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

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

For the quarterly period ended September 30, 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 October 31, 2005
   -----                                      ---------------------------------
Common Stock, $.0001 par value                        2,752,251

                  Restated for Retroactive Reverse Stock Split:
                  ---------------------------------------------
Common Stock, $.01 par value                         27,522.51


================================================================================

<PAGE>




                                      INDEX

                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES

PART I.     FINANCIAL INFORMATION


Item 1.  Financial Statements (Unaudited)

         Condensed Consolidated Balance Sheets:
          -    September 30, 2005
          -    December 31, 2004
          -    September 30, 2004

         Condensed Consolidated Statements of Operations:
         -     Three and nine months ended September 30, 2005 and 2004

         Consolidated Statements of Shareholders' Equity

         Condensed Consolidated Statements of Cash Flows:
         -       Nine months ended September 30, 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)

<TABLE>
<CAPTION>

                                                           September 30,       December 31,       September 30,
                                                                2005               2004               2004
                                                          ----------------- ------------------- ----------------
                                                            (Unaudited)          (Audited)         (Unaudited)
<S>                                                        <C>                     <C>                 <C>

ASSETS

Current assets:
  Cash and cash equivalents                                 $ 32,951            $ 27,214           $ 27,592
  Receivables, less allowances of $407, $260 and $270,
   respectively                                                9,387               8,225              8,535
  Material and supplies                                        2,896               2,314              3,010
  Prepaid expenses and other current assets                    1,510               1,685              1,265
                                                          ----------------- ------------------- ---------------
Total current assets                                          46,744              39,438             40,402

Property, plant and equipment:
  Land                                                         1,047                 983              1,113
  Buildings and improvements                                  20,039              17,640             17,606
  Machinery and equipment                                    230,682             216,429            215,541
                                                          ----------------- ------------------- ---------------
                                                             251,768             235,052            234,260
  Accumulated depreciation                                  (126,851)           (114,724)          (113,872)
                                                          ----------------- ------------------- ---------------
                                                             124,917             120,328            120,388

Excess of cost over fair value of net assets
 acquired, net (goodwill)                                     61,519              60,042             60,580
Other intangibles                                             10,792              10,026             10,850
Investments in and advances to affiliated entities            18,664              12,340             11,529
Other assets                                                  17,557              14,906             13,476
                                                          ----------------- ------------------- ---------------
Total assets                                               $ 280,193           $ 257,080          $ 257,225
                                                          ================= =================== ===============


See accompanying Notes to Condensed Consolidated Financial Statements.
</TABLE>

                                       2
<PAGE>



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

<TABLE>
<CAPTION>

                                                   September 30,  December 31,  September 30,
                                                        2005          2004          2004
                                                  -------------- -------------- -------------
                                                    (Unaudited)    (Audited)     (Unaudited)

<S>                                                <C>           <C>          <C>

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Notes payable to banks .......................... $   8,288     $   4,793    $   6,269
  Trade accounts payable ..........................     3,584         4,326        3,601
  Accrued interest payable ........................     1,121           825          783
  Accrued liabilities .............................    11,888        11,238        9,606
  Current maturities of long-term debt ............    27,055        14,364       14,006
                                                    ---------     ---------    ---------
     Total current liabilities ....................    51,936        35,546       34,265

Long-term debt ....................................   154,305       154,602      157,421
Deferred income taxes .............................    20,173        17,549       17,425
Other liabilities .................................     3,400         3,268        2,961
                                                    ---------     ---------    ---------
   Total liabilities ..............................   229,814       210,965      212,072

Minority interests ................................    11,822        11,543       11,418

Commitments and contingencies

Shareholders' equity
  Common stock, $0.01 par value-10,000,000
   shares authorized; 28,247.66 issued;
   27,522.51, 27,579.51 and 27,638.51 outstanding .     --            --           --
  Additional paid-in capital ......................    21,406        21,406       21,406
  Retained earnings ...............................    17,169        13,735       12,798
  Accumulated other comprehensive income ..........     2,318         1,588        1,499
  Treasury stock, 725.15, 668.15 and 609.15
   shares, at cost ................................   (2,336)       (2,157)      (1,968)
                                                    ---------     ---------    ---------
                                                       38,557        34,572       33,735
                                                    ---------     ---------    ---------

Total liabilities and shareholders' equity ........ $ 280,193     $ 257,080    $ 257,225
                                                    =========     =========    =========

See accompanying Notes to Condensed Consolidated Financial Statements.

</TABLE>

                                       3
<PAGE>



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

<TABLE>
<CAPTION>

                                                            Three Months Ended         Nine Months Ended
                                                               September 30,             September 30,

                                                         ----------------------------------------------------
                                                             2005         2004         2005         2004
                                                         ----------------------------------------------------
<S>                                                         <C>         <C>          <C>          <C>

Revenues                                                      $24,159     $ 22,853     $ 68,248     $ 65,364

Costs and expenses:
Cost of revenue, excluding depreciation                         8,410        7,474       24,156       22,084
General and administrative costs at operations                  3,508        3,326       10,274        9,718
Corporate office expenses                                       1,530        1,743        6,364        4,989
Depreciation and amortization                                   5,274        5,223       15,815       15,371
Gain on sale of burglar alarm customers                       (1,110)           --      (1,110)           --
                                                         ----------------------------------------------------
    Total Expense                                              17,612       17,766       55,499       52,162
                                                         ----------------------------------------------------
Operating profit                                                6,547        5,087       12,749       13,202
Combined total

Other income (expense):
   Investment income                                              287           88        1,271          898
   Interest expense                                           (3,215)      (2,847)      (8,987)      (8,517)
   Equity in earnings of affiliated companies                     861        1,051        2,413        2,649
                                                         ----------------------------------------------------
                                                              (2,067)      (1,708)      (5,303)      (4,970)
                                                         ----------------------------------------------------
Income before income taxes and minority interests               4,480        3,379        7,446        8,232
Provision for income taxes                                    (1,259)      (1,203)      (2,356)      (3,125)
Minority interests                                              (695)        (634)      (1,656)      (1,578)
                                                         ----------------------------------------------------
Net income                                                    $ 2,526     $  1,542      $ 3,434      $ 3,529
                                                         ====================================================

Basic and diluted weighted average shares outstanding          27,523       27,677       27,528       27,726

Basic and diluted earnings per share                          $ 91.78     $  55.71      $124.75      $127.28

</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>

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

Balance at December 31, 2004          2,757,951     $ 0        $ 21,406    $ 13,735        $1,588       $ (2,157)     $ 34,572
Net income for the period                    --      --              --       3,434            --              --        3,434
Unrealized gain on available                 --      --              --          --           757              --          757
  for sale securities, net
Reclass  adjustment                                                                          (27)                         (27)
                                                                                                                       --------
    Comprehensive income                                                                                                4,164
                                                                                                                       --------
Purchase of Treasury Stock              (5,700)      --              --          --            --           (179)       (179)
                                   --------------------------------------------------------------------------------------------
Balance at September 30, 2005         2,752,251     $ 0        $ 21,406    $ 17,169        $2,318       $  (2,336)    $ 38,557
                                   ============================================================================================

</TABLE>

See accompanying Notes to Condensed Consolidated Financial Statements.

                                       5
<PAGE>


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

<TABLE>
<CAPTION>

                                                                                Nine Months Ended
                                                                                  September 30,
                                                                           -----------------------------
                                                                                2005           2004
                                                                           -------------- --------------
<S>                                                                          <C>            <C>

Operating activities:
Net Income                                                                    $  3,434       $  3,529
Adjustments   to  reconcile  net  income  to  net  cash  provided  by
operating activities:
   Depreciation and amortization                                                15,815         15,371
   Equity in earnings of affiliated companies                                  (2,413)        (2,649)
   Distributions received from affiliated companies                              3,554            930
   Minority interests                                                            1,656          1,578
   Gain on sale of burglar alarm customers                                     (1,110)             --
   Changes in operating assets and liabilities:
        Receivables                                                                621          (305)
        Accounts payable and accrued liabilities                               (2,533)            814
   Other                                                                         (224)            103
                                                                         -------------- --------------
Net cash provided by operating activities                                       18,800         19,371
                                                                         -------------- --------------

Investing activities:
Capital expenditures                                                           (7,036)       (10,366)
Acquisition of businesses                                                     (22,697)        (4,877)
Proceeds from sale of burglar alarm customers                                    2,635             --
Acquisition of spectrum                                                          (500)             --
Acquisition of  subscriber lists                                                  (27)          (217)
Investment in and advances to affiliated entities                                 (62)          (125)
Other                                                                              291          (395)
                                                                         -------------- --------------
Net cash used in investing activities                                         (27,396)       (15,980)
                                                                         -------------- --------------

Financing activities:
Proceeds from the issuance of long term debt                                    24,268          5,599
Repayments of long term debt                                                  (11,874)        (9,955)
Net proceeds on lines of credit                                                  3,495          2,813
Purchase of treasury stock                                                       (179)          (494)
Distributions to partners                                                      (1,377)          (318)
                                                                         -------------- --------------
Net cash provided by (used in) financing activities                             14,333        (2,355)
                                                                         -------------- --------------
Net increase in cash and cash equivalents                                        5,737          1,036
Cash and cash equivalents at beginning of period                                27,214         26,556
                                                                         -------------- --------------
Cash and cash equivalents at end of period                                   $  32,951       $ 27,592
                                                                         ============== ==============
Cash paid for:
  Interest expense                                                           $  8,733        $  8,291
                                                                         ============== ==============
  Income taxes                                                               $  2,219        $  1,891
                                                                         ============== ==============
</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 September 30, 2005,
December  31,  2004  and  September  30,   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 September 30, 2005, December 31, 2004 and September 30, 2004),  Capital
Communications Company, Inc. (49% owned at September 30, 2005, December 31, 2004
and September 30, 2004; in addition,  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 September 30, 2005,  December 31, 2004 and September 30, 2004), two
cellular  partnerships  in California  resulting from the acquisition of Cal-Ore
(see Note C) (25% and 17% owned at September 30, 2005).  KMG Holdings Group (37%
owned since May 2004) and telecommunications  partnerships 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, as amended,  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 nine month period
ended September 30, 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.

All  disclosures of the number of common shares and earnings per share have been
adjusted  retroactively  for the  1-for-100  reverse  stock  split  that  became
effective Novemeber 10, 2005. See Note K.

B.       Recently Issued Accounting Pronouncements

In June 2004,  the Emerging  Issues Task Force  ("EITF")  issued EITF No. 03-01,
"The Meaning of  Other-Than-Temporary  Impairment and its Application to Certain
Investments".  EITF 03-01  includes new guidance for  evaluating  and  recording
impairment  losses on debt and  equity  investments,  as well as new  disclosure
requirements  for investments  that are deemed to be temporarily  impaired.  The
provisions  of  EITF  03-01  were  initially  effective  for  reporting  periods
beginning after June 15, 2004,  while the disclosure  requirements  for debt and
equity  securities  accounted  for  under  SFAS  115,  "Accounting  for  Certain
Investments  in Debt and Equity  Securities",  are effective for annual  periods
ending  after  December  15,  2003.  In  September  2004,  the FASB  delayed the
effective date for the measurement and recognition  guidance of EITF 03-01.  The
Company will  evaluate the effect of adopting the  recognition  and  measurement
guidance when the final consensus is reached.

In  May  2005,  the  FASB  issued  SFAS  154,   "Accounting  Changes  and  Error
Corrections".  SFAS 154  eliminates  the  requirement  in APB  Opinion  No.  20,
"Accounting  Changes", to include the cumulative effect of changes in accounting
principle in the income statement in the period of change.  Instead,  to enhance
the comparability of prior period financial  statements,  SFAS 154 requires that
changes  in  accounting   principle  be  retrospectively   applied.   Under  the
retrospective  application,  the new  accounting  principle is applied as of the
beginning of the first period  presented  as if that  principle  had always been
used. Adoption of SFAS 154 is required for accounting changes and corrections of
errors made in the fiscal year  beginning  after  December 15, 2005. The Company
will adopt this new accounting standard on January 1, 2006.

                                       7
<PAGE>


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
in the first quarter of 2006.  The Company does not believe that the adoption of
SFAS  No.123(R)  will  have a  material  impact  on its  consolidated  financial
statements.

In  March  2005,  the  FASB  issued   Interpretation  No.  47,  "Accounting  for
Conditional  Asset  Retirement  Obligations"  ("FIN 47"),  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

On August 29, 2005, the Company acquired 100% of the stock of  California-Oregon
Telecommunications  Company ("Cal-Ore") located in Dorris,  California for $21.2
million, subject to certain minor closing adjustments. Results of operations are
included since  acquisition.  The  acquisition was financed with the issuance of
$21.2 million of bank debt and unsecured notes. Cal-Ore is the incumbent service
provider for 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 Competitive Local Exchange Carrier ("CLEC") that is
planning to provide services in the surrounding  area and minority  interests in
certain cellular partnerships.  The preliminary allocation of the purchase price
include  goodwill  of  approximately  6% of the  purchase  price,  which  is not
expected to be deductible for tax purposes and trade name,  franchise rights and
subscriber  lists summing to approximately 8% of the purchase price. The Company
is in the  process of  obtaining a third party  valuation  of Cal-Ore,  thus the
allocation of the purchase price is subject to adjustment.

The condensed balance sheet of Cal-Ore, as of the acquisition date is as follows
(in thousands):
            Assets                                      Liabilities

Cash and equivalents         $   2,087       Current liabilities      $  1,390
Other current assets             2,776       Long term debt
Plant and equipment              9,784        (including current
                                               maturities)              21,200
Goodwill                         1,349       Deferred taxes              3,838
Other intangibles                1,749
Investments in affiliates        7,193
Other assets                     1,490
                           ------------                             ----------
                             $  26,428                                $ 26,428
                           ============                            ===========

                                       8
<PAGE>


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,
acquired certain cable television assets from Precis Communications,  LLC, for a
purchase price of $3.5 million.  The system has 2,411 cable subscribers  located
in Sanpete and Sevier  Counties,  Utah.  The  allocation  of the purchase  price
included  $0.1  million of goodwill and $0.5  million for  franchise  rights and
subscriber lists.

On  July  29,  2005,  a  subsidiary  of  the  Company  closed  on  the  sale  of
approximately  62% of it's burglar alarm  customers to an  investment  group for
approximately  $2.75  million,  net of holdbacks  and fees,  resulting in a $1.1
million gain on the sale. The proceeds were used to retire debt.

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 and nine months ended  September 30, 2005
and 2004 and as of December 31, 2004, is as follows:

<TABLE>
<CAPTION>

                                                                   Broadcasting Combined
                                                  ----------------- ----------------- ----------------
                                                   September 30,      December 31,     September 30,
                                                        2005              2004             2004
                                                  ----------------- ----------------- ----------------
                                                                      (in thousands)
<S>                                               <C>                  <C>              <C>

Current assets                                      $   4,025           $  6,896         $  6,917
Property, plant & equipment, intangibles & other       11,707              9,558            9,728
                                                  ----------------- ----------------- ----------------

Total Assets                                        $  15,732           $ 16,454         $ 16,645
                                                  ================= ================= ================

Current liabilities                                 $   2,828           $  3,383         $  3,619
Long term liabilities                                  17,036             16,751           16,967
Equity                                                (4,132)            (3,680)          (3,941)
                                                  ----------------- ----------------- ----------------

Total liabilities & equity                          $  15,732           $ 16,454         $ 16,645
                                                  ================= ================= ================
Three months ended
------------------
Revenues                                           $    2,682                            $  3,218
Gross profit                                              506                               1,021
Net income (loss)                                       (291)                                 303
Nine months ended
-----------------
Revenues                                           $    8,710                            $  9,912
Gross profit                                            2,063                               3,339
Net income (loss)                                       (462)                                 985

</TABLE>

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 September 30, 2005,  December 31, 2004 and September 30, 2004,
the  investment in Coronet was carried at a negative $0.6 million,  $0.6 million
and  $0.6  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 September 30, 2005, totaled $9.5 million
payable quarterly through December 31, 2005 to a third party lender.

                                       9
<PAGE>


At September 30, 2005,  December 31, 2004 and September 30, 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 and nine months ended  September  30, 2005 and 2004 and as of December
31, 2004 is as follows (in thousands):

<TABLE>
<CAPTION>

                                                                    Telecommunications Combined
                                                        ----------------- ----------------- ----------------
                                                         September 30,      December 31,     September 30,
                                                              2005              2004             2004
                                                        ----------------- ----------------- ----------------
                                                                          (in thousands)
<S>                                                           <C>                 <C>             <C>

Current assets                                                 $  40,885         $  36,080        $  34,525
Property, plant & equipment, intangibles & other                  44,384            33,087           26,402
                                                        ----------------- ----------------- ----------------

Total Assets                                                   $  85,269         $  69,167        $  60,927
                                                        ================= ================= ================

Current liabilities                                            $  23,990         $  22,745        $  22,305
Long term liabilities                                              5,342             5,900            7,267
Equity                                                            55,937            40,522           31,355
                                                        ----------------- ----------------- ----------------

Total liabilities & equity                                     $  85,269         $  69,167        $  60,927
                                                        ================= ================= ================
Three months ended
------------------
Revenues                                                       $  14,973                          $  14,655
Gross profit                                                       7,301                              7,207
Net income                                                         3,792                              4,501

Nine months ended
-----------------
Revenues                                                       $  44,972                          $  41,404
Gross profit                                                      20,708                             19,249
Net income                                                        11,437                             12,154

</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 $5.3  million,  $6.5 million and $6.3 million at September 30,
2005,  December 31, 2004 and  September 30, 2004,  respectively  and included in
Investment in and advances to affiliated entities.

Cal-Ore  has a 25% and 17%  interest  in two  cellular  telephone  providers  in
California.  The Company's  investment in these partnerships was $7.2 million at
September 30, 2005.

                                       10
<PAGE>


E.       Indebtedness

In June 2005, Interactive closed on a new $10 million unsecured revolving credit
facility,  at  1.5%  over  prime,  expiring  in  2008,  replacing  the  previous
short-term  line of credit  facility.  Borrowings  under  this and the  previous
facility,  included in Notes payable to banks,  were $5.3 million,  $1.1 million
and $2.3 million at  September  30, 2005,  December 31, 2004 and  September  30,
2004, respectively.

Long-term  debt consists of (all  interest  rates are at September 30, 2005) (in
thousands):

<TABLE>
<CAPTION>

                                                               September 30,      December 31,     September 30,
                                                                    2005              2004              2004
                                                              -----------------------------------------------------
<S>                                                             <C>               <C>              <C>

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)                                           $54,175           $ 57,129         $ 57,816


Bank Credit  facilities  utilized  by certain  telephone
and  telephone holding  companies due from 2005 to 2017,
$7.8 million at fixed interest rates averaging8.3% and
$72.4 million at variable interest rates averaging 7.0%.          80,216             70,402           72,478


Unsecured notes issued in connection with acquisitions
through 2010, at fixed interest rates averaging 9.2%              45,619             38,983           38,483


Other                                                              1,350              2,452            2,650
                                                             -----------------------------------------------------
                                                                 181,360            168,966          171,427
Current maturities                                              (27,055)           (14,364)         (14,006)
                                                             -----------------------------------------------------
                                                                $154,305          $ 154,602        $ 157,421

                                                             =====================================================
</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 August 2005, in conjunction with the Cal-Ore acquisition, a subsidiary of the
Company  borrowed $14.0 million from a bank at variable  interest rates included
in Bank Credit Facilities  above.  Also in connection with the acquisition,  the
subsidiary issued $7.2 million in unsecured notes bearing interest at 8% for the
first year and  increasing  to 10% in the third year and  remaining at that rate
through the five year term of the Notes.

In general,  the long-term debt facilities are secured by  substantially  all of
the Company's  property,  plant and equipment,  receivables  and common stock of
certain subsidiaries and contain certain covenants restricting  distributions to
Lynch Interactive.  At September 30, 2005, the Company is in compliance with all
covenants.  At September  30, 2005,  December 31, 2004 and  September  30, 2004,
substantially  all the subsidiaries' net assets are restricted from distribution
to Lynch Interactive.

F.       Comprehensive Income

Other  comprehensive  income,  net of tax,  which  consists of unrealized  gains
(losses) on available for sale securities, as of September 30, 2005 and 2004 are
as follows (in thousands):

<TABLE>
<CAPTION>

                                          Three Months Ended             Nine Months Ended
                                            September 30,                  September 30,
                                     ----------------------------- ------------------------------
                                              2005 2004                      2005 2004
                                     ----------------------------- ------------------------------
<S>                                       <C>            <C>             <C>             <C>

Net income                                 $ 2,526        $ 1,542         $ 3,434         $3,529
Reclassification adjustment                   (41)             --            (41)             --
Unrealized gains                             1,082             70           1,151          1,236
Tax effect                                   (356)           (24)           (380)          (423)
                                     -------------- -------------- --------------- --------------
Net other comprehensive income                 685             46             730            813
                                     -------------- -------------- --------------- --------------
Comprehensive income                       $ 3,211       $  1,588          $4,164         $4,342
                                     ============== ============== =============== ==============
</TABLE>


G.       Treasury Stock Purchases

In January  2005,  the Company  purchased  5,700  shares of its common stock for
treasury at an average  investment of $31.53 per share.  The Company has made no
additional share repurchases since January.

                                       11
<PAGE>


H.       Litigation

 False Claims Act 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 resales 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  have both appealed
the decision and  requested a final agency  action in order to seek review under
the Administrative  Procedures Act. Factual discovery is substantially  complete
and both Taylor and the defendants have moved for summary  judgment on a variety
of  grounds.  In  November  2005,  with  respect to one such  motion for partial
summary  judgment,  on the issue of damages  based on resales of  licenses,  the
court ruled that the profits made as the result of resale of licenses  could not
be  included  as part of  damages.  Also  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.

                                       12
<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.

                                       13
<PAGE>


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.

I.       MCI/WorldCom Recovery

During 2002, the Company wrote off substantially all receivables associated with
MCI/WorldCom  ("MCI"),  which had filed for protection  under  bankruptcy  laws.
During the nine  months  ended  September  30,  2005,  certain of the  Company's
subsidiaries  received cash and stock in MCI, Inc. valued at approximately  $0.3
million  which has been  recorded in income as a reduction  to bad debt  expense
(included within General and Administrative Costs at Operations).

J.       Related Party Transactions

Expenditures  for fees that the  Company is  incurring  with regard to the False
Claims Act litigation are based on allocations among defendants, and are subject
to negotiation. It is expected that the final allocation may be adjusted subject
to final conclusion of the litigation.

At September 30, 2005,  December 31, 2004,  and  September  30, 2004,  assets of
$23.4 million, $15.2 million and $14.5 million, which are classified as cash and
cash equivalents,  are invested in United States Treasury money market funds for
which  affiliates  of the  Company's  CEO serve as  investment  managers  to the
respective funds.

K.       Subsequent Events

On October 31, 2005, the shareholders approved an amendment to the Corporation's
Restated Certificate of Incorporation to effect a 1-for-100 reverse stock split.
The purpose of the reverse  split was to reduce record  shareholders  below 300,
allowing  the  Corporation  to  delist  from the  American  Stock  Exchange  and
deregister  its shares under the  Securities  Exchange Act of 1934. The Board of
Directors  approved the amendment on November 3, 2005 and it became effective on
November 10, 2005.  As a result of the reverse  split,  holders of less than 100
shares became entitled to receive $29.9352 for each pre-split share in lieu of a
fractional  share.  Also on November 10, 2005 the American  Stock  Exchange,  in
keeping with its policies,  suspended the Corporation's shares from trading, and
such shares began trading in the Pink Sheets(R) under the symbol "LICT".


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
Quarterly 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  fifteen  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  California,   Iowa,  Kansas,
Michigan, New Hampshire, New Mexico, New York, North Dakota, Utah and Wisconsin.

                                       14
<PAGE>

The   acquisition  of  our  fifteenth   telephone   company,   California-Oregon
Telecommunications  Company  ("Cal-Ore")  was  finalized  on August 29,  2005. A
subsidiary  of Cal-Ore 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  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 has
          recovered  settlements  from MCI, in excess of amounts due to NECA, of
          approximately $0.3 million through September 30, 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.

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 ten 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.

                                       15
<PAGE>


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  Interexchange  Carriers  ("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  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.

                                       16
<PAGE>

o             Detariffing of Digital Subscriber Line (DSL) service:  The Company
              is  analyzing  the  options  provided  by the FCC in  their  Order
              released  September 23, 2005 whereby the currently  tariffed Title
              II DSL service  could be provided  under either Title I regulation
              or under Title II as a detariffed  service.  It is not possible to
              determine the impact at this time.

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 received
              approval  from the state  commission  to  recover a portion of the
              revenue deficiency by increasing local access rates.


Third quarter ended September 30, 2005 compared to 2004
-------------------------------------------------------
The  following is a breakdown of revenues and  operating  costs and expenses (in
thousands):

<TABLE>
<CAPTION>

                                                                                       Impact of        Other
                                               Three months ended September 30,          Cal-Ore        Increase
                                                     2005              2004            Acquisition     (Decrease)
                                         ---------------------------------------------------------------------------
                                                         (Unaudited)
<S>                                                 <C>                 <C>                  <C>            <C>

Revenues:
Local access                                       $  3,017            $  2,960            $    62         $   (5)
Interstate access                                    11,644              10,524                299             821
Intrastate access                                     3,846               3,873                124           (151)
Other business                                        5,652               5,496                116              40
                                           -------------------   ---------------     --------------      ------------
  Total                                              24,159              22,853                601             705
                                           -------------------   ---------------     --------------      ------------

Operating Cost and Expense:
Cost of revenue, excluding depreciation               8,410               7,474                179             757
General and administrative costs at
operations                                            3,508               3,326                143              39
Corporate office expenses                             1,530               1,743                 --           (213)
Depreciation and amortization                         5,274               5,223                134            (83)
                                           -------------------     -------------     --------------      ------------
Gain on sale of burglar alarm customers             (1,110)                  --                 --         (1,110)
                                           -------------------   ---------------     --------------      ------------
  Total                                              17,612              17,766                456           (610)
                                           -------------------   ---------------     --------------      ------------
  Operating profit                                 $  6,547            $  5,087            $   145         $ 1,315
                                           ===================   ===============     ==============      ============
</TABLE>


Total revenues in the 2005 third quarter increased $1.3 million,  5.7%, to $24.2
million compared to $22.9 million in 2004. The inclusion of Cal-Ore since August
29,  2005  added $0.6  million  to  revenues  as shown in the above  table.  The
following explanations do not include the contributions to revenue from Cal-Ore.
Local access revenue decreased nominally due to a 1.8% decrease in access lines,
offset by the sale of additional  services and 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 $0.8 million in 2005 primarily due to increased traffic at our
Central Utah telephone company,  infrastructure  development  undertaken in 2002
and 2003,  which  entitled the Company to increased  USF support at the Haviland
Telephone  Company  in  Kansas,  and to a lesser  extent,  the  effects  of 2005
investments  resulted  in  increased  network  access  revenue  at our  Michigan
telephone company.  Intrastate network access revenue decreased $0.2 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  showed a moderate  increase  due to  increased  DSL  penetration,  and
revenues  from a small  cable  company  in Utah  that the  Company  acquired  in
February 2004 as well as a larger  acquisition of cable  television  assets that
was completed in March 2005. However, other business revenue in the 2004 quarter
included $0.3 million due to the sale of telecommunications equipment to an Iowa
school district.

                                       17
<PAGE>


Total costs and expenses decreased by $0.2 million to $17.6 million in the third
quarter of 2005. The inclusion of Cal-Ore added $0.5 million to expense as shown
in the above table. The following  explanations do not include the contributions
to expense from Cal-Ore.  Costs of revenue increased $0.8 million, or 10.1%, due
to additional  operating  costs  related to the  infrastructure  development  in
Haviland,  costs  generated  by the  cable  television  operations  acquired  in
February 2004 and March 2005 and the absence of costs  incurred in 2004 relating
to the sale of equipment to the Iowa school district. General and administrative
costs incurred at the operations were relatively flat. Corporate office expenses
decreased $0.2 million  resulting  from a $0.6 million  reduction in legal costs
incurred  defending the False Claims Act litigation in 2005 partially  offset by
additional legal and consulting costs in conjunction with a shareholder proposal
to  deregister  as a public  company.  Depreciation  and  amortization  were not
significantly  changed.  In July 2005, the Company sold 62% of its burglar alarm
customers resulting in a gain of $1.1 million.

As a  result  of the  above,  operating  profit  in the  third  quarter  of 2005
increased by $1.5 million to $6.5 million compared to 2004.

Adjusted operating profit

Adjusted operating profit is used by our management as a supplemental  financial
measure to evaluate the operating  performance of our business that, when viewed
with our GAAP results and the accompanying reconciliations,  we believe provides
a more complete  understanding of factors and trends affecting our business than
the GAAP results alone.  We also regularly  communicate  our adjusted  operating
profit to the public through our earnings  releases  because it is the financial
measure commonly used by analysts that cover the telecommunications industry and
our  investor  base to evaluate  our  operating  performance.  In  addition,  we
routinely  use  adjusted  operating  profit as a metric  for  valuing  potential
acquisitions.  We  understand  that  analysts and  investors  regularly  rely on
non-GAAP  financial  measures,  such as adjusted  operating profit, to provide a
financial  measure by which to compare a company's  assessment  of its operating
performance against that of other companies in the same industry.  This non-GAAP
financial  measure  is  helpful  in more  clearly  reflecting  the  sales of our
products and services,  as well as highlighting trends in our core business that
may not otherwise be apparent when relying  solely on GAAP  financial  measures,
because this non-GAAP financial measure eliminates from earnings financial items
that have less bearing on our performance.

Interactive's  management  believes  strongly  in growing  intrinsic  value as a
long-term  prescription for managing an enterprises health. Our local management
teams run their respective businesses as stand-alone,  entrepreneurial units. We
believe that  adjusted  operating  profit is the clearest  indicator of the cash
flow generating  ability and long-term  health of such units. We value potential
acquisitions on the same basis.

The term  "adjusted  operating  profit" as used in this Form 10-Q refers to, for
any period,  net income (loss) before all components of "Other income (expense)"
(consisting  of  investment  income,  interest  expense,  equity in  earnings of
affiliates,  gains and losses on disposition of or impairment of assets), income
taxes,  depreciation,  amortization,  minority interests and income or loss from
discontinued operations.

Set forth below are  descriptions of the financial items that have been excluded
from net income (loss) to calculate  adjusted  operating profit and the material
limitations associated with using this non-GAAP financial measure as compared to
the use of the most directly comparable GAAP financial measure:

o        The amount of interest  expense we incur is significant and reduces the
         amount  of  funds  otherwise  available  to use in  our  business  and,
         therefore, is important for investors to consider.  However, management
         does not consider the amount of interest  expense when  evaluating  our
         core operating performance.

o        Investment  income is  considered  to be similar to  interest  expense.
         Although it is important for investors to consider, management does not
         consider  the amount of  investment  income  when  evaluating  our core
         operating performance.

                                       18
<PAGE>


o        Management  does not consider  income tax expense when  considering the
         profitability of our core operations. Nevertheless, the amount of taxes
         we are required to pay reduces the amount of funds otherwise  available
         for use in our  business  and thus may be  useful  for an  investor  to
         consider.

o        Depreciation  and amortization are important for investors to consider,
         even though they are non-cash charges, because they represent generally
         the wear and tear on our property,  plant and equipment,  which produce
         our revenue. We do not believe these charges are indicative of our core
         operating performance.

o        Income from equity  investments  relates to our proportionate  share of
         income or loss from the entities in which we hold  minority  interests.
         We do not  control  these  entities  and,  as such,  do not believe the
         income  we  receive  from  such  entities  is  indicative  of our  core
         operating performance.

o        Minority  interest  in  (income)  loss of  subsidiaries  relates to our
         minority  investors'  proportionate  share of  income  or losses in our
         non-wholly owned subsidiaries,  which generated non-cash charges to our
         operating  results.  Operating  results  attributable to these minority
         investors'  investments do not necessarily result in any actual benefit
         or detriment to us and, therefore,  we believe it would be more helpful
         for an investor to exclude such items as being more  reflective  of our
         core operating performance.

o        Gain  or  losses  on  the   disposition  of  assets  or  impairment  of
         investments  may increase or decrease the cash available to us and thus
         may be  important  for  an  investor  to  consider.  We are  not in the
         business of acquiring or disposing of assets and, therefore, the effect
         of the dispositions of assets may not be comparable from  year-to-year.
         We believe such gains or losses recorded on the disposition of an asset
         do not reflect the core operating performance of our business.

o        Management  compensates for the above-described  limitations of using a
         non-GAAP  financial  measure by using this non-GAAP  financial  measure
         only  to  supplement  our  GAAP  results  to  provide  a more  complete
         understanding  of  the  factors  and  trends  affecting  our  business.
         Adjusted  operating  profit should not be considered to be a substitute
         for net income or (loss) as an  indicator  of the  Company's  operating
         performance.

The following  table  provides the components of Adjusted  Operating  Profit and
reconciles it to net income (in thousands):

<TABLE>
<CAPTION>

                                                   Three months ended September 30,       Increase
                                                         2005                2004        (Decrease)
                                                 ----------------------------------------------------
                                                             (Unaudited)
<S>                                                     <C>               <C>                <C>

Adjusted operating profit from:
   Operating units                                      $ 13,351           $ 12,053           $  1,298
   Corporate expense:
     False Claims Act litigation                             343              1,002              (659)
     Other                                                 1,187                741                446
                                                 ----------------    ---------------    --------------
     Total corporate expenses                              1,530              1,743              (213)
                                                 ----------------    ---------------    ---------------
Adjusted operating profit                               $ 11,821          $  10,310           $  1,511
                                                 ================    ===============    ===============

Reconciliation to net income:
Adjusted operating profit                               $ 11,821          $  10,310           $  1,511
Depreciation and amortization                            (5,274)            (5,223)                 51
Investment income                                           287                  88                199
Interest expense                                         (3,215)            (2,847)              (368)
Equity in income of affiliates                               861              1,051              (190)
Income tax                                               (1,259)            (1,203)               (56)
Minority Interests                                         (695)              (634)               (61)
                                                 ----------------    ---------------    ---------------
Net income                                              $  2,526          $   1,542            $   984
                                                 ================    ===============    ===============
</TABLE>

                                       19
<PAGE>


Other Income (Expense)

In  2005,  investment  income  increased  by $0.2  million  primarily  due to an
increase in interest rates.

Interest expense increased $0.4 million due primarily to higher interest rates.

Equity in earnings of affiliates decreased $0.2 million in 2005 primarily due to
reduced earnings at Coronet  Communications.  Both periods  included  consistent
earnings of the Company's New Mexico cellular investments (RSA 3 and 5).

Included in  comprehensive  income in the  accompanying  balance  sheet are $3.0
million of unrealized gains  associated with the Company's  ownership of 160,000
shares of Hector  Communications Inc. Common Stock. These gains will be recorded
in the Company's  profit and loss  statement to the extent the Company sells its
shares in Hector at comparable prices to the September 30, 2005 value of $29.00.

Income Tax Provision

The income tax provision includes federal, as well as state and local taxes. The
tax provision for the third  quarter of 2005 and 2004,  represent  effective tax
rates of 32.7% and 38.8%  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.
In  addition,  the  effective  rate for the 2005  period  includes  the use of a
valuation  allowance  resulting  from  the  gain on the  sale of  burglar  alarm
customers.

Minority Interests

Minority  interests  decreased  earnings  by $0.7  million  in 2005  and by $0.6
million in 2004  reflecting the consistent  earnings of the Company's New Mexico
cellular investments.

Net Income

Net income in 2005 was $2.5  million,  or $0.92 per share  (basic and  diluted),
compared to a net income last year of $1.5  million,  or $0.56 per share  (basic
and diluted). The Company has no dilutive instruments outstanding.

Nine months ended September 30, 2005 compared to 2004
The  following is a breakdown of revenues and  operating  costs and expenses (in
thousands):

<TABLE>
<CAPTION>

                                                                                           Impact of       Other
                                                   Nine months ended September 30,          Cal-Ore       Increase
                                                        2005           2004                Acquisition   (Decrease)
                                                 --------------------------------------------------------------------
                                                              (Unaudited)
<S>                                                     <C>                <C>                  <C>        <C>

Revenues:
Local access                                             $  8,861           $  8,907             $  62      $  (108)
Interstate access                                          31,576             29,134               299         2,143
Intrastate access                                          11,021             11,687               124         (790)
Other business                                             16,790             15,636               116         1,038
                                                 -----------------     ---------------    -------------    ----------
  Total                                                    68,248             65,364               601         2,283
                                                 -----------------     ---------------    -------------    ----------

Operating Cost and Expense:
Cost of revenue, excluding depreciation                    24,156             22,084               179         1,893
General and administrative costs at
  operations                                               10,274              9,718               143           413
Corporate office expenses                                   6,364              4,989                --         1,375
Depreciation and amortization                              15,815             15,371               134           310
Gain on sale of burglar alarm customers                   (1,110)                 --                --       (1,110)
                                                 -----------------     --------------     -------------    ----------
  Total                                                    55,499             52,162               456         2,881
                                                 -----------------     ---------------    -------------    ----------
  Operating profit                                       $ 12,749           $ 13,202             $ 145      $  (598)
                                                 =================     ===============    =============    ==========
</TABLE>

                                       20
<PAGE>


Total revenues in the first nine months of 2005 increased $2.9 million, or 4.4%,
to $68.2  million  compared to $65.4  million in 2004.  The inclusion of Cal-Ore
since August 29, 2005 added $0.6 million to revenue as shown in the above table.
The  following  explanations  do not include the  contributions  to revenue from
Cal-Ore.  Local access revenue  decreased by $0.1 million  resulting from a 1.8%
decrease in access lines partially offset by the sale of additional services and
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  $2.1  million  in 2005
primarily due to infrastructure  development  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, the effects of
2005  investments  resulted in increased  network access revenue at our Michigan
telephone company.  Intrastate network access revenue decreased $0.8 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 $1.0 million due to increased DSL penetration,  and revenues
from a small cable company in Utah that the Company acquired in February 2004 as
well as a larger  acquisition of cable  television  assets that was completed in
March 2005. In addition, other business revenue in the 2004 period included $0.3
million  due to the  sale of  telecommunications  equipment  to an  Iowa  school
district.

Total costs and expenses increased by $3.3 million to $55.5 million in the first
nine months of 2005.  The  inclusion of Cal-Ore since August 29, 2005 added $0.5
million to expense as shown in the above table.  The following  explanations  do
not  include  the  contributions  to  expense  from  Cal-Ore.  Costs of  revenue
increased $1.9 million,  or 8.6%, due to additional  operating  costs related to
the  infrastructure  development  in  Haviland,  costs  generated  by the  cable
television  operations  acquired in February 2004 and March 2005 and the absence
of costs  incurred in 2004  relating to the sale of equipment to the Iowa school
district.  General and administrative costs incurred at the operations increased
$0.4  million  primarily  due  to  increased  costs  relating  to  the  Haviland
infrastructure development, increased professional fees associated with the rate
filing for the expanded local area calling in Michigan and increased audit fees.
Corporate office expenses  increased $1.4 million primarily  resulting from $3.2
million of legal costs  incurred  defending  the False Claims Act  litigation in
2005 compared to $2.2 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 increased $0.3 million primarily
due to a 2004 regulatory  adjustment.  In July 2005, the Company sold 62% of its
burglar alarm customers resulting in a gain of $1.1 million.

As a result of the above,  operating profit in 2005 decreased by $0.5 million to
$12.7 million compared to 2004.

Adjusted operating profit

The following  table  provides the components of Adjusted  Operating  Profit and
reconciles it to net income (in thousands):

<TABLE>
<CAPTION>

                                           Nine months ended September 30,       Increase
                                              2005             2004               (Decrease)
                                       -----------------------------------------------------
                                                    (Unaudited)
<S>                                        <C>                <C>                <C>

Adjusted operating profit from:
   Operating units                          $    34,928        $    33,562        $    1,366
   Corporate expense:
     False Claims Act  litigation                 3,151              2,152               999
     Other                                        3,213              2,837               376
                                        ----------------    ---------------    --------------
     Total corporate expenses                     6,364              4,989             1,375
                                        ----------------    ---------------    ---------------
Adjusted operating profit                   $    28,564        $    28,573        $       (9)
                                        ================    ===============    ===============

Reconciliation to net income:
Adjusted operating profit                   $    28,564        $    28,573        $       (9)
Depreciation and amortization                  (15,815)           (15,371)              (444)
Investment income                                 1,271                898                373
Interest expense                                (8,987)            (8,517)              (470)
Equity in income of affiliates                    2,413              2,649              (236)
Income tax                                      (2,356)            (3,125)                769
Minority Interests                              (1,656)            (1,578)               (78)
                                        ----------------    ---------------    ---------------
Net income                                      $ 3,434           $  3,529      $        (95)
                                        ================    ===============    ===============
</TABLE>

                                       21
<PAGE>


Other Income (Expense)

In  2005,  investment  income  increased  by $0.4  million  primarily  due to an
increase in CoBank  patronage  refunds and a $0.1 million one time dividend from
Iowa Network Services.  The 2004 nine months period included a $0.2 million gain
on the sale of an investment.

Interest expense increased $0.5 million due primarily to higher interest rates.

Equity in earnings of affiliates  decreased  $0.2 million in 2005 due to reduced
earnings at Coronet Communications. Both periods included consistent earnings of
the Company's New Mexico cellular investments (RSA 3 and 5).

Included in  comprehensive  income in the  accompanying  balance  sheet are $3.0
million of unrealized gains  associated with the Company's  ownership of 160,000
shares of Hector  Communications Inc. Common Stock. These gains will be recorded
in the Company's  profit and loss  statement to the extent the Company sells its
shares in Hector at comparable prices to the September 30, 2005 value of $29.00.

Income Tax Provision

The income tax provision includes federal, as well as state and local taxes. The
tax provision for the first six months of 2005 and 2004, represent effective tax
rates of 35.9% and 40.6%,  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.
In  addition,  the  effective  rate for the 2005  period  includes  the use of a
valuation  allowance  resulting  from  the  gain on the  sale of  burglar  alarm
customers.

Minority Interests

Minority  interests  was $1.7  million in 2005  compared to $1.6 million in 2004
reflecting  the  consistent  earnings  of  the  Company's  New  Mexico  cellular
investments.

Net Income

Net income in 2005 was $3.4  million,  or $1.25 per share  (basic and  diluted),
compared to a net income last year of $3.5  million,  or $1.27 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.

                                       22
<PAGE>


 In June  2005,  Interactive  closed on a new $10  million  unsecured  revolving
credit  facility of which $4.7 million was  available at September  30, 2005, at
1.5% over prime,  expiring in 2008,  replacing the previous  short-term  line of
credit  facility.  The Company  continues to have a need for  additional  credit
facilities,  but management  believes that it has various  alternative  means to
obtain  adequate  resources to fund corporate  obligations  over the next twelve
months.

In August 2005, in conjunction with the Cal-Ore acquisition, a subsidiary of the
Company  borrowed $14.0 million from a bank at variable  interest rates included
in Bank Credit Facilities  above.  Also in connection with the acquisition,  the
subsidiary  issued $7.2 million in unsecured notes to the sellers at 8% interest
for the first year and increasing to 10% in the third year and remaining at that
rate through the five year term of the Notes.

The  Company's  RLECs  and other  businesses  need  cash to fund  their  current
operations, as well as future long-term growth initiatives.  Each RLEC and other
business  finances  its cash  needs  with cash  generated  from  operations,  by
utilizing  existing  borrowing  capacity or by entering into new long-term  debt
agreements.  New business acquisitions are generally financed with a combination
of new long-term debt,  secured by the acquired assets, as well as cash from the
Parent. While management expects that both Parent and the operating subsidiaries
will be able to obtain  adequate  financing  resources  to enable the Company to
meet its obligations, there is no assurance that such can be readily obtained or
at reasonable  costs.  The Company is obligated  under long-term debt provisions
and  lease  agreements  to make  certain  cash  payments  over  the  term of the
agreements.  The following  table  summarizes,  as of September 30, 2005 for the
periods  shown,  these  contractual  obligations  and  certain  other  financing
commitments from banks and other financial institutions that provide liquidity:

<TABLE>
<CAPTION>

                                                              Payments Due by Period
                                                                  (In thousands)

                                                      Less than                                   After 5
                                         Total         1 year      1 - 3 years    4 - 5 years      years
                                      ------------- -------------- ------------- -------------- -------------
<S>                                      <C>            <C>           <C>            <C>           <C>

Long-term debt (a)                        $181,360       $ 27,055      $ 54,185       $ 45,465      $ 54,655
Operating leases                             1,160            267           390            208           295
Notes payable to banks                       8,288          8,288            --             --            --
Guarantees                                   3,750          3,750            --             --            --
                                      ------------- -------------- ------------- -------------- -------------
Total contractual cash obligations
and commitments                           $194,558       $ 39,360      $ 54,575       $ 45,673      $ 54,950
                                      ============= ============== ============= ============== =============
</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 $9.5  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 September 30, 2005,  total debt (including notes payable to banks) was $189.6
million,  an increase of $15.9  million from December 31, 2004. At September 30,
2005, there was $108.1 million of fixed interest rate debt outstanding averaging
7.1% and $81.5 million of variable  interest rate debt averaging  7.0%. The debt
at fixed interest rates includes $45.6 million of subordinated notes at interest
rates  averaging 9.2% 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 September 30, 2005,
December 31, 2004 and September 30, 2004, substantially all of the subsidiaries'
net assets are restricted.

                                       23
<PAGE>


Interactive has a high degree of financial  leverage.  As of September 30, 2005,
the ratio of total debt to equity was 4.9 to 1. Certain  subsidiaries  also have
high debt to equity ratios.

As of September 30, 2005,  Interactive  had current  assets of $46.7 million and
current  liabilities of $51.9 million resulting in a working capital  deficiency
of $5.2 million, compared to a surplus of $3.9 million at December 31, 2004. The
reduction in working capital was primarily due to the  reclassification of $13.0
million of long-term debt to current maturities,  which will become due prior to
September 30, 2006. The Company  expects to re-finance  such debt prior to their
maturity dates.

Sources and Uses of Cash

Cash at  September  30,  2005,  was $33.0  million,  an increase of $5.7 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
$19.1 million was used to invest in plant and  equipment and to repay debt.  The
acquisition  of cable assets in March 2005 was funded in part by $2.2 million of
new borrowings.

Capital  expenditures were $7.3 million in the 2005 nine month period,  compared
to $10.4 million in 2004. These  expenditures  were  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.

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.

On  July  29,  2005,  a  subsidiary  of  the  Company  closed  on  the  sale  of
approximately  62% of the  company's  burglar  alarm  customers to an investment
group for approximately  $2.75 million,  net of holdbacks and fees. The proceeds
have been used to retire  debt.  The  Company  will  continue  to  monitor  such
accounts and provide billing and collection services for the new owner.

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 September 30, 2005, 72,700 shares had been purchased at an
average  cost of $32.26 per share.  In  conjunction  with the 1 for 100  reverse
stock split,  the Board of Directors  authorized  the  redemption  of all shares
submitted to accomplish the obligation to deregister.  It is currently estimated
that this could amount to over 50,000 shares.

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 December 31, 2004,  the
total par value of RTB Class B and Class C stock at the  Company's  subsidiaries
was $12.6 million,  including Cal-Ore.  The net book value and tax basis of this
stock, at that date, was $1.2 million, including Cal-Ore. 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.

                                       24
<PAGE>


Contingencies

False Claims Act 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 resales 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 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  have both appealed
the decision and  requested a final agency  action in order to seek review under
the Administrative  Procedures Act. Factual discovery is substantially  complete
and both Taylor and the defendants have moved for summary  judgment on a variety
of  grounds.  In  November  2005,  with  respect to one such  motion for partial
summary  judgment,  on the issue of damages  based on resales of  licenses,  the
court ruled that the profits made as the result of resale of licenses  could not
be  included  as part of  damages.

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.

                                       25
<PAGE>


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 for our "cost-based" companies 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  for  cost-based  companies 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.  In  addition,  an  accounting  estimate  is
required  of  the  potential  liability  that  may be  required  for  NECA  pool
over-earnings.

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.

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.

                                       26
<PAGE>


Recently Issued Accounting Pronouncements

In June 2004,  the Emerging  Issues Task Force  ("EITF")  issued EITF No. 03-01,
"The Meaning of  Other-Than-Temporary  Impairment and its Application to Certain
Investments".  EITF 03-01  includes new guidance for  evaluating  and  recording
impairment  losses on debt and  equity  investments,  as well as new  disclosure
requirements  for investments  that are deemed to be temporarily  impaired.  The
provisions  of  EITF  03-01  were  initially  effective  for  reporting  periods
beginning after June 15, 2004,  while the disclosure  requirements  for debt and
equity  securities   accounted  for  under  SFAS  115,  Accounting  for  Certain
Investments  in Debt and Equity  Securities,  are effective  for annual  periods
ending  after  December  15,  2003.  In  September  2004,  the FASB  delayed the
effective date for the measurement and recognition  guidance of EITF 03-01.  The
Company will  evaluate the effect of adopting the  recognition  and  measurement
guidance when the final consensus is reached.

In May 2005, the FASB issued SFAS 154, Accounting Changes and Error Corrections.
SFAS 154 eliminates the requirement in APB Opinion No. 20,  Accounting  Changes,
to include  the  cumulative  effect of changes in  accounting  principle  in the
income statement in the period of change.  Instead, to enhance the comparability
of  prior  period  financial  statements,  SFAS 154  requires  that  changes  in
accounting  principle  be  retrospectively   applied.  Under  the  retrospective
application,  the new accounting principle is applied as of the beginning of the
first period  presented as if that  principle had always been used.  Adoption of
SFAS 154 is required for  accounting  changes and  corrections of errors made in
the fiscal year  beginning  after December 15, 2005. The Company will adopt this
new accounting standard on January 1st, 2006.

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
in the first quarter of 2006.  The Company does not believe that the adoption of
SFAS  No.123(R)  will  have a  material  impact  on its  consolidated  financial
statements.

In  March  2005,  the  FASB  issued   Interpretation  No.  47,  "Accounting  for
Conditional  Asset  Retirement  Obligations"  ("FIN 47"),  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.

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 $33.0 million at September 30, 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, taking into account the interest rate dynamics at the time. 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 September 30, 2005, the
fair value of debt was approximately equal to its carrying value.

                                       27
<PAGE>

At September  30, 2005 and December 31, 2004,  approximately  $81.5  million and
$67.2 million,  respectively, or 43% 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 nine months of 2005 would
have changed by approximately $0.6 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 September 30, 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 nine  month  period  by $1.4  million  assuming  that
variable  rates remain  constant.  Further,  such analysis does not consider the
effects of the change in the level of overall economic activity that could exist
in such an environment.

ITEM 4.      CONTROLS AND PROCEDURES

Our Chief  Executive  Officer and Chief  Financial  Officer have  evaluated  the
effectiveness of the Company's disclosure controls and procedures (as defined in
Rules  13a-15(e)  and  15d-15(e)  of the  Securities  Exchange  Act of 1934 (the
"Act"))  as of the end of the  period  covered  by this  report.  Based  on that
evaluation,  the Chief  Executive  Officer  and  Chief  Financial  Officer  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

False Claims Act 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
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 resales of licenses, in each
case prior to trebling.

                                       28
<PAGE>


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  have both appealed
the decision and  requested a final agency  action in order to seek review under
the Administrative  Procedures Act. Factual discovery is substantially  complete
and both Taylor and the defendants have moved for summary  judgment on a variety
of  grounds.  In  November  2005,  with  respect to one such  motion for partial
summary  judgment,  on the issue of damages  based on resales of  licenses,  the
court ruled that the profits made as the result of resale of licenses  could not
be  included  as part of  damages.  Also  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.

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.

                                       29
<PAGE>


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.

                                       30
<PAGE>


Item 2. Issuer Purchases of Equity Securities

<TABLE>
<CAPTION>

                                                                                          Maximum Number of (or
                                                                     Total Number of       Approximate Dollar
                            Total Number                           Shares Purchased as   Value) of Shares that
                             of Shares (or       Average Price     Part of Publicly        May Yet Be Purchased
                                Units)           Paid per Share     Announced Plans or    Under the Plans or
        Period                Purchased            (or Unit)           Programs(1)           Programs(1)
       --------               ---------            ----------         ------------          --------------
<S>                           <C>                     <C>               <C>                     <C>

7/1/05 to 7/31/05                --                  --                    --                    27,300

8/1/05 to 8/31/05                --                  --                    --                    27,300

9/1/05 to 9/30/05                --                  --                    --                    27,300
                         -------------------------------------------------------------
Total                            --                  --                    --
                        ==============================================================
</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 August 18, 2005,  under Items
           7 and 12 reporting the issuance of a press  release  regarding
           the Company's operating results for the quarter and six months
           ended June 30, 2004.
        -  Current Report on Form 8-K filed August 30, 2005,  under Items
           7 and 12 reporting the issuance of a press release  announcing
           the     Company's     acquisition     of     California-Oregon
           Telecommunications Company.
        -  Current Report on Form 8-K filed September 30, 2005 under Item 8
           announcing the Company's annual meeting date.

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<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

  November 14, 2005


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