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 September 30, 2001
                               ------------------

                                       or

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

For the transition period from            to

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


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


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


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

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

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

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

            Class                               Outstanding at November 1, 2001
            -----                               -------------------------------
Common Stock, $.0001 par value                             2,820,051



<PAGE>




                                      INDEX

                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES

PART I.     FINANCIAL INFORMATION


Item 1.  Financial Statements (Unaudited)
         ---------------------

Condensed Consolidated Balance Sheets
  -      September 30, 2001
  -      December 31, 2000

Condensed Consolidated Statements of Operations:
  -      Three and nine months ended September 30, 2001 and 2000

Condensed Consolidated Statements of Cash Flows:
  -      Nine months ended September 30, 2001 and 2000

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
         ---------------------------------------------------------


PART II.    OTHER INFORMATION



SIGNATURE

<PAGE>
<TABLE>

PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements
                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIAIRES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      (In thousands, except share amounts)
<CAPTION>
                                                                          September 30,   December 31,
                                                                              2001            2000
                                                                          ------------    ------------
    ASSETS                                                                 (Unaudited)       (Note)
    CURRENT ASSETS:
<S>                                                                          <C>          <C>
    Cash and cash equivalents ............................................   $  30,991    $  24,834
    Marketable securities ................................................       2,370        2,066
    Receivables, less allowances of $186 and $155 ........................       8,249        7,266
    Other current assets .................................................       6,328        5,315
    Current assets to be distributed to shareholders .....................      18,415       12,220
                                                                             ---------    ---------
TOTAL CURRENT ASSETS .....................................................      66,353       51,701

PROPERTY, PLANT AND EQUIPMENT:
    Land .................................................................         772          490
    Buildings and improvements ...........................................       9,412        8,559
    Machinery and equipment ..............................................     176,856      151,481
                                                                             ---------    ---------
                                                                               187,040      160,530
    Accumulated Depreciation .............................................     (74,054)     (64,961)
                                                                             ---------    ---------
                                                                               112,986       95,569
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS
   ACQUIRED, NET .........................................................      66,214       52,222
INVESTMENTS IN AND ADVANCES TO AFFILIATED ENTITIES .......................      14,016       13,284
INVESTMENT IN SPINNAKER INDUSTRIES INC ...................................       1,900        5,250
OTHER ASSETS .............................................................      11,778       11,335
NON CURRENT ASSETS TO BE DISTRIBUTED TO SHAREHOLDERS .....................      10,305       11,049
                                                                             ---------    ---------
TOTAL ASSETS .............................................................   $ 283,552    $ 240,410
                                                                             =========    =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
    Notes payable to banks ...............................................   $   8,647    $   4,333
    Trade accounts payable ...............................................       1,273          424
    Accrued interest payable .............................................       2,006        2,504
    Accrued liabilities ..................................................      16,126       14,472
    Current maturities of long-term debt .................................      16,784       12,365
    Current liabilities to be distributed to shareholders ................      14,984       10,801
                                                                             ---------    ---------
TOTAL CURRENT LIABILITIES ................................................      59,820       44,899

LONG-TERM DEBT ...........................................................     175,533      149,939
DEFERRED INCOME TAXES ....................................................       7,901        7,746
OTHER LIABILITIES ........................................................         502          502
MINORITY INTERESTS .......................................................       6,047        5,539
NON CURRENT LIABILITIES AND MINORITY INTERESTS TO BE
   DISTRIBUTED TO SHAREHOLDERS ...........................................       7,997        8,386

SHAREHOLDERS' EQUITY
   COMMON STOCK, $0.0001 PAR VALUE-10,000,000 SHARES
    AUTHORIZED; 2,824,766 issued (at stated value)
    2,821,851 and 2,821,666 outstanding ..................................        --           --
   ADDITIONAL PAID - IN CAPITAL ..........................................      21,406       21,404
   RETAINED EARNINGS .....................................................       3,875          652
   ACCUMULATED OTHER COMPREHENSIVE INCOME ................................         614        1,495
   TREASURY STOCK, 2,915 AND 3,100 SHARES AT COST ........................        (143)        (152)
                                                                             ---------    ---------
   TOTAL SHAREHOLDERS' EQUITY ............................................      25,752       23,399
                                                                             ---------    ---------
 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..............................   $ 283,552    $ 240,410
                                                                             =========    =========
<FN>
Note:  The balance  sheet at December 31, 2000 has been derived from the audited
financial  statements at that date, but does not include all of the  information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements.
</FN>

  See accompanying notes.
</TABLE>

<PAGE>

<TABLE>



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

<CAPTION>
                                                         Three Months Ended            Nine Months Ended
                                                            September 30,               September 30,
                                                          2001           2000         2001           2000
                                                        -------         ------       ------         ------
                                                                      (Restated)                  (Restated)
<S>                                                 <C>            <C>            <C>            <C>
SALES AND REVENUES ..............................   $    23,934    $    17,899    $    58,594    $    49,489


COSTS AND EXPENSES:
Operations ......................................        14,922         12,303         40,217         34,878
Corporate expenses, net .........................           627            894          2,133          2,523
                                                     -----------   -----------    -----------    -----------
OPERATING PROFIT ................................         8,365          4,702         16,244         12,088
Combined total Other income (expense):
  Investment income .............................           200            968          2,593          2,644
  Interest expense ..............................        (3,865)        (3,495)       (10,697)       (10,504)
  Equity in earnings of affiliated companies ....           213            195            582          1,464
  Impairment of investment in
    Spinnaker Industries, Inc. ..................        (1,294)          --           (1,294)          --
  Gain on redemption of East/West preferred stock          --             --             --            4,125
Total operating profit for reportable segments       -----------   -----------    -----------    -----------
                                                         (4,746)        (2,332)        (8,816)        (2,271)

INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND MINORITY INTERESTS
                                                          3,619          2,370          7,428          9,817
Provision for income taxes ......................        (1,649)        (1,202)        (3,554)        (4,693)
Minority Interests ..............................          (185)          (234)          (508)          (664)
                                                     -----------   -----------    -----------    -----------
INCOME FROM CONTINUING OPERATIONS ...............         1,785            934          3,366          4,460

Income (loss) from operations of
The Morgan Group, Inc., which are being
distributed to shareholders (less income tax
(provision) benefit of  $--, $(26), $265, and
$293 and minority interests of $69, $(31),
$31, and $236) ..................................          (190)            44           (143)          (288)
                                                     -----------   -----------    -----------    -----------
NET INCOME ......................................    $    1,595    $       978    $     3,223    $     4,172
                                                     ===========   ===========    ===========    ===========

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

BASIC & DILUTED EARNINGS PER SHARE:

INCOME FROM CONTINUING OPERATIONS ...............   $      0.63    $      0.33    $      1.19    $      1.58
Income (loss) from operations of
  The Morgan Group, Inc. ........................         (0.06)          0.02          (0.05)         (0.10)
                                                    -----------    -----------    -----------    -----------
    NET INCOME ..................................   $      0.57    $      0.35    $      1.14    $      1.48
                                                    ===========    ===========    ===========    ===========

See accompanying notes.
</TABLE>


<PAGE>

<TABLE>


                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (In thousands)
<CAPTION>
                                                                                   Nine Months Ended
                                                                                      September 30,
                                                                                    2001         2000
                                                                                   ------       ------
OPERATING ACTIVITIES                                                                          (Restated)
<S>                                                                                <C>         <C>
Net income .....................................................................   $  3,223    $  4,172
Adjustments to reconcile net income to net
  cash provided by operating activities:
   Depreciation and amortization ...............................................     13,177      11,720
   Net effect of purchases and sales of trading securities .....................       (304)       (521)
   Share of operations of affiliated companies .................................       (582)     (1,464)
   Gain on redemption of East/West preferred stock .............................          0      (4,125)
   Impairment on investment in Spinnaker Industries, Inc .......................      1,294        --
   Gain on sale of available for sale securities ...............................       (296)       (770)
   Minority interests ..........................................................        508         664
   Non-cash items and changes in operating asset and liabilities
     from operations to be distributed to shareholders .........................     (1,057)      1,104
   Changes in operating assets and liabilities:
        Receivables ............................................................        101        (354)
        Accounts payable and accrued liabilities ...............................        823      (1,633)
        Other ..................................................................       (516)       (512)
   Other .......................................................................          0         713
                                                                                   --------    --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ......................................     16,371       8,994
                                                                                   --------    --------
INVESTING ACTIVITIES
Capital expenditures ...........................................................    (12,982)    (11,546)
Investment in and advances to affiliated entities ..............................       (185)     (1,651)
Proceeds from redemption of East/West preferred stock ..........................          0       8,712
Acquisition of Central Utah Telephone Company
(total cost, less debt assumed and cash
 equivalents acquired) .........................................................     (6,889)          0
Investing activities at operations to be
  distributed to shareholders ..................................................     (3,681)       (116)
Proceeds from sale of available for sale securities ............................        494       1,294
Other ..........................................................................       (377)      1,291
                                                                                   --------    --------
NET CASH USED IN INVESTING ACTIVITIES ..........................................    (23,620)     (2,016)
                                                                                   --------    --------
FINANCING ACTIVITIES
Issuance of long term debt .....................................................     27,148       1,200
Repayments of long term debt ...................................................    (21,148)     (3,812)
Net (repayments) borrowings under lines of credit ..............................      4,314         749
Treasury stock transactions ....................................................         11        (127)
Financing activities from operations to be
  distributed to shareholders ..................................................      3,081        (700)
Other ..........................................................................          0         102
                                                                                   --------    --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ............................     13,406      (2,588)
                                                                                   --------    --------

Net increase in cash and cash equivalents ......................................      6,157       4,390
Cash and cash equivalents at beginning of period ...............................     24,834      27,507
                                                                                   --------    --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .....................................   $ 30,991    $ 31,897
                                                                                   ========    ========

See accompanying notes.
</TABLE>

<PAGE>




              NOTES TO CONDENSED CONDOLIDATED FINANCIAL STATEMENTS

A.   Subsidiaries of the Registrant

As of September 30, 2001, the Subsidiaries of the Registrant are as follows:

<TABLE>
<CAPTION>
Subsidiary                                       Owned by Interactive
----------                                       --------------------

<S>                                                  <C>
Brighton Communications Corporation ............     100.0%
  Lynch Telephone Corporation IV ...............     100.0%
    Bretton Woods Telephone Company ............     100.0%
    World Surfer, Inc. .........................     100.0%
  Lynch Kansas Telephone Corporation ...........     100.0%
  Lynch Telephone Corporation VI ...............      98.0%
    JBN Telephone Company, Inc. ................      98.0%
      JBN Finance Corporation ..................      98.0%
    Giant Communications, Inc. .................     100.0%
    Lynch Telephone Corporation VII ............     100.0%
      USTC Kansas, Inc. ........................     100.0%
       Haviland Telephone Company, Inc. ........     100.0%
        Haviland Finance Corporation ...........     100.0%
  DFT Communications Corporation ...............     100.0%
    Dunkirk & Fredonia Telephone Company .......     100.0%
      Cassadaga Telephone Company ..............     100.0%
        Macom, Inc. ............................     100.0%
      Comantel, Inc. ...........................     100.0%
        Erie Shore Communications, Inc. ........     100.0%
        D&F Cellular Telephone, Inc. ...........     100.0%
    DFT Long Distance Corporation ..............     100.0%
    DFT Local Service Corporation ..............     100.0%
  LMT Holding Corporation ......................     100.0%
    Lynch Michigan Telephone Holding Corporation     100.0%
        Upper Peninsula Telephone Company ......     100.0%
        Alpha Enterprises Limited ..............     100.0%
          Upper Peninsula Cellular North, Inc. .     100.0%
          Upper Peninsula Cellular South, Inc. .     100.0%

  Lynch Telephone Corporation IX ...............     100.0%
    Central Scott Telephone Company ............     100.0%
        CST Communications Inc. ................     100.0%
  Global Television, Inc. ......................     100.0%
  Inter-Community Acquisition Corporation ......     100.0%
  Home Transport Service, Inc. .................     100.0%

Lynch Telephone Corporation X ..................     100.0%
  Central Utah Telephone, Inc. .................     100.0%
        Skyline Telecom ........................     100.0%
        Bear Lake Communications, Inc. .........     100.0%
  Central Telecom Services, L.L.C ..............     100.0%

  Lynch Entertainment, LLC .....................     100.0%
  Lynch Entertainment Corporation II ...........     100.0%
</TABLE>

<PAGE>

<TABLE>


<CAPTION>

Subsidiary                                              Owned by Lynch
----------                                              --------------

<S>                                                         <C>
Lynch Multimedia Corporation ..........................     100.0%
    CLR Video, LLC ....................................      60.0%
The Morgan Group, Inc. ................................      80.8%(V)/68.5%(O)
Morgan Drive Away, Inc. ...............................      80.8%(V)/68.5%(O)
    Transport Services Unlimited, Inc. ................      80.8%(V)/68.5%(O)
  Interstate Indemnity Company ........................      80.8%(V)/68.5%(O)
  Morgan Finance, Inc. ................................      80.8%(V)/68.5%(O)
  TDI, Inc. ...........................................      80.8%(V)/68.5%(O)
    Home Transport Corporation ........................      80.8%(V)/68.5%(O)
    MDA Corporation ...................................      80.8%(V)/68.5%(O)

Lynch PCS Communications Corporation ..................     100.0%
  Lynch PCS Corporation A .............................     100.0%
  Lynch PCS Corporation F .............................     100.0%
  Lynch PCS Corporation G .............................     100.0%
  Lynch PCS Corporation H .............................     100.0%

  Lynch Paging Corporation ............................     100.0%

  Lynch Telephone Corporation .........................      83.1%
    Western New Mexico Telephone Company, Inc. ........      83.1%
    Interactive Networks Corporation ..................      83.1%
    WNM Communications Corporation ....................      83.1%
    Wescel Cellular, Inc. .............................      83.1%
      Wescel Cellular of New Mexico, L.P. .............      42.4%
    Wescel Cellular, Inc. II ..........................      83.1%
      Northwest New Mexico Cellular, Inc. .............      40.6%
      Northwest New Mexico Cellular of New Mexico, L.P.      20.7%
        Enchantment Cable Corporation .................      83.1%

Lynch Telephone II, LLC ...............................     100.0%
   Inter-Community Telephone Company, LLC .............     100.0%
     Inter-Community Telephone Company II, LLC ........     100.0%
   Valley Communications, Inc. ........................     100.0%
Lynch Telephone Corporation III .......................      81.0%
   Cuba City Telephone Exchange Company ...............      81.0%
   Belmont Telephone Company ..........................      81.0%

<FN>
Notes: (V)=Percentage voting control; (O)=Percentage of equity ownership
</FN>
</TABLE>


<PAGE>
B.    Basis of Presentation
--    ---------------------

Lynch Interactive Corporation (the "Company" or "Interactive")  consolidates the
operating  results of its telephone and cable television  subsidiaries  (60-100%
owned at September 30, 2001 and December 31, 2000).

At December 31, 2000,  the Company  owned 70.2% of the voting power and 55.6% of
the common equity of The Morgan Group,  Inc.  ("Morgan").  On July 12, 2001, the
Company,   through  its  wholly   owned   subsidiary   Brighton   Communications
Corporation,  acquired 1.0 million  shares of Morgan's Class B Common Stock from
Morgan  at $2.00  per  share.  As a result of this  transaction,  the  Company's
ownership  in Morgan  increased  to 80.8% of the  voting  power and 68.8% of the
common  equity.  On August  17,  2001,  the Board of  Directors  of the  Company
authorized management to spin off its investment in Morgan (see Note C).

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 September 30, 2001 and
December 31, 2000), Capital Communications Company, Inc. (49% owned at September
30, 2001 and December 31, 2000) and the cellular  partnership  operations in New
Mexico (17% to 21% owned at September 30, 2001 and December 31, 2000).

The shares of Spinnaker Industries,  Inc., in which the Company owns 2.5% of the
voting power and 13.6% of the common  equity,  are  accounted  for in accordance
with Statements of Financial  Accounting Standards (SFAS) No. 115 "Investment in
Debt and Equity  Securities."  During the third  quarter  of 2001,  the  Company
recorded an impairment  charge relating to its investment in Spinnaker (see Note
H).

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States for interim  financial  information  and with the  instructions to
Form 10-Q and Articles 10 and 11 of  Regulation  S-X.  Accordingly,  they do not
include all of the information and footnotes  required by accounting  principles
generally  accepted in the United States for complete financial  statements.  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 and nine-month  period ended September 30, 2001
are not necessarily  indicative of the results that may be expected for the year
ending December 31, 2001.

In September 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. 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  relating to
amortization  and  impairment  will affect its accounting for goodwill and other
intangible  assets,  for which  implementation is required  beginning January 1,
2002.  Based  on a  preliminary  analysis,  application  of the  nonamortization
provisions  of FAS 142  would  have  resulted  in an  increase  in  income  from
continuing  operations  of $2.1  million,  $0.68 per  share,  for the year ended
December 31, 2000 and $1.7 million,  $0.56 per share,  for the nine months ended
September  30,  2001.  During  2002,  the Company  will perform the first of the
required impairment tests of goodwill and indefinite lived intangible assets and
has not yet  determined  what the effect of these tests will be on the  earnings
and  financial  position  of the  Company.  The Company  adopted the  accounting
requirements of SFAS 141 as of July 1, 2001.
<PAGE>

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  assets to be  disposed  of.  Although
retaining many of the fundamental recognition and measurement provisions 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.

Certain 2000 amounts have been restated and  reclassified to conform to the 2001
presentation.

C.       Spin-off of Morgan
--       ------------------

On August 17, 2001, the Board of Directors of Interactive  authorized management
to distribute its holdings in Morgan to Interactive's shareholders.  Interactive
expects  to  complete  the spin off in the  fourth  quarter of 2001 or the first
quarter of 2002.  As  currently  structured,  common  shares of Morgan  that are
currently  held by the  company  will be  placed  in a wholly  owned  subsidiary
("Morgan  Holdings") and that  subsidiary  will be distributed to  Interactive's
common shareholders in a tax free transaction. 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  shares of Class A and Class B Morgan  common  stock.  The
warrants  that are to be  issued  to  Interactive  will also be placed in Morgan
Holdings.  Pursuant to the spin off, each Interactive  shareholder would receive
one share of Morgan Holdings 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 in the accompanying  condensed  consolidated  financial statements.
Accordingly,  operating  results of Morgan have been  segregated from continuing
operations and reported as a separate line item on the Statement 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
$24.8  million and $28.6  million,  respectively,  for the  three-month  periods
ending  September  30, 2001 and 2000 and $71.0 million and $87.4 million for the
nine-month periods ended September 30, 2001 and 2000,  respectively,  and $108.0
million,  $145.6  million and $150.5 million for the fiscal years ended December
31, 2000, 1999 and 1998, respectively.

The net  assets  of  Morgan  Holdings  included  in the  accompanying  condensed
consolidated  balance  sheets as of  September  30, 2001 and  December  31, 2000
consist of the following:
<PAGE>
<TABLE>
<CAPTION>

(In thousands)                                            September 30,  December 31,
                                                                2001        2000
                                                            (Unaudited)
                                                             ----------  -----------
<S>                                                             <C>       <C>
Cash and cash equivalents ...................................   $ 4,016   $ 2,092
Accounts receivable, net ....................................     9,665     7,881
Deferred income taxes .......................................       319       601
Prepaids and other ..........................................     4,415     1,646
                                                                -------   -------
Current assets to be distributed to shareholders ............   $18,415   $12,220
                                                                =======   =======

Property, plant and equipment, net ..........................   $ 3,477   $ 3,688
Excess of cost over net fair value of net assets acquired net     6,376     6,727
Other Assets ................................................       452       634
                                                                -------   -------
Non-current assets to be distributed to shareholders ........   $10,305   $11,049
                                                                =======   =======

Notes payable ...............................................   $ 1,369   $  --
Accounts payable ............................................     4,812     2,299
Accrued liabilities .........................................     8,656     8,285
Current portion of long term debt ...........................       147       217
                                                                -------   -------
Current liabilities to be distributed to shareholders .......   $14,984   $10,801
                                                                =======   =======

Long term debt ..............................................   $    16   $    71
Deferred income taxes .......................................       282       282
Other liabilities ...........................................     4,821     5,122
Minority interest ...........................................     2,878     2,911
                                                                -------   -------
Non-current liabilitie and minority interest
 to be distributed to shareholders ..........................   $ 7,997   $ 8,386
                                                                =======   =======
</TABLE>

D.   Acquisitions
--   ------------

On June 22, 2001,  Lynch  Telephone  Corporation X, a subsidiary of Interactive,
acquired Central Utah Telephone,  Inc. and its subsidiaries,  and Central Telcom
Services,  LLC, a related entity,  for  approximately  $15.6 million in cash and
notes. Though the purchase price allocation is not yet complete, the Company has
recorded approximately $14.9 million in goodwill,  which is being amortized over
25 years.

The operating  results of the acquired company are included in the Statements of
Operations  from  its  acquisition  date.  The  following  unaudited  pro  forma
information  shows  the  results  of the  Company's  operations  as  though  the
acquisition  of Central Utah and related  entities was made at the  beginning of
2000. (In thousands of dollars, except per share data.)
<TABLE>
<CAPTION>

                                       Three Months Ended    Nine Months Ended
                                         September 30,        September 30,
                                        2001       2000      2001      2000
                                        ----------------    -----------------
<S>                                    <C>       <C>       <C>       <C>
Sales and revenues .................   $23,934   $19,299   $61,975   $53,497
Income from Continuing Operations ..     1,785       750     2,777     3,927
Basic and diluted earnings per share      0.63      0.27      0.98      1.39
</TABLE>


E.   Investment in and Advances to Affiliates Entities
--   -------------------------------------------------

Net investment  activity  during 2001 for the Company  occurred in the following
two separate affiliated entities involved in auctions for wireless spectrum:


<PAGE>

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 nine months ended September 30, 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.

F.   Spin-off of Sunshine PCS Corporation
--   ------------------------------------

A subsidiary of the Company had  previously  owned a 49.9%  limited  partnership
interest in Fortunet Communications, L.P. ("Fortunet").

Fortunet was licensed for 15 MHz of spectrum in three Florida markets covering a
population  ("POP") of  approximately  785,000  (Based on 1999 census data).  In
February  2001,  Fortunet  converted  from a partnership  to a corporation  with
Interactive  receiving  49.9%  of  common  stock.  It also  changed  its name to
Sunshine  PCS  Corporation  ("Sunshine").  On  February  14,  2001,  the Company
spun-off its common stock of Sunshine to the  Company's  shareholders.  Prior to
the  conversion,  the  Company  contributed  a portion of the debt owed to it by
Fortunet  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 was $3.4 million at December 31, 2000 and September 30, 2001. In
addition, in exchange for a cash infusion of $250,000,  the Company 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.  At the time,  the  Company's
obligation to make further loans was terminated.

G.  Administrative Fee
--  ------------------

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
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 "Sales  and  Revenues"  in the  Consolidated  Statement  of
Operations.

H.  Investment In Spinnaker Industries, Inc.
--  ---------------------------------------

The Company owns 1.0 million shares of Spinnaker Industries,  Inc. common stock.
On September 30, 2001, in trading on the American  Stock  Exchange,  the closing
price of the  common  stock was $1.90 per share,  which was below the  Company's
basis in such  shares of $3.19 per share.  In the  opinion of  management,  this
decline in value is other than  temporary and in  accordance  with SFAS No. 115,
the Company  recorded an impairment of its investment in Spinnaker by $1,294,000
to $1,900,000.

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 is has 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.

Interactive  will  continue to monitor its  investment  in Spinnaker  and record
further impairments of such investment if and when appropriate.

I.   Indebtedness
--   ------------

The Company  maintains  a  short-term  line of credit  facility  totaling  $10.0
million,  $4.5  million of which was  available  at  September  30,  2001.  This
facility will expire on August 31, 2002.
<PAGE>
<TABLE>
<CAPTION>
                                                                                 September 30,
The Company's long-term debt consists of:                                            2001         December 31,
                                                                                  (Unaudited)        2000
                                                                                  -----------        ----
                                                                                         (In thousands)
<S>                                                                               <C>          <C>
Rural Electrification Administration (REA) and Rural Telephone Bank (RTB) notes
payable through 2027 at fixed interest rates ranging from 2% to 7.5% (4.9%
weighted average at September 30, 2001), secured by assets of the telephone
companies of $121.0 million ....................................................   $  56,012    $  52,188


Bank Credit facilities utilized by certain telephone and telephone holding
companies through 2013, $34.0 million at fixed interest rates averaging 7.9%
and $54.4 million at variable interest rates averaging 5.5%  ...................      88,605       54,799

Unsecured  notes issued in connection with  acquisitions  through 2006, at fixed
interest rates of 10.0% ........................................................      34,611       27,259

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

Other ..........................................................................       3,089        3,058
                                                                                   ---------    ---------
                                                                                     192,317      162,304
                                                                                   ---------    ---------
Current Maturities .............................................................     (16,784)     (12,365)
                                                                                   ---------    ---------
                                                                                   $ 175,533    $ 149,939
                                                                                   =========    =========
</TABLE>

On December 12, 1999,  the Company  completed  the private  placement to Cascade
Investment LLC ("Cascade") of a $25 million 6% five-year note,  convertible into
its  common  stock at $42.50 per share  (adjusted  for  subsequent  2 to 1 stock
split) (the "Convertible  Notes").  At that time, to assist the Company with the
private placement,  the Chairman and CEO of the Company, agreed to grant Cascade
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 plus his legal fees in  connection
with the option to sell agreement and obtaining the letter of credit.

On January  16,  2001,  the option to sell  agreement  between  Cascade  and the
Company's Chairman was amended. As amended,  Cascade had the right to sell up to
$15 million  principal  amount of Convertible  Notes back to the Chairman at any
time prior to January 31, 2001 and the right to sell the  remaining  $10 million
of principal amount of Convertible Notes between November 15, 2002, 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 respect to the
$15 million of the Convertible  Notes and, pursuant to the agreement between the
Company and the 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 the Convertible Notes held by Cascade.

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,  which
at  September  2001 was valued at $10.5  million.  The  Company  can replace the
collateral at any time and the collateral fee would be eliminated thereafter.
<PAGE>
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 $15 million principal amount of Convertible Notes owned by Cascade.  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.

J.       Restatement of Prior Period Earnings
--       ------------------------------------

On December 12, 1999, the Company  completed the private placement to Cascade of
Convertible  Notes (see Note I). At that time,  to assist the  Company  with the
private placement,  the Chairman and CEO of the Company, agreed to grant Cascade
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 accounting  principles generally accepted in the United States relating to
significant  shareholders,  the Company was required to reflect this transaction
in its financial  statements.  Accordingly,  quarterly results of operations for
the three and nine  months  ended  September  30,  2000,  have been  restated to
reflect the recording of $1.25 million (pre-tax) in interest expense  associated
with the 5%  premium.  Therefore,  the net income was  reduced for the three and
nine-month periods ended September 30, 2000 by $222,000, or $0.08 per share, and
$713,000, or $0.25 per share, respectively.

K.       Comprehensive Income
--       --------------------

Balances of accumulated other  comprehensive  income, net of tax, which consists
of unrealized  gains (losses) on available for sale of securities,  at September
30, 2001 and December 31, 2000 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
Current period unrealized losses    (2,613)     1,099     (1,514)
Reclassification adjustment ....     1,095       (462)       633
                                   -------    -------    -------
  Balance at September 30, 2001    $ 1,058    $  (444)   $   614
                                   =======    =======    =======
</TABLE>

The  comprehensive  income  (loss),  for the three and nine month periods ending
September 30, 2001 and 2000 are as follows (in thousands):

<TABLE>
<CAPTION>
                                                            Three Months Ended
                                                          March 31,  September 30,
                                                            2001        2000
                                                          -----------------------
<S>                                                         <C>        <C>
Net income for the period ...............................   $ 1,595    $   978
Unrealized  gains  (losses) on available
for sale  securities - net of income tax ................      (449)      (486)
   benefits of $326 and $342, respectively
Reclassification adjustment-net of income tax
  (provision) benefits of ($498) and $12, respectively ..       685        (18)
                                                            -------    -------
Comprehensive income ....................................   $ 1,831        474
                                                            =======    =======
</TABLE>
<PAGE>

<TABLE>
<CAPTION>

                                                             Nine Months Ended
                                                           March 31,   September 30,
                                                              2001        2000
                                                           ----------------------
<S>                                                           <C>        <C>
Net income for the period .................................   $ 3,223    $ 4,172
Unrealized  gains  (losses) on available
for sale  securities - net of income tax ..................    (1,514)    (2,249)
   benefits of $1,099 and $1,614, respectively
Reclassification Adjustment - net of income tax (provision)
  benefits of ($462) and $316, respectively ...............       633       (454)
                                                              -------    -------
Comprehensive income ......................................   $ 2,342    $ 1,469
                                                              =======    =======
</TABLE>

L.       Stock Split
--       -----------

A  two-for-one   stock  split,  was  affected  through  a  distribution  to  its
shareholders of one share of the Company's Common Stock for each share of Common
Stock owned. The record date was August 28, 2000, and the distribution  date was
September 11, 2000.

Share and per share data in the accompanying financial statements and notes have
been adjusted to reflect this change.

M.       Subsequent Event
--       ----------------

During the fourth  quarter of 2001,  as a result of litigation  settlement,  the
Company acquired the remaining 40% in CLR Video, L.L.C. that it did not own. CLR
Video,   L.L.C.   provides  cable  television  service  to  approximately  2,400
subscribers in northeast Kansas.

N.       Segment Information
--       -------------------

As a result of the decision to spin-off its  investment  in Morgan (see Note C),
the Company is  principally  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, an investment in PCS entities and investments in two network-affiliated
television stations.

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

Operating  profit  is equal  to  revenues  less  operating  expenses,  excluding
unallocated  general  corporate   expenses,   interest  and  income  taxes.  The
Registrant  allocates  a  portion  of  its  general  corporate  expenses  to its
operating  segment.  Such  allocation  was  $301,000  and $292,000 for the three
months ended September 30, 2001 and 2000, respectively and $903,000 and $876,000
for the nine months ended September 30, 2001 and 2000, respectively.

<PAGE>

<TABLE>
<CAPTION>

                                                            Three Months Ended       Nine Months Ended
                                                                September 30,           September 30,
                                                             2001        2000        2001         2000
                                                           --------    --------    --------     --------
                                                                    Unaudited               Unaudited
                                                                 (In thousands)           (In thousands)
<S>                                                        <C>         <C>         <C>         <C>
Revenues ...............................................   $ 23,934    $ 17,899    $ 58,594    $ 49,489
                                                           ========    ========    ========    ========

EBITDA (before corporate allocation):
Operations .............................................   $ 13,950    $  9,763    $ 31,620    $ 26,408
Corporate expenses, gross ..............................       (624)     (1,066)     (2,199)     (2,675)
                                                           --------    --------    --------    --------
  Combined total .......................................   $ 13,326    $  8,697    $ 29,421      23,733
                                                           ========    ========    ========    ========

Operating profit:
Multimedia .............................................   $  8,656    $  5,366    $ 17,439    $ 13,654
Unallocated corporate expense ..........................       (291)       (664)     (1,195)     (1,566)
                                                           --------    --------    --------    --------
  Combined Total .......................................   $  8,365    $  4,702    $ 16,244    $ 12,088
                                                           ========    ========    ========    ========

Operating profit .......................................   $  8,365    $  4,702    $ 16,244    $ 12,088
Investment income ......................................        200         968       2,593       2,644
Interest expense .......................................     (3,865)     (3,495)    (10,697)    (10,504)
Equity in earnings of affiliated companies .............        213         195         582       1,464
Write-down of investment in Spinnaker Industries, Inc. .     (1,294)       --        (1,294)       --
Gain on redemption of East/West Preferred Stock ........       --          --          --         4,125
                                                           --------    --------    --------    --------

  Income from continuing operations before income taxes,
    and minority interests .............................   $  3,619    $  2,370    $  7,428    $  9,817
                                                           ========    ========    ========    ========
</TABLE>

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

SALES AND REVENUES

Revenues for the three months ended September 30, 2001 increased by $6.0 million
or 34% to $23.9 million from the third quarter of 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
combined  contributed  $2.7 million in revenues to the third quarter;  and, to a
lesser  extent,  the growth in both  regulated  telecommunications  services and
provisions of non-traditional  telephone  services.  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 Communications  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 realization on
the licenses  acquired.  For the nine months ended September 30, 2001,  revenues
increased by $9.1  million or 18.4% to $58.6  million.  The factors  cited above
that  affected  the third  quarter  comparisons  also  affected  the  nine-month
comparisons.

Operating  profits for the three months ended  September 30, 2001,  increased by
$3.7  million  primarily  due to the receipt of the  administration  fee of $2.8
million  noted  above.  The  inclusion  of  Central  Utah and  related  entities
contributed $1.0 million to the operating profit increase. Operating profits for
the nine months ended  September  30,  2001,  increased  by $4.2  million,  also
primarily due to the factors sited above.
<PAGE>

In September 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  of  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 $2.1 million,
$0.68 per share,  for the year ended  December 31, 2000 and $1.7 million,  $0.57
per share,  for the nine months  ended  September  30, 2001.  During  2002,  the
Company will perform the first of the required  impairment tests of goodwill and
indefinite lived intangible assets and has not yet determined what the effect of
these tests will be on the earnings and financial position of the Company.

Investment  income for the quarter  ended  September  30, 2001 was $0.2 million,
versus $1.0 million in the third  quarter of 2001. In the third quarter of 2000,
the Company recorded $0.5 million in unrealized  gains on "trading  securities,"
due to its ownership of Class B shares of Tremont Advisers,  Inc. (NASDAQ:TMAV).
For the nine months ended  September  30, 2001 and 2000,  investment  income was
about the same at $2.6 million.

For the three months ended  September 30, 2001,  interest  expense  increased by
$0.4 million from the third  quarter of 2000.  The inclusion of Central Utah and
associated  acquisition  debt  resulted in a $0.5 million  increase.  Other than
effects of Central Utah,  interest expense reflected higher debt levels at lower
average  interest  rates on the variable  debt,  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.
For the nine months ended September 30, 2001, interest expense increased by $0.2
million.  The factors cited affecting the third quarter comparison also affected
the nine-month comparison.

During  the three  months  ended  September  30,  2001,  equity in  earnings  of
affiliates  was about the same as the previous  year.  For the nine months ended
September  30,  2001,  equity in  earnings of  affiliates  was lower than it was
during the corresponding  prior year period 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.

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 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 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 June 30, 2001,  the basis of the Spinnaker
shares was $3.2 million,  or $3.19 per share.  At September 30, 2001, the quoted
market  price of these  shares was $1.90 per share,  in trading on the  American
Stock Exchange.  During the year ended December 31, 2000,  Spinnaker  recorded a
loss from continuing operations before discontinued operations and extraordinary
gain 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 first quarter
of 2001,  Spinnaker  recorded  a net loss of $41.0  million,  including  a $36.5
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.  The

<PAGE>

Company  believes that the decline on quoted value is other than  temporary and,
accordingly,  has recorded a loss of $1.3 million  during the three months ended
September 30, 2001, to write down its investment in Spinnaker to $1.9 million at
September 30, 2001.  Management will continue to monitor the market value of its
Spinnaker  holdings and should the market value of the common  shares fall below
the $1.9 million current basis, management will again consider if the decline in
value is other than  temporary,  and if so, an  additional  write-down  would be
recorded in its reported financial results.  The Company notes that at September
30, 2001, the market price of Spinnaker's  Class A common shares,  none of which
are owned by the  Company,  traded on the American  Stock  Exchange at $0.55 per
share. The only difference between Spinnaker common and Class A common shares is
that the  common  shares  are  entitled  to 1/10  vote per share and the Class A
common shares are entitled to one vote per share.

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 is has 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 noted above, Interactive will continue to monitor its investment in Spinnaker
and record further impairments of such investment if and when appropriate.

On  February  25,  2000,  Omnipoint  acquired,  through  a  merger,  all  of the
outstanding shares of East/West Communications,  Inc. At the time of the merger,
the Company held 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 Company recorded a pre-tax gain of $4.1
million in the three months ended March 31, 2000.

The  income tax  provision  includes  federal,  state and local  taxes.  The tax
provision  for the nine months  ended  September  30,  2001 and 2000,  represent
effective  tax rates of 47.8%.  The causes of the  difference  from the  federal
statutory rate are principally  the effect of state income taxes,  including the
effect of earnings and losses attributable to different state jurisdictions, and
the amortization of non-deductible  goodwill.  Beginning on January 1, 2002, the
Company will no longer be amortizing goodwill in its results of operations. As a
result, the Company's effective tax rate will be lower in the future.

Minority interest decreased earnings by $0.2 million in each of the three months
ended September 30, 2001 and 2000. A similar variance occurred in the nine-month
periods.

Income from continuing  operations for the three months ended September 30, 2001
was $1.8  million,  or $0.63 per share (basic and  diluted),  as compared to net
income of $0.9 million, or $0.33 per share (basic and diluted),  in the previous
years three-month  period.  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.  Income  from
continuing  operations  for the nine  months  ended  September  30, 2001 of $3.4
million,  or $1.19 per share  (basic and  diluted)  as  compared  to income from
continuing operations of $4.5 million, or $1.58 per share (basic and diluted) in
the prior year.  The most  significant  item affecting the swing in earnings was
the gain on the redemption of East/West  preferred  stock ($2.5 million,  net of
income tax provision) in 2000.

FINANCIAL CONDITION

Liquidity/ Capital Resources

As of September  30, 2001,  the Company had current  assets of $66.4 million and
current liabilities of $59.8 million. Working capital was therefore $6.5 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 and the additional  investment in Morgan were the primary causes of the
change in working capital.

For the first nine months,  capital  expenditures were $13.0 million in 2001 and
$11.5 million in 2000.

At September 30, 2001,  total debt was $201.0  million,  which was $34.3 million
higher than the $166.6  million at the end of 2000.  The  acquisition of Central
Utah and the debt  restructuring  discussed  below were financing  causes of the
increase. At September 30, 2001, there was $137.9 million of fixed interest rate
debt averaging 7.00% and $63.1 million of variable  interest rate debt averaging
5.6%. The Company is considering  converting a significant  portion the variable
interest  rate  debt to fixed  interest  rate debt in the near  future.  Debt at
year-end 2000 included $142.9 million of fixed interest rate debt, at an average
interest  rate of 6.79% and $23.9  million of variable  interest rate debt at an
average interest rate of 8.49%.
<PAGE>

On December 12, 1999,  the Company  completed  the private  placement to Cascade
Convertible  Notes.  At that  time,  to  assist  the  Company  with the  private
placement,  the  Chairman  and CEO of the  Company,  agreed  to grant  Cascade 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 plus his legal fees in connection  with the
option to sell agreement and obtaining the letter of credit.  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, which at September 2001 was
valued at $10.5 million.  The Company can replace the collateral at any time and
the collateral fee would be eliminated from thereafter.  As of October 31, 2001,
the Company has replaced  $7.5 million  ($5.5  million at September 30, 2001) of
the escrow collateral  securing the above noted letter of credit by transferring
$7.5 million of Treasury  Bills to an account and pledging that to issuer of the
letter of credit.

On January  16,  2001,  the option to sell  agreement  between  Cascade  and the
Company's Chairman was amended. As amended,  Cascade had the right to sell up to
$15 million  principal  amount of Convertible  Notes back to the Chairman at any
time prior to January 31, 2001 and the right to sell the  remaining  $10 million
of principal amount of Convertible Notes between November 15, 2002, 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 respect to the
$15 million of the Convertible  Notes and, pursuant to the agreement between the
Company and the 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 the Convertible Notes held by Cascade.

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 $15 million principal amount of Convertible Notes owned by Cascade.  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.

At September 30, 2001, the Company had $4.5 million available under a short-term
line of credit facility, which expires on August 31, 2002, the total facility is
$10.0 million.

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.  The Company  currently  intends to retain its
earnings,  if any,  for use in its  business.  Future  financings  may  limit or
prohibit the payment of dividends.

The Company has a high degree of financial  leverage.  As of September 30, 2001,
the ratio of total debt to equity was 7.8 to 1. Certain  subsidiaries  also have
high  debt to equity  ratios.  In  addition,  the debt at  subsidiary  companies
contains  restrictions  on the  amount of  readily  available  funds that can be
transferred to the respective parent of the subsidiaries. The spin off of Morgan
is expected to reduce the Company's equity by approximately $6 million.
<PAGE>

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

On June 22, 2001, a subsidiary of the Company  acquired  Central Utah Telephone,
Inc. and its  subsidiaries,  a 7,000-access  line telephone  company  located in
Utah.  The Company has also acquired  Central  Telcom  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.

The Company has initiated an effort to monetize certain of its assets, including
selling a portion or all of  certain  investments  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.  The  Company's  approximately  13.6%  ownership  interest in
Spinnaker  Industries,  Inc. (AMEX:SKK) may also be sold in order to fund future
growth  initiatives.  There is no assurance that all or any part of this program
can be effectuated on acceptable terms.

Item 3.  Quantitative and Qualitative Disclosure About Market Risk

The Company is exposed to market risk  relating to changes in the general  level
of U.S. interest rates. Changes in interest rates affect the amounts of interest
earned on the Company's cash, cash equivalents and marketable  securities ($33.4
million at September 30, 2001 and $26.9 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  either 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 September 30, 2001, $63.1 million,  or 31.4%, of the Company's long-term debt
and notes payable bears interest at variable rates.  Accordingly,  the Company's
earnings and cash flows are affected by changes in interest rates.  Assuming the
current level of borrowings for variable rate debt and assuming a one percentage
point change in the 2001 average  interest  rate under these  borrowings,  it is
estimated that the Company's 2001 nine-month interest expense would have changed
approximately $0.3 million. In the event of an adverse change in interest rates,
management would likely take actions to further mitigate its exposure.  However,
due to the  uncertainty  of the actions  that would be taken and their  possible
effects,  the analysis assumes no such actions.  Further,  the analysis does not
consider  the  effects of the change in the level of overall  economic  activity
that could exist in such an environment.

                           FORWARD LOOKING INFORMATION

Included in this Management  Discussion and Analysis of Financial  Condition and
Results  of  Operations  are  certain  forward   looking   financial  and  other
information,  including potential write-downs of its investment in Spinnaker and
Morgan. It should be recognized that such information are projections, estimates
or forecasts based on various assumptions, including without limitation, meeting
its  assumptions  regarding  expected  operating  performance  and other matters
specifically set forth, as well as the expected performance of the economy as it
impacts the  Registrant's  businesses,  government  and  regulatory  actions and
approvals, and tax consequences and cautionary statements set forth in documents
filed by the  Company  and The Morgan  Group with the  Securities  and  Exchange
Commission. As a result, such information is subject to uncertainties, risks and
inaccuracies, which could be material.



<PAGE>



PART II.  OTHER INFORMATION

Item 1.           Legal Proceedings

                    In the ordinary  course of business,  we become  involved in
                    various  lawsuits  and  claims.  While the  outcome of these
                    matters is not currently  determinable,  we believe that the
                    outcome  will  not have a  material  adverse  affect  on our
                    results of operations or our financial position.

Item 2.           Change in Securities and Use of Proceeds
                  ----------------------------------------

                  (a)     None.

                  (b)     None.

                  (c)     None.

Item 3.           Defaults Upon Senior Securities
                  -------------------------------

                  None.

Item 4.           Submission of Matters to a Vote of Security Holders
                  ---------------------------------------------------

                  None.

Item 5.           Other Information
                  -----------------

                  None.

Item 6.           Exhibits and Reports on Form 8-K
                  --------------------------------

                  (a)      Exhibits - None.

                  (b)      Reports on Form 8-K
                              - Current Report on Form 8-K filed
                                on August 28, 2001.


                                    SIGNATURE

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

                                      LYNCH INTERACTIVE CORPORATION
                                      (Registrant)

                                      By: /s/Robert E. Dolan
                                      ----------------------------------
                                             Robert E. Dolan
                                             Chief Financial Officer
November 14, 2001