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, 2005
                               --------------

                                       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-2 of 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, 2005
            -----                         -----------------------------
Common Stock, $.0001 par value                     2,752,251
<PAGE>





                                      INDEX
                                      -----

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

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


Item 1. Financial Statements (Unaudited)

          Condensed Consolidated Balance Sheets:
          -    March 31, 2005
          -    December 31, 2004
          -    March 31, 2004

          Condensed Consolidated Statements of Operations:
          -    Three months ended March 31, 2005 and 2004

          Consolidated Statements of Shareholders' Equity

          Condensed Consolidated  Statements of Cash Flows:
          -    Three months ended March 31, 2005 and 2004

          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 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 6. Exhibits and Reports on Form 8-K


SIGNATURE
---------

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


                                      -1-
<PAGE>



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

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

                                         March 31,     December 31,    March 31,
                                           2005           2004            2004
                                       ------------    ------------   ----------
                                        Unaudited)      (Audited)     Unaudited)
<TABLE>
<CAPTION>
<S>                                     <C>            <C>             <C>

ASSETS

Current assets:
  Cash and cash equivalents ......      $  29,698      $  27,214       $  29,572

  Receivables, less allowances of
    $255, $260 and $270,respectively ..     7,573          8,225           7,923
  Material and supplies ..........          2,502          2,314           2,736
  Prepaid expenses and other current
     assets ........................        1,175          1,685           1,110
                                          --------      ---------      ---------
Total current assets ................      40,948         39,438          41,341

Property, plant and equipment:
  Land ........... ..................         983            983             840
  Buildings and improvements ........      17,712         17,640          13,336
  Machinery and equipment ...........     220,496        216,429         216,855
                                          --------     ---------       ---------
                                           239,191       235,052         231,031
  Accumulated depreciation ..........    (119,252)     (114,724)       (107,683)
                                         ---------     ---------       ---------
                                           119,939       120,328         123,348

Excess of cost over fair value of
 net assets acquired, net (goodwill) .      60,501        60,042          60,580
Other intangibles ....................      10,763        10,026          10,321
Investments in and advances to
  affiliated entities ................      11,416        12,340           5,310
Other assets .........................      15,167        14,906          13,176
                                          ---------     ---------      ---------

Total assets ........;;;;;;;..........   $   28,734     $ 257,080      $ 254,076

                                          =========     =========      =========
</TABLE>


See accompanying Notes to Consolidated Financial Statements

                                      -2-
<PAGE>




                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)

                                              March 31,  December 31, March 31,
                                                2005        2004         2004
                                             ----------  ----------- -----------
                                            (Unaudited)   (Audited)  (Unaudited)
<TABLE>
<CAPTION>
<S>                                         <C>           <C>        <C>

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Notes payable to banks .................   $   5,980    $   4,793    $   3,535
  Trade accounts payable .................       3,125        4,326        4,457
  Accrued interest payable ...............         822          825          696
  Accrued liabilities ....................      15,100       11,238       10,925
  Current maturities of long-term debt ...      14,295       14,364       13,071
                                             ---------    ---------    ---------
     Total current liabilities ...........      39,322       35,546       32,684

Long-term debt ...........................     153,593      154,602      160,388
Deferred income taxes ....................      16,080       17,549       15,812
Other liabilities ........................       3,431        3,268        2,976
                                             ---------    ---------    ---------
     Total liabilities ...................     212,426      210,965      211,860

Minority interests .......................      11,313       11,543       10,297

Commitments and contingencies (Note 12)

Shareholders' equity
  Common stock, $0.0001 par value-10,000,000
     shares authorized; 2,824,766 issued;
     2,752,251, 2,757,951 and 2,774,651
     outstanding .........................       --           --           --
  Additional paid-in capital .............     21,406       21,406       21,406
  Retained earnings ......................     14,430       13,735       10,872
  Accumulated other comprehensive income .      1,495        1,588        1,253
  Treasury stock, 72,515, 66,815 and
    50,115 shares, at cost ...............    (2,336)        2,157)      (1,612)
                                             ---------    ---------    ---------
                                               34,995        34,572       31,919
                                             ---------    ---------    ---------

Total liabilities and shareholders' equity. $ 258,734     $ 257,080    $ 254,076
                                             =========    =========    =========

</TABLE>

See accompanying Notes to Consolidated Financial Statements.


                                      -3-
<PAGE>




                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                      (in thousands, except per share data)

                                                         Three Months Ended
                                                              March 31,
                                                   -----------------------------
                                                      2005                2004
                                                   -----------------------------

<TABLE>
<CAPTION>
<S>                                                  <C>               <C>

Revenues .........................................   $ 21,618    $ 21,424

Costs and expenses:
Cost of revenue ..................................      7,651       7,203
General and administrative costs at operations ...      3,423       3,139
Corporate office expenses ........................      2,091         973
Depreciation and amortization ....................      5,195       5,221
                                                      --------    --------
    Total Expense ................................     18,360      16,536
                                                      --------    --------
Operating profit .................................      3,258       4,888


Other income (expense):
   Investment income .............................        793         728
   Interest expense ..............................    (2,823)     (2,819)
   Equity in earnings of affiliated companies ....        711         712
                                                      --------    --------
                                                      (1,319)     (1,379)
                                                      --------    --------
Income before income taxes and minority interests       1,939       3,509
Provision for income taxes ......................       (767)     (1,449)
Minority interests ..............................       (477)       (457)
                                                      --------     ------
Net income ......................................    $    695    $  1,603
                                                      ========   ========

Basic and diluted weighted average shares o
utstanding ........................................     2,754       2,777

Basic and diluted earnings per share .............   $   0.25    $   0.58
</TABLE>


See accompanying Notes to Condensed Consolidated Financial Statements.

                                      -4-
<PAGE>



                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIAIRES
            CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                   (Unaudited)
                        (in thousands, except share data)


<TABLE>
<CAPTION>
<S>                                <C>          <C>       <C>         <C>         <C>            <C>

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

Balance at December 31, 2004        2,757,951    $     0   $ 21,406   $  13,735    $  1,588       $ (2,157)  $ 34,572
Net income for the period ..          --             --          --         695          --             --        695
Unrealized loss on available          --             --          --          --         (93)            --       (93)
  for sale securities, net
                                                                                                              -------
    Comprehensive income ...                                                                                      602
                                                                                                              -------
Purchase of Treasury Stock .          (5,700)        --          --          --          --           (179)     (179)
                                    ---------    --------  ---------   ---------    --------     ----------   -------
Balance at March 31, 2005           2,752,251    $      0  $  21,406   $  14,430   $   1,495     $  (2,336)   $34,995
                                    ===========    ===========   ===========   ===========    ===========    ===========
</TABLE>


See accompanying Notes to Consolidated Financial Statements.

                                      -5-
<PAGE>



                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (in thousands)

                                                          Three Months Ended
                                                              March 31,
                                                       -------------------------
                                                         2005           2004
                                                       -------------------------
<TABLE>
<CAPTION>
<S>                                                    <C>             <C>
Operating activities:
Net Income                                              $    695       $ 1,603
Adjustments to reconcile net income to net
cash provided by operating activities:
   Depreciation and amortization                           5,195         5,221
   Equity in earnings of affiliated compani                (711)         (712)
   Minority interests                                        477           457
   Changes in operating assets and liabilities:
        Receivables                                          712           307
        Accounts payable and accrued liabilitie              400         1,324
   Other                                                     619         (189)
                                                      --------------------------
Net cash provided by operating activities                  7,387         8,011
                                                      --------------------------

Investing activities:
Capital expenditures                                      (1,915)       (2,614)
Acquisition of business                                   (3,524)         (377)
Acquisition of subscrib                                      (22)          (91)
Acquisition of spectrum                                     (500)            --
Investment in and advances to affiliated entities            (62)          (63)
Distributions received from investments                     1,714           821
Other                                                         183            30
                                                     ---------------------------
Net cash used in investing activities                     (4,126)       (2,294)
                                                     ---------------------------

Financing activities:
Issuance of long term debt                                  2,272           949
Repayments of long term debt                              (3,350)       (3,273)
Net proceeds (repayments) on lines of credit                1,187            79
Purchase of treasury stock                                  (179)         (138)
Other                                                       (707)         (318)
                                                     ---------------------------
Net cash used in financing activities                       (777)       (2,701)
                                                     ---------------------------
Net increase in cash and cash equivalents                   2,484         3,016
Cash and cash equivalents at beginning of period           27,214        26,556
                                                     ---------------------------
Cash and cash equivalents at end of period              $  29,698      $ 29,572
                                                     ===========================

Cash paid for:
  Interest expense                                      $   2,764      $   2,826
                                                     ===========================
  Income taxes                                          $      676     $     175
                                                     ===========================
</TABLE>


See accompanying Notes to Condensed Consolidated Financial Statements.

                                      -6-
<PAGE>



LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A.   Basis of Presentation
--------------------------

Lynch Interactive Corporation  ("Interactive" or the "Company") consolidates the
operating  results  of its  subsidiaries  (81%-100%  owned  at March  31,  2005,
December 31, 2004 and March 31, 2004).  All material  intercompany  transactions
and  balances  have been  eliminated.  Investments  in  affiliates  in which the
Company  does  not  have a  majority  voting  control,  but has the  ability  to
significantly  influence management  decisions,  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,  2005,  December  31,  2004 and  March  31,  2004),  Capital
Communications Company, Inc. (49% owned at March 31, 2005, December 31, 2004 and
March 31, 2004; we note, however,  that Interactive owns a convertible preferred
stock  which,   if   converted,   would   increase  its   ownership  in  Capital
Communications to 50%), two cellular partnership  operations in New Mexico (both
33% owned at March 31, 2005, December 31, 2004 and March 31, 2004), KMG Holdings
Group  (37% owned  since May 2004) and  telecommunications  operations  in North
Dakota, Iowa and New York (5% to 14% owned).

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, 2004. 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, 2005 are
not  necessarily  indicative  of the results  that may be expected  for the year
ending December 31, 2005. 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.  Certain  prior  period  amounts  in  the
accompanying consolidated financial statements have been reclassified to conform
to current period presentation.


B.   Recently Issued Accounting Pronouncements
----------------------------------------------

In December  2004,  the FASB  issued  SFAS  No.153,  "Exchanges  of  Nonmonetary
Assets",  which  eliminates the exception for  nonmonetary  exchanges of similar
productive  assets and  replaces it with a general  exception  for  exchanges of
nonmonetary  assets that do not have commercial  substance.  SFAS No.153 will be
effective for nonmonetary asset exchanges  occurring in fiscal periods beginning
after June 15,  2005.  The Company  does not believe the adoption of SFAS No.153
will have a material impact on its consolidated financial statements.

In December 2004, the FASB issued SFAS No.123(R),  "Share-Based Payment",  which
establishes  standards for  transactions in which an entity exchanges its equity
instruments  for goods or services.  This  standard  requires a public entity to
measure the cost of  employee  services  received  in  exchange  for an award of
equity  instruments  based  on the  grant-date  fair  value of the  award.  This
eliminates  the exception to account for such awards using the intrinsic  method
previously  allowable under APB Opinion No.25.  SFAS No.123(R) will be effective
for interim or annual reporting periods beginning on or after June 15, 2005. The
Company is currently  evaluating  the impact of the  adoption of SFAS  No.123(R)
will have on its consolidated financial statements.

                                      -7-
<page>

In  March  2005,  the  FASB  issued   Interpretation  No.  47,  "Accounting  for
Conditional  Asset  Retirement  Obligations"  ("FIN47"),  which  clarifies  that
conditional  asset retirement  obligations are within the scope of SFAS No. 143,
"Accounting for Asset  Retirement  Obligations."  FIN 47 requires the Company to
recognize  a  liability  for the fair  value  of  conditional  asset  retirement
obligations if the fair value of the liability can be reasonably estimated.  The
Company does not believe that the adoption of FIN 47 will have a material impact
on its financial statements.

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.  On May 5, 2005,
the California Public Utilities  Commission  approved the transaction subject to
various  conditions  that the  Company  expects  to meet,  at  which  point  the
acquisition will close.

In February 2005,  Lynch 3G  participated in Auction 58 for PCS Spectrum and was
high bidder for two licenses,  Marquette,  MI and Klamath Falls, OR, for a total
cost of $0.5 million.

On March 18, 2005, a subsidiary of the Company,  Central Telcom  Services,  LLC,
closed on an  agreement  with  Precis  Communications,  LLC,  to acquire a cable
television  assets for a purchase  price of $3.5  million.  The system has 2,411
cable subscribers located in Sanpete and Sevier Counties,  Utah. The preliminary
allocation  of the  purchase  price  included  $0.4 million of goodwill and $0.4
million for subscriber lists and other intangibles.

D.   Investments in Affiliated Companies
----------------------------------------

Interactive has equity  investments in both broadcasting and  telecommunications
companies.

Summarized financial information for broadcasting companies accounted for by the
equity  method as of and for the three  months ended March 31, 2005 and 2004 and
as of December 31, 2004, is as follows:

                                                           Broadcasting Combined
<TABLE>
<CAPTION>
<S>                                                   <C>         <C>         <C>
                                                      --------    -----------  --------
                                                      March 31,   December 31, March 31,
                                                         2005        2004        2004
                                                      --------    ------------ ----------
                                                               (in thousands)
Current assets ................................ ...   $  5,273    $  6,896     $  5,213
Property, plant & equipment, intangibles & other ..     10,181       9,558        9,187
                                                      --------    --------     --------

Total Assets ......................................   $ 15,454    $ 16,454     $ 14,400
                                                      ========    ========     ========

Current liabilities ...............................   $  2,636    $  3,383     $  3,115
Long term liabilities .............................     16,587      16,751       15,857
Equity ...........................................     (3,769)     (3,680)      (4,572)
                                                      --------    --------     --------


Total liabilities & equity ........................   $ 15,454    $ 16,454     $ 14,400
                                                      ========    ========     ========

Revenues ..........................................   $  3,055                 $  3,490
Gross profit ......................................        750                    1,256
Net income .......................................        (99)                      354
</TABLE>
                                      -8-
<page>

A wholly  owned  subsidiary  of the  Company  has a 20%  investment  in  Coronet
Communications Company ("Coronet"), which operates television station WHBF-TV, a
CBS affiliate in Rock Island,  Illinois. A

second wholly owned  subsidiary  of the Company has a 49%  investment in Capital
Communications  Company,  Inc.  ("Capital"),  which operates  television station
WOI-TV,  an ABC affiliate in Des Moines,  Iowa. At March 31, 2005,  December 31,
2004 and March 31,  2004,  the  investment  in Coronet was carried at a negative
$0.6  million,  $0.6  million  and  $0.8  million,   respectively,  due  to  the
subsidiary's  guarantee  of $3.8  million of  Coronet's  third party  debt.  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.  Long-term debt of Coronet,  at March
31, 2005,  totaled $9.4 million payable quarterly through December 31, 2005 to a
third party lender.

At March 31,  2005,  December  31, 2004 and March 31, 2004,  the  investment  in
Capital is carried  at zero as its share of net losses  recognized  to date have
exceeded  its net  investment  and the  Company  has no  further  commitment  to
Capital.  The  Company's  shares in Capital  have been  pledged as security  for
Capital's long term debt.

Summarized financial information for telecommunications companies which includes
the  cellular  telephone   providers,   spectrum  license  holders,   and  other
telecommunication  operations  accounted  for by the equity method as of and for
the three months ended March 31, 2005 and 2004 and as of December 31, 2004 is as
follows (in thousands):

<TABLE>
<CAPTION>
<S>                                                   <C>              <C>             <C>

                                                               Telecommunications Combined
                                                               ---------------------------
                                                           March 31,    December 31,   March 31,
                                                              2005         2004            2004
                                                           ------------------------------------
                                                                    (in thousands)
Current assets .........................................   $33,330      $36,080         $29,425
Property, plant & equipment, intangibles & other .......    34,349       33,087          26,856
                                                           ------------------------------------


Total Assets ...........................................   $67,679      $69,167         $56,281
                                                           ====================================

Current liabilities ....................................   $22,812      $22,745         $22,322
Long term liabilities ..................................     7,028        5,900           8,938
Equity ................................................     37,839       40,522          25,021
                                                           ------------------------------------

Total liabilities & equity .............................   $67,679       $69,167        $56,281
                                                           ====================================

Revenues ...............................................   $16,196                      $12,306
Gross profit ...........................................     7,139                        5,475
Net income .............................................     3,945                        3,295
</TABLE>

Interactive owns a one-third interest in two cellular telephone providers in New
Mexico:  New Mexico RSA #3 and RSA #5. The  Company's  net  investment  in these
partnerships was $5.4 million,  $6.5 million and $4.8 million at March 31, 2005,
December 31, 2004 and March 31, 2004, respectively and included in Investment in
and advances to affiliated entities.

E.   Indebtedness
-----------------

Interactive  maintains  a  short-term  line of credit  facility  totaling  $10.0
million through October 2004,  which was reduced in steps to $5 million at March
31, 2005.  Borrowings  under this facility,  included in Notes payable to banks,
were $1.8  million,  $1.1 million and zero at March 31, 2005,  December 31, 2004
and March 31, 2004, respectively. Long-term debt consists of (all interest rates
are at March 31, 2005) (in thousands):

                                      -9-
<PAGE>


<TABLE>
<CAPTION>
<S>                                                           <C>                <C>                <C>


                                                              March 31,        December 31,       March 31,
                                                                    2005              2004              2004
                                                              ----------------------------------------------
        Rural Electrification Administration ("REA") and
        Rural Telephone Bank (`RTB") notes payable due
        quarterly through 2027 at fixed interest rates
        ranging from 2% to 7.5%. (5.1% weighted average,
        secured by assets of the telephone companies with
        a net book value of $150 million)                       $56,100         $57,129             $59,892

        Bank Credit facilities utilized by certain
        telephone and telephone holding companies due from
        2005 to 2016, $8.8 million at fixed interest
        rates averaging 8.3% and $61.7 million at
        variable interest rates averaging 5.7%.                  70,497          70,402              76,601

        Unsecured notes issued in connection with
        acquisitions through 2008, at fixed interest rates       38,983          38,983              34,389
        averaging 9.4%

        Other                                                     2,308           2,452               2,577
                                                              ----------------------------------------------
                                                                167,888         168,966             173,459
        Current maturities                                     (14,295)        (14,364)            (13,071)
                                                              ----------------------------------------------
                                                              $ 153,593       $ 154,602           $ 160,388
                                                              ==============================================
</TABLE>


In March 2005, in  conjunction  with the  acquisition of cable assets in Utah, a
subsidiary of the Company borrowed $2.2 million from a bank at variable interest
rates included in Bank Credit facilities above.

In April 2005,  Interactive  received a commitment  letter for a new $10 million
unsecured  revolving credit facility , at 1.5% over prime,  expiring in 2008, to
replace  the  existing  short-term  line of credit  facility.  Such  facility is
subject to  negotiation  of terms and there can be no assurance  that it will be
completed.

F.   Comprehensive Income
-------------------------

Other  comprehensive  income,  net of tax,  which  consists of unrealized  gains
(losses) on available for sale  securities,  as of March 31, 2005,  December 31,
2004 and March 31, 2004 are as follows (in thousands):
<TABLE>
<CAPTION>
<S>                                                         <C>                 <C>             <C>

                                                            Unrealized Gain
                                                                 (Loss)         Tax Effect      Net
                                                            --------------------------------------------
                                                                    (in thousands)

Balance at December 31, 2004 ..........................     $ 2,410             $  (822)        $ 1,588
Unrealized losses on available for sale securities, net        (140)                  47           (93)
                                                             -------             -------         -------
Balance at March 31, 2005 .............................     $ 2,270             $  (775)        $ 1,495
                                                             =======             =======         =======
Balance at March 31, 2004 .............................     $ 1,901             $  (648)        $ 1,253
                                                             =======             =======         =======
</TABLE>


G.   Treasury Stock Purchases
---------------------------------

During the three months ended March 31, 2005, the Company purchased 5,700 shares
of its common stock for treasury at an average investment of $31.53 per share.


                                      -10-

<PAGE>



H.   Litigation
-------------------

Taylor   Litigation.   --------------------------------------   Interactive  and
several other parties, including Interactive's CEO, and Fortunet Communications,
L.P., which was Sunshine PCS  Corporation's  predecessor-in-interest,  have been
named as  defendants  in a lawsuit  originally  brought by Rufus C. Taylor,  III
("Taylor"  or the  "relator")  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 in February 2001. At
the  initiative of one of the  defendants,  the seal was lifted in January 2002.
Under the False  Claims Act, a private  plaintiff  called 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 ("FCC") 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 report  prepared for the relator in February 2005 alleges damages of
approximately  $91  million in respect of  bidding  credits,  approximately  $70
million in respect of government loans and approximately $206 million in respect
of subsequent sales of licenses, in each case prior to trebling.

Interactive  strongly believes that this lawsuit is completely without merit and
that relator's damage  computations are 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 in July 2002. In September
2002, the defendants 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. In September 2003, the
Court  granted our motion to transfer the action.  A scheduling  conference  was
held in February 2004, at which time the judge  approved a scheduling  order and
discovery commenced.  In July 2004, the judge denied in part and granted in part
our motion to dismiss.  Interactive and its  subsidiaries  remain parties to the
litigation.

In December 2004, the  defendants  filed a motion in the United States  District
Court  for the  District  of  Columbia  to  compel  the FCC to  provide  certain
information  subpoenaed  by  defendents in order to enable them to conduct their
defense.  This  motion was  denied in May 2005 and  defendants  are  considering
appropriate  responses.  The  preparation  and filing of dispositive  motions is
expected to begin shortly. See "History of Lynch's "C" Block Activities" below.

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

As part of the Omnibus Budget Resolution of 1993, Congress authorized the FCC to
employ  competitive  bidding  procedures  to  select  among  mutually  exclusive
applicants for certain spectrum licenses. Initially the FCC had an initiative to
include, among others, African Americans,  Native Americans, Asian Americans and
women.  As a result of this,  the FCC  conducted  auctions  beginning in 1995 to
allocate  spectrum in a  competitive  manner.  Interactive  was a  participating
investor and/or service provider to various entities in this "C-Block" auction.

                                      -11-
<page>


By December 18, 1995,  Interactive  (through its predecessor Lynch  Corporation)
had  investments  in five  entities  that  participated  in the FCC  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,
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. Interactive'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, among other reasons,  in order to obtain some economies of scale, such
as financing,  the five entities merged into Fortunet  Communications,  Inc. The
FCC, in partial response to actions by Nextwave and others,  promoted a plan for
refinancing  the "C" block  licenses.  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 President of Fortunet, Karen Johnson,  participated
in an FCC sponsored  forum on this issue on June 30, 1997. 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.  Another option,  amnesty, was to return all licenses and forgo
any amounts deposited in exchange for forgiveness of the FCC debt. Other options
included:  disaggregation,  splitting a 30 MHz license  into two 15 MHz licenses
and  forgoing 50% of the amount  deposited;  and  prepayment,  return of certain
licenses and  utilizing 70% of the amount  deposited to acquire other  licenses,
with the other 30% of the deposits to be forfeited.

On June 8, 1998,  Fortunet elected 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
its  government  obligations,  including  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 this FCC process, disaggregation resulted in a reduction
of the bidding  credits to $5.3 million.  Fortunet also lost $6.0 million of its
down payment. As a result of this decision,  during 1997, Interactive recorded a
$7.0 million write down of its investment in Fortunet. As a lawyer who worked on
many  applications  for FCC  licenses,  Taylor  (the  relator  in this  case) is
doubtless aware of the details of these FCC initiated  alternatives  for the "C"
Block, as presumably are his law firms.

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  appropriate  corporate  and  regulatory
steps,  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 $21.9  million  initially  invested  in the  original  five
entities in 1992.

Other Litigation.  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

                                      -12-
<page>

litigation, either individually or in the aggregate, will have a material effect
on its financial condition and results of operations.

I.   Potential MCI/WorldCom Recovery
------------------------------------

During 2002, the Company wrote off all receivables  associated with MCI/WorldCom
("MCI"),  which had declared  bankruptcy at that time. While Interactive has not
received  settlement  from the bank of claims,  it is currently  estimated  that
Interactive  could receive $0.3 million.  Such amounts have not been included in
the attached financial statements and income will only be recorded to the extent
received.

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
        -------------

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

RESULTS OF OPERATIONS
---------------------

Overview
--------

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  the current  reporting  period,
Interactive  (and  its  predecessor  corporation)  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 dependent 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.  The Company
          expects to recover settlements from MCI in 2005.

     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.
                                      -13-
<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 to
          residential lines, 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    All  of  our  RLECs  participate  in  the  National  Exchange  Carrier
          Association  ("NECA") access pools.  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 nine  cost-based
          carriers  directly  correlate to the  rate-of-return  on regulated net
          investment  earned  by the  NECA  access  pools  plus  the  amount  of
          regulated  operating  expenses  including  taxes.  The revenues of the
          Company's five average schedule subsidiaries  correlate to usage based
          measurements such as access lines, interstate minutes-of-use,  and the
          number  and  mileage  of  different  types of  circuits.  The  average
          schedule formulas are 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 certain 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 it is
          providing  the long  distance  service to the end user customer as the
          toll provider. For unaffiliated IXCs who contract with Interactive for
          billing  services,  the Company provides billing services and receives
          an administrative handling fee.

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

     o    Universal   Service  Reform:   Efforts  to  modify  universal  service
          mechanisms  are currently  underway at the FCC. In June 2004,  the FCC
          asked the  Federal-State  Joint  Board on  Universal  Service  ("Joint
          Board")  to  review  the rules  relating  to the  high-cost  universal
          service  support  mechanisms  for rural  carriers and to determine the
          appropriate  rural  mechanism to succeed the five-year plan adopted in
          the Rural Task Force  Order.  In  particular,  the FCC asked the Joint
          Board to make  recommendations  on a long-term  universal service plan
          that ensures that support is specific,  predictable, and sufficient to
          preserve and advance universal service.  The FCC asked the Joint Board
          to ensure that its  recommendations  are  consistent  with the goal of
          ensuring that consumers in rural,  insular,  and high-cost  areas have
          access to  telecommunications  and information  services at rates that
          are affordable and reasonably  comparable to rates charged for similar
          services  in  urban  areas.  The FCC also  asked  the  Joint  Board to
          consider how support can be  effectively  targeted to rural  telephone
          companies  serving the highest cost areas,  while  protecting  against
          excessive fund growth.  In

                                      -14-
<page>

          conducting  its  review,  the  Joint  Board is  supposed  to take into
          account the significant distinctions among rural carriers, and between
          rural and non-rural  carriers and consider all options for determining
          appropriate  universal service support.  The Company participated with
          the RLEC  industry  in  comments to the FCC  regarding  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.

     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.  VoIP  traffic  currently  does not pay  access  charges  or
          contribute  to  universal  service.  The FCC has  several  proceedings
          underway to determine  whether VoIP traffic should  contribute for the
          use of the network and contribute to USF. The Company is participating
          in the RLEC industry  efforts to have VoIP traffic  contribute for use
          of the  underlying  network on which the VoIP call travels.  To offset
          revenue  losses  from  traditional  voice  services,   Interactive  is
          installing  more  broadband  services  and is  exploring  how to  best
          incorporate VoIP into its business model.

     o Intrastate revenue and operating income at our Michigan telephone company
     will be substantially  reduced in the future due to a state  requirement to
     expand the local calling area.  The Company  intends to file with the state
     commission  to recover a portion of the revenue  deficiency,  by increasing
     local  access  rates,  however,  there  is no  assurance  that  it  will be
     successful.

Three months ended March 31, 2005  compared to 2004
---------------------------------------------------
The following is a breakdown of revenues and operating costs and expenses:


                                     Three months ended March 31,       Increase
                                                                      (Decrease)
                                         2005        2004
                                  ----------------------------------------------
                                               (Unaudited)
<TABLE>
<CAPTION>
<S>                                   <C>       <C>       <C>
Revenues:
Local access ......................   $ 2,858   $ 2,889       (31)
Interstate access .................     9,695     9,338        357
Intrastate access .................     3,697     4,121      (424)
Other business ....................     5,368     5,076        292
                                      -------   -------    -------
                                      -------   -------    -------
  Total ...........................    21,618    21,424        194
                                      -------   -------    -------
                                      -------   -------    -------

Operating Cost and Expense:
Cost of revenue ...................     7,651     7,203        448
General and administrative costs at
  operations ......................     3,423     3,139        284
Corporate office expenses .........     2,091       973      1,118
Depreciation and amortization .....     5,195     5,221        (26)
                                      -------   -------    -------
                                      -------   -------    -------
  Total ...........................    18,360    16,536      1,824
                                      -------   -------    -------
                                      -------   -------    -------
  Operating profit ................   $ 3,258   $ 4,888    $(1,630)
                                      =======   =======    =======
</TABLE>

Total  revenues in the 2005 first quarter  increased  $0.2 million,  or 0.9%, to
$21.6 million compared to $21.4 million in 2004. Local access revenue  decreased
by $31,000  resulting from a 3.4% decrease in access lines  partially  offset by
the sale of  additional  features.  The  decrease in access  lines is due to the
increase in cell phone usage and  reduction in second lines as customers  switch
from dial-up internet service to DSL.  Interstate  access revenue increased $0.4
million in 2005 primarily due to infrastructure  development

                                      -15-


undertaken  in 2002 and 2003,  which  entitled the Company to increased  network
access and USF support  primarily at the Haviland  Telephone  Company in Kansas,
and to a lesser extent, at our Michigan  telephone  company.  Intrastate network
access revenue  decreased $0.4 million due to a loss of toll revenue for dial-up
access to the internet at our Michigan telephone company,  the gradual phase-out
of a New York pool for small  carriers,  and a  reduction  of  minutes of use at
several of our companies.  Other business revenues increased $0.3 million due to
increased DSL penetration,  and revenues from a small cable company in Utah that
the Company acquired in February 2004.

Total costs and expenses  increased  by $1.8  million to $18.4  million in 2005.
Costs of revenue  increased $0.4 million,  or 6.2%, due to additional  operating
costs related to the infrastructure  development in Haviland and costs generated
by the cable  television  operation  acquired  in  February  2004.  General  and
administrative costs incurred at the operations increased $0.3 million primarily
due to  professional  fees with  regard to local area  calling in  Michigan  and
increased  audit and  Sarbanes - Oxley  implementation  fees.  Corporate  office
expenses  increased  $1.1  million  resulting  from $1.2  million of legal costs
incurred  defending the "qui tam" litigation in 2005 compared to $0.4 million in
2004.  In  addition,   the  Company  incurred  legal  and  consulting  costs  in
conjunction  with a  shareholder  proposal to  deregister  as a public  company.
Depreciation and amortization was relatively consistent in the two periods.

As a result of the above,  operating profit in 2005 decreased by $1.6 million to
$3.3 million compared to 2004.

EBITDA
------

EBITDA  represents  the Company's  earnings from  continuing  operations  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 an indicator of the Company's  operating
performance  or to cash  flows  as a  measure  of  liquidity,  in  each  case as
determined in accordance with generally accepted accounting  principles.  EBITDA
from operations is presented  herein because it is a commonly used metric in the
communications   industry  to  analyze  companies  on  the  basis  of  operating
performance  and  liquidity.   The  Company's  senior  management   believes  it
facilitates a standardized  comparison among companies in the telecommunications
industry,   while  minimizing   differences   among  those  companies  based  on
depreciation,  financial  leverage and tax  policies.  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).

                                        Three months ended March 31,    Increase
                                                                      (Decrease)
                                        2005              2004
                                          --------------------------------------

<TABLE>
<CAPTION>
<S>                                           <C>                   <C>           <C>
                                                      (Unaudited)

EBITDA from operations ....................   $ 10,544        $ 11,082      $   (538)
Corporate office expenses:
  Taylor litigation .......................   (1,201)           (382)          (819)
  Other ......................  ..........       (890)           (591)          (299)
                                              --------        --------       --------
  Corporate office expenses: ....... .....     (2,091)           (973)        (1,118)
                                              --------        --------       --------
  Total EBITDA ............................      8,453          10,109        (1,656)
Depreciation and amortization .............    (5,195)         (5,221)             26
                                              --------        --------       --------
  Operating profit ........................      3,258           4,888        (1,630)
Investment income .........................        793             728             65
Interest expense ...................... ...    (2,823)         (2,819)            (4)
Equity in earnings of affiliates ..........        711             712             (1)
                                              --------        --------        --------
  Income before income taxes and ..........
   minority  interest .....................   $  1,939        $  3,509         (1,570)
                                              ========        ========        ========
</TABLE>


                                      -16-
<PAGE>



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

In  2005,  investment  income  increased  by $0.1  million  primarily  due to an
increase in CoBank  patronage  refunds and a $0.1 million  retroactive  dividend
from Iowa Network Services. Such increases were offset by a $0.2 million gain on
the sale of an investment in the 2004 period.

Interest  expense was  unchanged  due  primarily  to lower  average  outstanding
borrowings partially offset by higher interest rates.

Equity  in  earnings  of  affiliates  was  $0.7  million  in both  2005 and 2004
reflecting  consistent earnings of the Company's New Mexico cellular investments
(RSA 3 and 5) in both periods.

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

The income tax provision includes federal, as well as state and local taxes. The
tax  provision  for 2005 and 2004,  represent  effective  tax rates of 45.7% and
41.3%,  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 in both 2005 and 2004
reflecting  the  consistent  earnings  of  the  Company's  New  Mexico  cellular
investments.

Net Income
----------

Net income in 2005 was $0.7  million,  or $0.25 per share  (basic and  diluted),
compared to a net income last year of $1.6  million,  or $0.58 per share  (basic
and diluted). The Company has no dilutive instruments outstanding.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

Liquidity
---------

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 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 Parent Company's  short-term line of credit  facility,  which expires August
31, 2005,  has a maximum  availability  totaling $5.0  million,  $3.2 million of
which was  available at March 31, 2005.  In April 2005,  Interactive  received a
commitment letter for a new $10 million unsecured revolving credit facility,  at
1.5% over prime,  expiring in 2008, to replace the existing  short-term  line of
credit facility.  Such facility is subject to negotiation of terms and there can
be no  assurance  that  it will  be  completed.  If  such  new  facility  is not
completed,  management  believes that it has various alternative means to obtain
adequate resources to fund operations over the next twelve months.

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

                                      -17-
<page>

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, 2005 for the periods shown,  these  contractual  obligations and
certain other financing commitments from banks and other financial  institutions
that provide liquidity:

                                                          Payments Due by Period
                                                                (In thousands)
<TABLE>
<CAPTION>
<S>                                 <C>         <C>        <C>           <C>          <C>
                                                Less than                              After 5
                                       Total      1 year   1 - 3 years   4 - 5 years    years
                                    ----------  ---------  -----------   -----------  ---------

Long-term debt (a) ...............   $167,888   $ 14,295   $ 65,666       $ 36,449     $ 51,478
Operating leases .................      1,275        277        469            225          304
Notes payable to banks ...........      5,980      5,980
Guarantees .......................      3,750      3,750
                                     --------   --------   -----------   ------------  --------
Total contractual cash obligations
and commitments ..................   $178,893   $ 24,302   $ 66,135       $ 36,674     $ 51,782
                                     ========   ========   ========       ========     ========
</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 $9.4  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.

At March 31,  2005,  total debt  (including  notes  payable to banks) was $173.9
million,  an increase of $0.1 million from December 31, 2004. At March 31, 2005,
there was $105.0 million of fixed interest rate debt outstanding  averaging 7.0%
and $68.9 million of variable  interest rate debt  averaging  5.8%.  The debt at
fixed interest rates  includes $39.0 million of  subordinated  notes at interest
rates  averaging 9.4% 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, 2005,
December 31, 2004 and March 31, 2004, substantially all of the subsidiaries' net
assets are restricted.

Interactive has a high degree of financial  leverage.  As of March 31, 2005, the
ratio of total debt to equity was 5.0 to 1. 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,  2005,  Interactive  had  current  assets of $40.9  million  and
current  liabilities of $39.3 million  resulting in a working capital surplus of
$1.6 million, compared to a surplus of $2.7 million at December 31, 2004.

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

Cash at March 31, 2005, was $29.7 million,  an increase of $2.5 million compared
to December 31, 2004. The majority of the cash is restricted by debt covenant to
the subsidiary  that generated it and is generally not available for transfer to
the Parent Company. In 2005, net cash provided by operations of $7.4 million was
used to invest in plant and  equipment  and to repay debt.  The  acquisition  of
cable assets in March 2005 was primarily funded with new borrowings.

Capital expenditures were $1.9 million in the first quarter of 2005, compared to
$2.6  million  in 2004  which is  predominantly  spent at the  RLECs and will be
included in their rate bases for rate setting purposes.  Capital expenditures in
2005 are expected to be approximately  $11 million,  most of which will be added
to the RLEC rate bases.

                                      -18-
<page>

On March 18, 2005, a subsidiary of the Company,  Central Telcom  Services,  LLC,
closed on an  agreement  with  Precis  Communications,  LLC,  to acquire a cable
television assets for a purchase price of $3.5 million of which $2.2 million was
financed with secured bank debt.

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, 2005,  72,700 shares had been  purchased at an
average cost of $32.26 per share.

President  Bush's proposed  Budget for Fiscal Year 2006  establishes the process
and terms to implement  the  dissolution  of the Rural  Telephone  Bank ("RTB").
Under  RTB's  By-Laws,  on  dissolution,  the holders of its Class B and Class C
stock  would be paid the par value of their  stock.  As of March 31,  2005,  the
total par value of RTB Class B and Class C stock at the  Company's  subsidiaries
was $11.3 million. The net book value and tax basis of this stock, at that date,
was $1.1 million. The dissolution of the RTB and payments to the stockholders is
subject to numerous approvals and actions,  including  Congressional approval of
President Bush's proposed Budget for Fiscal Year 2006 and actions by RTB's Board
of Directors.  Therefore,  the Company cannot  predict  whether,  or when,  such
payments will actually be made to the Company's subsidiaries.

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

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

Taylor  Litigation.   ---------------------------------------   Interactive  and
several other parties, including Interactive's CEO, and Fortunet Communications,
L.P., which was Sunshine PCS  Corporation's  predecessor-in-interest,  have been
named as defendants  in a lawsuit  brought by Taylor 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
in February  2001.  At the  initiative  of one of the  defendants,  the seal was
lifted in January 2002. Under the False Claims Act, a private plaintiff called 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 FCC 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 report  prepared  for the relator in
February 2005 alleges damages of approximately $91 million in respect of bidding
credits,   approximately   $70  million  in  respect  of  government  loans  and
approximately  $206 million in respect of subsequent sales of licenses,  in each
case prior to trebling.

Interactive  strongly believes that this lawsuit is completely without merit and
that relator's  initial damage  computations  are 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

                                      -19-
<PAGE>

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 in July 2002. In September
2002, the defendants 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. In September 2003, the
Court  granted our motion to transfer the action.  A scheduling  conference  was
held in February 2004, at which time the judge  approved a scheduling  order and
discovery commenced.  In July 2004, the judge denied in part and granted in part
our motion to dismiss.  Interactive and its  subsidiaries  remain parties to the
litigation.

In December 2004, the  defendants  filed a motion in the United States  District
Court  for the  District  of  Columbia  to  compel  the FCC to  provide  certain
information  subpoenaed  by  defendants in order to enable them to conduct their
defense.  This  motion was  denied in May 2005 and  defendants  are  considering
appropriate  responses.  The  preparation  and filing of dispositive  motions is
expected to begin shortly.

See also "H.  Litigation - History of Lynch's  C-Block  Activities"  above for a
history of our involvement in Auction 5.

Other  Litigation.
-----------------
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.

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.

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 fourteen 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.

                                      -20-
<PAGE>


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

In December  2004,  the FASB  issued  SFAS  No.153,  "Exchanges  of  Nonmonetary
Assets",  which  eliminates the exception for  nonmonetary  exchanges of similar
productive  assets and  replaces it with a general  exception  for  exchanges of
nonmonetary  assets that do not have commercial  substance.  SFAS No.153 will be
effective for nonmonetary asset exchanges  occurring in fiscal periods beginning
after June 15,  2005.  The Company  does not believe the adoption of SFAS No.153
will have a material impact on its consolidated financial statements.

In December 2004, the FASB issued SFAS No.123(R),  "Share-Based Payment",  which
establishes  standards for  transactions in which an entity exchanges its equity
instruments  for goods or services.  This  standard  requires a public entity to
measure the cost of  employee  services  received  in  exchange  for an award of
equity  instruments  based  on the  grant-date  fair  value of the  award.  This
eliminates  the exception to account for such awards using the intrinsic  method
previously  allowable under APB Opinion No.25.  SFAS No.123(R) will be effective
for interim or annual reporting periods beginning on or after June 15, 2005. The
Company is currently  evaluating  the impact of the  adoption of SFAS  No.123(R)
will have on its consolidated financial statements.

In  March  2005,  the  FASB  issued   Interpretation  No.  47,  "Accounting  for
Conditional  Asset  Retirement  Obligations"  ("FIN47"),  which  clarifies  that
conditional  asset retirement  obligations are within the scope of SFAS No. 143,
"Accounting for Asset  Retirement  Obligations."  FIN 47 requires the Company to
recognize  a  liability  for the fair  value  of  conditional  asset  retirement
obligations if the fair value of the liability can be reasonably estimated.  The
Company does not believe that the adoption of FIN 47 will have a material impact
on its financial statements.



                                      -21-
<PAGE>



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 $29.7 million at March 31, 2005 and $27.2 million at December 31,
2004).  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, 2005, the fair value of debt was  approximately  equal to its carrying
value.

At March 31, 2005 and December 31, 2004,  approximately  $68.9 million and $67.2
million,  respectively, or 40% and 39% 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 2005 average interest rate under these borrowings, it is estimated
that  Interactive's  interest  expense  in the first  quarter of 2005 would have
changed by  approximately  $0.2  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, 2005, if
the Company were to convert a significant  portion of its variable interest rate
debt into fixed interest rates,  such conversion  could have increased  interest
expense for the three month period by $0.5 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  have
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.

During the  period  covered  by this  report,  there have been no changes in our
internal control over financial reporting that have materially  affected,  or is
reasonably likely to materially affect, our financial statements.



PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Taylor   Litigation.   Interactive   and  several   other   parties,   including
Interactive's  CEO, and Fortunet  Communications,  L.P.,  which was Sunshine PCS
Corporation's  predecessor-in-interest,  have  been  named  as  defendants  in a
lawsuit  originally  brought by Taylor 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 in
February 2001. At the initiative of one of the  defendants,  the seal was lifted
in  January  2002.  Under the False  Claims  Act, a private  plaintiff  called 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

-22-
<PAGE>

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 FCC 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 report  prepared for the relator in February  2005 alleges
damages  of   approximately   $91   million  in  respect  of  bidding   credits,
approximately $70 million in respect of government loans and approximately  $206
million  in  respect  of  subsequent  sales of  licenses,  in each case prior to
trebling.

Interactive  strongly believes that this lawsuit is completely without merit and
that relator's damage  computations are 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 in July 2002. In September
2002, the defendants 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. In September 2003, the
Court  granted our motion to transfer the action.  A scheduling  conference  was
held in February 2004, at which time the judge  approved a scheduling  order and
discovery commenced.  In July 2004, the judge denied in part and granted in part
our motion to dismiss.  Interactive and its  subsidiaries  remain parties to the
litigation.

In December 2004, the  defendants  filed a motion in the United States  District
Court  for the  District  of  Columbia  to  compel  the FCC to  provide  certain
information  subpoenaed  by  defendants in order to enable them to conduct their
defense.  This  motion was  denied in May 2005 and  defendants  are  considering
appropriate  responses.  The  preparation  and filing of dispositive  motions is
expected to begin shortly. See "History of Lynch's "C" Block Activities" below.


History of Lynch's "C" Block Activities.

As part of the Omnibus Budget Resolution of 1993, Congress authorized the FCC to
employ  competitive  bidding  procedures  to  select  among  mutually  exclusive
applicants for certain spectrum licenses. Initially the FCC had an initiative to
include, among others, African Americans,  Native Americans, Asian Americans and
women.  As a result of this,  the FCC  conducted  auctions  beginning in 1995 to
allocate  spectrum in a  competitive  manner.  Interactive  was a  participating
investor and/or service provider to various entities in this "C-Block" auction.

By December 18, 1995,  Interactive  (through its predecessor Lynch  Corporation)
had  investments  in five  entities  that  participated  in the FCC  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,
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. Interactive's investments in these entities totaled $21 million.


<PAGE>

                                      -23-

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, among other reasons,  in order to obtain some economies of scale, such
as financing,  the five entities merged into Fortunet  Communications,  Inc. The
FCC, in partial response to actions by Nextwave and others,  promoted a plan for
refinancing  the "C" block  licenses.  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 President of Fortunet, Karen Johnson,  participated
in an FCC sponsored  forum on this issue on June 30, 1997. 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.  Another option,  amnesty, was to return all licenses and forgo
any amounts deposited in exchange for forgiveness of the FCC debt. Other options
included:  disaggregation,  splitting a 30 MHz license  into two 15 MHz licenses
and  forgoing 50% of the amount  deposited;  and  prepayment,  return of certain
licenses and  utilizing 70% of the amount  deposited to acquire other  licenses,
with the other 30% of the deposits to be forfeited.

On June 8, 1998,  Fortunet elected 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
its  government  obligations,  including  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 this FCC process, disaggregation resulted in a reduction
of the bidding  credits to $5.3 million.  Fortunet also lost $6.0 million of its
down payment. As a result of this decision,  during 1997, Interactive recorded a
$7.0 million write down of its  investment  in Fortunet.  A lawyer who worked on
many  applications  for FCC  licenses,  Taylor  (the  relator  in this  case) is
doubtless aware of the details of these FCC initiated  alternatives  for the "C"
Block, as presumably are his law firms.

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  appropriate  corporate  and  regulatory
steps,  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 $21.9  million  initially  invested  in the  original  five
entities in 1992.

Other Litigation.  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.


                                      -24-
<PAGE>



Item 2. Issuer Purchases of Equity Securities

<TABLE>
<CAPTION>
<S>                       <C>                <C>                   <C>                    <C>

                                                                                          Maximum Number of (or
                                                                                           Approximate Dollar
                                                                    Total Number of        Value) of Shares that
                           Total Number of                          Shares Purchased as    May Yet Be Purchased
                              Shares (or      Average Price Paid     Part of Publicly      Under the Plans or
    Period                Units) Purchased    per Share (or Unit)   Announced Plans or
                                                                         Programs(1)
    ------                 --------------    -------------------   -------------------     ----------------------
1/1/05 to 1/31/05            5,700                   31.53                  5,700                  27,300

2/1/05 to 2/28/05               --                     --                     --                   27,300

3/1/05 to 3/31/05               --                     --                     --                   27,300
                             ------                  ------                 ------

Total ...........            5,700                   31.53                  5,700
                             ======                  ======                 ======
</TABLE>

(1)  In September  1999,  the Board of Interactive  approved a stock  repurchase
     program  providing for the purchase of up to 100,000 shares of Common Stock
     in such  manner,  at such times and at such  prices as the Chief  Executive
     Officer or his designee determines.

Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits

     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.

(b)  Reports on Form 8-K during the  quarter  reported  on:

     -    Current  Report on Form 8-K filed  January 19,  2005,  under Item 5.02
          announcing  the  election  of  Lawrence  R.  Moats  to  the  Board  of
          Directors.
     -    Current Report on Form 8-K filed March 1, 2005, under Item 8 reporting
          on the results of FCC  Auction 58.
     -    Current  Report  on Form  8-K  filed  March  11,  2005,  under  Item 8
          reporting  the issuance of a press  release to consider  Going Dark.
     -    Current  Report  on Form  8-K  filed  March  22,  2005,  under  Item 8
          reporting the issuance of a press release regarding the acquisition of
          a cable system in Utah and to provide additional  information on Going
          Dark.

                                      -25-
<PAGE>



                                    SIGNATURE


     Pursuant to the  requirements  of the Securities  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 16, 2005


                                      -26-
<PAGE>