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 June 30, 2001

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

For the transition period from      to

Commission File No.     1-15097


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


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


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

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

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

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


            Class                                Outstanding at August 1, 2001
            -----                                -----------------------------
Common Stock, $.0001 par value                            2,821,851

<PAGE>


                                      INDEX

                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES

PART I.     FINANCIAL INFORMATION


Item 1.  Financial Statements (Unaudited)

Condensed Balance Sheets
  -      June 30, 2001
  -      December 31, 2000

Condensed Statements of Operations:
  -      Three and six months ended June 30, 2001 and 2000

Condensed Statements of Cash Flows:
  -      Six months ended June 30, 2001 and 2000

Notes to Condensed Financial Statements


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

Item 3.  Quantitative and Qualitative Disclosure About Market Risk


PART II.    OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

         Exhibit 10.1  - Central Utah Telephone, Inc. Stock Purchase Agreement
         Exhibit 10.2  - Membership Purchase Agreement


SIGNATURE


<PAGE>



PART I.  FINANCIAL INFORMATION
Item 1.  Financial Statements
<TABLE>

                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIAIRES
                                CONDENSED BALANCE
                      (In thousands, except share amounts)
<CAPTION>
                                                                          June 30,    December 31,
                                                                            2001         2000
                                                                         ----------    ---------
                                                                       (Unaudited)       (Note)
    CURRENT ASSETS:
<S>                                                                       <C>          <C>
    Cash and cash equivalents .........................................   $  26,071    $  26,926
    Marketable securities .............................................       3,138        2,066
    Receivables, less allowances of $379 and $403 .....................      17,778       15,147
    Other current assets ..............................................       8,818        7,562
                                                                          ---------    ---------
TOTAL CURRENT ASSETS ..................................................      55,805       51,701

PROPERTY, PLANT AND EQUIPMENT:
    Land ..............................................................       1,645        1,363
    Buildings and improvements ........................................      11,562       10,745
    Machinery and equipment ...........................................     173,273      153,915
                                                                          ---------    ---------
                                                                            186,480      166,023
    Accumulated Depreciation ..........................................     (71,996)     (66,766)
                                                                          ---------    ---------
                                                                            114,484       99,257

EXCESS OF COST OVER FAIR VALUE OF NET ASSETS
   ACQUIRED, NET ......................................................      73,310       58,949
INVESTMENTS IN AND ADVANCES TO AFFILIATED ENTITIES ....................      13,800       13,284
INVESTMENT IN SPINNAKER INDUSTRIES INC ................................       2,950        5,250
OTHER ASSETS ..........................................................      13,030       11,969
                                                                          ---------    ---------
TOTAL ASSETS ..........................................................   $ 273,379    $ 240,410
                                                                          =========    =========

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
    Notes payable to banks ............................................   $   3,600    $   4,333
    Trade accounts payable ............................................       4,774        2,797
    Accrued interest payable ..........................................       1,735        2,504
    Accrued liabilities ...............................................      20,809       21,143
    Customer advances .................................................       1,548        1,540
    Current maturities of long-term debt ..............................      17,658       12,582
                                                                          ---------    ---------
TOTAL CURRENT LIABILITIES .............................................      50,124       44,899

LONG-TERM DEBT ........................................................     177,823      150,010
DEFERRED INCOME TAXES .................................................       7,728        7,746
OTHER LIABILITIES .....................................................       4,701        5,624
MINORITY INTERESTS ....................................................       9,093        8,732

SHAREHOLDERS' EQUITY
   COMMON STOCK, $0.0001 PAR VALUE-10,000,000 SHARES
   AUTHORIZED; 2,824,766 issued (at stated value) 2,821,666 Outstanding        --           --
   ADDITIONAL PAID - IN CAPITAL .......................................      21,404       21,404
   RETAINED EARNINGS ..................................................       2,280          652
   ACCUMULATED OTHER COMPREHENSIVE INCOME .............................         378        1,495
   TREASURY STOCK, 3,100 SHARES AT COST ...............................        (152)        (152)
                                                                          ---------    ---------
  TOTAL SHAREHOLDERS' EQUITY ..........................................      23,910       23,399
                                                                          ---------    ---------
 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...........................   $ 273,379    $ 240,410
                                                                          =========    =========
<FN>
  Note: The balance sheet at December 31, 2000 has been derived from the audited
  financial statements at that date, but does not include all of the information
  and footnotes required by generally accepted accounting principles for
  complete financial statements.
</FN>

 See accompanying notes.
</TABLE>

<PAGE>


<TABLE>


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

<CAPTION>
                                                          Three Months Ended           Six Months Ended
                                                               June 30,                      June 30,
                                                         2001            2000          2001          2000
                                                   ------------------------------------------------------------------
                                                                      (Restated)                  (Restated)
SALES AND REVENUES
<S>                                                 <C>            <C>            <C>            <C>
Multimedia ......................................   $    17,451    $    16,019    $    34,660    $    31,590
Services ........................................        25,432         30,432         46,120         58,818
                                                    -----------    -----------    -----------    -----------
                                                    $    42,883    $    46,451    $    80,780         90,408

COSTS AND EXPENSES:
Multimedia ......................................        12,527         11,482         25,275         22,674
Services ........................................        23,011         28,046         42,117         54,971
Selling and administrative ......................         2,717          3,160          5,586          6,162
                                                    -----------    -----------    -----------    -----------
OPERATING PROFIT ................................         4,628          3,763          7,802          6,601
Combined total Other income (expense):
  Investment income .............................         1,189          1,233          2,443          1,737
  Interest expense ..............................        (3,458)        (3,562)        (6,975)        (7,203)
  Equity in earnings of affiliated companies ....           204            970            369          1,269
  Gain on redemption of East/West preferred stock          --             --             --            4,125
                                                    -----------    -----------    -----------    -----------
                                                         (2,065)        (1,359)        (4,163)           (72)


INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS         2,563          2,404          3,639          6,529
Provision for income taxes ......................          (811)        (1,225)        (1,650)        (3,172)
Minority Interests ..............................          (433)          (266)          (361)          (163)
                                                    -----------    -----------    -----------    -----------
NET INCOME ......................................   $     1,319    $       913    $     1,628    $     3,194
                                                    ===========    ===========    ===========    ===========

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

BASIC & DILUTED EARNINGS PER SHARE ..............   $      0.47    $      0.32    $      0.58    $      1.13
                                                    ===========    ===========    ===========    ===========

See accompanying notes.
</TABLE>


<PAGE>

<TABLE>


                 LYNCH INTERACTIVE CORPORATION AND SUBSIDIARIES
                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
                                 (In thousands)

<CAPTION>
                                                                    Six Months Ended
                                                                        June 30,
                                                                     2001       2000
                                                                   --------   ---------
OPERATING ACTIVITIES                                                          (Restated)

<S>                                                               <C>         <C>
Net income ....................................................   $  1,628    $  3,194
Adjustments to reconcile net income to net cash provided by
   operating activities:
   Depreciation and amortization ..............................      8,693       8,281
   Net effect of purchases and sales of trading securities ....     (1,072)        (15)
   Share of operations of affiliated companies ................       (369)     (1,269)
   Gain on redemption of East/West preferred stock ............       --        (4,125)
   Gain on sale of available for sale securities ..............       (154)       (703)
   Minority interests .........................................        361         163
   Changes in operating assets and liabilities:
        Receivables ...........................................     (1,547)     (1,280)
        Accounts payable and accrued liabilities ..............     (1,169)     (2,665)
        Other .................................................       (759)       (360)
   Other ......................................................       --           491
                                                                  --------    --------
NET CASH PROVIDED BY OPERATING ACTIVITIES .....................      5,612       1,712
                                                                  --------    --------
INVESTING ACTIVITIES
Capital expenditures ..........................................     (7,644)     (6,628)
Investment in and advances to affiliated entities .............       (186)       (395)
Proceeds from redemption of East/West preferred stock .........       --         8,712
Acquisition of Central Utah Telephone Company (total cost, less
   debt assumed and cash equivalents acquired) ................     (6,889)         --
Proceeds from sale of available for sale securities ...........        241       1,189
Other .........................................................       (132)        363
                                                                  --------    --------
NET CASH (USED IN) PROVIDED BY  INVESTING ACTIVITIES ..........    (14,610)      3,241
                                                                  --------    --------
FINANCING ACTIVITIES
Issuance of long term debt ....................................     27,368       1,200
Repayments of long term debt ..................................    (18,492)     (4,224)
Net (repayments) borrowings under lines of credit .............       (733)        931
Treasury stock transactions ...................................       --           (20)
Other .........................................................       --             8
                                                                  --------    --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ...........      8,143      (2,105)
                                                                  --------    --------
Net (decrease) increase in cash and cash equivalents ..........       (855)      2,848
Cash and cash equivalents at beginning of period ..............     26,926      31,354
                                                                  --------    --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ....................   $ 26,071    $ 34,202
                                                                  ========    ========

See accompanying notes.
</TABLE>

<PAGE>




                     NOTES TO CONDENSED FINANCIAL STATEMENTS

A.   Subsidiaries of the Registrant

As of June 30, 2001, the Subsidiaries of the Registrant are as follows:
<TABLE>
<CAPTION>
Subsidiary                                     Owned by Interactive
----------                                     --------------------
<S>                                                  <C>
Brighton Communications Corporation ............     100.0%
  Lynch Telephone Corporation IV ...............     100.0%
    Bretton Woods Telephone Company ............     100.0%
    World Surfer, Inc. .........................     100.0%
  Lynch Kansas Telephone Corporation ...........     100.0%
  Lynch Telephone Corporation VI ...............      98.0%
    JBN Telephone Company, Inc. ................      98.0%
      JBN Finance Corporation ..................      98.0%
    Giant Communications, Inc. .................     100.0%
    Lynch Telephone Corporation VII ............     100.0%
      USTC Kansas, Inc. ........................     100.0%
       Haviland Telephone Company, Inc. ........     100.0%
        Haviland Finance Corporation ...........     100.0%
  DFT Communications Corporation ...............     100.0%
    Dunkirk & Fredonia Telephone Company .......     100.0%
      Cassadaga Telephone Company ..............     100.0%
        Macom, Inc. ............................     100.0%
      Comantel, Inc. ...........................     100.0%
        Erie Shore Communications, Inc. ........     100.0%
        D&F Cellular Telephone, Inc. ...........     100.0%
    DFT Long Distance Corporation ..............     100.0%
    DFT Local Service Corporation ..............     100.0%
  LMT Holding Corporation ......................     100.0%
    Lynch Michigan Telephone Holding Corporation     100.0%
        Upper Peninsula Telephone Company ......     100.0%
        Alpha Enterprises Limited ..............     100.0%
          Upper Peninsula Cellular North, Inc. .     100.0%
          Upper Peninsula Cellular South, Inc. .     100.0%

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

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

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


<PAGE>
<TABLE>
<CAPTION>
Subsidiary                                                  Owned by Lynch
----------                                                  ---------------

<S>                                                          <C>
  Lynch Multimedia Corporation ............................  100.0%
    CLR Video, LLC ........................................   60.0%
The Morgan Group, Inc. ....................................   70.2%(V)/55.6%(O)
Morgan Drive Away, Inc. ...................................   70.2%(V)/55.6%(O)
    Transport Services Unlimited, Inc. ....................   70.2%(V)/55.6%(O)
  Interstate Indemnity Company ............................   70.2%(V)/55.6%(O)
  Morgan Finance, Inc. ....................................   70.2%(V)/55.6%(O)
  TDI, Inc. ...............................................   70.2%(V)/55.6%(O)
    Home Transport Corporation ............................   70.2%(V)/55.6%(O)
    MDA Corporation .......................................   70.2%(V)/55.6%(O)

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

  Lynch Telephone Corporation .............................   83.1%
    Western New Mexico Telephone Company, Inc. ............   83.1%
    Interactive Networks Corporation ......................   83.1%
    WNM Communications Corporation ........................   83.1%
    Wescel Cellular, Inc. .................................   83.1%
      Wescel Cellular of New Mexico, L.P. .................   42.4%
    Wescel Cellular, Inc. II ..............................   83.1%
      Northwest New Mexico Cellular, Inc. .................   40.6%
      Northwest New Mexico Cellular of New Mexico, L.P. ...   20.7%
        Enchantment Cable Corporation .....................   83.1%
Lynch Telephone II, LLC ...................................  100.0%
   Inter-Community Telephone Company, LLC .................  100.0%
     Inter-Community Telephone Company II, LLC ............  100.0%
   Valley Communications, Inc. ............................  100.0%
Lynch Telephone Corporation III ...........................   81.0%
   Cuba City Telephone Exchange Company ...................   81.0%
   Belmont Telephone Company ..............................   81.0%
<FN>
Notes: (V)=Percentage voting control; (O)=Percentage of equity ownership
</FN>
</TABLE>


<PAGE>


A.    Basis of Presentation

Lynch Interactive  Corporation (the "Company" or Interactive")  consolidates the
operating  results of its telephone and cable television  subsidiaries  (60-100%
owned at June 30,  2001 and  December  31,  2000)  and The  Morgan  Group,  Inc.
("Morgan"),  in which, at June 30, 2001 and December 31, 2000, the Company owned
70.2% of the voting power and 55.6% of the common equity.  On July 12, 2001, the
Company,   through  its  wholly   owned   subsidiary   Brighton   Communications
Corporation,  acquired 1.0 million  shares of Morgan's Class B Common Stock from
Morgan  at $2.00  per  share.  As a result of this  transaction,  the  Company's
ownership  in Morgan  increased  to 80.8% of the  voting  power and 68.8% of the
common equity. Interactive is currently considering whether it should retain its
investment in Morgan and exploring ways on how to appropriately divest itself of
its investment if that decision is made.

All material intercompany transactions and balances have been eliminated.

Investments  in affiliates in which the Company does not have a majority  voting
control are  accounted  for in accordance  with the equity  method.  The Company
accounts  for  the  following  affiliated  companies  on  the  equity  basis  of
accounting:  Coronet  Communications  Company  (20%  owned at June 30,  2001 and
December 31, 2000), Capital Communications  Company, Inc. (49% owned at June 30,
2001 and  December  31, 2000) and the  cellular  partnership  operations  in New
Mexico (17% to 21% owned at June 30, 2001 and December 31, 2000).

The shares of Spinnaker Industries,  Inc., in which the Company owns 2.5% of the
voting power and 13.6% of the common  equity,  are  accounted  for in accordance
with Statements of Financial  Accounting Standards (SFAS) No. 115 "Investment in
Debt and Equity Securities."

The accompanying  unaudited condensed financial statements have been prepared in
accordance with accounting  principles  generally  accepted in the United States
for interim  financial  information  and with the  instructions to Form 10-Q and
Articles 10 and 11 of Regulation  S-X.  Accordingly,  they do not include all of
the  information  and  footnotes  required by  accounting  principles  generally
accepted in the United States for complete financial statements.  In the opinion
of  management,  all  adjustments  (consisting  of  normal  recurring  accruals)
considered  necessary  for a fair  presentation  have been  included.  Operating
results  for the  three  and  six-month  period  ended  June  30,  2001  are not
necessarily  indicative  of the results that may be expected for the year ending
December 31, 2001.

In June 2001,  the Financial  Accounting  Standards  Board issued  Statements of
Financial  Accounting  Standards No. 141,  Business  Combinations,  and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite  lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives.

The Company has not yet  completed its analysis on how the new rules will affect
its   accounting   for  goodwill  and  other   intangible   assets,   for  which
implementation  is required  beginning  January 1, 2002.  Based on a preliminary
analysis,  application of the  nonamortization  provisions of FAS 141 would have
resulted in an increase in net income of $2.3 million,  $0.75 per share, for the
year ended  December  31, 2000 and $1.6  million,  $0.53 per share,  for the six
months ended June 30, 2001.  During 2002,  the Company will perform the first of
the required impairment tests of goodwill and indefinite lived intangible assets
and has not yet  determined  what  the  effect  of  these  tests  will be on the
earnings and financial position of the Company.

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

<PAGE>

B.   Acquisitions

On June 22, 2001,  Lynch  Telephone  Corporation X, a subsidiary of Interactive,
acquired  Central Utah  Telephone,  Inc. and  subsidiaries,  and Central  Telcom
Services,  LLC, a related  entity for  approximately  $15.6  million in cash and
notes.  Though the purchase price  allocation is not yet complete the Company to
recorded approximately $14.0 million in goodwill,  which is being amortized over
25 years.

The operating  results of the acquired company are included in the Statements of
Operations  from  its  acquisition  date.  The  following  unaudited  pro  forma
information  shows  the  results  of the  Company's  operations  as  though  the
acquisition  of Central Utah and related  entities was made at the  beginning of
2000.  (In thousands of dollars,  except per share data.)
<TABLE>
<CAPTION>
                                         Three Months Ended     Six Months Ended
                                             June 30,              June 30,
                                         2001        2000       2001       2000
                                         ---------------------------------------
<S>                                       <C>        <C>        <C>       <C>
Sales and revenues                        $44,836    $47,371    $84,161   $91,946
Net income                                    861        724      1,039     2,824
Basic and diluted earnings per share         0.31       0.26       0.37      1.01
</TABLE>


C.   Investment in and Advances to Affiliates Entities

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

In the Guard  Band  auction,  PTPMS II  Communications,  L.L.C.  acquired  three
licenses  at a net cost of $6.3  million;  Interactive  has loans to PTPMS II of
$6.1 million, $5.0 million of which was funded in the first quarter of 2001, and
owns 49.9% of PTPMS II equity.

In the C&F  Block  PCS  reauction,  which  ended  on  January  26,  2001,  Theta
Communications,  LLC  acquired  one license at a net cost of $4.0  million.  The
license has not yet been awarded and, as required  under Federal  Communications
Commission  rules,  Theta has 20% of the cost of the license on deposit.  During
the first six months ended June 30, 2001, $5.0 million of loans from Interactive
to Theta were returned. Lynch Interactive owns 10% of Theta and has committed to
fund a portion of the remaining  license cost. An affiliate of Interactive  also
has invested in Theta.

D.   Spin-off of Sunshine PCS Corporation

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

Fortunet was licensed for 15 MHz of spectrum in three Florida markets covering a
population  ("POP") of  approximately  785,000  (Based on 1999 census data).  In
February  2001,  Fortunet  converted  from a partnership  to a corporation  with
Interactive  receiving  49.9%  of  common  stock.  It also  changed  its name to
Sunshine  PCS  Corporation  ("Sunshine").  On  February  14,  2001,  the Company
spun-off its common stock of Sunshine to the  Company's  shareholders.  Prior to
the  conversion,  the  Company  contributed  a portion of the debt owed to it by
Fortunet  as a  contribution  to  capital  and  restructured  the  terms  of the
remaining debt. The face value of the restructured debt is $16.1 million and the
carrying  value is $3.4 million at December 31, 2000.  In addition,  in exchange
for a cash  infusion of  $250,000,  the Company  acquired  (1) 10,000  shares of
preferred  stock in Sunshine with an aggregate  liquidation  preference of $10.0
million and (2) warrants to purchase 4,300,000 shares of Sunshine Class A common
stock at $0.75 per share. At the time, the Company's  obligation to make further
loans was terminated.

<PAGE>

E.   Indebtedness

The Company  maintains  a  short-term  line of credit  facility  totaling  $10.0
million,  all of which was  available  at June 30,  2001.  Of note,  the Company
borrowed  $5.5 million  under this  facility in July 2001.  This  facility  will
expire on August 31, 2001.

On July 27, 2001, Morgan obtained a new three-year $12.5 million credit facility
"GMAC  Commercial  Credit  LLC."  The GMAC  credit  facility  replaces  Morgan's
previous  credit  line that had  expired on  January  28,  2001.  The new credit
facility will be used for working capital purposes and to post letters of credit
for insurance contracts. Borrowings and posted letters of credit on the facility
are  limited to a  borrowing  base  calculation  that  includes  85% of eligible
receivables and 95% of eligible investments. The facility is secured by accounts
receivable, investments, inventory, equipment and general intangibles. The prior
Credit  Facility  matured  on January  28,  2001,  at which  time  Morgan had no
outstanding debt and $6.6 million of outstanding  letters of credit.  Morgan was
in default of the  financial  covenants,  resulting in the bank failing to renew
such credit  facility,  which in turn  resulted in a payment  default under such
credit facility.

<TABLE>
<CAPTION>

                                                                                  June 30,
The company's long-term debt consists of:                                           2001        December 31,
                                                                                 (Unaudited)      2000
                                                                                  ---------       ----
                                                                                         (In thousands)
<S>                                                                               <C>          <C>
Rural Electrification Administration (REA) and Rural Telephone Bank (RTB) notes
payable through 2027 at fixed interest rates ranging from 2% to 7.5% (4.9%
weighted average at June 30, 2001), secured by assets of the telephone
companies of $121.0 million ....................................................   $  56,712    $  52,188

Bank Credit facilities utilized by certain telephone and telephone holding
companies through 2013, $35.0 million at fixed interest rates averaging 7.6%
and $55.6 million at variable interest rates averaging 6.3%  ...................      90,555       54,799

Unsecured  notes issued in connection with  acquisitions  through 2006, at fixed
interest rates of 10.0% ........................................................      34,709       27,259

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

Other ..........................................................................       3,505        3,346
                                                                                   ---------    ---------
                                                                                     195,481      162,592
Current Maturities .............................................................     (17,658)     (12,582)
                                                                                   ---------    ---------
                                                                                   $ 177,823    $ 150,010
                                                                                   =========    =========
</TABLE>

On December 12, 1999,  the Company  completed  the private  placement to Cascade
Investment LLC ("Cascade") of a $25 million 6% five-year note,  convertible into
its  common  stock at $42.50 per share  (adjusted  for  subsequent  2 to 1 stock
split) (the "Convertible  Notes").  At that time, to assist the Company with the
private placement,  the Chairman and CEO of the Company, agreed to grant Cascade
a  one-time  option  to sell  the  note to him at 105% of the  principal  amount
thereof.  The  exercise  period was from  November 15, 2000 to December 1, 2000.
This option to sell is secured by a bank  letter of credit,  which is secured by
the  Chairman's  escrow of  securities.  The  Company  agreed to  reimburse  the
Chairman for the cost of the letter of credit plus his legal fees in  connection
with the option to sell agreement and obtaining the letter of credit.

<PAGE>

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

The option to sell the  remaining  $10  million  is secured by a  collateralized
letter of credit in which the  collateral  is  provided by an  affiliate  of the
Chairman.  The Company  has agreed to pay all legal fees,  letter of credit fees
and a 10% per annum collateral fee on the amount of collateral  provided,  which
at June 2001 was valued at $10.5 million. The Company can replace the collateral
at any time and the collateral fee would be eliminated thereafter.

In January 2001, a subsidiary of the Company  borrowed $27.0 million  secured by
the stock of Western New Mexico Telephone  Company.  The loan is to be repaid in
equal monthly  installments  over twelve years beginning in April 2001,  bearing
interest at either  bank's  prime rate or LIBOR plus 2.5%,  or at the  Company's
option, it can be fixed for its term. $15.9 million of the proceeds were used to
acquire $15 million principal amount of Convertible Notes owned by Cascade.  The
stock of Western New Mexico Telephone Company had previously been used to secure
the  acquisition  facility,  the  balance  of which  was $7.9  million  prior to
repayment in December 2000.

On July 31, 2001,  Morgan closed on a new real estate mortgage for $500,000 that
is secured by the  Company's  land and buildings in Elkhart,  Indiana.  The loan
will be used  for  working  capital  purposes.  The  Company's  application  for
additional capacity under this facility is under consideration.

G.       Restatement of Prior Period Earnings

On December 12, 1999,  the Company  completed  the private  placement to Cascade
Convertible  Notes.  At that  time,  to  assist  the  Company  with the  private
placement,  the  Chairman  and CEO of the  Company,  agreed  to grant  Cascade a
one-time option to sell the note to him at 105% of the principal amount thereof.
The  exercise  period was from  November  15, 2000 to  December  1, 2000.  Under
accounting  principles  generally  accepted  in the United  States  relating  to
significant  shareholders,  the Company was required to reflect this transaction
in its financial  statements.  Accordingly,  quarterly results of operations for
the three and six months ended June 30, 2000,  have been restated to reflect the
recording of $1.25 million (pre-tax) in interest expense  associated with the 5%
premium.  Therefore,  the net income  was  reduced  for the three and  six-month
periods ending June 30, 2000 by $220,000,  or $0.08 per share, and $491,000,  or
$0.17 per share, respectively.

H.       Comprehensive Income

Balances of accumulated other  comprehensive  income, net of tax, which consists
of unrealized  gains (losses) on available for sale of  securities,  at June 30,
2001 and December 31, 2000 are as follows (in thousands):

<TABLE>
<CAPTION>
                                  Unrealized
                                  Gain (Loss)    Tax Effect     Net
                                  ----------     ---------   ---------
<S>                 <C> <C>        <C>           <C>         <C>
Balance at December 31, 2000 ...   $ 2,576       $(1,081)    $ 1,495
Current period unrealized losses    (1,912)          804      (1,108)
Reclassification adjustment ....       (15)            6          (9)
                                   -------        -------    -------
  Balance at June 30, 2001 .....   $   649       $  (271)    $   378
                                   =======       =======     =======
</TABLE>

<PAGE>

The comprehensive income (loss), for the three and six month periods ending June
30, 2001 and 2000 are as follows (in thousands):
<TABLE>
<CAPTION>
                                                                             Three Months Ended
                                                                             March 31,     June 30,
                                                                               2001          2000
                                                                             ----------------------

<S>                                                                             <C>        <C>
Net income for the period ...................................................   $ 1,319    $   913
Unrealized  gains  (losses) on available for sale  securities - net of income
tax .........................................................................       132       (555)
   (expense) benefit of ($94) and $397, respectively
Reclassification adjustment-net of income tax benefits of $6 and
  $302, respectively ........................................................        (9)      (435)
                                                                                -------    -------
Comprehensive income (loss) .................................................   $ 1,442        (77)
                                                                                =======    =======
</TABLE>

<TABLE>
<CAPTION>
                                                                                 Six Months Ended
                                                                               March 31,    June 30,
                                                                                 2001        2000
                                                                              ---------------------
<S>                                                                             <C>        <C>
Net income for the period ...................................................   $ 1,628    $ 3,194
Unrealized  gains  (losses) on available for sale  securities -
net of income tax ...........................................................    (1,108)    (1,765)
   benefits of $804 and $1,274, respectively
Reclassification Adjustment - net of income tax benefits of $6
  and $301, respectively ....................................................        (9)      (433)
                                                                                -------    -------
Comprehensive income ........................................................   $   511    $   996
                                                                                =======    =======
</TABLE>

I.       Stock Split

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

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

J.       Earnings per share

For the three and six months ended June 30, 2001 and 2000,  the following  table
sets forth the computation of basic and diluted earnings per share.


<PAGE>

<TABLE>
<CAPTION>
                                                  Three Months Ended          Six Months Ended
                                                        June 30,                  June 30,
                                                  2001         2000         2001        2000
                                               ---------   ----------   -----------  -----------
   Basic earnings per share                                 (Restated)               (Restated)
   ------------------------
   Numerators:
<S>                                            <C>          <C>          <C>          <C>
      Net Income ...........................   $1,319,000   $  913,000   $1,628,000   $3,194,000
Denominator:
      Weighted average shares outstanding ..    2,822,000    2,824,000    2,822,000    2,824,000
Earnings per share:
      Net income ...........................   $     0.47   $     0.32   $     0.58   $     1.13

Diluted earnings per share
Numerators:
     Net Income ............................   $1,319,000   $  913,000   $1,628,000   $3,194,000
     Interest saved on assumed conversion of
        convertible notes - net of tax .....         --           --           --           --
                                               ----------   ----------   ----------   ----------

     Net Income ............................   $1,319,000   $  913,000   $1,628,000   $3,194,000
                                               ----------   ----------   ----------   ----------

Denominators:
      Weighted average shares outstanding ..    2,822,000    2,824,000    2,822,000    2,824,000
      Shares issued on conversion of
         convertible note ..................         --           --           --           --
                                               ----------   ----------   ----------   ----------
      Weighted average share and share
         equivalents .......................    2,822,000    2,824,000    2,822,000    2,824,000
                                               ----------   ----------   ----------   ----------
Earnings per share:
      Net income ...........................   $     0.47   $     0.32   $     0.58   $     1.13
                                               ==========   ==========   ==========   ==========
</TABLE>

K.       Segment Information

The Company is  principally  engaged in two business  segments:  multimedia  and
services.  All  businesses  are  located  domestically,  and  substantially  all
revenues  are  domestic.   The  multimedia   segment  includes  local  telephone
companies,  a cable TV company, an investment in PCS entities and investments in
two  network-affiliated  television  stations.  The  services  segment  includes
transportation and related services.

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

Operating  profit  is equal  to  revenues  less  operating  expenses,  excluding
unallocated  general  corporate   expenses,   interest  and  income  taxes.  The
Registrant  allocates  a  portion  of  its  general  corporate  expenses  to its
operating  segments.  Such  allocation  was  $326,000 and $317,000 for the three
months ended June 30, 2001 and 2000,  respectively and $652,000 and $634,000 for
the six months ended June 30, 2001 and 2000, respectively.


<PAGE>

<TABLE>
<CAPTION>
                                                      Three Months Ended         Six Months Ended
                                                           June 30,                  June 30,
                                                       2001        2000        2001          2000
                                                    ----------------------------------------------
                                                         Unaudited                Unaudited
                                                      (In thousands)            (In thousands)
<S>                                                  <C>         <C>         <C>         <C>
Revenues
Multimedia .......................................   $ 17,451    $ 16,019    $ 34,660    $ 31,590
Services .........................................     25,432      30,432      46,120      58,818
                                                     --------    --------    --------    --------
Combined Total ...................................   $ 42,883    $ 46,451    $ 80,780    $ 90,408
                                                     ========    ========    ========    ========
EBITDA (before corporate allocation):
Multimedia .......................................   $  9,068    $  8,385    $ 17,670    $ 16,545
Services .........................................        673         426         450        (154)
Corporate expenses, gross ........................       (743)       (875)     (1,625)     (1,509)
                                                     --------    --------    --------    --------

Combined total ...................................   $  8,998    $  7,936    $ 16,495    $ 14,882
                                                     ========    ========    ========    ========

Operating profit:
Multimedia .......................................   $  4,613    $  4,163    $  8,782    $  8,188
Services .........................................        398         113         (77)       (785)
Unallocated corporate expense ....................       (383)       (513)       (903)       (802)
                                                     --------    --------    --------    --------
Combined Total ...................................   $  4,628    $  3,763    $  7,802    $  6,601
                                                     ========    ========    ========    ========

Operating profit .................................   $  4,628    $  3,763    $  7,802    $  6,601
Investment income ................................      1,189       1,233       2,443       1,737
Interest expense .................................     (3,458)     (3,562)     (6,975)     (7,203)
Equity in earnings of affiliated companies .......        204         970         369       1,269
Gain on redemption of East/West Preferred Stock ..       --          --          --         4,125
                                                     --------    --------    --------    --------
Income before income taxes, and minority interests   $  2,563    $  2,404    $  3,639    $  6,529
                                                     ========    ========    ========    ========
</TABLE>


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

SALES AND REVENUES

Revenues for the three  months ended June 30, 2001  decreased by $3.6 million to
$42.9 million from the second  quarter of 2000.  Within the operating  segments,
multimedia  revenues increased by $1.4 million or 9%, which was offset by a $5.0
million  decrease at The Morgan Group Inc.  ("Morgan"),  the  Company's  service
subsidiary.  The  decrease  at Morgan  was  primarily  related  to a decline  in
revenues of $5.9  million  from  Morgan's  manufactured  housing  division.  The
manufactured  housing industry has been in a significant slump since 1999. Based
on a report from the Manufactured  Housing Institute,  shipments of manufactured
homes declined by 30% in April and May of 2001 compared to 2000. (June shipments
were not  available).  The second  quarter of 2001 was an  improvement  from the
first quarter of 2001 when year over year  shipments  were down 41%.  Multimedia
revenues grew in both regulated telecommunications services and the provision of
non-traditional telephone services such as Internet.

For the six months  ended June 30, 2001,  revenues  decreased by $9.6 million to
$80.8  million as  multimedia  revenues  increased  by $3.1  million and service
revenues  decreased by $12.7 million.  The factors cited above that affected the
second quarter comparisons, also affected the six-month comparisons.

<PAGE>

Home  manufacturers have reported weaker financial results during the past eight
quarters as a result of weakened demand, tightened consumer audit standards, and
increased  industry  repossessions.  Certain of the manufacturers  have reported
large  operating  losses that have  stressed  their  financial  position.  These
manufacturers  including some of Morgan's significant  customers,  have closed a
significant  number of plants and retail centers and may contemplate  additional
closings.

The impact that this  industry  cycle will have on Morgan's  revenues  cannot be
predicted,  but  Morgan may  experience  decreases  in revenue  from some of its
largest customers.  One customer in particular,  which has represented less than
17% of Morgan's revenues for the year to date, has recently announced continuing
losses and plans to close numerous retail locations.  The Company believes it is
in its best  interest  to  reduce  its  dependence  on this  customer.  Based on
correspondence and discussion with this customer,  it expects that customer will
reduce its use of Morgan's  services in the coming  year.  Management  of Morgan
believes  there are new  business  opportunities  that will offset  attrition of
existing customer business, which will likely occur in the coming year.

Shipments of  manufactured  homes tend to decline in the winter  months in areas
where poor weather conditions inhibit transport.  This usually reduces operating
revenues  in the first and  fourth  quarters  of the  year.  Morgan's  operating
revenues, therefore, tend to be stronger in the second and third quarters.

On June 22, 2001, a subsidiary of the Company  acquired  Central Utah Telephone,
Inc. and its subsidiaries and Central Telcom Services, L.L.C., a related entity.
The  inclusion  of these  operations  is expected to result in a higher level of
increases in the revenues and  operating  profits from  multimedia in the second
half  of the  year,  though  the  operating  profits  will be  mitigated  by the
amortization of goodwill.

Operating  profit for the three  months  ended June 30, 2001  increased  by $0.9
million to $4.6 million from the second  quarter of 2000.  Within the  operating
segments,   multimedia's  operating  profit  increased  $0.5  million,  Morgan's
operating profit increased from $0.1 million to $0.4 million. The improvement in
Morgan's  operating  profit, on lower volume,  reflects Morgan's  cost-reduction
efforts  over  the past 12  months.  As a  result,  Morgan's  operating  results
improved in the second  quarter  despite the revenue  decline.  The  increase in
operating profits in the multimedia resulted from increased revenues, which were
offset  by the  additional  start-up  costs  in  developing  new  communications
services.

In June 2001,  the Financial  Accounting  Standards  Board issued  Statements of
Financial  Accounting  Standards No. 141,  Business  Combinations,  and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite  lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives.

The Company has not yet  completed its analysis on how the new rules will affect
its  accounting   for  goodwill  and  other   intangible   assets,   for  which,
implementation  is required  beginning in the first quarter of 2002.  Based on a
preliminary analysis,  application of the nonamortization  provisions of FAS 141
would have  resulted  in an increase  in net income of $2.3  million,  $0.75 per
share,  for the year ended December 31, 2000 and $1.6 million,  $0.53 per share,
for the six months  ended June 30, 2001.  During 2002,  the Company will perform
the first of the  required  impairment  tests of goodwill and  indefinite  lived
intangible assets and has not yet determined what the effect of these tests will
be on the earnings and financial position of the Company.

For the six months  ended June 30,  2001,  operating  profit  increased  by $1.2
million to $7.8  million  as  multimedia  operating  profits  increased  by $0.6
million, Morgan's operating losses decreased by $0.7 million.

Investment  income for the quarter ended June 30, 2001 was $1.2  million,  about
the same as the second  quarter of the previous  year.  During the current year,
the Company recorded significant  unrealized gains on "trading  securities," due
to its  ownership  of Class B shares of Tremont  Advisers,  Inc.  (NASDAQ:TMAV),
whereas  last  year  the  Company  recognized   significant  realized  gains  of
"available  for  sale"  securities.  For the six  months  ended  June 30,  2001,
investment  income  increased  $0.7  million  from  the  previous  year  due  to
unrealized gains at Tremont.

<PAGE>

For the three and six months ended June 30,  2001,  interest  expense  decreased
from the prior year period by $0.1 million as increased level of borrowings were
offset by lower interest rates and the absence of  amortization of a put premium
associated with the Company's  convertible  note issued on December 12, 1999 for
the first six months interest expense  decreased by $0.2 million  reflecting the
same  factors.  This premium was fully  amortized  by the end of 2000.  Interest
expense  will  increase  in the second  half of 2001 due to the  acquisition  of
Central Utah and related entities.

During the three months ended June 30,  2000,  equity in earnings of  affiliates
was impacted by a net gain of $0.7 million on the sale of cellular towers at two
of the Registrant's cellular telephone company investments.

On  February  25,  2000,  Omnipoint  acquired,  through  a  merger  all  of  the
outstanding shares of East/West Communications,  Inc. At the time of the merger,
the Company held redeemable  preferred stock of East/West  Communications,  Inc.
with a liquidation value of $8.7 million, including payment in kind of dividends
to date. In accordance  with its terms,  the preferred stock was redeemed at its
liquidation  value and as a result,  the Company recorded a pre-tax gain of $4.1
million in the three months ended March 31, 2000.

The Company owns 1,000,000 shares of Spinnaker Industries, Inc. common stock. As
described in the Notes to the  accompanying  financial  statements,  the Company
accounts  for this  investment  under the  provision  of  Statement of Financial
Accounting  Standards No. 115 "Investment and Debt and Equity Securities." Under
the  provision of this  standard,  the Company  records this  investment  at its
publicly  traded market value at the end of each  accounting  period and records
the change in unrealized gain (loss) in that period's  comprehensive income. The
basis of these shares is $3.2 million, or $3.17 per share. At June 30, 2001, the
market  price of these  shares was $2.95 per share,  in trading on the  American
Stock Exchange.  During the year ended December 31, 2000,  Spinnaker  recorded a
loss from continuing operations before discontinued operations and extraordinary
gain of $17.7 million. Losses of $5.2 million and $2.8 million were recorded for
the years ended December 31, 1999 and 1998,  respectively.  In the first quarter
of 2001,  Spinnaker  recorded  a net loss of $41.0  million,  including  a $36.5
million of restructuring  and asset impairment  reserves related to the close of
its Spinnaker  Coating facility in Westbrook,  Maine.  The Company's  management
will continue to monitor the market value of its  Spinnaker  holdings and should
the market value of the common shares stay  consistently  below the $3.2 million
basis,  management is required to consider if the decline in value is other than
temporary,  and if so, a write-down would be recorded in its reported  financial
results.  (Of note: at June 30, 2001,  the market price of  Spinnaker's  Class A
common  shares,  none of which  are  owned by the  Company,  in  trading  on the
American  Stock  Exchange  was  $0.85 per  share.  The only  difference  between
Spinnaker  common  and  Class A common  shares  is that the  common  shares  are
entitled  to 1/10 vote per share and the Class A common  shares are  entitled to
one vote per share. )

In  the  third  quarter  of  2001,   the  Company  is  expecting  to  record  an
administrative  fee of $2.7 million of pretax  income ($1.6 million or $0.54 per
share after  income tax effects)  relating to services  provided in a previously
conducted auction for PCS Spectrum.

The income tax provision includes federal, as well as state and local taxes. The
tax  provision  for the six months  ended  June 30,  2001,  and 2000,  represent
effective  tax  rates  of 45.3%  and  48.6%,  respectively.  The  causes  of the
difference  from the federal  statutory rate are principally the effect of state
income  taxes,  including  the effect of  earnings  and losses  attributable  to
different state jurisdictions, and the amortization of non-deductible goodwill.

Minority interest decreased earnings by $0.4 million in the three months ended
June 30, 2001 and $0.3 million in the three months ended June 30, 2000,
increased profits at Morgan caused the swing. A similar variance occurred in the
six-month periods.

<PAGE>

Net income for the three  months  ended June 30, 2001 was $1.3  million or $0.47
per share  (basic and  diluted) as compared  to net income of $0.9  million,  or
$0.32 per share (basic and diluted),  in the previous years three-month  period.
Improved  operating  results  from the  multimedia  segment  and Morgan were the
primary cause of the positive variance. Net income for the six months ended June
30, 2001 of $1.6  million or $0.58 per share  (basic and diluted) as compared to
net  income of $3.2  million,  or $1.13 per  share.  The most  significant  item
affecting  the swing in earnings  was the gain on the  redemption  of  East/West
preferred stock ($2.5 million, net of income tax provision) in 2000.

FINANCIAL CONDITION

Liquidity/ Capital Resources

As of June 30, 2001, the Company had current assets of $55.8 million and current
liabilities  of $50.1  million.  Working  capital was therefore  $5.7 million as
compared to $6.8 million at December 31, 2000. The debt restructurings discussed
below,  acquisition of Central Utah Telephone  Company and related  entities and
the  additional  investment  in Morgan was the  primary  causes of the change in
working capital.

For the first six months,  capital  expenditures  were $7.6  million in 2001 and
$6.6 million in 2000.

At June 30, 2001, total debt was $199.1 million,  which was $32.2 million higher
than the $166.9  million at the end of 2000. At June 30, 2001,  there was $139.9
million  of fixed  interest  rate debt  averaging  6.97% and  $59.2  million  of
variable  interest  rate debt  averaging  6.6%.  Debt at year-end  2000 included
$142.9 million of fixed interest rate debt, at an average interest rate of 6.79%
and $23.9 million of variable  interest rate debt at an average interest rate of
8.49%.

On December 12, 1999,  the Company  completed  the private  placement to Cascade
Convertible  Notes.  At that  time,  to  assist  the  Company  with the  private
placement,  the  Chairman  and CEO of the  Company,  agreed  to grant  Cascade a
one-time option to sell the note to him at 105% of the principal amount thereof.
The exercise  period was from November 15, 2000 to December 1, 2000. This option
to sell  is  secured  by a bank  letter  of  credit,  which  is  secured  by the
Chairman's  escrow of  securities.  The Company agreed to reimburse the Chairman
for the cost of the letter of credit plus his legal fees in connection  with the
option to sell agreement and obtaining the letter of credit.

The option to sell the  remaining  $10  million  is secured by a  collateralized
letter of credit in which the  collateral  is  provided by an  affiliate  of the
Chairman.  The Company  has agreed to pay all legal fees,  letter of credit fees
and a 10% per annum collateral fee on the amount of collateral  provided,  which
at June 2001 was valued at $10.5 million. The Company can replace the collateral
at any time and the collateral fee would be eliminated from thereafter.

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

<PAGE>

In January 2001, a subsidiary of the Company  borrowed $27.0 million  secured by
the stock of Western New Mexico Telephone  Company.  The loan is to be repaid in
equal monthly  installments  over twelve years beginning in April 2001,  bearing
interest at either  bank's  prime rate or LIBOR plus 2.5%,  or at the  Company's
option, it can be fixed for its term. $15.9 million of the proceeds were used to
acquire $15 million principal amount of Convertible Notes owned by Cascade.  The
stock of Western New Mexico Telephone Company had previously been used to secure
the  acquisition  facility,  the  balance  of which  was $7.9  million  prior to
repayment in December 2000.

As of June 2001, the Company had $10.0 million available under a short-term line
of credit  facility,  $4.5 million at July 31, 2001, which expires on August 31,
2001.

On July 27, 2001, Morgan obtained a new three-year $12.5 million credit facility
"GMAC  Commercial  Credit  LLC."  The GMAC  credit  facility  replaces  Morgan's
previous  credit  line that had  expired on  January  28,  2001.  The new credit
facility will be used for working capital purposes and to post letters of credit
for insurance contracts. Borrowings and posted letters of credit on the facility
are  limited to a  borrowing  base  calculation  that  includes  85% of eligible
receivables and 95% of eligible investments. The facility is secured by accounts
receivable, investments, inventory, equipment and general intangibles. The prior
Credit  Facility  matured  on January  28,  2001,  at which  time  Morgan had no
outstanding debt and $6.6 million of outstanding  letters of credit.  Morgan was
in default of the  financial  covenants,  resulting in the bank failing to renew
such credit  facility,  which in turn  resulted in a payment  default under such
credit  facility.  On July 12, 2001, the Company  acquired 1.0 million shares of
Morgan's  Class B Common  Stock from  Morgan at $1.00 per share.  As a result of
this transaction the Company's  ownership increased to 80.8% of the voting power
and 68.8% of the common equity.

Effective  July  2,  2001,  Morgan  renewed  its  primary  liability   insurance
arrangements  with Liberty Mutual Group.  Morgan has posted increased letters of
credit to Liberty Mutual  through the new credit  facility as collateral for the
payment of claim reimbursements. Morgan's management believes the combination of
the above financial  transactions  will be adequate to allow the Company to post
all  required  letters of credit  for  insurance  contracts.  As a result of the
insurance renewal, Morgan's premium expense will increase substantially over the
next twelve months. Morgan anticipates that it will be able to pass a portion of
this increase through to its customers,  but is unable to predict how much of it
will be recoverable.

The Morgan Board of Directors  has also  authorized  its  management  to further
develop  plans to  provide  an  opportunity  for other  shareholders  to acquire
additional  equity  investment in Morgan.  Interactive is currently  considering
whether it should retain its  investment in Morgan and is exploring  ways on how
to appropriately divest itself of its investment if that decision is made.

On July 31, 2001,  Morgan closed on a new real estate mortgage for $500,000 that
is secured by the  Company's  land and buildings in Elkhart,  Indiana.  The loan
will be used  for  working  capital  purposes.  The  Company's  application  for
additional capacity under this facility is under consideration.

Lynch Corporation, the Company's predecessor, has not paid any cash dividends on
its Common Stock since 1989.  The Company does not expect to pay cash  dividends
on its Common Stock in the foreseeable  future. The Company currently intends to
retain its earnings,  if any, for use in its  business.  Future  financings  may
limit or prohibit the payment of dividends.

The Company has a high degree of financial  leverage.  As of June 30, 2001,  the
ratio of total debt to equity was 7.8 to 1. Certain  subsidiaries also have high
debt to equity ratios. In addition,  the debt at subsidiary  companies  contains
restrictions on the amount of readily available funds that can be transferred to
the respective parent of the subsidiaries.

<PAGE>

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

On June 22, 2001, a subsidiary of the Company  acquired  Central Utah Telephone,
Inc. and  subsidiaries,  a 7,000-access  line telephone company located in Utah.
The  subsidiary  has also  agreed to acquire  Central  Telcom  Services,  LLC, a
related  entity,  which has certain PCS and MMDS  interests and  Internet,  long
distant and telephone equipment businesses. The combined aggregate $15.6 million
purchase price was financed  primarily  through the issuance of additional  debt
and the remaining coming from resources currently available.

The Company has initiated an effort to monetize certain of its assets, including
selling a portion or all of  certain  investments  in  certain of its  operating
entities.  These may include minority interest in network affiliated  television
stations and certain  telephone  operations  where  competitive  local  exchange
carrier  opportunities  are not readily  apparent.  The Company's  approximately
13.6% ownership interest in Spinnaker  Industries,  Inc.  (AMEX:SKK) may also be
sold in order to fund future growth initiatives.  There is no assurance that all
or any part of this program can be effectuated on acceptable terms.

Item 3.  Quantitative and Qualitative Disclosure About Market Risk

The Company is exposed to market risk  relating to changes in the general  level
of U.S. interest rates. Changes in interest rates affect the amounts of interest
earned on the Company's cash, cash equivalents and marketable  securities ($29.2
million at June 30, 2001 and $29.0 million at December 31, 2000).

The Company generally  finances the debt portion of the acquisition of long-term
assets with fixed rate,  long-term  debt.  The Company  generally  maintains the
majority  of its debt as fixed  rate in nature  either by  borrowing  on a fixed
long-term  basis  or, on a  limited  basis,  entering  into  interest  rate swap
agreements.  The  Company  does not use  derivative  financial  instruments  for
trading or speculative  purposes.  Management  does not foresee any  significant
changes in the strategies  used to manage interest rate risk in the near future,
although the strategies may be reevaluated as market conditions dictate.

At June 30,  2001,  approximately  $59.2  million,  or  29.7%  of the  Company's
long-term debt and notes payable bears interest at variable rates.  Accordingly,
the Company's earnings and cash flows are affected by changes in interest rates.
Assuming the current level of  borrowings  for variable rate debt and assuming a
one  percentage  point  change in the 2001  average  interest  rate under  these
borrowings,  it is estimated that the Company's 2001 six-month  interest expense
would have changed approximately $0.4 million. In the event of an adverse change
in interest rates,  management would likely take actions to further mitigate its
exposure. However, due to the uncertainty of the actions that would be taken and
their  possible  effects,  the analysis  assumes no such actions.  Further,  the
analysis  does not  consider  the  effects of the change in the level of overall
economic activity that could exist in such an environment.


<PAGE>



                           FORWARD LOOKING INFORMATION

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

PART II.  OTHER INFORMATION

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

At the Annual Meeting of Stockholders of the Company held on May 10, 2001, the
following persons were elected as Directors with the following votes:
<TABLE>
<CAPTION>
   Name                  Votes For   Votes Withheld
   ----                  ---------   --------------
<S>                      <C>            <C>
Paul J. Evanson ......   2,527,638      28,500
John C. Ferrara ......   2,525,438      30,700
Mario J. Gabelli .....   2,526,234      29,904
Daniel R. Lee ........   2,527,208      28,930
David C. Mitchell ....   2,527,638      28,500
Salvatore Muoio ......   2,525,422      30,716
Ralph R. Papitto .....   2,525,422      30,716
Vincent S. Tese ......   2,527,208      28,930
</TABLE>

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

         (a)      Exhibits
                   Exhibit 10.1  - Central Utah Telephone, Inc.
                       Stock Purchase Agreement
                   Exhibit 10.2  - Membership Purchase Agreement

         (b)      Report on Form 8-K
                      - None

                                    SIGNATURE

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

                                    LYNCH INTERACTIVE CORPORATION
                                            (Registrant)

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