509       2,690
Provision for income taxes ..........................     (1,449)     (1,076)
Minority interests ..................................       (457)       (201)
                                                        --------------------
Net income ..........................................   $  1,603    $  1,413
                                                        ====================

Basic and diluted weighted average shares outstanding      2,777       2,791
Basic and diluted earnings per share ................   $   0.58    $   0.51
</TABLE>

See accompanying Notes to Condensed Consolidated Financial Statements.

                                      -2-
<PAGE>

                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                           (UNAUDITED) (in thousands,
                               except share data)
<TABLE>
<CAPTION>



                                                                                     Accumulated
                                  Shares of                                             Other
                                   Common                 Additional                Compre-hensive
                                    Stock     Common       Paid-in      Retained       Income       Treasury
                                 Out-standing   Stock      Capital      Earnings                      Stock       Total
                                 ------------------------------------------------------------------------------------------

<S>                    <C>        <C>          <C>          <C>          <C>          <C>          <C>           <C>
Balance as of December 2003 ..    2,779,951    $        0   $   21,406   $    9,269   $      686   $   (1,474)   $   29,887
Net income for the period ....         --            --           --          1,603         --           --           1,603
Unrealized losses on available
for
  sale securities, net .......         --            --           --           --            567         --             567
                                                                                                                 ----------
Comprehensive income .........         --            --           --           --           --           --           2,153
                                                                                                                 ----------
Purchase of treasury stock ...       (5,300)         --           --           --           --           (138)         (138)
                                 ----------    ----------   ----------   ----------   ----------   ----------    ----------
Balance at March 31, 2004 ....    2,774,651    $        0   $   21,406   $   10,872   $    1,253   $   (1,612)   $   31,919
                                 ==========    ==========   ==========   ==========   ==========   ==========    ==========
</TABLE>

See accompanying Note to Condensed Consolidated Financial Statements.


                                      -3-
<PAGE>



                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                           (UNAUDITED) (In thousands)
<TABLE>
<CAPTION>

                                                                         Three Months Ended
                                                                              March 31,
                                                                        --------------------
                                                                           2004       2003
                                                                        --------------------
<S>                                                                     <C>         <C>
Operating activities:
Net Income ..........................................................   $  1,603    $  1,413
Adjustments to reconcile net income to net cash provided by operating
activities:
   Depreciation and amortization ....................................      5,221       4,915
   Equity in earnings of affiliated companies .......................       (712)       (384)
   Minority interests ...............................................        457         201
   Changes in operating assets and liabilities:
        Receivables .................................................        307         216
        Accounts payable and accrued liabilities ....................      1,324      (1,039)
   Other ............................................................       (189)       (583)
                                                                        --------    --------
Net cash provided by operating activities ...........................      8,011       4,739
                                                                        --------    --------

Investing activities:
Capital expenditures ................................................     (2,614)     (4,229)
Acquisition of business .............................................       (377)       --
Acquisition of subscriber lists .....................................        (91)       (369)
Investment in and advances to affiliated entities ...................        (63)        (34)
Distributions received from investments .............................        821         164
Other ...............................................................         30        (340)
                                                                        --------    --------
Net cash used in investing activities ...............................     (2,294)     (4,808)
                                                                        --------    --------

Financing activities:
Issuance of long term debt ..........................................        949       7,773
Repayments of long term debt ........................................     (3,273)     (3,022)
Net proceeds (repayments) on lines of credit ........................         79      (2,243)
Purchase of treasury stock ..........................................       (138)        (51)
Other ...............................................................       (318)       --
                                                                        --------    --------
Net cash provided by (used in) financing activities .................     (2,701)      2,457
                                                                        --------    --------
Net increase in cash and cash equivalents ...........................      3,016       2,388
Cash and cash equivalents at beginning of period ....................     26,556      23,356
                                                                        --------    --------
Cash and cash equivalents at end of period ..........................   $ 29,572    $ 25,744
                                                                        ========    ========

Cash paid for:
  Interest expense ..................................................   $  2,826    $  3,071
                                                                        ========    ========
  Income taxes ......................................................   $    175    $    329
                                                                        ========    ========
</TABLE>

See accompanying Notes to Condensed Consolidated Financial Statements.
                                      -4-
<PAGE>




                  LYNCH INTERACTIVE CORPORATION & SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A.   Basis of Presentation

Lynch Interactive Corporation  ("Interactive" or the "Company") consolidates the
operating results of its telephone and cable television  subsidiaries  (81%-100%
owned at March 31,  2004,  December 31, 2003 and March 31,  2003).  In addition,
certain less than 50% owned  investments in limited  liability  companies  which
were  accounted  for in  accordance  with the equity  method of accounting as of
December  31, 2003 have been  consolidated  at March 31,  2004.  See Note B. 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 March  31,  2004,
December 31, 2003 and March 31, 2003), Capital Communications Company, Inc. (49%
owned at March 31, 2004, December 31, 2003 and March 31, 2003; we note, however,
that Interactive owns a convertible  preferred stock which, if converted,  would
increase  its  ownership  in  Capital  Communications  to 50%) and the  cellular
partnership operations in New Mexico (both 33% owned at March 31, 2004, December
31, 2003 and March 31, 2003).

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United  States  of  America  for  interim  financial  information  and  with the
instructions to Form 10-Q and Articles 10 and 11 of Regulation S-X. Accordingly,
they are not audited and do not include  all of the  information  and  footnotes
required  for  complete  financial   statements.   The  consolidated   financial
statements  and  footnotes  included  in  this  Form  10-Q  should  be  read  in
conjunction  with  the  consolidated  financial  statements  and  notes  thereto
included in the Company's annual report on Form 10-K for the year ended December
31, 2003. In the opinion of management,  all  adjustments  (consisting of normal
recurring  accruals)  considered  necessary  for a fair  presentation  have been
included.  Operating results for the three month period ended March 31, 2004 are
not  necessarily  indicative  of the results  that may be expected  for the year
ending December 31, 2004. 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 affect the amounts
reported in the financial  statements  and  accompanying  notes.  Actual results
could differ from those estimates.


B.   Recently Issued Accounting Pronouncements

The   Financial   Accounting   Standards   Board   ("FASB")   issued   Financial
Interpretation  No.  46,   "Consolidation  of  Variable  Interest  Entities,  an
Interpretation  of ARB No.  51"  (FIN 46) in  January  2003  and  revised  it in
December 2003 (FIN 46R). FIN 46 requires certain variable  interest  entities to
be consolidated by the primary beneficiary of the entity if the equity investors
in the  entity  do not  have  the  characteristics  of a  controlling  financial
interest or do not have sufficient  equity at risk for the entity to finance its
activities without additional subordinated financial support from other parties.
The provisions of FIN 46R must be applied for the first interim or annual period
ending  after  March  15,  2004  for  both new and  existing  variable  interest
entities.   Certain  less  than  50%  owned  investments  in  limited  liability
companies,  which were considered to be variable interest entities, needed to be
consolidated  as a  result  of the  implementation  of FIN  46.  The  effect  of
consolidating  such  operations  resulted in  increasing  intangible  assets and
decreasing  investments in and advances to affiliated companies by approximately
$2 million and had no other  significant  effect on the  Company's  consolidated
financial statements.

                                      -5-
<PAGE>

C.   Acquisitions and Dispositions

In March 2004,  the Company  signed an  agreement  to acquire  California-Oregon
Telecommunications Company ("Cal-Ore") located in Dorris, California.  Cal-Ore's
subsidiary  Cal-Ore  Telephone  Company is the incumbent  service provider for a
rural area of about 850 square miles along the Northern  California  border with
Oregon with approximately 2,500 access lines. Cal-Ore's other businesses include
an Internet service provider, a CLEC that is planning to provide services in the
surrounding area and interests in certain cellular partnerships. The acquisition
price is $21.2 million, subject to certain closing adjustments.  The acquisition
will close after  certain  conditions  are met,  including  the  approval by the
California  Public  Utilities  Commission  and  other  regulatory   authorities.
Therefore,  the Company's consolidated financial statements for the three months
ended March 31, 2004 do not include the results of Cal-Ore.

In  February  2004,  a 100%  owned  subsidiary  of  the  Company  completed  the
acquisition of cable television assets at a cost of $0.4 million. The allocation
of the purchase price to the assets acquired and  liabilities  assumed was based
on  preliminary  estimates  of fair value which will be  finalized in the second
quarter of 2004.

D.   Investments in Affiliated Companies

Interactive has equity  investments in both broadcasting and  telecommunications
companies.

Summarized  financial  information  for  companies  accounted  for by the equity
method as of and for the three  months  ended  March 31, 2004 and 2003 and as of
December 31, 2003 is as follows (in thousands):
<TABLE>
<CAPTION>

                                                  Broadcasting Combined Information
                                                   March 31,  December 31,  March 31,
                                                      2004       2003        2003
                                                   --------------------------------


<S>                                                <C>         <C>         <C>
Current assets .................................   $  5,213    $  5,330    $  5,666
Property, plant & equipment, intangibles & other      9,187       9,615      10,514
                                                   --------    --------    --------
Total assets ...................................   $ 14,400    $ 14,945    $ 16,180
                                                   ========    ========    ========

Current liabilities ............................   $  3,115    $  3,182    $  3,356
Long term liabilities ..........................     15,857      16,483      17,456
Equity .........................................     (4,572)     (4,720)     (4,632)
                                                   --------    --------    --------
Total liabilities & equity .....................   $ 14,400    $ 14,945    $ 16,180
                                                   ========    ========    ========

Three months ended
Revenues .......................................   $  3,490                $  2,838
Gross profit ...................................      1,256                     673
Net (Loss) Profit ..............................        354                    (205)
</TABLE>


                                      -6-
<PAGE>
<TABLE>
<CAPTION>

                                               Telecommunications Combined Information
                                                  March 31, December 31,  March 31,
                                                    2004      2003         2003
                                                   --------------------------------

<S>                                                <C>        <C>        <C>
Current assets .................................   $29,425    $30,340    $ 9,229
Property, plant & equipment, intangibles & other    26,856     27,114     28,461
                                                   -------    -------    -------
Total assets ...................................   $56,281    $57,454    $37,690
                                                   =======    =======    =======

Current liabilities ............................   $22,322    $23,073    $ 5,453
Long term liabilities ..........................     8,938      9,056     11,661
Equity .........................................    25,021     25,325     20,576
                                                   -------    -------    -------
Total liabilities & equity .....................   $56,281    $57,454    $37,690
                                                   =======    =======    =======

Three months ended
Revenues .......................................   $12,306               $10,506
Gross profit ...................................     5,475                 3,429
Net income .....................................     3,295                 2,518
</TABLE>


At March  31,  2004,  December  31,  2003,  and  March  31,  2003 the  Company's
investment  in  Coronet  Communications  Company  ("Coronet")  was  carried at a
negative $758,000,  a negative $810,000,  and a negative $821,000  respectively,
due to the  Company's  guarantee of $3.8 million of Coronet's  third party debt.
Long-term  debt of Coronet,  at March 31,  2004,  totaled  $9.9 million due to a
third party lender which is due in quarterly payments through December 31, 2005.
The Company's investment in Capital Communications  Company, Inc. was carried at
$0 for all periods.

In March 2004, a subsidiary of the Company  invested  $250,000 for a 7% interest
in an entity which provides wireline telecommunication transport services in New
York State.

                                      -7-

<PAGE>



E.   Indebtedness

Interactive  maintains  a  short-term  line of credit  facility  totaling  $10.0
million.  This  facility  was  renewed  during  the  third  quarter  of 2003 and
currently  expires  on August 31,  2004.  There  were no  borrowings  under this
facility at March 31, 2004,  December 31, 2003, or at March 31, 2003.  Long-term
debt consists of (all interest rates are at March 31, 2004) (in thousands):
<TABLE>
<CAPTION>

                                                          March 31,    December 31,  March 31,
                                                           2004          2003         2003
                                                          ---------------------------------------
<S>                                                       <C>          <C>          <C>
Rural Electrification Administration (REA) and Rural
 Telephone Bank (RTB) notes payable due from 2006 to
 2027 at fixed interest rates ranging from 2% to 7.5%
 (5% weighted average, secured by assets of the
 telephone companies with a net book value of $150
 million) .............................................   $  59,892    $  59,917    $  58,800

Bank Credit facilities utilized by certain telephone
 and telephone holding companies due from 2005 to
 2016, $26.7 million at fixed interest rates averaging
 7.8 % and $49.9 million at variable interest rates
 averaging 3.7%  ......................................      76,601       78,646       84,556

Unsecured notes issued in connection with acquisitions
through 2006, at fixed interest rates of 10.0% ........      34,389       34,389       34,690

Other .................................................       2,577        2,831        3,326
                                                          ---------     ---------    ---------
                                                            173,459      175,783      181,372
Current maturities ....................................     (13,071)     (13,162)     (18,474)
                                                          ----------    ---------    ---------
                                                          $ 160,388    $ 162,621    $ 162,898
                                                          =========    =========    =========
</TABLE>


F.   Comprehensive Income

Balances of accumulated other  comprehensive  income, net of tax, which consists
of  unrealized  gains  (losses) on available for sale  securities,  at March 31,
2004, December 31, 2003 and March 31, 2003 are as follows (in thousands):
<TABLE>
<CAPTION>

                                Unrealized
                                   Gain   Tax Effect  Net
                                  -------------------------
<S>                               <C>      <C>      <C>
Balance at December 31, 2003 ..   $1,040   $ (354)   $  686
Current period unrealized gains      861     (294)      567
                                  ------   ------    ------
  Balance at March 31, 2004 ...   $1,901   $ (648)   $1,253
                                  ======   ======    ======
Balance at March 31, 2003 .....   $  800   $ (333)   $  467
                                  ======   ======    ======
</TABLE>

G.   Treasury Stock Purchases

During the three months ended March 31, 2004, the Company purchased 5,300 shares
of its common stock for treasury at an average cost of $26.11 per share.


                                      -8-
<PAGE>

H.   Litigation

Interactive  and  several  other  parties,   including  the  CEO,  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  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.  While the complaint  seeks to recover an  unspecified
amount of  damages,  which  would be subject  to  mandatory  trebling  under the
statute,  a document  filed by the relator  with the Court on February 24, 2004,
discloses  an  initial  computation  of  damages  of not less  than $88  million
resulting  from bidding  credits  awarded to the  defendants in FCC auctions and
$120 million of unjust  enrichment  through the sale or  assignment  of licenses
obtained by the defendants in FCC auctions, in each prior to trebling.

Interactive  strongly believes that this lawsuit is completely without merit and
that  relator's  initial damage  computation  is without  basis,  and intends to
defend the suit  vigorously.  The U.S.  Department  of Justice has  notified the
court that it has  declined to intervene  in the case.  Nevertheless,  we cannot
predict the ultimate  outcome of the  litigation,  nor can we predict the effect
that the lawsuit or its outcome will have on our business or plan of  operation.
Interactive  does not have any  insurance  to cover its cost of  defending  this
lawsuit,  which costs will be material.  Interactive  does have a directors  and
officers  liability  policy but the insurer has  reserved  its rights  under the
policy and, as a result,  any coverage to be provided to any director or officer
of Interactive in connection with a judgment  rendered in this action is unclear
at this time.

Interactive  was  formally  served  with  the  complaint  on July 10,  2002.  On
September  19,  2002,  Interactive  filed two  motions  with the  United  States
District Court for the District of Columbia: a motion to dismiss the lawsuit and
a motion  to  transfer  the  action to the  Southern  District  of New York.  On
November  25,  2002,  the  relator  filed an  opposition  reply to our motion to
dismiss  and on December  5, 2002,  Interactive  filed a reply in support of its
motion to  dismiss.  On  September  30,  2003,  the Court  granted our motion to
transfer  the  action  to the  Southern  District  of  New  York.  A  scheduling
conference  was held on  February  10,  2004,  at which  the  judge  approved  a
scheduling  order.  Discovery has now commenced as the parties await a ruling on
the defendants' motion to dismiss the case.

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

History of Lynch's "C" Block Activities
---------------------------------------

On December 18, 1995, Lynch Interactive Corporation (through its predessor Lynch
Corporation)  had investments in five entities that  participated in the Federal
Communications  Commission Auction for Broadband PCS "C" Block Spectrum (Auction
5). When the auction closed, on May 6, 1996, these five entities,  on a combined
basis, were the higher bidders for thirty-one 30 MHz licenses at a gross cost of
$288.2  million.  These  entities were  initially  put together  under the FCC's
initiative to include, among others, qualified women, African Americans,  Native
Americans and Asian Americans. As a result of changes in these
                                      -9-
<page>
initiatives,  these same  individuals  were  qualified as small  businesses  and
remained  eligible as bidders.  These  entities  received $72 million of bidding
credits, and accordingly the net cost was $216.2 million. The federal government
provided  financing for 90% of the cost of these  licenses,  or $194.6  million.
Lynch's investments in these entities totaled $21 million.

Events during and subsequent to Auction 5, made financing these licenses through
the capital  markets much more difficult than originally  anticipated.  On April
18, 1997, in order to obtain some economies of scale,  the five entities  merged
into Fortunet  Communications,  Inc. The FCC, in partial  response to actions by
Nextwave and others,  promoted a plan of refinancing of "C" block. In 1997, many
of the license  holders from Auction 5, including  Fortunet,  petitioned the FCC
for relief in order to afford these small  businesses  the  opportunity  to more
realistically  restructure  and build out their  systems.  The response from the
FCC,  which was  announced on September 26, 1997 and modified on March 24, 1998,
afforded  license holders four options.  One of these options was the resumption
of current debt payments,  which had been suspended earlier in 1997 for all such
license holders.

On June 8, 1998, Fortunet selected to apply its eligible credits relating to its
original  down  payment  to the  purchase  of three  licenses  for 15 MHz of PCS
spectrum in Tallahassee,  Panama City and Ocala, Florida. Consistent with an FCC
promulgated disaggregation  alternative,  Fortunet surrendered all the remaining
licenses and forfeited 30% of its original down payment in full  satisfaction of
the government  debt and the forgiveness of all accrued  interest.  Accordingly,
Fortunet  retained 15 MHz of spectrum in the three  Florida  markets  covering a
population of approximately 962,000 at a net auction cost of $15.8 million. As a
result of  following  this FCC process,  Fortunet  lost $6.0 million of its down
payment.  The disaggregation also resulted in a reduction of the bidding credits
to $5.3 million. Yet, the attorneys for the plaintiff continue to state that the
"C" Block  entities were  involved in receiving $72 million of bidding  credits.
Either they didn't do their homework or choose  deliberately  to ignore the fact
of the  disaggregation.  A lawyer for many  applications  for FCC licenses,  Mr.
Taylor is intimately aware of the details of these FCC initiated alternatives to
the "C" Block,  as was and should be his law firm. As a result of this decision,
during 1997, Interactive recorded a $7.0 million write down of its investment in
Fortunet.

On April 15, 1999,  the FCC  completed a reauction  of all the C-Block  licenses
that were  surrendered,  including the 15 MHz of spectrum that Fortunet returned
to the FCC on June 8, 1998 in respect of the Tallahassee, Panama City and Ocala,
Florida markets. In that reauction,  the successful bidders paid a total of $2.7
million for those three 15 MHz  licenses  returned by Fortunet  versus the $15.8
million paid by Fortunet.  As a result of this auction,  Interactive  recorded a
further write down of its  investment of $15.4  million,  including  capitalized
costs, to reflect the amount bid for the similar licenses in the reauction.

In February 2000, Fortunet merged with Sunshine PCS Corporation, which by way of
a spin-off from Lynch Interactive  became a public company.  It traded under the
symbol SUNPA.

On December 31, 2003,  Sunshine,  after  undergoing  appropriate  corporate  and
regulatory  processes,  sold its three 15 MHz licenses to Cingular  Wireless for
$13.75  million.   Interactive  received  $7.6  million  as  part  of  the  sale
transaction  versus its cash investment of $21 million it initially  invested in
the original five entities in 1992.

I.   Subsequent Event

On April 30,  2004,  the  Company  acquired a 37%  interest  in an entity  whose
principal  assets consist of a $6.0 million  subordinated  note and a 17% equity
interest in Lynch Telephone Corporation, which is an 83% owned subsidiary of the
Company.  The acquisition cost of this interest will be $5.0 million,  which has
been funded through the issuance of a five-year amortizing  subordinated note of
the parent.

                                      -10-
<PAGE>
Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        ------------------------------------------------------------------------
        of Operations
        -------------

Forward Looking Information
---------------------------

Included in this Management  Discussion and Analysis of Financial  Condition and
Results  of  Operations  are  certain  forward   looking   financial  and  other
information,  including  without  limitation,  the Company's  effort to monetize
certain  assets,  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.

Overview
--------

Interactive has grown primarily through the selective acquisition of rural local
exchange carriers (RLECs) and by offering  additional  services such as Internet
service,  alarm services,  long distance service and competitive  local exchange
carrier (CLEC) service.  From 1989 through 2003,  Interactive  acquired fourteen
telephone  companies,  four of which have indirect  minority  ownership of 2% to
19%, whose operations range in size from approximately 800 to over 10,000 access
lines. The Company's telephone operations are located in Iowa, Kansas, Michigan,
New Hampshire, New Mexico, New York, North Dakota, Utah and Wisconsin.

The  telecommunications   industry  in  general  and  the  RLECS  that  comprise
Interactive's  business  face a number of economic or  industry-wide  issues and
challenges.

o    Regulatory- The  Telecommunications Act of 1996 and other federal and state
     legislation and regulations  have a significant  impact on the industry and
     on rural carriers in particular.  Interactive's telephone companies are all
     RLECs  serving  very high cost  areas with a  significant  portion of their
     revenues being derived from federal or state support mechanisms,  which are
     referred to as Universal Service Funds ("USF"). The revenues and margins of
     our RLEC  subsidiaries  are largely  dependant on the  continuation of such
     support mechanisms.

o    Competition- The effects of competition from CLECs,  wireless service, high
     speed cable,  Voice Over  Internet  Protocol  ("VoIP")  and other  internet
     providers is an industry-wide  issue that is felt to varying degrees by our
     rural telephone companies.

o    The economy- Unemployment,  building starts,  business bankruptcies and the
     overall  health of the economy have a significant  effect on demand for our
     services.

o    Telecommunication  bankruptcies-  Interactive's  telephone  companies  have
     significant,  normal  course of  business  receivables  from  interexchange
     carriers,  such as MCI or Global Crossings who filed for bankruptcy and, as
     a result,  have been  written-off.  Additional  bankruptcies  could  have a
     significant effect on our financial condition.

o    Market  challenges-  Our  phone  companies  are  required  to  comply  with
     industry-wide   initiatives  such  as  local  number  portability  and  the
     requirements  of the  Communications  Assistance for Law  Enforcement  Acto
     (CALEA) that are expensive to implement and that in some cases have limited
     demand in our markets.
                                      -11-
<page>
Interactive generates cash and earns telecommunications  revenues primarily from
local network  access,  intrastate and interstate  access revenue and from state
and federal USF support mechanisms. Due to the nature of the Company's regulated
telephone  operations  revenues and  operating  expenses are  relatively  stable
period to period.

o    Local  Revenues - The number of access lines is the primary driver of local
     network  access  revenues.  In  addition,  the ratio of  business  lines to
     residential,  as well as the number of features  subscribed to by customers
     are secondary drivers.

o    Intrastate access revenues - Customer usage,  primarily based on minutes of
     use, and the number of access lines are the primary  drivers of  intrastate
     access revenues since the Company's RLECs are on a "bill-and-keep" basis.

o    Interstate  access  revenues depend upon whether the RLEC has elected to be
     "cost-based" or has remained an "average schedule" carrier. The revenues of
     our ten cost-based  carriers  directly  correlate to their approved rate of
     return on regulated net investment  plus the amount of regulated  operating
     expenses  including  taxes.  The  revenues of the  Company's  four  average
     schedule subsidiaries  correlate to usage based measurements such as access
     lines, interstate minutes-of-use, the number and mileage of different types
     of circuits, etc. The average schedule method is intended to be a proxy for
     cost-based recovery.

o    USF subsidies  are primarily  driven by  investments  in specific  types of
     infrastructure as well as the operating  expenses and taxes of the Company.
     Interstate  and  intrastate  USF subsidies  are included in the  respective
     interstate  and  intrastate  access  revenue  captions in the  breakdown of
     revenue and operating expenses which follows.

o    Other business revenue:  Interactive's companies also provide non-regulated
     telecommunications  related  services,  including  Internet access service,
     wireless 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  CLEC operations in selected
     nearby areas. In addition, certain of Interactive's companies have expanded
     into cable and security businesses in the areas in which they operate.

o    Long Distance revenues are only retained by the Company if we are providing
     the long distance  service to the end user  customer as the toll  provider.
     For  unaffiliated  IXCs,  we  provide  a billing  service  and  receive  an
     administrative handling fee.

The  following  are  the  material  opportunities,  challenges  and  risks  that
Interactive's  executives  are  currently  focused on and what actions are being
taken to address the concerns:

o    Universal  Service  Reform:  The  Federal-State  Joint  Board on  Universal
     Service (Joint Board) issued a  recommendation  that the FCC modify the USF
     support  mechanisms  for  RLECs  such as those  owned by the  Company.  The
     Company will  participate  with the RLEC  industry to analyze the potential
     impact of the Joint Board's  recommendation and provide the FCC information
     with the potential  impact to customers and RLECs in rural  America.  Total
     USF support payments are material to the Company's financial results.

o    Intercarrier Compensation and Access Charge Reform: The Company is actively
     participating in the RLEC industry's  efforts to determine how intercarrier
     compensation  and access  charges  should be  modified  without  sustaining
     revenue losses for RLECs.

                                      -12-
<page>
o    Loss of Access  Revenues  from VoIP and  wireless  usage:  The  Company  is
     experiencing  revenue  losses  as usage  transfers  from  landline  service
     provided by the Company's subsidiaries to either VoIP or wireless services.
     The Company is trying to install more  broadband  service to offset revenue
     losses from traditional voice services.

Three months ended March 31, 2004 compared to March 31, 2003
------------------------------------------------------------

The  following is a breakdown of revenues and  operating  costs and expenses for
the first quarter ended March 31, 2004 and 2003 (in thousands):
<TABLE>
<CAPTION>

                                               First Quarter ended March 31, Increase
                                                                            (Decrease)
                                                --------------------------------------
                                                   2004           2003
                                                --------------------------------------
                                                               (Unaudited)
<S>                                              <C>            <C>          <C>
Revenues:
Local access .................................   $ 3,002        $ 3,031      $   (29)
Interstate access ............................     9,540          9,057          483
Intrastate access ............................     3,994          3,923           71
Other telephone ..............................       722            733          (11)
Other business ...............................     4,630          4,559           71
                                                 -------        -------      -------
  Total ......................................    21,888         21,303          585
                                                 -------        -------      -------

Operating Cost and Expense:
Cost of revenue ..............................     7,480          7,437           43
General and administrative costs at operations     3,326          3,407          (81)
Corporate office expenses ....................       973            770          203
Depreciation and amortization ................     5,221          4,915          306
                                                 -------        -------      -------
  Total ......................................    17,000         16,529          471
                                                 -------        -------      -------
  Operating profit ...........................   $ 4,888        $ 4,774      $   114
                                                 =======        =======      =======
</TABLE>

Total  revenues  for the three  months  ended March 31, 2004  increased  by $0.6
million,  or 2.7%, to $21.9 million compared to the first quarter of 2003. Local
access revenue  decreased by $29,000 in the first quarter of 2004 resulting from
a 1.8%  decrease  in access  lines,  which was offset by the sale of  additional
features and rate increases. Interstate access revenue increased $0.5 million in
the first quarter of 2004 primarily due to infrastructure development undertaken
in 2002 and 2003, which entitled the company to increased USF support  primarily
at the Haviland  Telephone  Company in Kansas.  The  Company's  February 1, 2004
acquisition  of a small cable company in Utah resulted in $0.1 million  increase
in other business  revenue.  Other business  revenue also benefited from revenue
growth at a competitive local exchange carrier in Kansas.

Total costs and expenses increased by $0.5 million to $17.0 million in the first
quarter of 2004. Costs of revenue and general and administrative  costs incurred
at the operations were relatively flat. Corporate office expenses increased $0.2
million  resulting from $0.4 million of legal costs incurred  defending the "qui
tam"  litigation  in the first  quarter of 2004  offset by the  absence of costs
incurred in the first  quarter of 2003  relating to stock  options  issued which
were  subsequently  reversed  in the second  quarter of 2003.  Depreciation  and
amortization  increased  $0.3  million  primarily  as a result  of the  Haviland
capital spending program.

As a result of the above,  operating profit for the three months ended March 31,
2004,  increased by $.1 million to $4.9 million compared to the first quarter of
2003.


                                      -13-
<PAGE>

EBITDA

EBITDA represents the Company's  earnings before interest,  taxes,  depreciation
and amortization.  EBITDA is not intended to represent cash flows from operating
activities  and should not be considered as an alternative to net income or loss
(as determined in conformity with generally accepted accounting principles),  as
an  indicator  of the  Company's  operating  performance  or to cash  flows as a
measure of liquidity.  EBITDA from  operations is presented  herein  because the
Company's  chief  operating  decision maker evaluates and measures each business
unit's  performance  based on their EBITDA  results.  The Company  believes that
EBITDA from operations is the most accurate  indicator of the Company's results,
because it  focuses on revenue  and  operating  cost items  driven by  operating
managers'  performance,  and  excludes  non-recurring  items and  items  largely
outside of operating managers' control. In addition, Interactive utilizes EBITDA
as one of its metrics for valuing  potential  acquisitions.  The following table
reconciles  EBITDA to  Operating  profit and to Income  before  income taxes and
minority interests (in thousands).
<TABLE>
<CAPTION>

                                  First Quarter ended March 31,        Increase
                                                                      (Decrease)
                                  ----------------------------------------------
                                      2004             2003
                                  ----------------------------------------------
                                                                     (Unaudited)

<S>                                <C>              <C>              <C>
EBITDA from operations .........   $ 11,082         $ 10,459         $    623
Corporate office expenses ......       (973)            (770)            (203)
                                   --------         --------         --------
  Total EBITDA .................     10,109            9,689              420
Depreciation ...................      5,069            4,768              301
Amortization ...................        152              147                5
                                   --------         --------         --------
  Operating profit .............      4,888            4,774              114
Investment income ..............        728              558              170
Interest expenses ..............     (2,819)          (3,026)             207
Equity in earnings of affiliates        712              384              328
                                   --------         --------         --------
  Income before income taxes and
    minority  interest             $  3,509         $  2,690         $    819
                                   ========         ========         ========
</TABLE>

Other Income (Expense)
----------------------

For the three months ended March 31, 2004,  investment  income increased by $0.2
million due to a cash distribution from Sunshine PCS Corporation.

Interest expense decreased by $0.2 million in the first quarter of 2004 from the
prior year due  primarily  to lower  amount of  borrowings,  including  lines of
credit.

Equity in earnings of  affiliates  for the  three-month  ending  March 31, 2004,
increased  from the same period in the previous  year due to higher  earnings at
the Company's New Mexico cellular investments (RSA 3 and 5).

Income Tax Provision
--------------------

The income tax provision includes federal, as well as state and local taxes. The
tax  provision  for the three  months  ended March 31, 2004 and 2003,  represent
effective tax rates of 41.4% and 40.0%,  respectively.  The  difference  between
these effective rates and the federal statutory rate is principally due to state
income taxes,  including the effect of earnings  attributable to different state
jurisdictions.

Minority Interests
------------------

Minority interests decreased earnings by $0.5 million for the three months ended
March 31, 2004, as compared to $0.2 million for the three months ended March 31,
2003.  The  change  was due to higher  earnings  from the  Company's  New Mexico
cellular investments.

                                      -14-
<page>
Net Income
----------

Net income for the three months ended March 31, 2004, was $1.6 million, or $0.58
per share (basic and diluted), compared to a net income for the same period last
year of $1.4 million, or $0.51 per share (basic and diluted). The Company has no
dilutive instruments outstanding.

Cash Requirements
-----------------

The debt at each of Interactive's  subsidiary companies contains restrictions on
the  amount  of  funds  that  can be  transferred  to  their  respective  parent
companies.   The  Interactive  parent  company  ("Parent  Company")  needs  cash
primarily to pay corporate  expenses,  federal income taxes and to invest in new
opportunities,  including spectrum licenses. The Parent Company receives cash to
meet  its  obligations   primarily  through   management  fees  charged  to  its
subsidiaries,  a tax sharing  agreement  with its  subsidiaries,  usage of a $10
million  line of credit  facility,  and has  obtained  additional  liquidity  by
refinancing  certain subsidiary debt. In addition,  the Parent Company considers
various  alternative  long-term  financing  sources:  debt,  equity,  or sale of
investments and other assets.

The  Company's  RLECs  and other  businesses  need  cash to fund  their  current
operations, as well as future long-term growth initiatives.  Each RLEC and other
business  finances  its cash  needs  with cash  generated  from  operations,  by
utilizing  existing  borrowing  capacity or by entering into new long-term  debt
agreements.  New business acquisitions are generally financed with a combination
of new long-term debt,  secured by the acquired assets, as well as cash from the
Parent. While management expects that both Parent and the operating subsidiaries
will be able 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, as of March 31, 2004 for the periods
shown,  these  contractual  obligations and certain other financing  commitments
from banks and other financial institutions that provide liquidity:
<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) ...................   $173,459   $ 13,071   $ 52,274   $ 46,058   $ 62,056
Operating leases .....................      2,259        504        919        510        326
Notes payable to banks ...............      3,535      3,535       --         --         --
Guarantees ...........................      3,750       --        3,750       --         --
                                         --------   --------   --------   --------   --------
Total contractual cash obligations and
  commitments ........................   $183,003   $ 17,110   $ 56,943   $ 46,568   $ 62,382
                                         ========   ========   ========   ========   ========
</TABLE>

(a)  Does not include interest payments on debt.

A subsidiary of the Company has guaranteed $3.8 million of an equity  investees'
total debt of $9.9  million.  The guarantee is in effect for the duration of the
loan  which  expires  on  December  31,  2005 and would be payable if the equity
investee fails to make such payment in accordance with the terms of the loan.

The Parent  Company has a  short-term  line of credit  facility,  which  expires
August 31, 2004, with maximum availability  totaling $10.0 million, all of which
was  available  at both March 31, 2004 and  December  31,  2003.  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 2004. While it is management's

                                      -15-
<page>
belief that the Company will have adequate resources to fund operations over the
next twelve  months,  there can be no  assurance  that the  Company  will obtain
financing on terms  acceptable to management.  The renewal of the line of credit
is a critical element of the Company's financing strategy.

At March 31,  2004,  total debt  (including  notes  payable to banks) was $177.0
million,  a decrease of $2.2 million from  December 31, 2003. At March 31, 2004,
there was $122.0 million of fixed interest rate debt outstanding  averaging 6.9%
and $55.1 million of variable  interest rate debt  averaging  4.2%.  The debt at
fixed interest rates  includes $34.4 million of  subordinated  notes at interest
rates  averaging 9.6% issued to sellers as part of  acquisitions.  The long-term
debt facilities at certain subsidiaries are secured by substantially all of such
subsidiaries  assets,  while at other  subsidiaries  it is secured by the common
stock of such  subsidiaries.  In addition,  the debt facilities  contain certain
covenants restricting  distribution to Lynch Interactive.  At March 31, 2004 and
December  31,  2003,  substantially  all of the  subsidiaries'  net  assets  are
restricted.

Interactive has a high degree of financial leverage.  The ratio of total debt to
equity was 5.5 to 1 as of March 31, 2004 and 6.0 to 1 as of December  31,  2003.
Certain  subsidiaries also have high debt to equity ratios.  Management believes
that it is  currently  more  beneficial  to hold  excess  cash at certain of our
subsidiaries  rather  than  utilizing  the  cash  to  pay-down  existing  credit
facilities.

As of March 31,  2004,  Interactive  had  current  assets of $41.3  million  and
current  liabilities of $32.7 million  resulting in a working capital surplus of
$8.7 million compared to a surplus of $7.2 million at December 31, 2003.

Sources and Uses of Cash
------------------------

Cash at March 31, 2004, was $29.6 million,  an increase of $3.0 million compared
to December 31, 2003.  During the first  quarter of 2004,  net cash  provided by
operations of $8.0 million were  primarily used to invest in plant and equipment
and repay debt.

Capital  expenditures  were $2.6  million in the first  quarter of 2004 and $4.2
million in 2003 which is  predominantly  spent at the RLECs and will be included
in their rate bases for rate setting purposes.  Capital expenditures in 2004 are
expected to be  approximately  $21  million,  most of which will be added to the
RLEC rate bases.  External  financing is currently in place for approximately $7
million of these  expenditures.  The  remainder  will be financed  from internal
sources.

The Company has initiated an effort to monetize certain of its assets, including
selling a portion or all of its investment in certain of its operating  entities
and  equity  investments.  These  initiatives  may  include  the sale of 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.

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 March 31, 2004,  50,300 shares had been  purchased at an
average cost of $32.22.

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. The Company may consider  paying  dividends in the future
depending  upon the  needs of its  businesses.  Further  financing  may limit or
prohibit the payment of dividends.


                                      -16-
<PAGE>

Contingencies
-------------

Interactive  and  several  other  parties,   including  the  CEO,  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  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.  While the complaint  seeks to recover an  unspecified
amount of  damages,  which  would be subject  to  mandatory  trebling  under the
statute,  a document  filed by the relator  with the Court on February 24, 2004,
discloses  an  initial  computation  of  damages  of not less  than $88  million
resulting  from bidding  credits  awarded to the  defendants in FCC auctions and
$120 million of unjust  enrichment  through the sale or  assignment  of licenses
obtained by the defendants in FCC auctions, in each prior to trebling.

Interactive  strongly believes that this lawsuit is completely without merit and
that  relator's  initial damage  computation  is without  basis,  and intends to
defend the suit  vigorously.  The U.S.  Department  of Justice has  notified the
court that it has  declined to intervene  in the case.  Nevertheless,  we cannot
predict the ultimate  outcome of the  litigation,  nor can we predict the effect
that the lawsuit or its outcome will have on our business or plan of  operation.
Interactive  does not have any  insurance  to cover its cost of  defending  this
lawsuit,  which costs will be material.  Interactive  does have a directors  and
officers  liability  policy but the insurer has  reserved  its rights  under the
policy and, as a result,  any coverage to be provided to any director or officer
of Interactive in connection with a judgment  rendered in this action is unclear
at this time.

Interactive  was  formally  served  with  the  complaint  on July 10,  2002.  On
September  19,  2002,  Interactive  filed two  motions  with the  United  States
District Court for the District of Columbia: a motion to dismiss the lawsuit and
a motion  to  transfer  the  action to the  Southern  District  of New York.  On
November  25,  2002,  the  relator  filed an  opposition  reply to our motion to
dismiss  and on December  5, 2002,  Interactive  filed a reply in support of its
motion to  dismiss.  On  September  30,  2003,  the Court  granted our motion to
transfer  the  action  to the  Southern  District  of  New  York.  A  scheduling
conference  was held on  February  10,  2004,  at which  the  judge  approved  a
scheduling  order.  Discovery has now commenced as the parties await a ruling on
the defendants' motion to dismiss the case.

Critical Accounting Policies and Estimates
------------------------------------------

The  preparation of consolidated  financial  statements  requires  Interactive's
management 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  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.

                                      -17-
<page>
We believe that revenue from interstate  access is based on critical  accounting
estimates  and  judgment.  Such  revenue 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 as services are  provided  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.

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

Annually, the Company tests goodwill and other intangible assets with indefinite
lives  for  impairment.   The  Company  screens  for  potential   impairment  by
determining  fair value for each  reporting  unit. We estimate the fair value of
each  reporting  unit based on a number of subjective  factors,  including:  (a)
appropriate weighting of valuation approaches (income approach,  market approach
and  comparable  public  company  approach),  (b)  estimates  of our future cost
structure,  (c) discount  rates for our estimated  cash flows,  (d) selection of
peer group  companies for the public  company  approach,  (e) required  level of
working  capital,  (f) assumed  terminal value and (g) time horizon of cash flow
forecasts.

We  consider  the  estimate of fair value to be a critical  accounting  estimate
because (a) a potential goodwill  impairment could have a material impact on our
financial  position and results of operations and (b) the estimate is based on a
number of highly  subjective  judgments  and  assumptions,  the most critical of
which is that the regulatory environment will continue in its current form.

Interactive  tests its  investments  and other  long-term  non-regulated  assets
annually whenever events or changes in circumstances  indicate that the carrying
value of such assets may not be recoverable. Significant judgment is required to
determine if an  impairment  has occurred and whether such  impairment is "other
than temporary."

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

Recently Issued Accounting Pronouncements
-----------------------------------------

The Financial Accounting Standards Board (FASB" issued Financial  Interpretation
No. 46,  "Consolidation of Variable Interest Entities,  an Interpretation of ARB
No. 51" (FIN 46) in January 2003 and revised it in December 2003 (FIN 46R).  FIN
46 requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity  investors in the entity do not have the
characteristics  of a controlling  financial  interest or do not have sufficient
equity at risk for the  entity to  finance  its  activities  without  additional
subordinated  financial  support from other  parties.  The provisions of FIN 46R
must be applied for the first  interim or annual  period  ending after March 15,
2004 for both new and existing variable interest entities. Certain less than 50%
owned  investments in limited liability  companies,  which were considered to be
variable  interest  entities,  needed  to be  consolidated  as a  result  of the
implementation of FIN 46. The effect of consolidating  such operations  resulted
in increasing  intangible  assets and decreasing  investments in and advances to
affiliated  companies by approximately  $2 million and had no other  significant
effect on the



                                      -18-
<PAGE>

Company's consolidated financial statements.

Item 3.  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 $29.6 million at March 31, 2004 and $26.6 million at December 31,
2003).  The  majority  of the  Company's  debt is  fixed  rate  and the  Company
generally  finances the acquisition of long-term  assets 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.  As of
March 31, 2004, the fair value of debt was  approximately  equal to its carrying
value.

At March 31, 2004 and December 31, 2003,  approximately  $55.1 million and $56.4
million,  respectively, or 31% and 34% of Interactive's long-term debt and notes
payable bears interest at variable rates.  Accordingly,  the Company's  earnings
and cash flows are affected by changes in interest  rates.  Assuming the current
level of borrowings for variable rate debt and assuming a one  percentage  point
change in the 2004 average interest rate under these borrowings, it is estimated
that  Interactive's  interest  expense for the three months ended March 31, 2004
would have changed by  approximately  $0.1  million.  In the event of an adverse
change in  interest  rates,  management  would  likely  take  actions to further
mitigate its exposure. However, due to the uncertainty of the actions that would
be taken and their possible  effects,  no such actions are assumed.  As of March
31, 2004, if the Company were to convert a  significant  portion of its variable
interest rate debt into fixed interest  rates,  such  conversion  could increase
interest  expense for the three  months  ended  March 31,  2004 by $0.4  million
assuming that variable rates remain  constant.  Further,  such analysis does not
consider  the  effects of the change in the level of overall  economic  activity
that could exist in such an environment.

Item 4. Controls and Procedures

Our Chief  Executive  Officer and Chief  Financial  Officer have  evaluated  the
effectiveness of the Company's disclosure controls and procedures (as defined in
Rules  13a-15(e)  and  15d-15(e)  of the  Securities  Exchange  Act of 1934 (the
"Act"))  as of the end of the  period  covered  by this  report.  Based  on that
evaluation,  the Chief Executive  Officer and Chief Financial  Officer concluded
that the  Company's  disclosure  controls  and  procedures  as of the end of the
period covered by this report were designed and were functioning  effectively to
provide  reasonable  assurance that the information  required to be disclosed by
the Company in reports  filed under the Act is recorded,  processed,  summarized
and reported within the time periods specified in the SEC's rules and forms. The
Company  believes  that a  controls  system,  no matter  how well  designed  and
operated,  cannot provide absolute assurance that the objectives of the controls
system are met, and no  evaluation  of controls can provide  absolute  assurance
that all control  issues and instances of fraud,  if any,  within a company have
been detected.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Interactive  and  several  other  parties,   including  the  CEO,  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

                                      -19-
<page>
litigation proceeds if he is successful.

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.  While the complaint  seeks to recover an  unspecified
amount of  damages,  which  would be subject  to  mandatory  trebling  under the
statute,  a document  filed by the relator  with the Court on February 24, 2004,
discloses  an  initial  computation  of  damages  of not less  than $88  million
resulting  from bidding  credits  awarded to the  defendants in FCC auctions and
$120 million of unjust  enrichment  through the sale or  assignment  of licenses
obtained by the defendants in FCC auctions, in each prior to trebling.

Interactive  strongly believes that this lawsuit is completely without merit and
that  relator's  initial damage  computation  is without  basis,  and intends to
defend the suit  vigorously.  The U.S.  Department  of Justice has  notified the
court that it has  declined to intervene  in the case.  Nevertheless,  we cannot
predict the ultimate  outcome of the  litigation,  nor can we predict the effect
that the lawsuit or its outcome will have on our business or plan of  operation.
Interactive  does not have any  insurance  to cover its cost of  defending  this
lawsuit,  which costs will be material.  Interactive  does have a directors  and
officers  liability  policy but the insurer has  reserved  its rights  under the
policy and, as a result,  any coverage to be provided to any director or officer
of Interactive in connection with a judgment  rendered in this action is unclear
at this time.

Interactive  was  formally  served  with  the  complaint  on July 10,  2002.  On
September  19,  2002,  Interactive  filed two  motions  with the  United  States
District Court for the District of Columbia: a motion to dismiss the lawsuit and
a motion  to  transfer  the  action to the  Southern  District  of New York.  On
November  25,  2002,  the  relator  filed an  opposition  reply to our motion to
dismiss  and on December  5, 2002,  Interactive  filed a reply in support of its
motion to  dismiss.  On  September  30,  2003,  the Court  granted our motion to
transfer  the  action  to the  Southern  District  of  New  York.  A  scheduling
conference  was held on  February  10,  2004,  at which  the  judge  approved  a
scheduling  order.  Discovery has now commenced as the parties await a ruling on
the defendants' motion to dismiss the case.

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

History of Lynch's "C" Block Activities
---------------------------------------

On December 18, 1995, Lynch Interactive Corporation (through its predessor Lynch
Corporation)  had investments in five entities that  participated in the Federal
Communications  Commission Auction for Broadband PCS "C" Block Spectrum (Auction
5). When the auction closed, on May 6, 1996, these five entities,  on a combined
basis, were the higher bidders for thirty-one 30 MHz licenses at a gross cost of
$288.2  million.  These  entities were  initially  put together  under the FCC's
initiative to include, among others, qualified women, African Americans,  Native
Americans  and Asian  Americans.  As a result of changes  in these  initiatives,
these same individuals were qualified as small businesses and remained  eligible
as  bidders.  These  entities  received  $72  million  of bidding  credits,  and
accordingly the net cost was $216.2  million.  The federal  government  provided
financing  for 90% of the cost of these  licenses,  or $194.6  million.  Lynch's
investments in these entities totaled $21 million.

Events during and subsequent to Auction 5, made financing these licenses through
the capital  markets much more difficult than originally  anticipated.  On April
18, 1997, in order to obtain some economies of scale,  the five entities  merged
into Fortunet  Communications,  Inc. The FCC, in partial  response to actions by
Nextwave

                                      -20-
<page>
and others,  promoted a plan of refinancing of "C" block.  In 1997,  many of the
license  holders  from Auction 5,  including  Fortunet,  petitioned  the FCC for
relief  in order to  afford  these  small  businesses  the  opportunity  to more
realistically  restructure  and build out their  systems.  The response from the
FCC,  which was  announced on September 26, 1997 and modified on March 24, 1998,
afforded  license holders four options.  One of these options was the resumption
of current debt payments,  which had been suspended earlier in 1997 for all such
license holders.

On June 8, 1998, Fortunet selected to apply its eligible credits relating to its
original  down  payment  to the  purchase  of three  licenses  for 15 MHz of PCS
spectrum in Tallahassee,  Panama City and Ocala, Florida. Consistent with an FCC
promulgated disaggregation  alternative,  Fortunet surrendered all the remaining
licenses and forfeited 30% of its original down payment in full  satisfaction of
the government  debt and the forgiveness of all accrued  interest.  Accordingly,
Fortunet  retained 15 MHz of spectrum in the three  Florida  markets  covering a
population of approximately 962,000 at a net auction cost of $15.8 million. As a
result of  following  this FCC process,  Fortunet  lost $6.0 million of its down
payment.  The disaggregation also resulted in a reduction of the bidding credits
to $5.3 million. Yet, the attorneys for the plaintiff continue to state that the
"C" Block  entities were  involved in receiving $72 million of bidding  credits.
Either they didn't do their homework or choose  deliberately  to ignore the fact
of the  disaggregation.  A lawyer for many  applications  for FCC licenses,  Mr.
Taylor is intimately aware of the details of these FCC initiated alternatives to
the "C" Block,  as was and should be his law firm. As a result of this decision,
during 1997, Interactive recorded a $7.0 million write down of its investment in
Fortunet.

On April 15, 1999,  the FCC  completed a reauction  of all the C-Block  licenses
that were  surrendered,  including the 15 MHz of spectrum that Fortunet returned
to the FCC on June 8, 1998 in respect of the Tallahassee, Panama City and Ocala,
Florida markets. In that reauction,  the successful bidders paid a total of $2.7
million for those three 15 MHz  licenses  returned by Fortunet  versus the $15.8
million paid by Fortunet.  As a result of this auction,  Interactive  recorded a
further write down of its  investment of $15.4  million,  including  capitalized
costs, to reflect the amount bid for the similar licenses in the reauction.

In February 2000, Fortunet merged with Sunshine PCS Corporation, which by way of
a spin-off from Lynch Interactive  became a public company.  It traded under the
symbol SUNPA.

On December 31, 2003,  Sunshine,  after  undergoing  appropriate  corporate  and
regulatory  processes,  sold its three 15 MHz licenses to Cingular  Wireless for
$13.75  million.   Interactive  received  $7.6  million  as  part  of  the  sale
transaction  versus its cash investment of $21 million it initially  invested in
the original five entities in 1992.

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibit 31.1 - Chief Executive Officer Section 302 Certification
     Exhibit 31.2 - Chief Financial Officer Section 302 Certification
     Exhibit 32.1 - Chief Executive Officer Section 906
                    Certification.
     Exhibit 32.2 - Chief Financial Officer Section 906 Certification.

                                      -21-
<PAGE>



                                    SIGNATURE


     Pursuant to the  requirements  of the  Securities and Exchange Act of 1934,
the  Registrant  has duly  caused  this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                          LYNCH INTERACTIVE CORPORATION
                                             (Registrant)

                                          /s/ Robert E. Dolan
                                              --------------------
                                          Robert E. Dolan
                                          Chief Financial Officer

May 17, 2004


                                      -22-