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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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Form 10-K

|   |  |                                                                                                 
|-- |  | ------------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the fiscal year ended December 31,
    2002           Commission
    file number 1-106      
|  
|OR
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
|  
|   |  | For the transition period
    from           to                                                 

LYNCH CORPORATION

(Exact name of Registrant as specified in its
charter)


|                                                                                             |  |                                         
|-------------------------------------------------------------------------------------------- |  | ----------------------------------------
|Indiana                                                                                      |  | 38-1799862                              
|(State or other jurisdiction of
    Incorporation or organization)                           |  | (I.R.S. Employer
    Identification No.)
|                                                                                            
|50 Kennedy Plaza, Suite 1250,
    Providence, RI(Address of principal executive
    offices) |  | 02903(Zip Code)                         

Registrants telephone number, including
area code:

(401) 453-2007


Securities registered pursuant to
Section 12(b) of the Act:

|                              |  |                                          
|----------------------------- |  | -----------------------------------------
|Title of each class           |  | Name of each exchange on which registered
|                              |  |                                          
|Common Stock, $0.01 Par Value |  | American Stock Exchange                  

Securities registered pursuant to
section 12(g) of the Act: None

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 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 þ          No o

Indicate by mark if disclosure of delinquent
filers pursuant to Item 405 of Regulations SK is
not contained herein, and will not be contained, to the best of
the Registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this Form 10-K, or any amendment to this
Form 10-K.     o

The aggregate market value of voting stock held
by non-affiliates of the Registrant (based upon the closing
price of the Registrants Common Stock on the American
Stock Exchange on June 28, 2002 of $12.55 per share)
was $13.0 million. (In determining this figure, the
Registrant has assumed that all of the Registrants
directors and officers are affiliates. This assumption shall not
be deemed conclusive for any other purpose.)

The number of outstanding shares of the
Registrants Common Stock was 1,497,883 as of
March 14, 2003.

DOCUMENTS INCORPORATED BY REFERENCE:

Part III: Certain portions of
Registrants Proxy Statement for the 2003 Annual Meeting of
Shareholders.



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FORWARD LOOKING INFORMATION

This document contains forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995. When used in this discussion and throughout this
document, words, such as intends, plans,
estimates, believes,
anticipates and expects or similar
expressions are intended to identify forward-looking statements.
These statements are based on the Registrants current
plans and expectations and involve risks and uncertainties, over
which the Registrant has no control, that could cause actual
future activities and results of operations to be materially
different from those set forth in the forward-looking
statements. Important factors that could cause actual future
activities and operating results to differ include fluctuating
demand for capital goods such as large glass presses, delay in
the recovery of demand for components used by telecommunications
infrastructure manufacturers, and exposure to foreign economies.
Important information regarding risks and uncertainties is also
set forth elsewhere in this document, including in Item 7.
Managements Discussion and Analysis of Financial
Condition and Results of Operations. Readers are cautioned
not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Registrant
undertakes no obligation to update publicly any forward-looking
statements, whether as a result of new information, future
events or otherwise. All subsequent written or oral
forward-looking statements attributable to the Registrant or
persons acting on its behalf are expressly qualified in their
entirety by these cautionary statements. Readers are also urged
to carefully review and consider the various disclosures made by
the Registrant, in this document, as well as the
Registrants periodic reports on Forms 10-K, 10-Q and
8-K, filed with the Securities and Exchange Commission
(SEC).

The Registrant makes available, free of charge,
its annual report on Form 10-K, Quarterly Reports on
Form 10-Q, and current reports, if any, on Form 8-K.

The Registrant also makes this information
available on its website, whos internet address is
www.lynchcorp.com.

PART I



|        |         
|------- | --------
|Item 1. | Business

The Registrant, Lynch Corporation (hereinafter
referred to as Registrant, Company or
Lynch), incorporated in 1928 under the laws of the
State of Indiana, is a diversified holding company with
subsidiaries engaged in manufacturing. Lynchs executive
offices are located at 50 Kennedy Plaza, Suite 1250,
Providence, RI 02903. Its telephone number is
(401) 453-2007.

Lynch has two wholly-owned subsidiaries, M-tron
Industries, Inc., a Delaware corporation (M-tron),
and Lynch Systems, Inc., a South Dakota corporation
(LS or Lynch Systems).

Registrants business development strategy
is to expand its existing operations through internal growth and
acquisitions. It may also, from time to time, consider the
acquisition of other assets or businesses that are not related
to its present businesses. As used herein, the Registrant
includes subsidiary corporations.

A.     Lynch Systems,
Inc.



| |         
| | --------
| | Overview

Lynch Systems, Inc. (LS or
Lynch Systems), a 100% owned subsidiary of
Registrant, designs, develops, manufactures and markets a broad
range of manufacturing equipment for the electronic display and
consumer glass industries. LS also produces replacement parts
for various types of packaging and glass container-making
machines, which LS does not manufacture.



| |                                   
| | ----------------------------------
| | Selected Financial
    Information

For financial reporting purposes, Lynch Systems
comprises the Registrants glass manufacturing
equipment segment. For information about this
segments net sales, profit or loss, and total assets for
each of

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the last three fiscal years, please see
Note 15 Segment Information to the
Registrants Consolidated Financial Statements.




| |                         
| | ------------------------
| | Lynch Systems Objectives

LS intends to continue to build on its name
recognition and reputation as one of the worlds leading
manufacturers of glass forming machinery. LS is the only
independent supplier in the CRT (cathode ray tube) glass forming
field and it is LSs intention to use this strength to form
closer partnerships with its customers in their pursuit of
innovative glass making machinery.

LSs long term intentions are to monitor the
market direction and to be at the forefront of technology in
order to respond to market demand for new and innovative types
of machinery needed to produce glass. LS intends to continue to
research and develop state-of-the-art machinery within its core
competence, and also to seek new markets where its experience
and proven success can be utilized to develop new products and
increase its growth.

LS also intends to continue to expand on its
expertise in the feeder and shear markets obtained from its
former joint venture partner, Lynch AMAV LLC, and to reduce
the cost of its raw materials by continuing to search for
cheaper suppliers of materials, especially from foreign markets.
In addition, LS intends to continue its own in-house cost
cutting programs by eliminating redundant or superfluous
operations, improving its factory quality and yield rates and
better utilization of its current personnel. By increasing its
efficiency and shortening its delivery rate, LS hopes to
increase the number of turns giving a positive effect to its
financial performance. There is no assurance that LS can attain
these objectives.



| |                           
| | --------------------------
| | Products and Manufacturing

LS manufactures glass-forming presses and
electronic controls to provide high-speed automated systems to
form different sizes of face panels and CRT display tubes for
television screens and computer monitors including presses to
build large screen televisions for the HDTV (high definition
television) market. LS also manufactures and installs forming
equipment that sizes, cuts, and forms tableware such as glass
tumblers, plates, cups, saucers and commercial optical glass.
Additionally, LS manufactures and installs fire polishing,
electronic controls and retrofit systems for CRT display and
consumer glass presses.

At year-end 1998, LS, through a subsidiary,
entered into a joint venture, Lynch-AMAV LLC, with AMAV GmbH of
Germany to develop and manufacture glass-manufacturing equipment
for the tableware industry. LS had a 75% interest in the joint
venture until June 13, 2002 when LS acquired the remaining
interests in the joint venture. The joint venture designed and
developed feeders, shears and presses, most of which were
manufactured for the joint venture by LS. LS believes that this
joint venture expanded LSs glass tableware equipment
business, particularly in Europe. The planned AMAV technology
transfer was completed in 2002 and the joint venture was
terminated upon final payment of $220,000 to the joint venture
partner by LS on June 13, 2002. All international business
is now directed from Bainbridge, Georgia and all equipment is
produced in the United States.

The production of glassware entails the use of
machines, which heat glass and, using great pressure, form an
item by pressing it into a desired shape. Because of the high
cost of bringing the machine and materials up to temperature, a
machine for producing glassware must be capable of running
24 hours a day, 365 days a year.

In 2001 LS sold four additional large TV glass
press machines that were delivered in 2002. These machines sold
for an aggregate of $14 million, of which $5.5 million
was recognized as income in 2001 using the percentage of
completion method with the balance of $8.5 million
recognized in 2002 upon delivery and acceptance of these
machines. At December 31, 2002, the Company had sold two
machines for approximately $1.5 million, of which
$0.7 million was recognized in 2002 using the percentage of
completion accounting method with the balance expected to be
recognized in 2003 upon delivery and acceptance of these
machines.

LSs worldwide customers require capital
equipment that produces a wide variety of Tableware products to
remain competitive. In support of this market demand, Lynch
Systems has invested in Research & Development
(R&D) programs to manufacture new lines of capital equipment
such as Stretch Machines for

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one-piece Stemware, Firepolishers for high
quality Tableware and Spinning Machines for high speed, high
quality Dishware.


To further expand LSs Tableware product
lines, additional product lines have been acquired through
royalty partnerships with leading industry concerns. In 1999, LS
acquired the H-28 Press and Blow machine from Emhart Glass
SA. This high production machine produces both round and
geometric design Tumblers and is now marketed by LS as the LH-28
with numerous Electronic Control improvements. In accordance
with the terms of the agreement, LS is obligated to pay Emhart a
royalty of 13% on parts sales up to $2 million a year, a 5%
royalty rate on all parts sales in excess of $2 million,
and 5% on all machine sales through 2008. In 2000, the Eldred
product line of Burnoff Machines, used to fire finish the rims
of the H-28 Tumblers, and four-color Decorating Machines
were acquired by LS. In accordance with the terms of the
agreement, LS is obligated to pay Eldred a royalty of 10% on
sales up to $300,000 per year and 8% royalty on sales over
$300,000 per year until 2010. All Tableware capital
equipment requires moulds in the production of any article. In
2002, agreement was reached with Merkad Glassware Mould, Ltd., a
producer of high quality moulds, to represent and distribute
moulds throughout North and South America. LS has no contractual
obligations to Merkad.

LS has the capabilities to take a glass product
idea from a customer, have our engineering staff design a
machine that will mass produce this glass product and then build
the final machine for the customer. LS is in negotiations to
obtain other orders for large TV glass presses; however, there
can be no assurance that LS will obtain any other orders.



| |                    
| | -------------------
| | International Sales

LSs revenues from international sales were
$12.8 million, $20.2 million and $20.3 million
for 2002, 2001 and 2000, respectively, representing
approximately 86%, 78% and 88% of LSs net sales for 2002,
2001 and 2000, respectively. The profitability of international
sales is approximately equivalent to that of domestic sales.
Because many international orders require partial advance
deposits, with the balance often secured by irrevocable letters
of credit from banks in the foreign country, the Registrant
believes that some of the credit risks commonly associated with
doing business in international markets are minimized. The
Registrant avoids currency exchange risk by transacting
substantially all international sales in United States dollars.



| |        
| | -------
| | Backlog

LS had an order backlog of approximately
$3.9 million at December 31, 2002, compared to
$12 million at December 31, 2001. Backlog declined due
to the lack of orders from television and tableware
manufactures. All of LSs $3.9 million backlog as of
December 31, 2002 is scheduled to be delivered in 2003. See
Note 17 to the Consolidated Financial
Statements  Subsequent Events 
regarding additions to the backlog in early 2003. LS includes as
backlog only those orders which are subject to written contract
or written purchase orders. In 1998, LS received
$2.4 million in connection with the cancellation of a
$16 million order for large TV glass presses and parts,
which amount can be used by the customer as a credit for future
orders. The $2.4 million has been reduced to
$1.3 million as of December 31, 2002 as a result of
sales to this customer. Any remaining unused credit will revert
to LS at June 30, 2003.



| |            
| | -----------
| | Competition

LS believes that in the worldwide pressware
market it is the largest supplier to glass companies that do not
manufacture their own pressware machines. Competitors include
various companies in Italy, Japan, Korea, Germany and elsewhere.
While several of the largest domestic and international
producers of glass pressware frequently build their own
glass-forming machines and produce spare parts in-house, nearly
all pressware producers have made purchases of machines and/or
spare parts from LS.



| |          
| | ---------
| | Customers

Although one customer accounted for 42% of Lynch
Systems 2002 revenue, its customer mix is diverse and does not
believe it is dependent upon a single customer.

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| |              
| | -------------
| | Raw Materials

Raw materials are generally available to LS in
adequate supply from a number of suppliers.



| |                         
| | ------------------------
| | Research and Development

Research and development expense, mainly for
stretch machines for stemware, was $220,000 in 2002, $146,000 in
2001 and zero in 2000. R&D expense for 2003 is budgeted at
$96,000.



| |                      
| | ---------------------
| | Intellectual Property

Lynch Systems owns patents and proprietary
know-how which are important to its business and the maintenance
of its competitive position. Its most important patent is for a
rotary glass-molding press with cushioned trunnion mounted
hydraulic drive, expiring October, 2012. Lynch Systems
investment in Lynch-AMAV, discussed above, has given Lynch
Systems access to important proprietary know-how and technology
which has enabled Lynch Systems to expand its product offerings
and customer base.



| |          
| | ---------
| | Employees

Lynch Systems employs 68 employees at its
Bainbridge, Georgia facility, and 2 in Germany, none of whom
belong to a union.

B.     M-tron
Industries, Inc. (M-tron)



| |         
| | --------
| | Overview

M-tron, a wholly-owned subsidiary of Lynch, is a
designer, manufacturer and marketer of custom designed
electronic components that are used primarily to control the
frequency or timing of electronic signals in communications
equipment. Its devices, which are commonly called frequency
control devices, crystals or oscillators, support fixed and
mobile wireless, copper wire, coaxial cable, wide area networks,
local area networks and fiber optic systems. It sells its
products to original equipment manufacturers, contract
manufacturers and to distributors.

M-trons products are quartz crystal based
frequency control devices consisting of packaged quartz crystals
and oscillators incorporating those crystals. Its products
enable communications equipment manufacturers and network
equipment manufacturers to meet the increasing demands of their
customers because they produce an electrical signal that is:



| |   |                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | accurate  the frequency of the signal
    does not change significantly over a period of time;                                                 
|
| |  | stable  the frequency of the signal
    does not vary significantly when our product is subjected to a
    range of operating temperatures; and
|
| |  | has low electronic noise  the signal
    does not add interfering signals that can degrade the
    performance of the electronics system.      

In addition, M-tron sells crystals and
oscillators which are used outside the communications industry.
These frequency control devices are used in microprocessor and
computer applications, industrial controls, medical
instrumentation, automotive products and military applications.

In October 2002, M-tron acquired certain assets,
technology and customer orders backlog from Champion
Technologies, Inc. (Champion). Champions
product line includes crystals, clock oscillators, specialized
crystal oscillators, and timing solutions that will further
broaden M-trons product offering and customer base. See
Note 2  Acquisitions  to
the Registrants Consolidated Financial Statements.

M-tron has over 35 years of experience
designing, manufacturing and marketing crystal based frequency
control products. Its customers rely on the skills of
M-trons engineering and design team to help them solve
frequency control problems during all phases of their
products life cycles, including product design,
prototyping, manufacturing and subsequent product improvements.

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| |                                   
| | ----------------------------------
| | Selected Financial
    Information

For financial reporting purposes, M-tron
comprises the Registrants frequency control
devices segment. For information about this segments
net sales, profit or loss, and total assets for each of the last
three fiscal years, please see Note 15 Segment
Information to the Registrants Consolidated
Financial Statements.



| |                  
| | -----------------
| | M-tron Objectives

M-trons objective is to build on the
strength of its core expertise in packaged quartz crystal and
oscillator technologies to become the supplier of choice to
original equipment manufacturers who supply infrastructure
equipment to the communications and networking industries.

M-tron intends to maintain its current investment
in technical resources, including design and engineering
personnel to enable it to provide a high level of design and
engineering support to its customers. It believes that technical
participation with its original equipment manufacturers
customers in the early stages of their design process will lead
to M-trons frequency control devices being designed into
their products more regularly.

M-tron has increased the use of its offshore
contract manufacturers who have added capacity on its behalf. In
addition, M-trons long term objective is to reduce the
time it takes to manufacture its products which will result in
better service to its customers. To that end, it has dedicated
additional resources to evaluating its manufacturing processes
and to identifying and implementing process improvements.

M-tron believes that it can significantly enhance
its business opportunities by acquiring technology, product
portfolios and/or customer bases. Some of these may offer
immediate sales opportunities while others may meet longer term
objectives. It plans to pursue these opportunities by making
strategic acquisitions or by acquiring or licensing technology.

M-tron intends to design, manufacture and sell
devices that offer higher frequencies or greater precision than
its current products. These devices will serve applications
within the communications and networking industries for which it
does not currently provide products. It intends to achieve this
through a combination of focused research and development and
strategic acquisitions, if they are appropriate. In pursuit of
these objectives, M-tron completed its initial strategic
acquisition by purchasing Champion Technologies, Inc., who will
immediately provide both new customers and a wider range of
products, including entry to the timing module markets.

There is no assurance that M-tron can achieve
these objectives.



| |         
| | --------
| | Products

M-trons products are high quality,
reliable, technically advanced frequency control devices,
including packaged quartz crystals and oscillators incorporating
those crystals. The acquisition of certain Champion assets will
also provide M-tron an entry to the timing modules market.

M-tron designs and produces a wide range of
packaged quartz crystals and quartz crystal based oscillators.
There are a variety of features in its product family. The
Packaged Crystal is a single crystal in a hermetically sealed
package and is used by electronic equipment manufacturers, along
with their own electronic circuitry, to build oscillators for
frequency control in their electronic devices. The Clock
Oscillator is the simplest of its oscillators. It is a
self-contained package with a crystal and electronic circuitry
that is used as a subsystem by electronic equipment
manufacturers to provide frequency control for their devices.
The Voltage Controlled Crystal Oscillator (VCXO) is a
variable frequency oscillator whose frequency can be changed by
varying the control voltage to the oscillator. The Temperature
Compensated Crystal Oscillator (TCXO) is an oscillator
designed for use over a range of temperatures. The Digitally
Compensated Crystal Oscillator (DCXO) is a temperature
compensated oscillator in which the compensation electronics are
digital and offer greater frequency stability than the TCXO over
a range of temperatures. This variety of features in
M-trons product family offers the designers at electronic
equipment manufacturers a range of options as they create the
needed performance in their products.

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Currently, M-trons oscillator products
operate at frequencies ranging from 2 kilohertz to over
2.5 gigahertz which constitute most of the oscillator
frequencies that are now used in communications equipment.
However, many of its products, through amplification or other
means, are ultimately incorporated into those products that
operate at higher frequencies.

M-trons products are employed in numerous
applications within the communications industry, including
computer and telephone network switches, high-speed gigabit
Ethernet, modems, wireless transmitters/receivers, multiplexers,
data recovery/regeneration devices, fiber channel networks,
repeaters, data transceivers, line interface devices and base
station controllers. Its products are incorporated into end
products that serve all elements of the communications industry.

The crystals and oscillators M-tron sells for use
in non-communications applications are used in industrial
applications such as security systems, metering systems,
electronic test instruments and industrial control systems. They
are used in military and medical instrumentation applications as
well as in various computer peripheral equipment such as
printers, modems, monitors, video cards and sound cards. These
non-communications applications may not require the quality and
reliability demanded by manufacturers of communications
equipment.

A timing module is an electronic subsystem. It is
a pre-assembled circuit that integrates several different
functions into a small single self-contained module for control
of timing in a circuit. Today, timing modules are frequently
used for the synchronization of timing signals in digital
circuits, particularly in wireless and optical carrier network
systems.



| |                         
| | ------------------------
| | Research and Development

At December 31, 2002, M-tron employed
7 engineers and technicians in South Dakota who devoted
most of their time to research and development. Its research and
development expense was approximately $724,000 in 2002,
$1,348,000 in 2001, and $994,000 in 2000. M-tron expects to
reduce its spending on research and development by up to 10%
during 2003.



| |          
| | ---------
| | Customers

M-tron markets and sells its frequency control
devices primarily to:



| |   |                                                                                          
| | - | -----------------------------------------------------------------------------------------
| |  | original equipment manufacturers of
    communications and networking equipment;         
|
| |  | contract manufacturers for original equipment
    manufacturers; and                     
|
| |  | distributors who sell to original equipment
    manufacturers and contract manufacturers.

In 2002, one customer accounted for approximately
9% of M-trons net sales, compared to less than 7% in 2001.
No other customer accounted for more than 8% of its 2002
revenues. Sales to its ten largest customers accounted for
approximately 60% of net sales for 2002, 2001 and 2000
respectively.



| |                    
| | -------------------
| | International Sales

M-trons revenues from international sales
were $5.8 million, $9.5 million, and
$17.6 million for 2002, 2001 and 2000, respectively,
representing approximately 51%, 44%, and 48% of its net sales
for 2002, 2001 and 2000, respectively. In 2002, these revenues
included approximately 19% from customers in Canada, 19% from
customers in Asia, 6% from customers in Western Europe and 5%
from customers in Mexico. M-tron has increased its international
sales efforts by adding distributors and manufacturers
representatives in Western Europe and Asia. The Champion
products acquisition will further improve the Companys
market position in Western Europe. See Note 2 
Acquisitions to the Registrants Consolidated
Financial Statements.



| |        
| | -------
| | Backlog

M-tron had backlog orders of approximately
$2.3 million at December 31, 2002, compared to
$1.4 million at December 31, 2001. The
$0.9 million improvement is mainly the result of
manufactured oscillator bookings

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stemming from the Champion acquisition. M-tron
includes as backlog those orders which are subject to specific
production release orders under written contracts, verbal and
written orders from distributors with which it has had
long-standing relationships, as well as written purchase orders
from sales representatives. Its customers may cancel or defer
orders without significant penalty.




| |            
| | -----------
| | Competition

Frequency control devices are sold in a highly
competitive industry. There are numerous domestic and
international manufacturers who are capable of providing custom
designed quartz crystals and oscillator modules comparable in
quality and performance to its products. Competitors include
Vectron International (a division of Dover Corporation), CTS
Corporation and Saronix. M-tron does not operate in the same
markets as high volume manufacturers of standard products;
rather it focuses on manufacturing lower volumes of custom
designed frequency control devices. Many of its competitors and
potential competitors have substantially greater financial,
engineering, manufacturing and marketing resources than it does.
M-tron seeks to manufacture custom designed, high performance
crystals and oscillators, which it believes it can sell
competitively based upon performance, quality, order response
time and a high level of engineering support.



| |              
| | -------------
| | Manufacturing

M-tron has one manufacturing facility in Yankton,
South Dakota, and has long-term relationships with two contract
manufacturers in Asia, with one contract manufacturer currently
enjoying almost all of M-trons business. M-tron maintains
a rigorous quality control system and is an ISO 9001
qualified manufacturer.

In 1986, M-tron established a working
relationship with a contract manufacturer located in South
Korea, and in 1994, it established a working relationship with a
contract manufacturer located in the Peoples Republic of
China. While it does not have written long term agreements with
them, M-tron believes that it is potentially their largest
customer and, as such, believes that from time to time it
received preferential treatment on production scheduling matters.

M-tron attempts to utilize standard parts and
components that are available from multiple vendors located in
the United States or internationally; however, some components
used in its products are available from only a limited number of
sources.

M-trons Manufacturing capacity and
capabilities have been enhanced by the manufacturing and test
equipment acquired as a result of its purchase of Champion
Technologies, Inc.



| |                      
| | ---------------------
| | Intellectual Property

M-tron has no patents, trademarks or licenses
which are considered to be important to M-trons business
or operations. Rather, M-tron believes that its technological
position depends primarily on the technical competence and
creative ability of its engineering and technical staff in areas
of product design and manufacturing processes as well as
proprietary know-how and information.



| |          
| | ---------
| | Employees

As of December 31, 2002, M-tron employed
108 people. It has also engaged two independent
contractors. None of its employees is represented by a labor
union and it considers its employee relations to be good.

C.     Spinnaker
Industries, Inc. (Spinnaker)

Until September 23, 2002, Lynch (through its
subsidiary LS) owned 1,829,063 shares of the Class A
Common Stock and 1,237,203 shares of the Common Stock of
Spinnaker Industries, Inc. (Spinnaker), representing
41.8% and 49.5% of the equity and voting power of Spinnaker,
respectively. On September 23, 2002, the Company sold its
remaining interest in Spinnaker to an independent, international
brokerage firm in New York City. The transfer was made for
nominal consideration because Lynch determined that the
Spinnaker shares had no value as a result of Spinnakers
ongoing reorganization under Chapter 11 of the Bankruptcy
Code. As a result of this transfer, Lynch recorded a $19,420,000
non-cash gain and consequently

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an increase in shareholders equity of
$19,420,000 in the third quarter of 2002. This action increased
Lynchs total shareholders equity to $11,644,000 at
September 30, 2002 from a deficit of $7,615,000 on
June 30, 2002.




| |                
| | ---------------
| | Deconsolidation

Prior to September 30, 2001, Lynch owned 48%
and 60%, respectively, of the equity and voting power of
Spinnaker. As such, under accounting principles generally
accepted in the United States, Lynch consolidated the results of
Spinnaker and was required to record all of the losses of
Spinnaker, since the non-Lynch interests were not required to
absorb their shares of losses (52%) after their investment was
fully absorbed by losses. On September 26, 2001, Lynch
caused LS to make a charitable disposition of
430,000 shares of Spinnakers Class A Common
Stock. As a result of that transaction: (a) Lynchs
equity interest and voting power in Spinnaker were reduced to
41.8% and 49.5%, respectively, (b) Lynch deconsolidated
Spinnaker for financial reporting purposes, effective
September 30, 2001, (c) from September 30, 2001
until September 23, 2002, Lynch accounted for its ownership
of Spinnaker using the equity method of accounting and
(d) Lynch did not record any additional losses from
Spinnaker, as Lynch had no obligation to further fund such
losses.

Upon the disposition of its remaining Spinnaker
shares on September 23, 2002 as described above, Lynch
completed the deconsolidation of Spinnaker and no longer has any
economic interest in Spinnaker or affiliation with Spinnaker.

D.     Other
Information

While the Registrant holds licenses and patents
of various types, Registrant does not believe they are critical
to its overall operations. See respective Intellectual
Property sections above for each of Lynch Systems and
M-tron.

The Registrant conducts product development
activities with respect to each of its major lines of business.
Currently, such activities are directed principally toward the
improvement of existing products, the development of new
products and/or diversification. In the last three years, M-tron
has accounted for the vast majority of Registrants product
development costs.

The capital expenditures, earnings and
competitive position of Registrant have not been materially
affected to date by compliance with current federal, state, and
local laws and regulations relating to the protection of the
environment; however, Registrant cannot predict the effect of
future laws and regulations. The Registrant has not experienced
difficulties relative to fuel or energy shortages.

No portion of the business of the Registrant is
regarded as seasonal.

In 2002, a single customer, who represented 42%
of Lynch Systems sales, accounted for 24% of consolidated net
sales, while the next largest customer represented less than 8%
of consolidated revenue. There were no customers in 2001 or 2000
that represent 10% or more of consolidated revenues. The
Registrant does not believe that it is dependent on any single
customer.

Additional information with respect to each of
the Registrants lines of business is included in
Note 15 to the Consolidated Financial Statements included
as Item 15(a) below.



|   |                                     
|-- | ------------------------------------
|E. | Executive Officers of the Registrant

Pursuant to General
Instruction G (3) of Form 10-K, the
following list of executive officers of the Registrant is
included in Part I of this Annual Report on Form 10-K
in lieu of being included in the Proxy Statement for the 2003
Annual Meeting of Shareholders. Such list sets forth the names
and ages of all

9



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##### 



executive officers of Registrant indicating all
positions and offices with the Registrant held by each such
person and each such persons principal occupations or
employment during the past five years.


|                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |     |    | 
|------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --- | -- | 
|Name               |  | Offices and Positions Held                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | Age
|                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |  |    
|Ralph R. Papitto   |  | Chairman and Chief Executive Officer (since
    August 2001) of the Corporation; Chief Executive Officer of
    Avtek Inc., since 2002, a private holding company controlled by
    Mr. Papitto; Chairman and Chief Executive Officer of AFC
    Cable Systems, Inc., a NASDAQ listed manufacturer and supplier
    of electrical distribution products (1990-1999); Founder,
    Chairman and Chief Executive Officer of Nortek, Inc., a NYSE
    listed manufacturer of construction products (1967-1990);
    Director of Global Sports & Gaming.Com; Chairman of the
    Board of Trustees of Roger Williams University; Former Director
    of Lynch Interactive Corporation and Spinnaker Industries, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |     | 76 | 
|Mario J. Gabelli   |  | Chairman (1986 to August 2001) and Chief
    Executive Officer (1986 to January 2000; and April 2001 to
    August 2001) and Vice Chairman (since August 2001) of Lynch;
    Chairman, Chief Executive Officer and a Director of Lynch
    Interactive Corporation (since September 1999); Chairman and
    Chief Executive Officer of Gabelli Group Capital Partners (since
    1980), a private Corporation which makes investments for its own
    account; Chairman and Chief Executive Officer of Gabelli Asset
    Management Inc. (since 1999), a NYSE listed holding corporation
    for subsidiaries engaged in various aspects of the securities
    business; Director/ Trustee and/or President of all registered
    investment companies managed by Gabelli Funds, LLC (since 1986);
    Governor of the American Stock Exchange; Overseer of Columbia
    University Graduate School of Business; Trustee of Fairfield
    University, Roger Williams University, Winston Churchill
    Foundation and E.L. Wigend Foundation; Director of The National
    Italian American Foundation and The American-Italian Cancer
    Foundation, Chairman, Patrons Committee of Immaculate
    Conception School; and former trustee of Fordham Preparatory
    School. |  |     | 60 | 
|Richard E. McGrail |  | President and Chief Operating Officer (since
    October 2001) of Lynch; President of Avtek Inc., since 2001, a
    private holding company controlled by Ralph R. Papitto; Division
    President of AFC Cable Systems, Inc., a NASDAQ listed
    manufacturer and supplier of electrical distribution products
    (1993 to 2001); Prior general and marketing management
    experience with Digital Equipment Corporation (DEC).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |  |     | 48 | 
|Raymond H. Keller  |  | Chief Financial Officer, Vice President and
    Secretary (since October 2001) of Lynch; Chief Financial Officer
    of Avtek Inc., since 2000, a private holding company controlled
    by Ralph R. Papitto; Director and Chief Financial Officer of AFC
    Cable Systems, Inc., a NASDAQ listed manufacturer and supplier
    of electrical distribution products (1989 to 2000); Trustee of
    Roger Williams University; Prior financial management experience
    with Microdot, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |     | 65 | 

10



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The executive officers of the Registrant are
elected annually by the Board of Directors at its organizational
meeting in May and hold office until the organizational meeting
in the next year and until their respective successors are
chosen and qualified.



|        |           
|------- | ----------
|Item 2. | Properties

Lynchs principal executive offices in
Providence, Rhode Island are leased and shared with Avtek Inc.,
a private holding company controlled by Ralph R. Papitto.
Mr. Papitto is Chairman and Chief Executive Officer of
Lynch.

Lynch Systems operations are housed in two
adjacent buildings totaling 95,840 square feet situated on
4.86 acres of land in Bainbridge, Georgia. Finished office
area in the two buildings totals approximately
17,000 square feet. Additionally, the Company has
18,604 square feet that is utilized for warehouse and
storage. All such properties are subject to security deeds
relating to loans.

M-trons operations are housed in two
separate facilities in Yankton, South Dakota. These facilities
contain approximately 51,000 square feet in the aggregate.
One facility owned by M-tron contains approximately
35,000 square feet, is situated on approximately
15 acres of land and is subject to security deeds relating
to loans. The other facility is leased and contains
approximately 16,000 square feet. The lease expires on
September 30, 2003, with options to extend the lease to
2006.

It is Registrants opinion that the
facilities referred to above are in good operating condition and
suitable and adequate for present uses.



|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

In the normal course of business, subsidiaries of
the Registrant are defendants in certain product liability,
worker claims and other litigation in which the amounts being
sought may exceed insurance coverage levels. The resolution of
these matters is not expected to have a material adverse effect
on the Registrants consolidated financial condition or
operations. In addition, Registrant and/or one or more of its
subsidiaries are parties to the following additional legal
proceedings:

1.      In re
Spinnaker Coating, Inc., Debtor/ PACE Local 1-1069 v.
Spinnaker Coating, Inc., and Lynch Corporation,
U.S. Bankruptcy Court, District of Maine, Chapter 11,
Adv. Pro. No. 02-2007; and PACE Local 1-1069 v.
Spinnaker Industries, Inc., Spinnaker Coating, Inc., and
Spinnaker Coating-Maine, Inc., Cumberland County Superior Court,
CV-2001-00352:

On or about June 26, 2001, in anticipation
of the July 15, 2001 closure of Spinnakers Westbrook,
Maine facility, Plaintiff PACE Local 1-1069
(PACE) filed a three count complaint in Cumberland
County Superior Court, CV-2001-00352 naming the following
defendants: Spinnaker Industries, Inc., Spinnaker Coating, Inc.,
and Spinnaker Coating-Maine, Inc. (collectively, the
Spinnaker Entities) and Lynch. The complaint alleged
that under Maines Severance Pay Act both the Spinnaker
Entities and Lynch would be liable to pay approximately
$1,166,000 severance pay under Maines Severance Pay Act in
connection with the plant closure. The Defendants filed a notice
of removal, thereby creating United States District Court Civil
Action C.V. No. 01-236. The case was remanded to state
court. The Spinnaker Entities also filed a separate complaint
challenging the constitutionality of the Maine Severance Pay
Act, United States District Court Civil
Action No. 01-232 which later was dismissed by
stipulation of the Spinnaker Entities. PACE also filed three
separate Motions for Ex-Parte Attachment against the Spinnaker
Entities and Lynch. PACE filed the First Motion for Attachment
with its original Complaint. PACE sought to attach
$1,166,483.44, an amount large enough to cover the claims of all
PACEs members seeking severance. The Court denied that
Motion as being premature. PACE then filed a Second Motion
against the Spinnaker Entities and Lynch for an attachment large
enough to cover the claims of eight individual employees seeking
severance pay in the amount of $120,736.27. On August 20,
2001, the Court granted that Motion in the amount of $118,500.
On April 4, 2002, PACE subsequently recorded this
attachment through UCC-1 filings with the Maine Secretary of
State against Lynch Manufacturing and Lynch Corporation. PACE
filed a Third Motion for Ex-Parte Attachment on August 29,
2001. This Motion sought an attachment large enough to cover the
severance pay

11



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##### 



claimed by the remaining PACE members,
$1,048,003. The Court denied this Motion but permitted PACE the
opportunity to obtain an attachment after all defendants had an
opportunity to respond and after hearing.


Before any further action was taken with respect
to PACEs Third Motion for Attachment, the Spinnaker
Defendants filed for relief under Chapter 11 of the
Bankruptcy Code. Following a series of filings in the United
States District Court for the District of Maine and the United
States Bankruptcy Court for the District of Maine which, like
United States District Court Case No. 01-236, later
were dismissed by the parties with prejudice and without costs,
PACEs case continues to proceed against Lynch in
Cumberland County Superior Court in Maine on the issue of
whether Lynch has liability to PACEs members under the
Maine Severance Pay Act.

On September 30, 2002, PACE requested a
ruling from the Superior Court on its Third Motion for
Attachment. On October 21, 2002, Lynch filed a Motion for
Summary Judgment which incorporated its prior objection to any
attachment. PACE filed an Opposition to Lynchs Motion for
Summary Judgment and a Motion for Leave to Further Amend the
Complaint on November 12, 2002. Lynch thereafter filed a
Reply Memorandum in Support of its Motion for Summary Judgment
on November 26, 2002 and an opposition to PACEs
Motion for Leave to Further Amend the Complaint on
December 3, 2002. On December 31, 2002, the Superior
Court held a hearing on all pending Motions. The Superior Court
requested that arguments focus on Lynchs Motion for
Summary Judgment since the granting of this Motion will render
PACEs Third Motion for Attachment and Motion to Further
Amend the Complaint moot. As of the date of this filing, the
Superior Court has rendered no decision on Lynchs Motion
for Summary Judgment.

Lynch believes that, in addition to other
defenses, it is not subject to the Maine Severance Pay Act, as
now in effect. Management does not believe that the resolution
of this case will have a material adverse effect on the
Registrants consolidated financial condition or operations.



|   |                
|-- | ---------------
|2. | Qui Tam Lawsuit

Lynch Corporation, Lynch Interactive Corporation
(Interactive), and several other parties have been
named as defendants in a lawsuit brought under the so-called
qui tam provisions of the federal False Claims Act
in the United States District Court for the District of
Columbia. The complaint was filed under seal with the court on
February 14, 2001, and the seal was lifted on
January 11, 2002. The Company was formally served with the
complaint on July 9, 2002. 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 Federal
Communications Commission spectrum auctions restricted to small
businesses, as well as obtaining bidding credits in other
spectrum auctions allocated to small and very
small businesses. The lawsuit seeks to recover an
unspecified amount of damages, which would be subject to
mandatory trebling under the statute. On September 19,
2002, Interactive, on behalf of itself and Lynch, filed two
Motions with the court: a Motion to Transfer the Action to the
Southern District of New York and a Motion to Dismiss the
Lawsuit. The relator filed an opposition reply to
Interactives Motion to Dismiss and, on December 5,
2002, Interactive filed a Reply in Support of Its Motion to
Dismiss. As of the date of filing of this report, no hearing had
been scheduled on Interactives Motions.

The U.S. Department of Justice has notified
the court that it has declined to intervene in the case. The
defendants strongly believe that the lawsuit is completely
without merit and intend to defend the suit vigorously.
Furthermore, under the separation agreement between the Company
and Interactive pursuant to which Interactive was spun-off to
the Companys shareholders on September 1, 1999,
Interactive would be obligated to indemnify the Company for any
losses or damages incurred by the Company as a result of this
lawsuit; and Interactive has, in fact, agreed in writing to
defend the case on Lynchs behalf and to indemnify Lynch
for any losses it may incur as a result of the lawsuit.
Interactive has retained legal counsel to defend the claim on
behalf of Lynch and Interactive at the expense of Interactive.
Nevertheless, the Company cannot predict the ultimate outcome of
the litigation nor can the Company predict the effect that the
lawsuit or its outcome will have on the Companys business
or plan of operation.

12



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##### 





|   |                                                   
|-- | --------------------------------------------------
|3. | Spinnaker Chapter 11 Reorganization
    Proceeding

While the Spinnaker Chapter 11
reorganization proceeding is still ongoing, the status thereof
is not reported herein because, on September 23, 2002,
Lynch disposed of its entire remaining interest in Spinnaker and
no longer has any economic interest in or affiliation with
Spinnaker. See Item 1. Business 
C. Spinnaker.



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

Not applicable.

PART II



|        |                                                                              
|------- | -----------------------------------------------------------------------------
|Item 5. | Market for the Registrants Common
    Equity and Related Stockholder Matters

The Common Stock of Lynch Corporation is traded
on the American Stock Exchange under the symbol LGL.
The market price highs and lows in consolidated trading of the
Common Stock during the two years ended December 31, 2002
and 2001 are as follows:

|     |  |                    |       |         |  |              |       |             |  |  |       |  |  |  |      | 
|---- |  | ------------------ | ----- | ------- |  | ------------ | ----- | ----------- |  |  | ----- |  |  |  | ---- | 
|     |  |                   
|     |  | Three Months Ended
|     |  |                   
|2002 |  | March 31           |       | June 30 |  | September 30 |       | December 31
|     |  |                    |       |         |  |              |       |            
|High |  |                    | 21.50 |         |  |              | 17.25 |             |  |  | 12.51 |  |  |  | 9.50 | 
|Low  |  |                    | 14.75 |         |  |              | 12.25 |             |  |  | 9.60  |  |  |  | 5.60 | 

|     |  |          |    |         |  |              |    |             |  |  |       |  |  |  |    | 
|---- |  | -------- | -- | ------- |  | ------------ | -- | ----------- |  |  | ----- |  |  |  | -- | 
|2001 |  | March 31 |    | June 30 |  | September 30 |    | December 31
|     |  |          |    |         |  |              |    |            
|High |  |          | 42 |         |  |              | 30 |             |  |  | 34.75 |  |  |  | 23 | 
|Low  |  |          | 29 |         |  |              | 26 |             |  |  | 23    |  |  |  | 13 | 

At March 14, 2003, the Company had
821 shareholders of record.

Compliance with Listing Standards

On December 11, 2001 American Stock Exchange
(AMEX or the Exchange) advised Lynch
that it was initiating an informal review of Lynchs
eligibility for continued listing on AMEX because, based upon
AMEXs review of Lynchs Form 10-Q for the period
ended September 30, 2001: (1) Lynch had shareholders
equity of less than $2 million and losses from continuing
operations in two of its three most recent fiscal years and
(2) Lynch had shareholders equity of less than
$4 million and losses in three out of its four most recent
fiscal years. AMEX requested Lynch to provide the Exchange with
Lynchs specific plan for achieving compliance with the
Exchanges continued listing guidelines. On
January 10, 2002, Lynch responded to the AMEX, explaining
that Lynchs failure to meet the continued listing
guidelines was attributable to the fact that, until
September 30, 2001, by virtue of its control position in
Spinnaker, Lynch was required to consolidate 100% of
Spinnakers losses and that, in the absence of these losses
from Spinnaker, Lynch would have reported positive equity and
positive net income for the nine-month period ending
September 30, 2001. Lynch further explained that its new
management team had taken steps to deconsolidate Spinnaker from
Lynch for financial reporting purposes effective from and after
September 30, 2001 by reducing Lynchs equity and
voting interests in Spinnaker below 50%. See Item 1.
Business  C. Spinnaker Industries, Inc. 
Deconsolidation. Lynch explained that the deconsolidation
of Spinnaker resulted in a non-cash gain of $27.4 million
being recorded on September 30, 2001 and also resulted in
Lynch retaining a negative investment in Spinnaker of
$19.4 million, representing Lynchs remaining interest
in Spinnakers accumulated deficit as of September 30,
2001; that this remaining interest represents losses in excess
of investment, which has been recorded as a deferred
gain on Lynchs balance sheet until such time as
Spinnaker achieves profitability or Lynch disposes of its
remaining interest in Spinnaker (see Note 1 to the
Registrants Consolidated Financial Statements 
Basis of Presentation); that Lynch will not record
any additional losses from Spinnaker; that, in Lynchs
view, the $19.4 million deferred gain should be
treated as equity by AMEX for purposes of assessing Lynchs
compliance with the listing standards; and that, after giving
effect to

13



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##### 



the deconsolidation of Spinnaker, Lynch retains a
strong balance sheet. Finally, Lynch explained that management
expects Lynchs business will be profitable and that the
current negative equity position of Lynch, even before
consideration of the aforementioned deferred gain as additional
equity, would be reduced annually and turn positive in fiscal
2004.


On January 29, 2002, the Exchange notified
Lynch that it had determined to continue Lynchs listing
pending a review of its March 31, 2002 Form 10-Q. The
Exchange noted that, by then, Lynch should have made favorable
progress towards regaining compliance with the listing
guidelines. The Exchange further noted that its determination to
continue Lynchs listing is subject to Lynchs
favorable progress in satisfying the Exchanges guidelines
for continued listing and to the Exchanges routine
periodic reviews of Lynchs SEC filings. Finally, the
Exchange requested a report on or before May 30, 2002 which
provides (i) quarterly income statement, cash flow and
balance sheet projections for the year ending December 31,
2002; (ii) a copy of Lynchs most recent business
plan, if available; and (iii) an update on Lynchs
stance with respect to its ownership position in Spinnaker.

On May 28, 2002, Lynch provided the Exchange
with the information it requested. Shortly thereafter, the
Exchange verbally approved the Companys continued listing
on AMEX. Since the disposition of its remaining Spinnaker
investment on September 23, 2002, the Company has met the
Exchanges listing guidelines.

Dividend Policy

The Board of Directors has adopted a policy of
not paying cash dividends, a policy which is reviewed annually.
This policy takes into account the long term growth objectives
of the Company, especially its acquisition program,
shareholders desire for capital appreciation of their
holdings and the current tax law disincentives for corporate
dividend distributions. Accordingly, no cash dividends have been
paid since January 30, 1989 and none are expected to be
paid in 2003. Substantially all of the subsidiaries assets
are restricted under the companies current credit
agreements and limit the companies ability to pay
dividends.

Equity Compensation Plan Information

On May 2, 2002, the Companys
shareholders approved the 2001 Equity Incentive Plan and the
issuance of up to 300,000 options to purchase shares of Company
common stock. The options approved included the grant of 180,000
fully vested options to the Registrants Chairman and Chief
Executive Officer, Ralph R. Papitto, and 24,000 options that
vest over three years starting in 2002 to each of Raymond H.
Keller, the Registrants Chief Financial Officer, and to
Richard E. McGrail, the Registrants President and Chief
Operating Officer.

The following table sets forth the Equity
Compensation Plan information required by Item 201(d) of
Regulation S-K at the end of fiscal 2002:

|                                                               |  |                               |                             |                           |  |                                |                 |  |  |  |                            | 
|-------------------------------------------------------------- |  | ----------------------------- | --------------------------- | ------------------------- |  | ------------------------------ | --------------- |  |  |  | -------------------------- | 
|                                                               |  |                               |                             |                           |  | Number of Securities Remaining
|                                                               |  | Number of Securities to Be    |                             | Weighted-Average Exercise |  | Available for Future Issuance 
|                                                               |  | Issued upon Exercise of       |                             | Price of Outstanding      |  | Under Equity Compensation     
|                                                               |  | Outstanding Options, Warrants |                             | Options, Warrants and     |  | Plans (Excluding Securities   
|                                                               |  | and Rights                    |                             | Rights                    |  | Reflected in Column (a))      
|                                                               |  |                               |                             |                           |  |                               
|Plan Category                                                  |  | (a)                           |                             | (b)                       |  | (c)                           
|                                                               |  |                               |                             |                           |  |                               
|Equity compensation plans approved by security
    holders     |  |                               | 228,000 shares Common Stock |                           |  | $                              | 17.50 per share |  |  |  | 72,000 shares Common Stock | 
|Equity compensation plans not approved by
    security holders |  |                               |                            |                           |  |                                |                |  |  |  |                           | 
|Total                                                          |  |                               | 228,000 shares Common Stock |                           |  | $                              | 17.50 per share |  |  |  | 72,000 shares Common Stock | 

14



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##### 





|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

LYNCH CORPORATION AND SUBSIDIARIES



CONSOLIDATED SELECTED FINANCIAL DATA


(Adjusted to Reflect Discontinued Operations
and Spin Off of Lynch Interactive Corporation)


(In thousands, except per share
amounts)


|                                                                                                                                          |                                                                                                      |                           |        |       |       |      |         |      |        |      |         |   |       |   |         |   |       |   |         |   |      | 
|----------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ------------------------- | ------ | ----- | ----- | ---- | ------- | ---- | ------ | ---- | ------- | - | ----- | - | ------- | - | ----- | - | ------- | - | ---- | 
|                                                                                                                                          |                                                                                                      |                          
|                                                                                                                                          |                                                                                                      | Year Ended December 31(a)
|                                                                                                                                          |                                                                                                      |                          
|                                                                                                                                          |                                                                                                      | 2002*                     |        | 2001* |       | 2000 |         | 1999 |        | 1998
|                                                                                                                                          |                                                                                                      |                           |        |       |       |      |         |      |        |     
|Revenues                                                                                                                                  |                                                                                                      | $                         | 26,386 |       |       | $    | 141,073 |      |        | $    | 219,196 |   |       | $ | 194,222 |   |       | $ | 187,644 |  
|Operating profit (loss)(b)                                                                                                                |                                                                                                      |                           | 16,168 |       |       |      | (19,240 | )    |        |      | (4,977  | ) |       |   | 85      |   |       |   | 4,074   |  
|Net financial activities                                                                                                                  |                                                                                                      |                           | (80    | )     |       |      | (7,357  | )    |        |      | (12,751 | ) |       |   | (9,528  | ) |       |   | (8,392  | )
|Gain (loss) on sale of subsidiary stock and other
    operating assets                                                                    |                                                                                                      |                           | (92    | )     |       |      |        |      |        |      |        |   |       |   |        |   |       |   | 2,090   |  
|                                                                                                                                          |                                                                                                      |                           |        |       |       |      |         |      |        |      |         |   |       |   |         |   |       |   |         |  
|Income (loss) from continuing operations before
    income taxes, minority interests, discontinued operations and
    extraordinary items |                                                                                                      |                           | 15,996 |       |       |      | (26,597 | )    |        |      | (17,728 | ) |       |   | (9,443  | ) |       |   | (2,228  | )
|(Provision) benefit for income taxes                                                                                                      |                                                                                                      |                           | 1,967  |       |       |      | (358    | )    |        |      | 2,793   |   |       |   | 2,544   |   |       |   | 1,408   |  
|Minority interests                                                                                                                        |                                                                                                      |                           |       |       |       |      | 4,017   |      |        |      | 9,252   |   |       |   | 2,647   |   |       |   | 1,107   |  
|                                                                                                                                          |                                                                                                      |                           |        |       |       |      |         |      |        |      |         |   |       |   |         |   |       |   |         |  
|Income (loss) from continuing operations before
    discontinued operations and extraordinary items                                       |                                                                                                      |                           | 17,963 |       |       |      | (22,938 | )    |        |      | (5,683  | ) |       |   | (4,252  | ) |       |   | 287     |  
|Operations of Lynch Interactive Corporation(f)                                                                                            |                                                                                                      |                           |       |       |       |      |        |      |        |      |        |   |       |   | (7,493  | ) |       |   | 4,929   |  
|Discontinued operations(c)                                                                                                                |                                                                                                      |                           |       |       |       |      |        |      |        |      |        |   |       |   | (572    | ) |       |   | (1,859  | )
|Gain on sale of Spinnakers industrial tape
    segment(c)                                                                                |                                                                                                      |                           |       |       |       |      |        |      |        |      |        |   |       |   | 10,431  |   |       |   |        |  
|Extraordinary items(d)                                                                                                                    |                                                                                                      |                           |       |       |       |      |        |      |        |      | 2,245   |   |       |   | 303     |   |       |   |        |  
|                                                                                                                                          |                                                                                                      |                           |        |       |       |      |         |      |        |      |         |   |       |   |         |   |       |   |         |  
|Net income (loss)                                                                                                                         |                                                                                                      | $                         | 17,963 |       |       | $    | (22,938 | )    |        | $    | (3,438  | ) |       | $ | (1,583  | ) |       | $ | 3,357   |  
|                                                                                                                                          |                                                                                                      |                           |        |       |       |      |         |      |        |      |         |   |       |   |         |   |       |   |         |  
|Per Common Share:(e)                                                                                                                      |                                                                                                      |                           |        |       |       |      |         |      |        |      |         |   |       |   |         |   |       |   |         |  
|                                                                                                                                          | Income (loss) from continuing operations before
    discontinued operations and Extraordinary items: |                           |        |       |       |      |         |      |        |      |         |   |       |   |         |   |       |   |         |   |     
|                                                                                                                                          |                                                                                                      | Basic                     |        | $     | 11.99 |      |         | $    | (15.24 | )    |         | $ | (3.81 | ) |         | $ | (3.00 | ) |         | $ | .20  | 
|                                                                                                                                          |                                                                                                      | Diluted                   |        |       | 11.99 |      |         |      | (15.24 | )    |         |   | (3.81 | ) |         |   | (3.00 | ) |         |   | .20  | 
|                                                                                                                                          | Net income (loss):                                                                                   |                           |        |       |       |      |         |      |        |      |         |   |       |   |         |   |       |   |         |   |     
|                                                                                                                                          |                                                                                                      | Basic                     |        |       | 11.99 |      |         |      | (15.24 | )    |         |   | (2.31 | ) |         |   | (1.12 | ) |         |   | 2.37 | 
|                                                                                                                                          |                                                                                                      | Diluted                   |        |       | 11.99 |      |         |      | (15.24 | )    |         |   | (2.31 | ) |         |   | (1.12 | ) |         |   | 2.37 | 
|Cash, cash equivalents and marketable
    securities(g)                                                                                   |                                                                                                      | $                         | 6,847  |       |       | $    | 4,247   |      |        | $    | 10,543  |   |       | $ | 13,106  |   |       | $ | 1,132   |  
|Restricted cash(g)(h)                                                                                                                     |                                                                                                      |                           | 1,125  |       |       |      | 4,703   |      |        |      | 6,500   |   |       |   | 56,026  |   |       |   |        |  
|Total assets (net of discontinued
    Operations)(c)(f)(g)                                                                                |                                                                                                      |                           | 23,430 |       |       |      | 31,615  |      |        |      | 162,820 |   |       |   | 211,192 |   |       |   | 251,658 |  
|Long-term debt, exclusive of current portion(g)                                                                                           |                                                                                                      |                           | 1,089  |       |       |      | 1,678   |      |        |      | 61,350  |   |       |   | 116,765 |   |       |   | 126,976 |  
|Shareholders (deficiency) equity(f)(g)                                                                                                   |                                                                                                      |                           | 10,934 |       |       |      | (7,451  | )    |        |      | 15,432  |   |       |   | 15,991  |   |       |   | 11,441  |  

Notes:



|  |                                                                                                                                                                                                                                                                                                                                        
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Effective September 30, 2001, the
    Companys ownership and voting interest of Spinnaker
    Industries, Inc. was reduced to 41.8% and 49.5% respectively,
    due to the disposition of shares of Spinnaker. As a result,
    effective September 30, 2001, the Company relinquished
    control of Spinnaker and has deconsolidated

15



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##### 



| |                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Spinnaker. On September 23, 2002, the
    Company disposed of its remaining interest in Spinnaker. See
    Note 1 to the Consolidated Financial Statements 
    Basis of Presentation.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | The data presented herein reflect the spin off of
    Lynch Interactive Corporation (Interactive) from the Company and
    the sale by Spinnaker Industries, Inc. (Spinnaker), of its
    industrial tape units, all of which transactions occurred in the
    third quarter of 1999. Accordingly, the operating results of
    both Interactive and the industrial tape segment have been
    segregated from continuing operations of the Company and are
    reported as separate line items. The data presented also
    includes results of the business acquired from S.D. Warren
    (name changed Spinnaker Coating-Maine, Inc.) from March 17,
    1998, the date of its acquisition and Champion Technologies,
    Inc. from October 18, 2002, the date of its acquisition.
|   
|(b) | Operating profit (loss) is revenues less
    operating expenses, which excludes investment income, interest
    expense, extraordinary items, minority interests and taxes.
    Included are asset impairment and restructuring charges and the
    gain on deconsolidation (see Note g).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(c) | Discontinued operations of the industrial tape
    segment of Spinnaker Corporation. (See Note 4 to Financial
    Statements).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(d) | Gain on early extinguishments of debt at
    Spinnaker in 2000 and 1999.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(e) | Based on weighted average number of common shares
    outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   



|    |                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(f) | No cash dividends have been declared over the
    period. In 1999 for each share of Lynch Common Stock,
    shareholders received one share of Lynch Interactive Corporation
    in a Spin Off of the multimedia and transportation business (see
    Note 4 to Financial Statements 
    Discontinued Operations.)



|    |                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(g) | 2002 and 2001 exclude Spinnaker Industries as a
    result of the September 30, 2001 deconsolidation of
    Spinnaker resulting from the Companys disposition of
    shares of Spinnaker that reduced its ownership and voting
    interest of Spinnaker Industries, Inc. to 41.8% and 49.5%
    respectively, and the Companys subsequent disposition of
    its remaining interest in Spinnaker on September 23, 2002.
|   
|(h) | See discussion of Restricted Cash and Notes
    Payable and Long-Term Debt in Note 6 to the Consolidated
    Financial Statements.                                                                                                                                                                                                                                                                                        



|    |                                                                                                                                                                        
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | For three year trend data of revenues and
    operating profit (loss) by segment, see Note 15 to the
    Consolidated Financial Statements  Segment
    Information.



|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

Critical Accounting Policies

The Companys significant accounting
policies are described in Note 1 to the Consolidated
Financial Statements included in Item 8 of this
Form 10-K. The Companys discussion and analysis of
its financial condition and results of operations are based upon
the Companys consolidated financial statements, which have
been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these
financial statements requires the Company 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 on-going basis, the
Company evaluates its estimates, including those related to the
carrying value of inventories, realizability of outstanding
accounts receivable, percentage of completion of long-term
contracts, and the provision for income taxes. The Company 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. In the past,
actual results have not been materially different from the
Companys estimates. However, results may differ from these
estimates under different assumptions or conditions.

16



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##### 



The Company has identified the following as
critical accounting policies, based on the significant judgments
and estimates used in determining the amounts reported in its
consolidated financial statements:



| |                    
| | -------------------
| | Accounts Receivable

Accounts receivable on a consolidated basis
consist principally of amounts due from both domestic and
foreign customers. Credit is extended based on an evaluation of
the customers financial condition and collateral is not
generally required except at Lynch Systems. The Company
considers concentrations of credit risk to be minimal due to the
Companys diverse customer base. In relation to export
sales, the Company requires letters of credit supporting a
significant portion of the sales price prior to production to
limit exposure to credit risk. Certain subsidiaries and business
segments have credit sales to industries that are subject to
cyclical economic changes. The Company maintains an allowance
for doubtful accounts at a level that management believes is
sufficient to cover potential credit losses.

We maintain allowances for doubtful accounts for
estimated losses resulting from the inability of our clients to
make required payments. We base our estimates on our historical
collection experience, current trends, credit policy and
relationship of our accounts receivable and revenues. In
determining these estimates, we examine historical write-offs of
our receivables and review each clients account to
identify any specific customer collection issues. If the
financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payment,
additional allowances may be required. Our failure to estimate
accurately the losses for doubtful accounts and ensure that
payments are received on a timely basis could have a material
adverse effect on our business, financial condition, and results
of operations.



| |                    
| | -------------------
| | Inventory Valuation

Inventories are stated at the lower of cost or
market value. Inventories valued using the last-in, first-out
(LIFO) method comprised approximately 63% and 58% of
consolidated inventories at December 31, 2002 and 2001,
respectively. The balance of inventories at December 31,
2002 and 2001 are valued using the first-in-first-out
(FIFO) method. If actual market conditions are more or less
favorable than those projected by management, adjustments may be
required.



| |                                                               
| | --------------------------------------------------------------
| | Revenue Recognition and Accounting for
    Long-Term Contracts

Revenues, with the exception of certain long-term
contracts discussed below, are recognized upon shipment when
title passes. Shipping costs are included in manufacturing cost
of sales.

Lynch Systems, a 100% owned subsidiary of the
Company, is engaged in the manufacture and marketing of
glass-forming machines and specialized manufacturing machines.
Certain sales contracts require an advance payment (usually 30%
of the contract price) which is accounted for as a customer
advance. The contractual sales prices are paid either
(i) as the manufacturing process reaches specified levels
of completion or (ii) based on the shipment date.
Guarantees by letter of credit from a qualifying financial
institution are required for most sales contracts. Because of
the specialized nature of these machines and the period of time
needed to complete production and shipping, Lynch Systems
accounts for these contracts using the percentage-of-completion
accounting method as costs are incurred compared to total
estimated project costs (cost to cost basis). At
December 31, 2002 and 2001, unbilled accounts receivable
(included in accounts receivable) were $0.7 million and
$5.3 million, respectively.

The percentage of completion method is used since
reasonably dependable estimates of the revenues and costs
applicable to various stages of a contract can be made, based on
historical experience and milestones set in the contract.
Financial management maintains contact with project managers to
discuss the status of the projects and, for fixed-price
engagements, financial management is updated on the budgeted
costs and required resources to complete the project. These
budgets are then used to calculate revenue recognition and to
estimate the anticipated income or loss on the project. In the
past, we have occasionally been required to

17



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##### 



commit unanticipated additional resources to
complete projects, which have resulted in lower than anticipated
profitability or losses on those contracts. We may experience
similar situations in the future. Provisions for estimated
losses on contracts are made during the period in which such
losses become probably and can be reasonably estimated. To date,
such losses have not been significant.




| |                 
| | ----------------
| | Warranty Expense

Lynch Systems provides a full warranty to
world-wide customers who acquire machines. The warranty covers
both parts and labor and normally covers a period of one year or
thirteen months. Based upon experience, the warranty accrual is
based upon three to five percent of the selling price of the
machine. The Company periodically assesses the adequacy of the
reserve and adjusts the amounts as necessary.

|                                                                                                |  |   |       |  
|----------------------------------------------------------------------------------------------- |  | - | ----- | -
|Balance, beginning of the period                                                                |  | $ | 1,608 |  
|Warranties issued during the period                                                             |  |   | 894   |  
|Settlements made during the period                                                              |  |   | (508  | )
|Changes in liabilities for pre-existing
    warranties during the period, including expirations |  |   | (399  | )
|                                                                                                |  |   |       |  
|Balance, end of the period                                                                      |  | $ | 1,595 |  
|                                                                                                |  |   |       |  



| |             
| | ------------
| | Income Taxes

The Company accounts for income taxes in
accordance with Statement of Financial Accounting Standards
(SFAS) No. 109, Accounting for
Income Taxes, which requires recognition of deferred tax
assets and liabilities for the expected future tax consequences
of events that have been included in the financial statements or
tax returns. A valuation allowance is recorded for deferred tax
assets whose realization is not likely. As of December 31,
2002 and December 31, 2001, a valuation allowance of
$1.0 million and $0.9 million, respectively, was
recorded.

The carrying value of the Companys net
deferred tax assets assumes that the Company will be able to
generate sufficient future taxable income in certain tax
jurisdictions to realize the value of these assets. If the
Company is unable to generate sufficient future taxable income
in these jurisdictions, an adjustment may be required to the net
carrying value of the deferred tax assets resulting in
additional income tax expense in the Companys consolidated
statement of operations. Management evaluates the realizability
of the deferred tax assets and assesses the need for any
valuation adjustment quarterly.



| |                                                    
| | ---------------------------------------------------
| | Earnings Per Share and Stock Based
    Compensation

The Companys basic and diluted earnings per
share are equivalent as the Company has no dilutive securities.

At December 31, 2002, the Company has a
stock-based employee compensation plan which is described in
Note 9 to the Consolidated Financial Statements 
Stock Options Plans. The Company accounts for the
plan under the recognition and measurement principles of
Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and
related Interpretations. No stock-based employee compensation
cost is reflected in net income, as all options granted under
those plans had an exercise price equal to the market value of
the underlying common stock on the date of grant. The Company
provides pro forma disclosures of the compensation expense
determined under the fair value provisions of Financial
Accounting Standards Board Statement No. 123,
Accounting for Stock-Based Compensation. See
Notes 1 and 9 to the Consolidated Financial Statements.



| |                                            
| | -------------------------------------------
| | Recent Issued Accounting
    Pronouncements

In November 2002, the FASB issued Interpretation
No. 45 (FIN 45), Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Indebtedness of Others. FIN 45 will significantly
change current practice in the accounting for, and disclosure
of, guarantees. FIN 45 requires certain guarantees to be
recorded at fair value, which is different from current
practice, which is generally to record a

18



---



##### 



liability only when a loss is probably and
reasonably estimable, as those terms are defined in FASB
Statement No. 5, Accounting for Contingencies
(FAS 5). FIN 45 also requires a guarantor to make
significant new disclosures, even when the likelihood of making
any payments under the guarantee is remote, which is another
change from current practice.


The Company presently guarantees
(unsecured) the SunTrust Bank loans of its subsidiary,
Lynch Systems, and has guaranteed a Letter of Credit issued to
the First National Bank of Omaha on behalf of its subsidiary,
M-tron Industries, Inc. (see Note 6 to the Consolidated
Financial Statements  Notes Payable to Banks
and Long-term Debt). These guarantees are subject to
FIN 45s disclosure requirement only. As of
December 31, 2002, there were no obligations to the
SunTrust Bank. As of December 31, 2002, the $1,000,000
Letter of Credit issued by Fleet Bank to The First National Bank
of Omaha was secured by a $1,125,000 deposit in a Fleet Bank
Treasury Fixed Income Fund. (See Restricted Cash
included in Note 1 to the Consolidated Financial
Statements.)

There are no other financial, performance,
indirect guarantees or indemnification agreements.

In July 2002 the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards No. 146, Accounting for Costs
Associated with Exit or Disposal Activities
(SFAS 146), which addresses financial
accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force
Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a
Restructuring). SFAS 146 requires that a liability
for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Under SFAS 146,
an entitys commitment to a plan, by itself, does not
create an obligation that meets the definition of a liability.
SFAS 146 also establishes fair value as the objective for
initial measurement of the liability. Severance pay would be
recognized over time rather than up front if the benefit
arrangement requires employees to render future service beyond a
minimum retention period. The liability for
severance pay would be recognized as employees render service
over the future service period, even if the benefit formula used
to calculate an employees termination benefit is based on
length of service. The provisions of SFAS 146 are effective
for exit or disposal activities that are initiated after
December 31, 2002, with earlier application encouraged. The
Company will adopt SFAS 146 for exit or disposal activities
that are initiated after December 31, 2002.

On December 31, 2002, the FASB issued
Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation 
Transition and Disclosure (SFAS 148),
which amends the disclosure provisions of Financial Accounting
Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123) and APBN opinion
No. 28, Interim Financial Reporting
(APB 28). SFAS 148 requires expanded
disclosures within the Companys Summary of Significant
Accounting Policies and within the Companys condensed
consolidated interim financial information filed on
Form 10-Q. SFAS 148s annual disclosure
requirements are effective for the fiscal year ending
December 31, 2002. SFAS 148s amendment of the
disclosure requirements of APB 28 is effective for
financial reports containing condensed consolidated financial
statements for interim periods beginning after December 15,
2002. See Note 10 to the Consolidated Financial
Statements  Shareholders Equity.

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities,
an Interpretation of ARB No. 51
(FIN 46). FIN 46 clarifies the application
of Accounting Research Bulletin No. 51, Consolidated
Financial Statements, to certain entities in which equity
investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support from other parties. The
consolidation requirements of FIN 46 apply immediately to
variable interest entities created after January 31, 2003
and to existing variable interest entities in the interim period
beginning after June 15, 2003. The Company has not yet
completed its assessment of the impact that FIN 46 will
have on the Consolidated Financial Statements.

19



---



##### 



Results of Operations



| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | Year 2002 Compared to 2001 (including
    Results of Spinnaker for the nine months ended 
     September 30, 2001)

Effective September 30, 2001, the
Companys ownership and voting interest of Spinnaker
Industries, Inc. was reduced to 41.8% and 49.5% respectively,
due to the disposition of shares of Spinnaker. As a result,
effective September 30, 2001, the Company relinquished
control of Spinnaker and has deconsolidated Spinnaker. On
September 23, 2002, Lynch disposed of its remaining
interest in Spinnaker. See Note 1 to the Consolidated
Financial Statements  Basis of
Presentation. Accordingly, Spinnaker results of operations
have only been included for nine months in 2001.



| |          
| | ---------
| | Net Sales

Consolidated revenues for the year ended
December 31, 2002 were $26.4 million, a reduction of
$114.7 million from Fiscal Year 2001, due mainly to the
previously described deconsolidation of Spinnaker.
Spinnakers net sales for the nine month period ending
September 30, 2001 of $93.4 million accounted for 81%
of the year over year unfavorable revenue variance.

Lynch Systems revenues declined by
$11.1 million, or 42.5%, to $15.0 million due to low
order in-flow. In spite of a substantial increase in quotations,
producers of television and computer-monitor screens and other
devices that incorporate electronic display did not order glass
press machines. Sales of glass press machines and their related
spare parts of $13.4 million were $7.3 million less
than 2001. In addition, tableware machine sales of
$0.7 million were $2.4 million less than last year,
reflecting world-wide weaknesses in the glass industry. The
remaining reduction of $1.4 million was related to various
businesses and due to general weakness in the economy.

Due to these industry weaknesses, Lynch
Systems backlog declined by $8.0 million from
December 31, 2001 to $3.9 million at December 31,
2002. See Note 17 to the Consolidated Financial
Statements  Subsequent Events relating to
increases in the backlog in early 2003.

M-trons served market, the infrastructure
segment of the telecommunications industry, continued to be
deeply depressed by the major correction of world-wide
overcapacity caused by the internet bubble. M-tron could not
overcome the dramatic reduction in spending by its customers who
use M-trons quartz crystals and oscillators in their
communication and networking equipment. As a result, M-tron
suffered a sales decline of $10.2 million, or 47.2%, from
$21.6 in 2001 to $11.4 million in 2002. Partly as a result
of the Companys acquisition of Champion Technologies,
Inc., described in Note 2 to the Consolidated Financial
Statements, M-trons December 31, 2002 backlog
improved by $0.9 million to $2.3 million from the
prior year-end backlog of $1.4 million.



| |                 
| | ----------------
| | Operating Profit

Consolidated operating profit was
$16.2 million in 2002, compared to an operating loss of
$19.2 million in 2001. Fiscal 2002 operating profit
includes a $19.4 million gain on deconsolidation of
Spinnaker, while 2001 results included an operating loss of
$19.8 million at Spinnaker, which included an asset
impairment and restructuring charge of $41.7 million, and a
$27.4 million gain on deconsolidation (see Note 1 to
the Consolidated Financial Statements  Basis of
Presentation).

M-trons operating loss of $2.6 million
was equivalent to the 2001 loss of $2.5 million despite a
47.1% reduction in sales. Personnel reductions throughout 2002
(108 personnel at December 31, 2002 versus
136 personnel at December 31, 2001), and salary rate
reductions helped to control costs.

Lynch Systems 2002 operating profit of
$0.9 million was less than 2001 by $3.8 million due to
$11.1 million, or 42%, less revenue that included the loss
of higher margin repair parts business. To help offset the 42%
decline in revenue, headcount at Lynch Systems was reduced to 70
at December 31, 2002 from 100 at December 31, 2001.

20



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##### 





| |                      
| | ---------------------
| | Other Income/ Expense

Investment income of $121,000 at
December 31, 2002 represented a reduction of $263,000 from
the previous year, of which $184,000 was attributable to
Spinnaker. Low interest rates on invested funds was also a
factor in reducing investment income.

Interest expense of $201,000 was
$7.5 million less than the prior year, primarily due to
Spinnaker, which represented $7.4 million of 2001s
interest expense.

Other expense of $92,000 was mainly the result of
a $108,000 loss on disposing certain fixed assets at Lynch
Systems, offset by foreign exchange gains and fees received from
Champions lending bank for collecting accounts receivable
on its behalf.

Income tax benefit (expense) includes
federal, state and local taxes. Because the 2002 gain on
deconsolidation in the amount of $19.4 million is
non-taxable, the Company incurred a taxable loss of
$3.4 million. As a result, the Company recorded a tax
benefit of $2.0 million which includes a $0.9 million
tax benefit as a result of a capital loss carry-back on the
Companys investment in Spinnaker Industries. This
investment was disposed of on September 23, 2002. In spite
of a net loss for the year 2001, there was a $358,000 tax
expense as Spinnakers loss did not provide any tax
benefits to Lynch.

There was no minority interest income or losses
in 2002. However, minority interests reduced fiscal 2001 losses
by $4.0 million as a result of losses at Spinnaker that
were allocable to the minority interests to the extent of their
investment in Spinnaker.

Net income for the year ended December 31,
2002 was $18.0 million, or $11.99 per share, which
compared to a net loss of $22.9 million or
($15.24) per share for the same period of 2001.
2002 net income of $18.0 million was due primarily to
the $19.4 million gain on the final deconsolidation of
Spinnaker Industries.

The net loss for the year ended December 31,
2001 of $22.9 million was due primarily to Spinnakers
9 month loss of $54.5 million that was partly offset
by the $27.4 million that gain on deconsolidation. See
Note 1 to the Consolidated Financial Statements 
Basis of Presentation.

Total backlog of manufactured products at
December 31, 2002 was $6.2 million, which represents a
decrease of $7.2 million from the comparable backlog of
$13.4 million at December 31, 2001. Not included in
this backlog is $1.3 million and $1.5 million at
December 31, 2002 and 2001 respectively, representing a
payment from a customer for a glass press order at Lynch Systems
which was subsequently cancelled. The customer can use this
amount for future orders and, if not utilized, will be forfeited
to Lynch Systems in 2003. The backlog at Lynch Systems declined
sharply from $12.0 million to $3.9 million due to
depressed demand from the CRT and tableware industries (see
Note 17 to the Consolidated Financial
Statements  Subsequent Events).
Meanwhile, the backlog at M-tron increased to $2.3 million
from $1.4 million due to the acquisition of Champion
Technologies, Inc. in October 2002.



| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | Year 2001 Compared to 2000 (including
    Results of Spinnaker for the nine months ended 
     September 30, 2001)



| |          
| | ---------
| | Net Sales

Revenues for the year ended December 31,
2001 were $141.1 million, a reduction of $78.1 million
from Fiscal Year 2000. Spinnakers net sales for the nine
month period ending September 30, 2001 were
$93.4 million, compared to $155.7 million for the full
year in 2000. The decrease in Spinnaker net sales for 2001 was
mainly attributable to lower selling prices due to excess
capacity and depressed demand caused by the weakened general
economy as well as the deconsolidation at September 30,
2001. Another contributing factor was the shutdown of
Spinnakers facility in Maine in the first quarter of 2001.

Lynch Systems revenues increased by 10% to
$26.1 million due to increased order flow and sales of
glass press machines used mainly by the producers of television
and computer-monitor screens and other devices that incorporate
electronic display. M-trons served market, the
infrastructure segment of the telecommunications industry, was
deeply depressed by the major correction of overcapacity caused
by the internet bubble.

21



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##### 



M-tron could not overcome the dramatic reduction
in spending by its customers and suffered a sales decline from
$39.8 million in 2000 to $21.6 million in 2001.




| |               
| | --------------
| | Operating Loss

Operating loss for 2001 was $19.2 million
compared to an operating loss of $5.0 million in 2000.
Spinnakers nine-month operating loss was
$47.3 million compared to an operating loss of
$9.5 million in 2000. Spinnakers operating results
primarily reflect lower operating margins due to lower selling
prices attributable to excess capacity and a weak general
economy. Spinnaker recognized restructuring charges affiliated
with its Coating business, during the first nine months of 2001
of $38.3 million compared to $2.7 million in 2000. The
2001 restructuring charge was for the closing of the Spinnaker
Coating facility in Westbrook, Maine. Non-cash asset impairment
charges of $36.8 million (goodwill $20.8 million;
fixed assets $16.0 million) accounted for the majority of
the $38.3 million restructuring cost. The Company also
recorded a $27.4 million gain on deconsolidation of
Spinnaker as discussed in Note 1 to the Consolidated
Financial Statements. Subsequent to the Companys
deconsolidation of Spinnaker, Spinnaker filed for
Chapter 11 bankruptcy protection in November, 2001.

M-trons operating profit declined by
$5.9 million from a profit of $3.3 million to a loss
of $2.6 million. In spite of a 54 percent reduction in
headcount and a further curtailment in hours worked, M-tron
could not compensate for the 46 percent reduction in sales
and lower selling prices. M-trons 2000 and 2001 profits
were also impacted by IPO/ Rights offering costs of $341,000 and
$266,000, respectively. M-trons 2001 earnings were also
reduced by a product issue with a long time contract
manufacturer. M-tron provided reserves for this product issue
totaling $295,000 at December 31, 2001. In addition, M-tron
wrote down its inventories by $675,000 due to the sudden drop in
demand that started in March, 2001. Lynch Systems operating
profit increased by $1.9 million to $4.8 million due
to increased order volume and cost controls that enabled Lynch
Systems to improve its return on sales by 6 percentage
points.



| |                     
| | --------------------
| | Other Income/Expense

Investment income decreased by $1.1 million
(all attributable to Spinnaker) caused by lower investment
earnings rates, the 9-month versus 12-month comparison, and less
cash invested.

Interest expense of $7.8 million was
$3.6 million less than the prior year primarily due to
reduced debt at Lynch Systems, the 9-month versus 12-month
comparison at Spinnaker, and lower borrowing rates.

Income tax benefit (expense) includes
federal, state and local taxes. In spite of a net loss for the
year 2001, there was a $358,000 tax expense as Spinnakers
loss does not provide any tax benefits to Lynch. Factors
resulting in this tax, and factors that reduced the year 2000
effective tax rate to 16% include provisions for contingencies,
state income taxes, goodwill amortization, a valuation allowance
for deferred taxes, and our foreign sales corporation.

Minority interests, reduced losses by
$4.0 million as a result of losses at Spinnaker that were
allocable to the minority interests to the extent of their
investment in Spinnaker, and profits of $0.1 million for
the minority interest in Lynch AMAV.

Net loss for the year ended December 31,
2001 was $22.9 million, or ($15.24) per share, which
compares to the net loss of $3.4 million, or ($2.31) per
share, for the same period of 2000, and was due primarily to
Spinnakers 9 month loss of $54.5 million that was
partly offset by the $27.4 million gain on deconsolidation.
See Note 1 to the Consolidated Financial
Statements  Basis of Presentation.

Total backlog of manufactured products at
December 31, 2001 (excluding Spinnaker) was
$13.4 million, which represents a decrease of
$12.5 million from the comparable backlog of
$25.9 million at December 31, 2000. Not included in
this backlog is $1.5 million and $2.2 million at
December 31, 2001 and 2000 respectively, representing a
payment from a customer for a glass press order at Lynch Systems
which was subsequently cancelled. The customer can use this
amount for future orders and, if not utilized, will be forfeited
to Lynch Systems. The backlog at Lynch Systems declined slightly
from $13.5 million to $12.0 million. Meanwhile, the
backlog at M-tron decreased to $1.4 million from
$12.4 million due to the

22



---



##### 



dramatic reduction in buying by OEM suppliers to
the telecommunications sector which started in March, 2001.


Liquidity and Capital Resources

The discussion below excludes the impact of
Spinnaker, which was deconsolidated at September 30, 2001
and disposed of in September 2002 as discussed in Note 1 to
the Consolidated Financial Statements  Basis of
Presentation. Thus, the discussion below reflects
liquidity and capital resource matters for the Companys
remaining consolidated subsidiaries at December 31, 2002
and December 31, 2001.

At December 31, 2002, the Company had
current assets of $18.2 million and current liabilities of
$10.2 million. Working capital was therefore
$8.0 million as compared to $9.6 million at
December 31, 2001. The ratio of current assets to current
liabilities was 1.79 to 1.00 at December 31, 2002, as
compared to 1.59 to 1.00 ratio at December 31, 2001, an
improvement of 0.20 to 1.00. Customer advances (current
liability) declined $5.6 million, essentially offsetting
the $6.3 million reduction in trade receivables (current
assets).

Cash provided by operating activities was
approximately $3.6 million in 2002 compared to cash
provided of approximately $10.2 million in 2001, primarily
resulting from operating losses.

Capital expenditures, on a comparable basis, were
$0.2 million in 2002 and $0.6 million in 2001. The
Company anticipates that it will have sufficient cash flow from
operations and borrowing availability under various credit
facilities at the subsidiaries to fund near-term capital
expenditures.

At December 31, 2002, total debt of
$4.1 million was $0.8 million more than total debt at
December 31, 2001 of $3.3 million. The increase in
debt is primarily due to a $1.1 million increase in
M-trons 2002 revolving credit loan that was used to
finance operating losses and purchase certain Champion
Technology, Inc. assets. (See Note 2 to the Consolidated
Financial Statements  Acquisitions.) Debt
outstanding at December 31, 2002 included $0.9 million
of fixed rate debt at an 5.6% interest rate, and
$3.2 million of variable rate debt (year end 2002 average
rate of 4.7%). On May 30, 2002, Lynch Systems entered into
an agreement with a bank for a $7 million line of credit to
be used for the issuance of standby letters of credit and/or up
to $2 million revolving credit. This line of credit is
secured by accounts receivable and inventories. Amounts
available under this line of credit will be used to fund letters
of credit securing customer advances, certain warranty coverages
and working capital. On August 31, 2002, M-tron entered
into an amended credit agreement with its bank to set its
revolving loan credit line at $3.0 million.

Restrictions on dividends under the M-tron loan
with First National Bank of Omaha disallow distributions to the
parent company without consent of the bank. Lynch Systems, under
its loan with Sun Trust Bank, may pay a cash dividend to the
parent company equal to 50% of LSs net income for the
prior fiscal year. Under the M-tron loan agreement, advances to
the parent company are disallowed without the prior written
consent of the lending bank. Under its loan agreement, LS may
pay an annual management fee to the parent company in an amount
not to exceed $250,000. In addition, LS may reimburse the parent
company for expenses and taxes paid by the parent on behalf of
LS.

The M-tron revolving credit agreement matures on
April 30, 2003. The Company and M-tron are currently in
negotiations with First National Bank of Omaha to renew the line
of credit.

At December 31, 2002, the Companys
total cash, cash equivalents and investments in marketable
securities total $8.0 million (including $1.1 million
of restricted cash). In addition, the Company had a consolidated
total $2.0 million borrowing capacity under LSs
revolving line of credit. Therefore, gross cash and securities
and availability under the Lynch Systems loan total
$10 million and exceed the outstanding debt of
$4.1 million by $5.9 million. In the near term, the
Company expects to receive a $0.5 million cash tax benefit
through carry-backs for prior periods operating losses. The
Company presently does not guarantee M-trons bank debt.
The parent company has provided an unsecured guarantee of Lynch
Systems debt to Sun Trust Bank.

Funding for the Champion transaction was provided
by the South Dakota Board of Economic Development (funded on
January 2, 2003), Yankton Area Progressive Growth, Inc. and
the Areawide

23



---



##### 



Business Council in the amount of $296,000,
$250,000, and $100,000 respectively. These loans, which total
$646,000 are secured by M-trons real estate and have
maturity dates of December 19, 2007; April 21, 2005;
and November 10, 2007 respectively. Principal payments
under three loans will total $133,000 in 2003. The average
interest rate in 2003 for these fixed rate loans will be 2.23%.
(See Note 6 to the Consolidated Financial
Statements  Notes Payable to Bank and Long-term
Debt).


The Board of Directors has adopted a policy of
not paying cash dividends, a policy which is reviewed annually.
This policy takes into account the long term growth objectives
of the Company, especially its acquisition program,
shareholders desire for capital appreciation of their
holdings and the current tax law disincentives for corporate
dividend distributions. Accordingly, no cash dividends have been
paid since January 30, 1989 and none are expected to be
paid in 2003. (See Note 6 to the Consolidated Financial
Statements  Notes Payable to Banks and Long
Term Debts  for restrictions on the companies
assets).

Details of the Companys contractual
obligations for long-term debt and losses are as follows (see
Notes 6 and 14 to the Consolidated Financial Statements):

|                      |       |       |       |                        |  |      |       |       |  |      |     |       |  |   |     |     |  |   |    |     |  |   |    |    | 
|--------------------- | ----- | ----- | ----- | ---------------------- |  | ---- | ----- | ----- |  | ---- | --- | ----- |  | - | --- | --- |  | - | -- | --- |  | - | -- | -- | 
|                      |       |       |       |                       
|                      |       |       |       | Payments Due By Period
|                      |       |       |       |                       
|                      |       | Total |       | 2003                   |  | 2004 |       | 2005  |  | 2006 |     | 2007+
|                      |       |       |       |                        |  |      |       |       |  |      |     |      
|Revolving Credit Loan |       | $     | 2,228 |                        |  | $    | 2,228 |       |  | $    |    |       |  | $ |    |     |  | $ |   |     |  | $ |   |   
|Long-term Debt        |       |       | 1,921 |                        |  |      | 832   |       |  |      | 956 |       |  |   | 59  |     |  |   | 9  |     |  |   | 65 |   
|Operating Leases      |       |       | 697   |                        |  |      | 253   |       |  |      | 199 |       |  |   | 150 |     |  |   | 95 |     |  |   |   |   
|                      |       |       |       |                        |  |      |       |       |  |      |     |       |  |   |     |     |  |   |    |     |  |   |    |   
|                      | TOTAL |       | $     | 4,846                  |  |      | $     | 3,313 |  |      | $   | 1,155 |  |   | $   | 209 |  |   | $  | 104 |  |   | $  | 65 | 
|                      |       |       |       |                        |  |      |       |       |  |      |     |       |  |   |     |     |  |   |    |     |  |   |    |   

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 equivalents and short-term
investments (approximately $7.1 million at
December 31, 2002). The Company generally finances the debt
portion of the acquisition of long-term assets with fixed rate,
long-term debt. 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.
There has been no significant change in market risk since
December 31, 2002.

Since the Companys international sales are
in U.S. Dollars, there is no monetary risk.

At December 31, 2002, approximately
$3.2 million of the Companys debt bears interest at
variable rates. Accordingly, the Companys earnings and
cash flows are slightly affected by changes in interest rates.
Assuming the current level of borrowings for variable rate debt,
and assuming a two percentage point increase in the 2002 average
interest rate under these borrowings, it is estimated that the
Companys interest expense would change by less than
$0.1 million. In the event of an adverse change in interest
rates, management would take actions to further mitigate its
exposure.

Concentrations of Credit Risk

Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist
principally of cash, investments, and trade accounts receivable.

The Company maintains cash and cash equivalents
and short-term investments with various financial institutions.
These financial institutions are located throughout the country
and the Companys policy is designed to limit exposure to
any one institution. The Company performs periodic evaluations
of the relative credit standing of those financial institutions
that are considered in the Companys investment strategy.
Other than certain accounts receivable, the Company does not
require collateral on these financial instruments. In relation
to export sales, the Company requires letters of credit
supporting a significant portion of the sales price

24



---



##### 



prior to production to limit exposure to credit
risk. The Company maintains an allowance for doubtful accounts
at a level that management believes is sufficient to cover
potential credit losses.


Risk Factors

Certain subsidiaries and business segments of the
Company sell to industries that are subject to cyclical economic
changes. Any downturns in the economic environment would have a
financial impact on the Company and its consolidated
subsidiaries and may cause the reported financial information
herein not to be indicative of future operating results,
financial condition or cash flows.

Future activities and operating results may be
adversely affected by fluctuating demand for capital goods such
as large glass presses, delay in the recovery of demand for
components used by telecommunications infrastructure
manufacturers, disruption of foreign economies and the inability
to renew or obtain new financing for expiring loans.



|         |                                                              
|-------- | -------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosure
    About Market Risk

The information required by this Item 7A is
included under the caption Market Risk in
Managements Discussion and Analysis of Financial
Condition and Results of Operations in Item 7.



|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

See Item 15(a).



|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

Not applicable.

PART III



|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

The information required by this Item 10 is
included under the caption Executive Officers of the
Registrant in Item 1 hereof and included under the
captions Election of Directors and
Section 16(a) Beneficial Ownership Reporting
Compliance in Registrants Proxy Statement for its
Annual Meeting of Shareholders for 2003, which information is
incorporated herein by reference.

The Registrants audit committee chairman,
Mr. Anthony R. Pustorino, is an audit committee
financial expert as defined in Item 401(h) of
Regulation S-K. Mr. Pustorino is
independent as defined in the American Stock
Exchange Listing Standards.

The Registrant has adopted a code of ethics,
within the meaning of Item 406(b) of Regulation S-K,
which applies to its Chief Executive Officer and Chief Financial
Officer. A copy of the code of ethics is filed as an Exhibit to
this annual report.



|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

The information required by this Item 11 is
included under the captions Compensation of
Directors, Executive Compensation,
Executive Compensation and Benefits Committee Report on
Executive Compensation and Performance Graph
in Registrants Proxy Statement for its Annual Meeting of
Shareholders for 2003, which information is incorporated herein
by reference.



|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

The information required by this Item 12 is
included under the caption Security Ownership of Certain
Beneficial Owners and Management, in the Registrants
Proxy Statement for its Annual Meeting of Shareholders for 2003,
which information is included herein by reference.

25



---



##### 





|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

The information required by this Item 13 is
included under the caption Executive Compensation,
and Transactions with Certain Affiliated Persons in
the Registrants Proxy Statement for its Annual Meeting of
Shareholders for 2003, which information is included herein by
reference.



|         |                        
|-------- | -----------------------
|Item 14. | Controls and Procedures

Within the 90-day period prior to the filing of
this report, Lynch management, including the Chief Executive
Officer and Chief Financial Officer, conducted an evaluation of
the effectiveness of the design and operation of the
Companys disclosure controls and procedures as defined in
Exchange Act Rule 13a-14(c). Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded
that the Companys disclosure controls and procedures were
effective as of the date of that evaluation. There have been no
significant changes in internal controls, or in other factors
that could significantly affect internal controls, subsequent to
the date the Chief Executive Officer and Chief Financial Officer
completed their evaluation.

PART IV



|         |                                                                                          
|-------- | -----------------------------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statements, Financial
    Statement Schedules and Reports on Form 8-K

(a) The following documents are filed as
part of this Form 10-K Annual Report:



| |                          
| | -------------------------
| | (1) Financial Statements:



| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | The Report of Independent Auditors and the
    following Consolidated Financial Statements of the Company are
    included herein:
|
| | Consolidated Balance Sheets at December 31,
    2002 and 2001                                                                     
|
| | Consolidated Statements of Operations 
    Years ended December 31, 2002, 2001 and 2000                                          
|
| | Consolidated Statements of Shareholders
    Equity  Years ended December 31, 2002, 2001, and
    2000                           
|
| | Consolidated Statements of Cash Flows 
    Years ended December 31, 2002, 2001, and 2000                                         
|
| | Notes to Consolidated Financial Statements                                                                                        



| |                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------
| | (2) Financial Statement Schedules as of
    December 31, 2002 and 2001 and for the three years ended
    December 31, 2002:



| |                                                               
| | --------------------------------------------------------------
| | Schedule I  Condensed Financial
    Information of Registrant
|
| | Schedule II  Valuation and
    Qualifying Accounts           

All other schedules for which provision is made
in the applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions, or are inapplicable, and therefore have been
omitted.

See Page 2 above re Forward Looking
Information.

(b) Reports on Form 8-K: A report on
Form 8-K was filed on October 1, 2002 describing
Lynchs disposition of its entire remaining shareholdings
in Spinnaker.

(c) The following Exhibits listed in the
Exhibit Index are filed with this Form 10-K Annual
Report:



| |                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------
| | 10(z)   Amended and Restated
    Credit Agreement by and between Lynch Systems, Inc. and SunTrust
    Bank dated as of June 10, 2002.
|
| | 10(aa)  Unlimited Continuing Guaranty
    Agreement by Guarantor, Lynch Corporation, dated June 10,
    2002.                        

26



---



##### 





| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10(bb)  Restated Loan and Security
    Agreement by and between M-tron Industries, Inc. and First
    National Bank of Omaha dated August 31, 2001.                   
|
| | 10(cc)  First Amendment to Restated
    Loan and Security Agreement by and between M-tron Industries,
    Inc. and First National Bank of Omaha dated August 31, 2002.
|
| | 14      Business
    Conduct (Ethics) Policy.                                                                                                                         
|
| | 21     
    Subsidiaries of the Registrant.                                                                                                                           
|
| | 23      Consent of
    Ernst & Young LLP.                                                                                                                             
|
| | 24      Powers of
    Attorney.                                                                                                                                       

(d) Financial Statement Schedules:

Financial Statement
Schedules are listed in response to Item 15(a)(2)

27



---



##### 



REPORT OF INDEPENDENT AUDITORS

Shareholders and Board of Directors

Lynch Corporation


We have audited the accompanying consolidated
balance sheets of Lynch Corporation and subsidiaries
(Lynch Corporation or the Company) as of
December 31, 2002 and 2001, and the related consolidated
statements of operations, shareholders equity, and cash
flows for each of the three years in the period ended
December 31, 2002. Our audits also included the financial
statement schedules listed in the index at Item 15(a).
These financial statements and schedules are the responsibility
of the Companys management. Our responsibility is to
express an opinion on these financial statements and schedules
based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the consolidated financial position of Lynch
Corporation and subsidiaries at December 31, 2002 and 2001
and the consolidated results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2002, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion,
the related financial statements schedules, when considered in
relation to the basic financial statements taken as a whole,
present fairly in all material respects, the information set
forth therein.



| |                      
| | ---------------------
| | /s/ ERNST & YOUNG LLP

Providence, Rhode Island

March 7, 2003


28



---



##### 



LYNCH CORPORATION AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS


|                                         |                                                                                                                             |                             |                                                             |              |        |        |        |         |        |        |  
|---------------------------------------- | --------------------------------------------------------------------------------------------------------------------------- | --------------------------- | ----------------------------------------------------------- | ------------ | ------ | ------ | ------ | ------- | ------ | ------ | -
|                                         |                                                                                                                             | December 31,                |                                                             | December 31,
|                                         |                                                                                                                             | 2002                        |                                                             | 2001        
|                                         |                                                                                                                             |                             |                                                             |             
|                                         |                                                                                                                             |                            
|                                         |                                                                                                                             | (In thousands, except share
|                                         |                                                                                                                             | amounts)                   
|ASSETS                                  
|Current Assets:                          |                                                                                                                             |                             |                                                             |              |        |        |        |        
|                                         | Cash and cash equivalents                                                                                                   |                             | $                                                           | 5,986        |        |        | $      | 4,247   |       
|                                         | Restricted cash (Note 1)                                                                                                    |                             |                                                             | 1,125        |        |        |        | 4,703   |       
|                                         | Investments  Marketable Securities                                                                                         |                             |                                                             | 861          |        |        |        |        |       
|                                         | Trade accounts receivable, less allowances of $91
    and $118, respectively (Note 1)                                       |                             |                                                             | 3,524        |        |        |        | 9,818   |       
|                                         | Inventories                                                                                                                 |                             |                                                             | 5,624        |        |        |        | 5,260   |       
|                                         | Recoverable income taxes                                                                                                    |                             |                                                             | 532          |        |        |        |        |       
|                                         | Deferred income taxes                                                                                                       |                             |                                                             | 207          |        |        |        | 988     |       
|                                         | Prepaid expense                                                                                                             |                             |                                                             | 324          |        |        |        | 606     |       
|                                         |                                                                                                                             |                             |                                                             |              |        |        |        |        
|                                         |                                                                                                                             |                             | Total Current Assets                                        |              |        | 18,183 |        |         |        | 25,622 |  
|Property, Plant and Equipment            |                                                                                                                             |                             |                                                             |              |        |        |        |        
|                                         | Land                                                                                                                        |                             |                                                             | 291          |        |        |        | 291     |       
|                                         | Buildings and improvements                                                                                                  |                             |                                                             | 4,198        |        |        |        | 4,158   |       
|                                         | Machinery and equipment                                                                                                     |                             |                                                             | 11,841       |        |        |        | 11,949  |       
|                                         |                                                                                                                             |                             |                                                             |              |        |        |        |        
|                                         |                                                                                                                             |                             | 16,330                                                      |              |        |        | 16,398 |        
|                                         | Less: Accumulated depreciation                                                                                              |                             |                                                             | 11,504       |        |        |        | 10,942  |       
|                                         |                                                                                                                             |                             |                                                             |              |        |        |        |        
|                                         |                                                                                                                             |                             | 4,826                                                       |              |        |        | 5,456  |        
|                                         | Other assets                                                                                                                |                             |                                                             | 421          |        |        |        | 537     |       
|                                         |                                                                                                                             |                             |                                                             |              |        |        |        |        
|                                         |                                                                                                                             |                             | Total Assets                                                |              | $      | 23,430 |        |         | $      | 31,615 |  
|                                         |                                                                                                                             |                             |                                                             |              |        |        |        |        
|                                        
|LIABILITIES AND SHAREHOLDERS
    EQUITY
|Current Liabilities:                     |                                                                                                                             |                             |                                                             |              |        |        |        |        
|                                         | Notes payable to banks                                                                                                      |                             | $                                                           | 2,228        |        |        | $      | 1,086   |       
|                                         | Trade accounts payable                                                                                                      |                             |                                                             | 927          |        |        |        | 1,717   |       
|                                         | Accrued warranty expense                                                                                                    |                             |                                                             | 1,595        |        |        |        | 1,608   |       
|                                         | Accrued compensation expense                                                                                                |                             |                                                             | 921          |        |        |        | 1,549   |       
|                                         | Accrued income taxes                                                                                                        |                             |                                                             | 1,053        |        |        |        | 586     |       
|                                         | Accrued professional fees                                                                                                   |                             |                                                             | 327          |        |        |        | 292     |       
|                                         | Accrued commissions                                                                                                         |                             |                                                             | 214          |        |        |        | 786     |       
|                                         | Margin liability on marketable securities                                                                                   |                             |                                                             | 251          |        |        |        |        |       
|                                         | Other accrued expenses                                                                                                      |                             |                                                             | 659          |        |        |        | 1,145   |       
|                                         | Customer advances                                                                                                           |                             |                                                             | 1,147        |        |        |        | 6,781   |       
|                                         | Current maturities of long-term debt                                                                                        |                             |                                                             | 832          |        |        |        | 521     |       
|                                         |                                                                                                                             |                             |                                                             |              |        |        |        |        
|                                         |                                                                                                                             |                             | Total Current Liabilities                                   |              |        | 10,154 |        |         |        | 16,071 |  
|                                         | Long-term debt                                                                                                              |                             |                                                             | 1,089        |        |        |        | 1,678   |       
|                                         | Deferred income taxes                                                                                                       |                             |                                                             |             |        |        |        | 578     |       
|                                         | Other long-term liabilities                                                                                                 |                             |                                                             | 1,253        |        |        |        | 1,319   |       
|                                         |                                                                                                                             |                             |                                                             |              |        |        |        |        
|                                         |                                                                                                                             | Total Liabilities           |                                                             |              | 12,496 |        |        |         | 19,646 |       
|Loss in Excess of Investment (Note 1)    |                                                                                                                             |                             |                                                            |              |        |        | 19,420 |        
|Commitments and Contingencies (Note 14)  |                                                                                                                             |                             |                                                             |              |        |        |        |        
|Shareholders (Deficiency) Equity        |                                                                                                                             |                             |                                                             |              |        |        |        |        
|                                         | Common stock, $0.01 par value 
    10,000,000 shares authorized; 1,513,191 shares issued;
    1,497,883 shares outstanding |                             |                                                             | 15           |        |        |        | 15      |       
|                                         | Additional paid-in capital                                                                                                  |                             |                                                             | 15,645       |        |        |        | 15,527  |       
|                                         | (Accumulated deficit)                                                                                                       |                             |                                                             | (4,570       | )      |        |        | (22,533 | )     
|                                         | Accumulated other comprehensive Income (Loss)                                                                               |                             |                                                             | 302          |        |        |        | (2      | )     
|                                         | Treasury stock of 15,308 shares at cost                                                                                     |                             |                                                             | (458         | )      |        |        | (458    | )     
|                                         |                                                                                                                             |                             |                                                             |              |        |        |        |        
|                                         |                                                                                                                             |                             | Total Shareholders (Deficiency) Equity                     |              |        | 10,934 |        |         |        | (7,451 | )
|                                         |                                                                                                                             |                             |                                                             |              |        |        |        |        
|                                         |                                                                                                                             |                             | Total Liabilities and Shareholders
    (Deficiency) Equity |              | $      | 23,430 |        |         | $      | 31,615 |  
|                                         |                                                                                                                             |                             |                                                             |              |        |        |        |        



---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Effective September 30, 2001, the
    Companys ownership and voting interest of Spinnaker
    Industries, Inc. was reduced to 41.8% and 49.5% respectively,
    due to the disposition of shares of Spinnaker. As a result,
    effective September 30, 2001, the Company relinquished
    control of Spinnaker and has deconsolidated Spinnaker. On
    September 23, 2002, the Company disposed of its remaining
    interest in Spinnaker. See Note 1 to the Consolidated
    Financial Statements  Basis of
    Presentation.

29



---



##### 



LYNCH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                                                |                                                      |                                           |           |        |   |      |           |         |   |   |           |         |  
|--------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | ----------------------------------------- | --------- | ------ | - | ---- | --------- | ------- | - | - | --------- | ------- | -
|                                                                                                                |                                                      |                                          
|                                                                                                                |                                                      | Years Ended December 31,                 
|                                                                                                                |                                                      |                                          
|                                                                                                                |                                                      | 2002                                      |           | 2001   |   | 2000
|                                                                                                                |                                                      |                                           |           |        |   |     
|                                                                                                                |                                                      |                                          
|                                                                                                                |                                                      | (In thousands, except share and per-share
|                                                                                                                |                                                      | amounts)                                 
|SALES AND REVENUES                                                                                              |                                                      | $                                         | 26,386    |        |   | $    | 141,073   |         |   | $ | 219,196   |        
|Costs and expenses:                                                                                             |                                                      |                                           |           |        |   |      |           |         |   |   |           |        
|                                                                                                                | Manufacturing cost of sales                          |                                           |           | 19,437 |   |      |           | 130,290 |   |   |           | 192,980 |  
|                                                                                                                | Selling and administrative                           |                                           |           | 10,201 |   |      |           | 19,157  |   |   |           | 28,485  |  
|                                                                                                                | Asset impairment and restructuring charges           |                                           |           |       |   |      |           | 38,272  |   |   |           | 2,708   |  
|                                                                                                                |                                                      |                                           |           |        |   |      |           |         |   |   |           |        
|                                                                                                                |                                                      |                                           | 29,638    |        |   |      | 187,719   |         |   |   | 224,173   |        
|Gain on deconsolidation (Note 1)                                                                                |                                                      |                                           | 19,420    |        |   |      | 27,406    |         |   |   |          |        
|                                                                                                                |                                                      |                                           |           |        |   |      |           |         |   |   |           |        
|OPERATING PROFIT (LOSS)                                                                                         |                                                      |                                           | 16,168    |        |   |      | (19,240   | )       |   |   | (4,977    | )      
|Other income (expense):                                                                                         |                                                      |                                           |           |        |   |      |           |         |   |   |           |        
|                                                                                                                | Investment income                                    |                                           |           | 121    |   |      |           | 384     |   |   |           | 1,481   |  
|                                                                                                                | Interest expense                                     |                                           |           | (201   | ) |      |           | (7,741  | ) |   |           | (11,432 | )
|                                                                                                                | Other expense                                        |                                           |           | (92    | ) |      |           |        |   |   |           |        |  
|                                                                                                                | Impairment of Spinnakers investment in
    warrants |                                           |           |       |   |      |           |        |   |   |           | (2,800  | )
|                                                                                                                |                                                      |                                           |           |        |   |      |           |         |   |   |           |        
|                                                                                                                |                                                      |                                           | (172      | )      |   |      | (7,357    | )       |   |   | (12,751   | )      
|                                                                                                                |                                                      |                                           |           |        |   |      |           |         |   |   |           |        
|INCOME (LOSS) BEFORE INCOME TAXES, MINORITY
    INTERESTS, AND EXTRAORDINARY ITEM                               |                                                      |                                           | 15,996    |        |   |      | (26,597   | )       |   |   | (17,728   | )      
|(Provision) Benefit for income taxes                                                                            |                                                      |                                           | 1,967     |        |   |      | (358      | )       |   |   | 2,793     |        
|Minority interests                                                                                              |                                                      |                                           |          |        |   |      | 4,017     |         |   |   | 9,252     |        
|                                                                                                                |                                                      |                                           |           |        |   |      |           |         |   |   |           |        
|INCOME (LOSS) BEFORE EXTRAORDINARY ITEM                                                                         |                                                      |                                           | 17,963    |        |   |      | (22,938   | )       |   |   | (5,683    | )      
|EXTRAORDINARY ITEM                                                                                              |                                                      |                                           |           |        |   |      |           |         |   |   |           |        
|Gain on early extinguishments of debt (less
    income tax provision of $2,612 and minority interest of $2,472) |                                                      |                                           |          |        |   |      |          |         |   |   | 2,245     |        
|                                                                                                                |                                                      |                                           |           |        |   |      |           |         |   |   |           |        
|NET INCOME (LOSS)                                                                                               |                                                      | $                                         | 17,963    |        |   | $    | (22,938   | )       |   | $ | (3,438    | )      
|                                                                                                                |                                                      |                                           |           |        |   |      |           |         |   |   |           |        
|Weighted average shares outstanding                                                                             |                                                      |                                           | 1,497,900 |        |   |      | 1,505,300 |         |   |   | 1,491,000 |        
|Basic and diluted income (loss) per share:                                                                      |                                                      |                                           |           |        |   |      |           |         |   |   |           |        
|                                                                                                                | Before extraordinary item                            |                                           | $         | 11.99  |   |      | $         | (15.24  | ) |   | $         | (3.81   | )
|                                                                                                                | Extraordinary item                                   |                                           |           |       |   |      |           |        |   |   |           | 1.51    |  
|                                                                                                                |                                                      |                                           |           |        |   |      |           |         |   |   |           |        
|NET INCOME (LOSS)                                                                                               |                                                      | $                                         | 11.99     |        |   | $    | (15.24    | )       |   | $ | (2.30     | )      
|                                                                                                                |                                                      |                                           |           |        |   |      |           |         |   |   |           |        



---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Effective September 30, 2001, the
    Companys ownership and voting interest of Spinnaker
    Industries, Inc. was reduced to 41.8% and 49.5% respectively,
    due to the disposition of shares of Spinnaker. As a result,
    effective September 30, 2001, the Company relinquished
    control of Spinnaker and has deconsolidated Spinnaker. On
    September 23, 2002, the Company disposed of its remaining
    interest in Spinnaker. See Note 1 to the Consolidated
    Financial Statements  Basis of
    Presentation.

See accompanying notes

30



---



##### 



LYNCH CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY


For the Three Years Ended December 31,
2002


|                                      |                            |                                                  |           |        |  |            |        |          |  |            |        |               |  |          |         |         |   |   |      |   |  |   |     |     |   |   |        |   |  |   |        |         |         |  
|------------------------------------- | -------------------------- | ------------------------------------------------ | --------- | ------ |  | ---------- | ------ | -------- |  | ---------- | ------ | ------------- |  | -------- | ------- | ------- | - | - | ---- | - |  | - | --- | --- | - | - | ------ | - |  | - | ------ | ------- | ------- | -
|                                      |                            | Shares of                                        |           |        |  |            |        |          |  |            |        | Accumulated   |  |          |         |        
|                                      |                            | Common                                           |           |        |  | Additional |        |          |  | Officers  |        | Other         |  |          |         |        
|                                      |                            | Stock                                            |           | Common |  | Paid-In    |        | Retained |  | Note       |        | Comprehensive |  | Treasury |         |        
|                                      |                            | Outstanding                                      |           | Stock  |  | Capital    |        | Earnings |  | Receivable |        | Income        |  | Stock    |         | Total  
|                                      |                            |                                                  |           |        |  |            |        |          |  |            |        |               |  |          |         |        
|                                      |                            |                                                 
|                                      |                            | (In thousands except for shares of common stock)
|BALANCE AT DEC. 31, 1999              |                            |                                                  | 1,410,183 |        |  |            | 5,139  |          |  |            | 8,302  |               |  |          | 3,843   |         |   | $ | 0    |   |  |   | (40 | )   |   |   | (1,253 | ) |  |   | 15,991 |        
|Comprehensive Income (Loss):          |                            |                                                  |           |        |  |            |        |          |  |            |        |               |  |          |         |         |   |   |      |   |  |   |     |     |   |   |        |   |  |   |        |        
|                                      | Net loss for year          |                                                  |           |       |  |            |        |         |  |            |        |              |  |          |         | (3,438  | ) |   |      |  |  |   |     |    |   |   |        |  |  |   |        | (3,438  | )      
|                                      | Other comprehensive loss   |                                                  |           |       |  |            |        |         |  |            |        |              |  |          |         |        |   |   |      |  |  |   |     | (31 | ) |   |        |  |  |   |        | (31     | )      
|                                      |                            |                                                  |           |        |  |            |        |          |  |            |        |               |  |          |         |         |   |   |      |   |  |   |     |     |   |   |        |   |  |   |        |        
|                                      |                            | Comprehensive Loss                               |           |        |  |            |        |          |  |            |        |               |  |          |         |         |   |   |      |   |  |   |     |     |   |   |        |   |  |   |        |         | (3,469  | )
|Issuance of Common Stock              |                            |                                                  | 100,000   |        |  |            |       |          |  |            | 1,809  |               |  |          |        |         |   |   |     |   |  |   |    |     |   |   | 1,191  |   |  |   | 3,000  |        
|Capital transactions of Lynch Systems |                            |                                                  |          |        |  |            |       |          |  |            | 292    |               |  |          |        |         |   |   |     |   |  |   |    |     |   |   |       |   |  |   | 292    |        
|Loan to Officer to buy Common Stock   |                            |                                                  |          |        |  |            |       |          |  |            |       |               |  |          |        |         |   |   | (382 | ) |  |   |    |     |   |   |       |   |  |   | (382   | )      
|                                      |                            |                                                  |           |        |  |            |        |          |  |            |        |               |  |          |         |         |   |   |      |   |  |   |     |     |   |   |        |   |  |   |        |        
|BALANCE AT DEC. 31, 2000              |                            |                                                  | 1,510,183 |        |  | $          | 5,139  |          |  | $          | 10,403 |               |  | $        | 405     |         |   | $ | (382 | ) |  | $ | (71 | )   |   | $ | (62    | ) |  | $ | 15,432 |        
|Comprehensive Income (Loss):          |                            |                                                  |           |        |  |            |        |          |  |            |        |               |  |          |         |         |   |   |      |   |  |   |     |     |   |   |        |   |  |   |        |        
|                                      | Net loss for year          |                                                  |           |       |  |            |        |         |  |            |        |              |  |          |         | (22,938 | ) |   |      |  |  |   |     |    |   |   |        |  |  |   |        | (22,938 | )      
|                                      | Other comprehensive income |                                                  |           |       |  |            |        |         |  |            |        |              |  |          |         |        |   |   |      |  |  |   |     | 69  |   |   |        |  |  |   |        | 69      |        
|                                      |                            |                                                  |           |        |  |            |        |          |  |            |        |               |  |          |         |         |   |   |      |   |  |   |     |     |   |   |        |   |  |   |        |        
|                                      |                            | Comprehensive Loss                               |           |        |  |            |        |          |  |            |        |               |  |          |         |         |   |   |      |   |  |   |     |     |   |   |        |   |  |   |        |         | (22,869 | )
|Acquisition of Treasury Stock         |                            |                                                  | (12,300   | )      |  |            |       |          |  |            |       |               |  |          |        |         |   |   | 382  |   |  |   |    |     |   |   | (396   | ) |  |   | (14    | )      
|                                      |                            |                                                  |           |        |  |            |        |          |  |            |        |               |  |          |         |         |   |   |      |   |  |   |     |     |   |   |        |   |  |   |        |        
|BALANCE AT DEC. 31, 2001              |                            |                                                  | 1,497,883 |        |  | $          | 5,139  |          |  | $          | 10,403 |               |  | $        | (22,533 | )       |   | $ |     |   |  | $ | (2  | )   |   |   | (458   | ) |  | $ | (7,451 | )      
|Assign $0.01 par value (Note 10)      |                            |                                                  |          |        |  |            | (5,124 | )        |  |            | 5,124  |               |  |          |        |         |   |   |     |   |  |   |    |     |   |   |       |   |  |   |       |        
|Comprehensive Income (Loss):          |                            |                                                  |           |        |  |            |        |          |  |            |        |               |  |          |         |         |   |   |      |   |  |   |     |     |   |   |        |   |  |   |        |        
|                                      | Net income for year        |                                                  |           |       |  |            |        |         |  |            |        |              |  |          |         | 17,963  |   |   |      |  |  |   |     |    |   |   |        |  |  |   |        | 17,963  |        
|                                      | Other comprehensive Income |                                                  |           |       |  |            |        |         |  |            |        |              |  |          |         |        |   |   |      |  |  |   |     | 304 |   |   |        |  |  |   |        | 304     |        
|                                      |                            |                                                  |           |        |  |            |        |          |  |            |        |               |  |          |         |         |   |   |      |   |  |   |     |     |   |   |        |   |  |   |        |        
|                                      |                            | Comprehensive Income                             |           |        |  |            |        |          |  |            |        |               |  |          |         |         |   |   |      |   |  |   |     |     |   |   |        |   |  |   |        |         | 18,267  |  
|Unredeemed minority interest Shares   |                            |                                                  |          |        |  |            |       |          |  |            | 118    |               |  |          |        |         |   |   |     |   |  |   |    |     |   |   |       |   |  |   | 118    |        
|                                      |                            |                                                  |           |        |  |            |        |          |  |            |        |               |  |          |         |         |   |   |      |   |  |   |     |     |   |   |        |   |  |   |        |        
|BALANCE AT DEC. 31, 2002              |                            |                                                  | 1,497,883 |        |  | $          | 15     |          |  | $          | 15,645 |               |  | $        | (4,570  | )       |   | $ |     |   |  | $ | 302 |     |   |   | (458   | ) |  | $ | 10,934 |        
|                                      |                            |                                                  |           |        |  |            |        |          |  |            |        |               |  |          |         |         |   |   |      |   |  |   |     |     |   |   |        |   |  |   |        |        



---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Effective September 30, 2001, the
    Companys ownership and voting interest of Spinnaker
    Industries, Inc. was reduced to 41.8% and 49.5% respectively,
    due to the disposition of shares of Spinnaker. As a result,
    effective September 30, 2001, the Company relinquished
    control of Spinnaker and has deconsolidated Spinnaker. On
    September 23, 2002, the Company disposed of its remaining
    interest in Spinnaker. See Note 1 to the Consolidated
    Financial Statements  Basis of
    Presentation.

See accompanying notes.

31



---



##### 



LYNCH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                                                                    |                                          |                          |         |        |   |      |         |         |   |   |         |         |  
|----------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------- | ------------------------ | ------- | ------ | - | ---- | ------- | ------- | - | - | ------- | ------- | -
|                                                                                                                                    |                                          |                         
|                                                                                                                                    |                                          | Years Ended December 31,
|                                                                                                                                    |                                          |                         
|                                                                                                                                    |                                          | 2002                     |         | 2001   |   | 2000
|                                                                                                                                    |                                          |                          |         |        |   |     
|                                                                                                                                    |                                          |                         
|                                                                                                                                    |                                          | (In thousands)          
|OPERATING ACTIVITIES                                                                                                                |                                          |                          |         |        |   |      |         |         |   |   |         |        
|Net income (loss)                                                                                                                   |                                          | $                        | 17,963  |        |   | $    | (22,938 | )       |   | $ | (3,438  | )      
|Adjustments to reconcile net income (loss) to net
    cash provided by (used in) operating activities of continuing
    operations: |                                          |                          |         |        |   |      |         |         |   |   |         |        
|Restricted Operating Cash                                                                                                           |                                          |                          | 4,703   |        |   |      | 1,797   |         |   |   |        |        
|Gain on deconsolidation                                                                                                             |                                          |                          | (19,420 | )      |   |      | (27,406 | )       |   |   |        |        
|Loss on disposal of fixed assets                                                                                                    |                                          |                          | 145     |        |   |      |        |         |   |   |        |        
|Loss on donation of shares                                                                                                          |                                          |                          |        |        |   |      | 366     |         |   |   |        |        
|Asset impairment and restructuring charges                                                                                          |                                          |                          |        |        |   |      | 38,272  |         |   |   |        |        
|Extraordinary item, net                                                                                                             |                                          |                          |        |        |   |      |        |         |   |   | (2,245  | )      
|Depreciation                                                                                                                        |                                          |                          | 1,044   |        |   |      | 4,315   |         |   |   | 6,734   |        
|Amortization of definite-lived intangible assets                                                                                    |                                          |                          | 206     |        |   |      | 244     |         |   |   | 1,001   |        
|Amortization of deferred financing charges                                                                                          |                                          |                          |        |        |   |      | 703     |         |   |   | 876     |        
|Deferred taxes                                                                                                                      |                                          |                          | 203     |        |   |      | 501     |         |   |   | 1,846   |        
|Recoverable income taxes                                                                                                            |                                          |                          | (532    | )      |   |      |        |         |   |   |        |        
|Minority interests                                                                                                                  |                                          |                          |        |        |   |      | (4,017  | )       |   |   | (7,072  | )      
|Other                                                                                                                               |                                          |                          |        |        |   |      | 761     |         |   |   | 2,800   |        
|Changes in operating assets and liabilities:                                                                                        |                                          |                          |         |        |   |      |         |         |   |   |         |        
|                                                                                                                                    | Receivables                              |                          |         | 6,294  |   |      |         | 10,861  |   |   |         | (10,377 | )
|                                                                                                                                    | Inventories                              |                          |         | 194    |   |      |         | 13,430  |   |   |         | (3,459  | )
|                                                                                                                                    | Accounts payable and accrued liabilities |                          |         | (7,621 | ) |      |         | (14,269 | ) |   |         | 10,112  |  
|                                                                                                                                    | Other assets/liabilities                 |                          |         | 414    |   |      |         | 4,727   |   |   |         | (212    | )
|                                                                                                                                    |                                          |                          |         |        |   |      |         |         |   |   |         |        
|Net cash provided by (used in) operating
    activities                                                                             |                                          |                          | 3,593   |        |   |      | 7,347   |         |   |   | (3,434  | )      
|INVESTING ACTIVITIES                                                                                                                |                                          |                          |         |        |   |      |         |         |   |   |         |        
|Acquisition of minority interest (Note 7)                                                                                           |                                          |                          | (220    | )      |   |      |        |         |   |   |        |        
|Capital Expenditures                                                                                                                |                                          |                          | (223    | )      |   |      | (1,104  | )       |   |   | (4,323  | )      
|Restricted Investing Cash                                                                                                           |                                          |                          | (1,125  | )      |   |      |        |         |   |   | 49,526  |        
|Reduction in cash due to deconsolidation                                                                                            |                                          |                          |        |        |   |      | (5,728  | )       |   |   |        |        
|Acquisition (See Note 2)                                                                                                            |                                          |                          | (850    | )      |   |      |        |         |   |   |        |        
|Purchase of marketable securities                                                                                                   |                                          |                          | (306    | )      |   |      |        |         |   |   |        |        
|Other                                                                                                                               |                                          |                          | (214    | )      |   |      | (860    | )       |   |   | (767    | )      
|                                                                                                                                    |                                          |                          |         |        |   |      |         |         |   |   |         |        
|Net cash provided by (used in) investing
    activities                                                                             |                                          |                          | (2,938  | )      |   |      | (7,692  | )       |   |   | 44,436  |        
|FINANCING ACTIVITIES                                                                                                                |                                          |                          |         |        |   |      |         |         |   |   |         |        
|Net borrowings (repayments) of notes payable                                                                                        |                                          |                          | 1,453   |        |   |      | (7,587  | )       |   |   | 7,110   |        
|Repayment of long-term debt                                                                                                         |                                          |                          | (369    | )      |   |      | (420    | )       |   |   | (53,433 | )      
|Proceeds from long-term debt                                                                                                        |                                          |                          |        |        |   |      | 1,987   |         |   |   |        |        
|(Purchase) sale of treasury stock                                                                                                   |                                          |                          |        |        |   |      |        |         |   |   | 1,191   |        
|Issuance of common stock                                                                                                            |                                          |                          |        |        |   |      |        |         |   |   | 1,809   |        
|Other                                                                                                                               |                                          |                          |        |        |   |      | 69      |         |   |   | (242    | )      
|                                                                                                                                    |                                          |                          |         |        |   |      |         |         |   |   |         |        
|Net cash provided by (used in) financing
    activities                                                                             |                                          |                          | 1,084   |        |   |      | (5,951  | )       |   |   | (43,565 | )      
|                                                                                                                                    |                                          |                          |         |        |   |      |         |         |   |   |         |        
|Increase (decrease) in cash and cash equivalents                                                                                    |                                          |                          | 1,739   |        |   |      | (6,296  | )       |   |   | (2,563  | )      
|Cash and cash equivalents at beginning of year                                                                                      |                                          |                          | 4,247   |        |   |      | 10,543  |         |   |   | 13,106  |        
|                                                                                                                                    |                                          |                          |         |        |   |      |         |         |   |   |         |        
|Cash and cash equivalents at end of year                                                                                            |                                          | $                        | 5,986   |        |   | $    | 4,247   |         |   | $ | 10,543  |        
|                                                                                                                                    |                                          |                          |         |        |   |      |         |         |   |   |         |        



---



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | * | Effective September 30, 2001, the
    Companys ownership and voting interest of Spinnaker
    Industries, Inc. was reduced to 41.8% and 49.5% respectively,
    due to the disposition of shares of Spinnaker. As a result,
    effective September 30, 2001, the Company relinquished
    control of Spinnaker and has deconsolidated Spinnaker. On
    September 23, 2002, the Company disposed of its remaining
    interest in Spinnaker. See Note 1 to the Consolidated
    Financial Statements  Basis of
    Presentation.

See accompanying notes

32



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##### 



LYNCH CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS


December 31, 2002




|   |                                  
|-- | ---------------------------------
|1. | Accounting and Reporting Policies



| |             
| | ------------
| | Organization

Lynch Corporation (the Company or
Lynch) is a diversified holding company with
subsidiaries engaged in manufacturing primarily in the United
States. The Company has two wholly-owned subsidiaries, Lynch
Systems, Inc. (Lynch Systems) and M-tron Industries,
Inc. (M-tron) and until September 23, 2002 an
investment in Spinnaker Industries, Inc.
(Spinnaker); see discussion below. Information on
the Companys operations by segment and geographic area is
included in Note 15  Segment
Information.



| |                      
| | ---------------------
| | Basis of Presentation

Prior to September 30, 2001, the Company
owned 47.6% of the equity of Spinnaker (60.4% voting control),
an entity engaged in the manufacture of adhesive-backed
material. Under accounting principles generally accepted in the
United States, Spinnaker was a consolidated entity and the
Company was required to record all of the losses of Spinnaker
since the non-Company investors interests were not required to
absorb their share of the losses (52.4%) after their investment
was fully absorbed by losses (which occurred in the first
quarter of 2001).

Effective September 30, 2001, the Company
donated 430,000 shares of Spinnaker Class A common
stock to a university on whose board several of the
Companys executives serve as Trustees, thereby
relinquishing control of such securities. This resulted in the
reduction of the Companys ownership and voting interests
in Spinnaker to 41.8% and 49.5%, respectively. As a result,
effective September 30, 2001, the Company deconsolidated
Spinnaker and prospectively accounted for its ownership of
Spinnaker using the equity method of accounting. On
September 23, 2002, the Company disposed of its remaining
investment in Spinnaker (See Note 8 to the Consolidated
Financial Statements  Spinnaker Industries,
Inc.).

As a result, the Companys results of
operations include the operating results of Spinnaker through
September 30, 2001 (date of deconsolidation). The balance
sheet at December 31, 2002 and 2001 does not contain the
assets and liabilities of Spinnaker due to the deconsolidation.
This deconsolidation resulted in a non-cash gain of $27,406,000
being recorded on September 30, 2001 to reduce the
Companys negative investment in Spinnaker to $19,420,000.
This remaining interest, which represents losses in excess of
investment, was recorded as a deferred credit on the
Companys balance sheet until the Company disposed of its
remaining interests in Spinnaker on September 23, 2002.
This deferred credit of $19.4 million was recognized in
earnings in 2002.



| |                            
| | ---------------------------
| | Principles of Consolidation

The consolidated financial statements include the
accounts of Lynch Corporation and entities in which Lynch had
majority voting control. All material intercompany transactions
and accounts have been eliminated in consolidation.



| |                  
| | -----------------
| | Uses of Estimates

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.

33



---



##### 



LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                 
| | ----------------
| | Cash Equivalents

Cash equivalents consist of highly liquid
investments with a maturity of less than three months when
purchased.

At December 31, 2002 and 2001, assets of
$2.2 million and $2.1 million, which are classified as
cash and cash equivalents, are invested in United States
Treasury money market funds for which affiliates of the Company
serve as investment managers to the respective funds.



| |                
| | ---------------
| | Restricted Cash

At December 31, 2002 and 2001, the Company
had $1.1 million and $4.7 million of Restricted Cash,
respectively. (See Note 6 to the Consolidated Financial
Statements  Notes Payable to Banks and
Long-term Debt). The $1.1 million restricted cash at
December 31, 2002 secures a Letter of Credit issued to the
Bank of Omaha as collateral for M-trons loans. The
$4.7 million restricted cash at December 31, 2001 was
for customer machine deposits at Lynch Systems that were
restricted under the loan agreement in place at that time.



| |            
| | -----------
| | Investments

The following is a summary of marketable
securities held by the Company (in thousands):

|                              |  |      |     |          |  |            |     |           |  |  |   |  |  |   |     | 
|----------------------------- |  | ---- | --- | -------- |  | ---------- | --- | --------- |  |  | - |  |  | - | --- | 
|                              |  |      |     | Gross    |  | Gross      |     | Estimated
|                              |  |      |     | Realized |  | Unrealized |     | Fair     
|December 31, 2002             |  | Cost |     | Gains    |  | Losses     |     | Value    
|                              |  |      |     |          |  |            |     |          
|Equity Securities             |  | $    | 557 |          |  | $          | 304 |           |  |  |  |  |  | $ | 861 | 
|                              |  |      |     |          |  |            |     |           |  |  |   |  |  |   |     | 
|Total included in Investments |  |      |     |          |  |            |     |           |  |  |   |  |  | $ | 861 | 
|                              |  |      |     |          |  |            |     |           |  |  |   |  |  |   |     | 

The Company has a margin liability against this
investment of $251,000 which must be settled upon the
disposition of the related securities whose fair value is based
on quoted market prices. The Company has designated these
investments as available for sale pursuant to Statement of
Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities.



| |                    
| | -------------------
| | Accounts Receivable

Accounts receivable on a consolidated basis
consist principally of amounts due from both domestic and
foreign customers. Credit is extended based on an evaluation of
the customers financial condition and collateral is not
generally required except at Lynch Systems. The Company
considers concentrations of credit risk to be minimal due to the
Companys diverse customer base. In relation to export
sales, the Company requires letters of credit supporting a
significant portion of the sales price prior to production to
limit exposure to credit risk. Certain subsidiaries and business
segments have credit sales to industries that are subject to
cyclical economic changes. The Company maintains an allowance
for doubtful accounts at a level that management believes is
sufficient to cover potential credit losses.

We maintain allowances for doubtful accounts for
estimated losses resulting from the inability of our clients to
make required payments. We base our estimates on our historical
collection experience, current trends, credit policy and
relationship of our accounts receivable and revenues. In
determining these estimates, we examine historical write-offs of
our receivables and review each clients account to
identify any specific customer collection issues. If the
financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payment,
additional allowances may be required. Our failure to estimate

34



---



##### 



LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

accurately the losses for doubtful accounts and
ensure that payments are received on a timely basis could have a
material adverse effect on our business, financial condition,
and results of operations.



| |                                       
| | --------------------------------------
| | Property, Plant and Equipment,
    Net

Property, plant and equipment are recorded at
cost less accumulated depreciation and include expenditures for
additions and major improvements. Maintenance and repairs are
charged to operations as incurred. Depreciation is computed for
financial reporting purposes using the straight-line method over
the estimated useful lives of the assets, which range from
5 years to 35 years for buildings and for 3 to
10 years for other fixed assets. Property, plant, and
equipment are periodically reviewed for indicators of
impairment. If any such indicators were noted, the Company would
assess the appropriateness of the assets carrying value and
record any impairment at that time.



| |                    
| | -------------------
| | Revenue Recognition

Revenues, with the exception of certain long-term
contracts discussed below, are recognized upon shipment when
title passes. Shipping costs are included in manufacturing cost
of sales.



| |                                       
| | --------------------------------------
| | Accounting for Long-Term
    Contracts

Lynch Systems, a 100% owned subsidiary of the
Company, is engaged in the manufacture and marketing of
glass-forming machines and specialized manufacturing machines.
Certain sales contracts require an advance payment (usually 30%
of the contract price) which is accounted for as a customer
advance. The contractual sales prices are paid either
(i) as the manufacturing process reaches specified levels
of completion or (ii) based on the shipment date.
Guarantees by letter of credit from a qualifying financial
institution are required for most sales contracts. Because of
the specialized nature of these machines and the period of time
needed to complete production and shipping, Lynch Systems
accounts for these contracts using the percentage-of-completion
accounting method as costs are incurred compared to total
estimated project costs (cost to cost basis). At
December 31, 2002 and 2001, unbilled accounts receivable
(included in accounts receivable) were $0.7 million and
$5.3 million, respectively.

The percentage of completion method is used since
reasonably dependable estimates of the revenues and costs
applicable to various stages of a contract can be made, based on
historical experience and milestones set in the contract.
Financial management maintains contact with project managers to
discuss the status of the projects and, for fixed-price
engagements, financial management is updated on the budgeted
costs and required resources to complete the project. These
budgets are then used to calculate revenue recognition and to
estimate the anticipated income or loss on the project. In the
past, we have occasionally been required to commit unanticipated
additional resources to complete projects, which have resulted
in lower than anticipated profitability or losses on those
contracts. We may experience similar situations in the future.
Provisions for estimated losses on contracts are made during the
period in which such losses become probably and can be
reasonably estimated. To date, such losses have not been
significant.



| |                 
| | ----------------
| | Warranty Expense

Lynch Systems provides a full warranty to
world-wide customers who acquire machines. The warranty covers
both parts and labor and normally covers a period of one year or
thirteen months. Based upon

35



---



##### 



LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

experience, the warranty accrual is based upon
three to five percent of the selling price of the machine. The
Company periodically assesses the adequacy of the reserve and
adjusts the amounts as necessary.

|                                                                                                |  |   |       |  
|----------------------------------------------------------------------------------------------- |  | - | ----- | -
|Balance, beginning of the period                                                                |  | $ | 1,608 |  
|Warranties issued during the period                                                             |  |   | 894   |  
|Settlements made during the period                                                              |  |   | (508  | )
|Changes in liabilities for pre-existing
    warranties during the period, including expirations |  |   | (399  | )
|                                                                                                |  |   |       |  
|Balance, end of the period                                                                      |  | $ | 1,595 |  
|                                                                                                |  |   |       |  



| |                                   
| | ----------------------------------
| | Research and Development
    Costs

Research and development costs are charged to
operations as incurred. Such costs were $944,000, $1,772,000,
and $1,603,000, in 2002, 2001, and 2000, respectively.



| |                    
| | -------------------
| | Advertising Expense

The cost of advertising is expensed as incurred.
The Company incurred $197,000, $177,000, and $472,000 in
advertising costs during 2002, 2001 and 2000, respectively.



| |                                                    
| | ---------------------------------------------------
| | Earnings Per Share and Stock Based
    Compensation

The Companys basic and diluted earnings per
share are equivalent as the Company has no dilutive securities.

At December 31, 2002, the Company has a
stock-based employee compensation plan which is described in
Note 9 to the Consolidated Financial Statements 
Stock Options Plans. The Company accounts for the
plan under the recognition and measurement principles of
Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and
related Interpretations. No stock-based employee compensation
cost is reflected in net income, as all options granted under
those plans had an exercise price equal to or above the market
value of the underlying common stock on the date of grant. The
Company provides pro forma disclosures of the compensation
expense determined under the fair value provisions of Financial
Accounting Standards Board Statement No. 123,
Accounting for Stock-Based Compensation as follows.

For purposes of pro forma disclosures, the
estimated fair value of the options is amortized to expense over
the options vesting period. The Companys pro forma
information follows (in thousands, except for earnings per share
information):

|                                                                                                                                                   |  |      |        |      |  |      |         |   |  |   |        |  
|-------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                                                                                                                                   |  | 2002 |        | 2001 |  | 2000
|                                                                                                                                                   |  |      |        |      |  |     
|Net income (loss) as reported                                                                                                                      |  | $    | 17,963 |      |  | $    | (22,938 | ) |  | $ | (3,438 | )
|Deduct: Total stock-based employee compensation
    expense determined under fair value based method for all awards,
    net of related tax effect |  |      | 1,260  |      |  |      | 0       |   |  |   | 0      |  
|                                                                                                                                                   |  |      |        |      |  |      |         |   |  |   |        |  
|Pro forma net income (loss)                                                                                                                        |  | $    | 16,703 |      |  | $    | (22,938 | ) |  | $ | (3,428 | )
|                                                                                                                                                   |  |      |        |      |  |      |         |   |  |   |        |  
|Basic and diluted earnings (loss) per share:                                                                                                       |  |      |        |      |  |      |         |   |  |   |        |  
|As reported                                                                                                                                        |  | $    | 11.99  |      |  | $    | (15.24  | ) |  | $ | (2.30  | )
|Pro forma                                                                                                                                          |  | $    | 11.15  |      |  | $    | (15.24  | ) |  | $ | (2.30  | )

The weighted average fair value of options
granted in 2002 is $17.50.

36



---



##### 



LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                    
| | -------------------
| | Segment Information

The Company reports segment information in
accordance with Statement of Financial Accounting Standards
No. 131, Disclosures About Segments of an Enterprise
and Related Information (SFAS 131).
SFAS No. 131 requires companies to report financial
and descriptive information for each operating segment based on
managements internal organizational decision-making
structure. See Note 15 to the Consolidated Financial
Statements  Segment
Information  for the detailed presentation of
business segments report.



| |            
| | -----------
| | Impairments

The Company accounts for impairments of
long-lived assets in accordance with the provisions of
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. The Company periodically
assesses the net realizable value of its long-lived assets and
evaluates such assets for impairment whenever events or changes
in circumstances indicate the carrying amount of an asset may
not be recoverable. For assets to be held and used, impairment
is determined to exist if estimated undiscounted future cash
flows are less than the carrying amount. For assets to be
disposed of, impairment is determined to exist if the estimated
net realizable value is less than the carrying amount. If
indicators of impairment are present, and we do not expect the
estimated undiscounted cash flows to be derived from the related
assets to be sufficient to recover the assets carrying
amount, an impairment loss is charged to expense in the period
identified based upon the difference between the carrying amount
and the discounted cash flows. The rates that would be utilized
to discount the net cash flows to net present value would take
into account the time value of money and investment risk
factors. See Note 3 to the Consolidated Financial
Statements  Asset Impairment and Restructuring
Charges  regarding Spinnakers
restructuring costs for fiscal years 2001 and 2000.

In June 2001, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
No. 141, Business Combinations
(FAS 141), and Statement of Financial
Accounting Standards No. 142, Goodwill and Other
Intangible Assets (FAS 142). FAS 141
requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001.
FAS 141 also includes guidance on the initial recognition
and measurement of goodwill and intangible assets arising from
business combinations completed after June 30, 2001.
FAS 142 requires that these assets be reviewed for
impairment at least annually. Intangible assets with finite
lives will continue to be amortized over their estimated useful
lives. Additionally, FAS 142 requires that goodwill
included in the carrying value of equity method investments no
longer be amortized. Note that the Company does not have any
indefinite-lived intangibles.



| |                      
| | ---------------------
| | Financial Instruments

Cash and cash equivalents, trade accounts
receivable, short-term borrowings, trade accounts payable and
accrued liabilities are carried at cost which approximates fair
value due to the short-term maturity of these instruments. The
carrying account of the Companys borrowings under its
revolving lines of credit approximates fair value, as the
obligations bear interest at a floating rate. The fair value of
other long-term obligations approximates cost based on borrowing
rates for similar instruments.

Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist
principally of cash, investments and trade accounts receivable.

The Company maintains cash and cash equivalents
and short-term investments with various financial institutions.
These financial institutions are located throughout the country
and the Companys policy is designed to limit exposure to
any one institution. The Company performs periodic evaluations
of the relative credit standing of those financial institutions
that are considered in the Companys investment strategy.
Other than certain accounts receivable, the Company does not
require collateral on these financial instruments.

37



---



##### 



LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                  
| | -----------------
| | Reclassifications

Certain amounts in the 2001 and 2000 financial
statements have been reclassified to conform to the 2002
presentation. These other reclassifications are immaterial to
the consolidated financial statements taken as a whole.



| |                                            
| | -------------------------------------------
| | Recent Issued Accounting
    Pronouncements

In November 2002, the FASB issued Interpretation
No. 45 (FIN 45), Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Indebtedness of Others. FIN 45 will significantly
change current practice in the accounting for, and disclosure
of, guarantees. FIN 45 requires certain guarantees to be
recorded at fair value, which is different from current
practice, which is generally to record a liability only when a
loss is probably and reasonably estimable, as those terms are
defined in FASB Statement No. 5, Accounting for
Contingencies (FAS 5). FIN 45 also requires a
guarantor to make significant new disclosures, even when the
likelihood of making any payments under the guarantee is remote,
which is another change from current practice.

The Company presently guarantees
(unsecured) the SunTrust Bank loans of its subsidiary,
Lynch Systems, and has guaranteed a Letter of Credit issued to
the First National Bank of Omaha on behalf of its subsidiary,
M-tron Industries, Inc. (see Note 6 to the Consolidated
Financial Statements  Notes Payable to Banks
and Long-term Debt). These guarantees are subject to
FIN 45s disclosure requirement only. As of
December 31, 2002, there were no obligations to the
SunTrust Bank. As of December 31, 2002, the $1,000,000
Letter of Credit issued by Fleet Bank to The First National Bank
of Omaha was secured by a $1,125,000 deposit in a Fleet Bank
Treasury Fixed Income Fund. (See Restricted Cash
included in Note 1 to the Consolidated Financial
Statements.)

There are no other financial, performance,
indirect guarantees or indemnification agreements.

In July 2002 the Financial Accounting Standards
Board (FASB) issued Statement of Financial
Accounting Standards No. 146, Accounting for Costs
Associated with Exit or Disposal Activities
(SFAS 146), which addresses financial
accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force
Issue No. 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a
Restructuring). SFAS 146 requires that a liability
for a cost associated with an exit or disposal activity be
recognized when the liability is incurred. Under FAS 146,
an entitys commitment to a plan, by itself, does not
create an obligation that meets the definition of a liability.
FAS 146 also establishes fair value as the objective for
initial measurement of the liability. Severance pay would be
recognized over time rather than up front if the benefit
arrangement requires employees to render future service beyond a
minimum retention period. The liability for
severance pay would be recognized as employees render service
over the future service period, even if the benefit formula used
to calculate an employees termination benefit is based on
length of service. The provisions of SFAS 146 are effective
for exit or disposal activities that are initiated after
December 31, 2002, with earlier application encouraged. The
Company will adopt SFAS 146 for exit or disposal activities
that are initiated after December 31, 2002.

On December 31, 2002, the FASB issued
Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation 
Transition and Disclosure (SFAS 148),
which amends the disclosure provisions of Financial Accounting
Standards No. 123, Accounting for Stock-Based
Compensation (SFAS 123) and APBN opinion
No. 28, Interim Financial Reporting
(APB 28). SFAS 148 requires expanded
disclosures within the Companys Summary of Significant
Accounting Policies and within the Companys condensed
consolidated interim financial information filed on
Form 10-Q. SFAS 148s annual disclosure
requirements are effective for the fiscal year ending
December 31, 2002. SFAS 148s amendment of the
disclosure requirements of APB 28 is effective for
financial reports containing condensed consolidated

38



---



##### 



LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

financial statements for interim periods
beginning after December 15, 2002. See Note 10 to the
Consolidated Financial Statements 
Shareholders Equity.

In January 2003, the FASB issued Interpretation
No. 46, Consolidation of Variable Interest Entities,
an Interpretation of ARB No. 51
(FIN 46). FIN 46 clarifies the application
of Accounting Research Bulletin No. 51, Consolidated
Financial Statements, to certain entities in which equity
investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional
subordinated financial support from other parties. The
consolidation requirements of FIN 46 apply immediately to
variable interest entities created after January 31, 2003
and to existing variable interest entities in the interim period
beginning after June 15, 2003. The Company has not yet
completed its assessment of the impact that FIN 46 will
have on the Consolidated Financial Statements.



|   |             
|-- | ------------
|2. | Acquisitions

On October 18, 2002, the Companys
subsidiary, M-tron Industries, Inc., acquired certain assets of
an industry competitor, Champion Technologies, Inc., from
U.S. Bank in a transaction accounted for as a purchase.
Champions product line includes crystals, clock
oscillators, specialized crystal oscillators, and timing
solutions. The $850,000 purchase price included inventories,
fixed assets, and the customer orders backlog. There were no
assumed liabilities in this transaction. A 7.5% royalty will be
applicable to certain sales through December 31, 2004.
Financing for this transaction includes $646,000 in new loans
from State and local agencies and a $200,000 parent Company cash
infusion (See Note 6 to the Consolidated Financial
Statements  Notes Payable to Banks and
Long-term Debt).

The purchase price was allocated to the acquired
assets based on their estimated fair value at the date of
acquisition to Current Assets and Property, Plant &
Equipment in the amounts of $558,000 and $292,000, respectively.



|   |                                               
|-- | ----------------------------------------------
|3. | Asset Impairment and Restructuring
    Charges

Prior to the deconsolidation of Spinnaker on
September 30, 2001 (see Note 1 to the Consolidated
Financial Statements  Basis of
Presentation), the Company recognized certain
restructuring charges in 2001 and 2000 related to Spinnaker,
totaling $41.8 million and $2.8 million respectively.
The charges resulted from (a) the write-down to estimated
fair market value of fixed assets to be taken out of service and
held for sale or disposal of $16.0 million;
(b) impairment of goodwill associated with the acquisition
of Coating  Maine of $20.8 million;
(c) severance and related costs of $1.5 million; and
(d) inventory write-downs of $3.5 million (recorded
through manufacturing costs of sales).



|   |                                          
|-- | -----------------------------------------
|4. | Discontinued Operations and
    Spin-Offs

On April 9, 1999, Spinnaker entered into a
definitive agreement to sell its industrial tape segment to
Intertape Polymer Group, Inc. for approximately
$105 million and five-year warrants to
purchase 300,000 shares of Intertape common stock (New
York Stock Exchange Symbol ITP) at an exercise price
of $29.50 per share. At the time, the warrants were valued
at approximately $3.0 million using the Black-Scholes
option pricing model. At December 31, 2000, the fair value
of the warrants was approximately $0.2 million,
accordingly, in accordance with SFAS No. 121,
Spinnaker recognized an impairment loss of $2.8 million as
a result of the decline during the third and fourth quarters of
2000 in the market value of the stock associated with the
warrants which were recorded in other assets. Upon
deconsolidation of Spinnaker in September, 2001, these warrants
were no longer outstanding. See Note 1 to the Consolidated
Financial Statements  Basis of
Presentation.

On August 12, 1999, the Board of Directors
approved a plan to distribute the stock of Lynch Interactive
Corporation on a one for one basis to the shareholders of Lynch
Corporation (spin off). Lynch completed

39



---



##### 



LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the spin off of Lynch Interactive Corporation
(Interactive) on September 1, 1999, to
stockholders of record on August 23, 1999.

Lynch Interactive and Lynch have entered into
certain agreements governing various ongoing relationships,
including the provision of support services and a tax allocation
agreement. The tax allocation agreement provides for the
allocation of tax attributes to each company as if it had
actually filed with the respective tax authority. At the spin
off, the employees of the corporate office of Lynch Corporation
became the employees of Lynch Interactive Corporation and Lynch
Interactive Corporation began providing certain support services
to Lynch. The Company was charged a management fee for these
services amounting to approximately $180,000 and $265,000 in
2001 and 2000, respectively. Note that this arrangement was
terminated in August, 2001.



|   |            
|-- | -----------
|5. | Inventories

Inventories are stated at the lower of cost or
market value. Inventories valued using the last-in, first-out
(LIFO) method comprised approximately 63% and 58% of
consolidated inventories at December 31, 2002 and 2001,
respectively. The balance of inventories at December 31,
2002 and 2001 are valued using the first-in-first-out
(FIFO) method.

|                           |       |                |       |       |  |   |       |       | 
|-------------------------- | ----- | -------------- | ----- | ----- |  | - | ----- | ----- | 
|                           |       |               
|                           |       | December 31,  
|                           |       |               
|                           |       | 2002           |       | 2001 
|                           |       |                |       |      
|                           |       |               
|                           |       | (In Thousands)
|Raw materials and supplies |       | $              | 1,436 |       |  | $ | 1,844 |      
|Work in progress           |       |                | 2,376 |       |  |   | 2,003 |      
|Finished goods             |       |                | 1,812 |       |  |   | 1,413 |      
|                           |       |                |       |       |  |   |       |      
|                           | Total |                | $     | 5,624 |  |   | $     | 5,260 | 
|                           |       |                |       |       |  |   |       |      

Current cost exceeded the LIFO value of
inventories by $1,212,000 and $991,000 at December 31, 2002
and 2001, respectively.



|   |                                              
|-- | ---------------------------------------------
|6. | Notes Payable to Banks and Long-term
    Debt

Notes payable to banks and long-term debt
consists of:

|                                                                                                     |  |                |       |      |  |   |       | 
|---------------------------------------------------------------------------------------------------- |  | -------------- | ----- | ---- |  | - | ----- | 
|                                                                                                     |  |               
|                                                                                                     |  | December 31,  
|                                                                                                     |  |               
|                                                                                                     |  | 2002           |       | 2001
|                                                                                                     |  |                |       |     
|                                                                                                     |  |               
|                                                                                                     |  | (In Thousands)
|Notes payable:                                                                                       |  |                |       |      |  |   |       | 
|M-tron bank revolving loan at variable interest
    rates (4.75% at December 31, 2002), due May 2003 |  | $              | 2,228 |      |  | $ | 1,086 | 
|Lynch Systems bank revolving loan at variable
    interest rates, due June 2003                      |  |                |      |      |  |   |      | 
|                                                                                                     |  |                |       |      |  |   |       | 
|                                                                                                     |  | $              | 2,228 |      |  | $ | 1,086 | 
|                                                                                                     |  |                |       |      |  |   |       | 

40



---



##### 



LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                                                                                     |  |                |       |      |  |   |       |  
|-------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----- | ---- |  | - | ----- | -
|                                                                                                                     |  |               
|                                                                                                                     |  | December 31,  
|                                                                                                                     |  |               
|                                                                                                                     |  | 2002           |       | 2001
|                                                                                                                     |  |                |       |     
|                                                                                                                     |  |               
|                                                                                                                     |  | (In Thousands)
|Long-term debt:                                                                                                      |  |                |       |      |  |   |       |  
|M-tron commercial bank term loan at variable
    interest rates (4.50% at December 31, 2002), due September
    2004 |  | $              | 1,001 |      |  | $ | 1,259 |  
|Yankton Area Progressive Growth loan at 0.0%
    interest, due April 2005                                            |  |                | 250   |      |  |   |      |  
|Yankton Areawide Business Council loan at a fixed
    interest rate of 5.5%, due November 2007                       |  |                | 98    |      |  |   |      |  
|Lynch Systems term loan at a fixed interest rate
    of 8.0%, due August 2003                                        |  |                | 572   |      |  |   | 607   |  
|Other debt                                                                                                           |  |                |      |      |  |   | 333   |  
|                                                                                                                     |  |                |       |      |  |   |       |  
|                                                                                                                     |  |                | 1,921 |      |  |   | 2,199 |  
|Current maturities                                                                                                   |  |                | (832  | )    |  |   | (521  | )
|                                                                                                                     |  |                |       |      |  |   |       |  
|                                                                                                                     |  | $              | 1,089 |      |  | $ | 1,678 |  
|                                                                                                                     |  |                |       |      |  |   |       |  

On a consolidated basis, at December 31,
2002, Lynch maintains short-term credit facilities totaling
$10.0 million, of which $7.0 million was available for
future borrowings, including up to $2.0 million for working
capital and/or up to $7.0 million for Letters of Credit.
These facilities generally limit the credit available under the
lines of credit to certain variables, such as inventories and
receivables, and are secured by the operating assets of the
respective subsidiary borrower, and include various financial
covenants which currently restrict the transfer of substantially
all the assets of the subsidiaries. At December 31, 2002,
the revolving credit facilities expire within one year. The
weighted average interest rate for short-term borrowings at
December 31, 2002 and 2001 was 5.2% and 5.0%, respectively.
Cash of $1.1 million at December 31, 2002 has been
disclosed as restricted as required under an outstanding Letter
of Credit issued by Fleet Bank for the benefit of First National
Bank of Omaha.

Lynch Systems finalized the loan agreement with
SunTrust Bank on May 30, 2002, effective June 10,
2002. The lender has provided a $7 million Line of Credit
which can be used entirely for stand-by Letters of Credit to
secure customer advances and certain warranty coverages or up to
$2 million for domestic revolving credit to finance working
capital within the $7 million line. The Lynch Systems Line
of Credit is secured by accounts receivable and inventories and
bears an interest rate of one month LIBOR plus 2.0%. At
December 31, 2002, there were no Letters of Credit or
Working Capital Loans outstanding under this Line of Credit. The
new credit line has a May 30, 2003 maturity date, and
includes an unsecured parent company guaranty.

The Lynch Systems mortgage loan dated August 1998
with First Port City Bank in the original amount of $700,000 is
payable in full in the amount of $544,000 in August 2003. Lynch
Systems expects to renew this mortgage loan in the near future
with First Port City at more favorable terms than the present 8%
fixed rate.

M-trons revolving credit agreement was
renewed on August 31, 2002 with an April 30, 2003
maturity date. A parent company cash infusion of $500,000 and a
$1 million parent company Letter of Credit were necessary
to obtain the $3 million credit line at M-trons
long-time lender, First National Bank of Omaha. The Letter of
Credit is secured by the Companys $1.1 million
deposit in a Fleet Bank Treasury Fixed Income Fund. The Line of
Credit is secured by accounts receivable and inventories and
carries an interest rate equal to the First National Bank of
Omahas national prime rate with a minimum rate of 4.75%.
At December 31, 2002, borrowings under this line totaled
$2,228,000, with $7,000 additional availability.

First National Bank of Omaha previously extended
a $1,200,000 commercial loan to M-tron of which $1,001,000 was
outstanding on December 31, 2002. Interest is at the bank
rate, monthly payments totaling $18,000 and a $765,000 balloon
payment due in September 2004.

41



---



##### 



LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In conjunction with the acquisition of Champion
in October of 2002, M-tron entered into loan arrangements with
two Yankton, South Dakota agencies to provide $350,000 at a
weighted average interest rate of 1.6%. $250,000 was provided by
Yankton Area Progressive Growth, Inc. at a 0% interest rate and
$100,000 was provided by the Areawide Business Council, Inc. at
a 5.5% interest rate. $275,000 of this financing is due in the
next three years. Aggregate principal maturities of this debt
for each of the next five years are as follows: 2003 
$108 thousand; 2004  $108 thousand; 2005 
$59 thousand; 2006  $10 thousand; and $65
thousand in 2007. M-trons real estate is security for
these local agency loans as well as the South Dakota State loan.
(See Note 17 to the Consolidated Financial
Statements  Subsequent Events 
for 2003 financing applicable to the Champion Technologies
transaction.)

Restrictions on dividends under the M-tron loan
with First National Bank of Omaha disallow distributions to the
parent company without consent of the bank. Lynch Systems, under
its loan with Sun Trust Bank, may pay a cash dividend to the
parent company equal to 50% of LSs net income for the
prior fiscal year. Under the M-tron loan agreement, advances to
the parent company are disallowed without the prior written
consent of the lending bank. Under its loan agreement, LS may
pay an annual management fee to the parent company in an amount
not to exceed $250,000. In addition, LS may reimburse the parent
company for expenses and taxes paid by the parent on behalf of
LS.

The M-tron revolving credit agreement matures on
April 30, 2003 and the Company intends to refinance the
debt with First National Bank of Omaha.

At December 31, 2002, the Companys
total cash, cash equivalents and investments in marketable
securities total $8.0 million (including $1.1 million
of restricted cash). In addition, the Company had a
$2.0 million borrowing capacity under LSs revolving
line of credit. Therefore, gross cash and securities and
availability under the Lynch Systems loan total $10 million
and exceed the outstanding debt of $4.1 million by
$5.9 million. In the near term, the Company expects to
receive a $0.5 million cash tax benefit through carry-backs
for prior periods for operating losses. The Company presently
does not guarantee M-trons bank debt. The parent company
has provided an unsecured guarantee for Lynch Systems debt to
Sun Trust Bank.

Cash payments for interest were $272,000,
$2.0 million and $10.4 million for the years ended
December 31, 2002, 2001 and 2000, respectively. Interest
payments in 2002 are substantially below 2001 and 2000 because
the prior years included Spinnaker.

Aggregate principal maturities of long-term debt
for each of the next five years are as follows: 2003 
$832 thousand; 2004  $956 thousand;
2005  $59 thousand; 2006 
$9 thousand; and $65 thousand in 2007.



|   |                                                      
|-- | -----------------------------------------------------
|7. | Minority Interests and Related Party
    Transactions



| |                   
| | ------------------
| | Minority Interests

On June 13, 2002, the Company acquired the
remaining 25% interest in Lynch AMAV, LLC, a joint venture
between Frank Haepe and Lynch International Holding Corporation,
by paying $220,000 and by settling certain other obligations,
resulting in a $90,000 purchase price adjustment. This
definite-lived intangible is included in the Companys
balance sheet in Other Assets and is subject to amortization
over the next two years.

Pursuant to a plan or reorganization, the
German-based AMAV location was shutdown and its operations, as
well as Mr. Haepe, relocated to the Lynch Systems plant in
Bainbridge, Georgia. As a result, the Company recorded $69,000
severance cost in June, 2002 for the termination of six
employees.

42



---



##### 



LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                 
| | ------------------------------------------------
| | Transactions with Certain Affiliated
    Persons

Pursuant to a subscription agreement entered into
on March 11, 2000, the Company sold 100,000 shares of
its Common Stock to Mario J. Gabelli, Chairman of the Company at
that time and current Vice-Chairman of the Company, for
$30 per share, in cash, or $3 million in total, which
represented a premium of 14.6% above the closing price of
$26.125 per share of the stock on the American Stock
Exchange on March 9, 2000, the date said sale was
authorized by the Board of Directors. The sale was exempt from
registration under the Securities Act of 1933, as amended,
pursuant to Section 4(2) thereof. The proceeds were
available for general corporate purposes, including possible
acquisitions. The sale was ratified by the shareholders of the
Company at its Annual Meeting held on May 11, 2000.

Mr. Gabelli is affiliated with various
entities which he directly or indirectly controls and which are
engaged in various aspects of the securities business. During
2002, the Company and its subsidiaries engaged in various
transactions with certain of these entities and the amount of
commissions, fees, and other remunerations paid to such
entities, excluding reimbursement of certain expenses related to
Mr. Gabellis employment by the Corporation, was not
material.

On October 1, 2001, the Company transferred
its principal executive offices to Providence, Rhode Island from
Rye, New York. These offices are shared with Avtek, Inc.
(Avtek) a private holding company controlled by
Mr. Papitto (Company Chairman). Since August 2001, Avtek
and the Company have shared, on an approximately equal basis,
(i) all occupancy costs of the shared premises and
(ii) the salary expense of certain persons employed by
Avtek at the premises (including Mr. McGrail, the
Companys President and Chief Operating Officer and
Mr. Keller, the Companys Chief Financial Officer, and
other administrative and clerical personnel) whose services are
provided to both the Company and Avtek. The Companys share
of such occupancy and salary costs was $231,500 in 2002 and
$73,000 in partial year 2001, a portion of which represents
compensation to Mr. McGrail and Mr. Keller that is
reported in the Summary Compensation Table of the Proxy
Statement.

In the opinion of management, the method of
allocating these costs was reasonable; however, the costs of
these services allocated to the Company are not necessarily
indicative of the costs that would have been included on a stand
alone basis.



| |                    
| | -------------------
| | Equity Transactions

Effective July 31, 2001, Louis A.
Guzzetti, Jr. resigned from the Board of Directors of the
Company. In connection with Mr. Guzzettis
resignation, on August 9, 2001, the Company purchased
12,300 shares of its Common Stock for its treasury from
Mr. Guzzetti for a purchase price of $396,204. Such
purchase price was equal to the outstanding principal amount and
unpaid interest on the loans made by the Company to
Mr. Guzzetti on June 5, 2000 and September 20,
2000 to finance his original purchase of such Common Stock.
Mr. Gabellis loan to the Company in the amount of
$371,000 to fund the loan to Mr. Guzzetti, which was issued
in September, 2000 at an initial interest rate of 7.5% per
annum adjusted prospectively on each interest payment date to
two points below the prime rate, was repaid to Mr. Gabelli
by the Company on August 10, 2001.



|   |                           
|-- | --------------------------
|8. | Spinnaker Industries, Inc.

On September 23, 2002, Lynch disposed of its
remaining interest in Spinnaker for nominal consideration and
completed the deconsolidation that commenced on
September 30, 2001. The net result was the recording of a
non-cash gain on deconsolidation of $19.4 million in 2002
and $27.4 million in 2001. See Note 1 to the
Consolidated Financial Statements  Basis of
Presentation.

43



---



##### 



LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                   
|-- | ------------------
|9. | Stock Option Plans

On May 2, 2002, the Companys
shareholders approved the 2001 Equity Incentive Plan and the
issuance of up to 300,000 options to purchase shares of Company
common stock to certain employees of the Company, of which
228,000 options were granted (subject to shareholder approval)
at $17.50 per share on December 10, 2001. Shareholders
approval was obtained on May 2, 2002. These options have
lives of five to ten years. 196,000 of these options are fully
vested, with the remaining options vesting quarterly over the
next two years.

Pro forma information regarding net income and
earnings per share is required by SFAS 123, which requires
that the information be determined as if the Company has
accounted for its employee stock options under the fair value
method of that Statement. The fair value for these options was
estimated at the date of grant using a Black-Scholes option
pricing model with the following weighted-average assumptions
for 2002 (no options outstanding in 2001 or 2000) risk-free
interest rate of 5.3%; dividend yield of 0.0%; volatility
factors of the expected market price of the Companys
common stock of .49 and weighted-average expected life of the
option of 10 years. See Note 1 to the Consolidated
Financial Statements  Basis of
Presentation.



|    |                     
|--- | --------------------
|10. | Shareholders Equity

At the Annual Meeting of Stockholders of the
Registrant held on May 2, 2002, the Stockholders approved
an amendment to the Restated Articles of Incorporation of
Registrant that effected a change of all 10,000,000 shares
of Registrants authorized Common Stock from shares without
par value into shares having a par value of $0.01 per share
for all purposes, without otherwise changing the designations,
rights, preferences, or limitations of such shares and without
increasing or decreasing the number of such shares. As a result,
common stock at par value is now valued at $15,000 resulting in
a $5.1 million reclassification to additional paid-in
capital.

The Board of Directors previously authorized the
purchase of up to 400,000 shares of Common Stock. Through
December 31, 2000, 238,991 shares had been purchased
at an average cost of $14.88 per share. There were no
purchases in 2001 and 2002.

On February 1, 1996, the Company adopted a
plan to provide a portion of the compensation for its directors
in common shares of the Company. The amount of common stock is
based upon the market price at the end of the previous year.
Through December 31, 2002, a total of 4,126 shares
have been awarded under this program. No stock was issued for
compensation during 2002, 2001 and 2000.

Both M-tron and Lynch Systems have plans that
provided certain former shareholders with Stock Appreciation
Rights (SARs). These SARs are fully vested and
expire at the earlier of certain defined events or 2008 to 2010.
These SARs provide the participants a certain percentage,
ranging from 1-5%, of the increase in the defined value of
M-tron and Lynch Systems, respectively. Vested amounts are
payable at the holders option in cash or equivalent amount
of M-tron or Lynch Systems stock. Expense related to the
SARs was $22,000, $195,000, and $145,000 in 2002, 2001 and
2000 respectively. At December 31, 2002 and 2001, $329,000
and $307,000 was accrued for the SARs.

44



---



##### 



LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |             
|--- | ------------
|11. | Income Taxes

The Company files consolidated federal income tax
returns which include all subsidiaries excluding Spinnaker for
all periods.

The 2002 income tax benefit of $2.0 million
includes federal, as well as state, local, and foreign taxes.
$0.9 million of the 2002 tax benefit is the result of a
capital loss carry-back on the Companys investment in
Spinnaker Industries. The 2002 net tax benefit also
includes a Federal tax benefit of $0.6 million for
operating losses expected to be recovered through carry-backs to
prior periods. The effective tax rate differs from the statutory
tax rate primarily due to the tax benefit related to the
Spinnaker investment.

Deferred income taxes for 2002 and 2001 provided
for the temporary differences between the financial reporting
basis and the tax basis of the Companys assets and
liabilities. Cumulative temporary differences and carry-forwards
at December 31, 2002 and 2001 are as follows:

|                                                                                     |  |                   |       |                   |  |       |     |           |  |   |       |   |  |   |       | 
|------------------------------------------------------------------------------------ |  | ----------------- | ----- | ----------------- |  | ----- | --- | --------- |  | - | ----- | - |  | - | ----- | 
|                                                                                     |  |                   |       |                  
|                                                                                     |  | December 31, 2002 |       | December 31, 2001
|                                                                                     |  |                   |       |                  
|                                                                                     |  |                   |       |                  
|                                                                                     |  | Deferred Tax      |       | Deferred Tax     
|                                                                                     |  | Asset             |       | Liability         |  | Asset |     | Liability
|                                                                                     |  |                   |       |                   |  |       |     |          
|                                                                                     |  |                  
|                                                                                     |  | (In Thousands)   
|Inventory reserve                                                                    |  | $                 | 768   |                   |  | $     |    |           |  | $ | 744   |   |  | $ |      | 
|Fixed assets written up under Purchase accounting
    and tax over book depreciation |  |                   |      |                   |  |       | 275 |           |  |   |      |   |  |   | 499   | 
|Other reserves and accruals                                                          |  |                   | 928   |                   |  |       |    |           |  |   | 1,215 |   |  |   |      | 
|Other                                                                                |  |                   |      |                   |  |       | 454 |           |  |   |      |   |  |   | 1,050 | 
|Capital loss and other carry forwards                                                |  |                   | 207   |                   |  |       |    |           |  |   | 938   |   |  |   |      | 
|                                                                                     |  |                   |       |                   |  |       |     |           |  |   |       |   |  |   |       | 
|Total deferred income taxes                                                          |  |                   | 1,903 |                   |  |       | 729 |           |  |   | 2,897 |   |  |   | 1,549 | 
|                                                                                     |  |                   |       |                   |  |       |     |           |  |   |       |   |  |   |       | 
|Valuation allowance                                                                  |  |                   | (967  | )                 |  |       |     |           |  |   | (938  | ) |  |   |       | 
|                                                                                     |  |                   |       |                   |  |       |     |           |  |   |       |   |  |   |       | 
|                                                                                     |  | $                 | 936   |                   |  |       |     |           |  | $ | 1,959 |   |  |   |       | 
|                                                                                     |  |                   |       |                   |  |       |     |           |  |   |       |   |  |   |       | 

At December 31, 2002, the net deferred tax
asset of $207,000 presented in the Companys balance sheet
is comprised of deferred tax assets of $936,000 offset by
deferred tax liabilities of $729,000. At December 31, 2001,
the net deferred tax asset of $410,000 (comprised of deferred
tax assets of $1,959,000 offset by deferred tax liabilities of
$1,549,000) is classified in the Companys balance sheet as
current deferred tax assets of $988,000 and long-term deferred
tax liabilities of $578,000.

45



---



##### 



LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The provision (benefit) for income taxes from
continuing operations is summarized as follows:

|               |                 |                |        |        |   |      |      |      |   |   |        |        |  
|-------------- | --------------- | -------------- | ------ | ------ | - | ---- | ---- | ---- | - | - | ------ | ------ | -
|               |                 | 2002           |        | 2001   |   | 2000
|               |                 |                |        |        |   |     
|               |                 |               
|               |                 | (In Thousands)
|Current:       |                 |                |        |        |   |      |      |      |   |   |        |       
|               | Federal         |                | $      | (2,332 | ) |      | $    | (439 | ) |   | $      | 136    |  
|               | State and local |                |        | 144    |   |      |      | 274  |   |   |        |       |  
|               | Foreign         |                |        | 19     |   |      |      | 22   |   |   |        |       |  
|               |                 |                |        |        |   |      |      |      |   |   |        |       
|Total Current  |                 |                | (2,169 | )      |   |      | (143 | )    |   |   | 136    |       
|               |                 |                |        |        |   |      |      |      |   |   |        |       
|Deferred:      |                 |                |        |        |   |      |      |      |   |   |        |       
|               | Federal         |                |        | 264    |   |      |      | 489  |   |   |        | (2,731 | )
|               | State and local |                |        | (62    | ) |      |      | 12   |   |   |        | (198   | )
|               |                 |                |        |        |   |      |      |      |   |   |        |       
|Total Deferred |                 |                | 202    |        |   |      | 501  |      |   |   | (2,929 | )     
|               |                 |                |        |        |   |      |      |      |   |   |        |       
|               |                 | $              | (1,967 | )      |   | $    | 358  |      |   | $ | (2,793 | )     
|               |                 |                |        |        |   |      |      |      |   |   |        |       

A reconciliation of the provision (benefit) for
income taxes from continuing operations and the amount computed
by applying the statutory federal income tax rate to income
before income taxes, minority interest and extraordinary item:

|                                              |  |                |        |      |  |      |         |   |  |   |        |  
|--------------------------------------------- |  | -------------- | ------ | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                              |  | 2002           |        | 2001 |  | 2000
|                                              |  |                |        |      |  |     
|                                              |  |               
|                                              |  | (In Thousands)
|Tax (benefit) at statutory rate               |  | $              | 5,439  |      |  | $    | (9,043  | ) |  | $ | (6,028 | )
|State and local taxes, net of federal benefit |  |                | 54     |      |  |      | 189     |   |  |   | (130   | )
|Amortization of goodwill                      |  |                |       |      |  |      |        |   |  |   | 111    |  
|Spinnaker operating loss                      |  |                |       |      |  |      | 18,533  |   |  |   |       |  
|Deconsolidation gain                          |  |                | (6,603 | )    |  |      | (10,132 | ) |  |   |       |  
|Foreign export sales benefit                  |  |                | (142   | )    |  |      | (236    | ) |  |   | (199   | )
|Capital loss utilization                      |  |                | (860   | )    |  |      |        |   |  |   |       |  
|Valuation allowance                           |  |                | 29     |      |  |      | 938     |   |  |   | 3,136  |  
|Other                                         |  |                | 116    |      |  |      | 109     |   |  |   | 317    |  
|                                              |  |                |        |      |  |      |         |   |  |   |        |  
|                                              |  | $              | (1,967 | )    |  | $    | 358     |   |  | $ | (2,793 | )
|                                              |  |                |        |      |  |      |         |   |  |   |        |  

Profit (loss) before income taxes from foreign
operations was ($336,000), $671,000, and ($313,000) in 2002,
2001, and 2000 respectively.

Federal and State income tax payments were $0,
$1.2 million and $1.3 million, for the years 2002,
2001 and 2000, respectively. Income tax recoveries in 2002
totaled $2,170,000, including refunds of 2001 estimated tax
payments in the amount of $700,000 and $1,470,000 for tax loss
carry-backs.



|    |                                                  
|--- | -------------------------------------------------
|12. | Accumulated Other Comprehensive Income
    (Loss)

Total comprehensive income was $18,267,000 in the
twelve months ended 2002 and a loss of $22,869,000 at
December 31, 2001. Other comprehensive income of $304,000
in 2002 was the result of unrealized gains on available for sale
securities. Other comprehensive income in 2001 in the amount of
$69,000 was the result of favorable currency translation
adjustments.

46



---



##### 



LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The components of accumulated other comprehensive
income (loss), net of related tax, at December 31, 2002,
2001, and 2000 are as follows:

|                                                 |  |                |     |      |  |      |     |   |  |   |     |  
|------------------------------------------------ |  | -------------- | --- | ---- |  | ---- | --- | - |  | - | --- | -
|                                                 |  | 2002           |     | 2001 |  | 2000
|                                                 |  |                |     |      |  |     
|                                                 |  |               
|                                                 |  | (In Thousands)
|Balance beginning of year                        |  | $              | (2  | )    |  | $    | (71 | ) |  | $ | (40 | )
|Foreign currency translation                     |  |                |    |      |  |      | 69  |   |  |   | (31 | )
|Unrealized gain on available for-sale securities |  |                | 304 |      |  |      |    |   |  |   |    |  
|                                                 |  |                |     |      |  |      |     |   |  |   |     |  
|Accumulated other comprehensive income (loss)    |  | $              | 302 |      |  | $    | (2  | ) |  | $ | (71 | )
|                                                 |  |                |     |      |  |      |     |   |  |   |     |  

Note that no foreign currency translation remains
at December 31, 2002 due to the transfer of the operations
of Lynch AMAV, LLC (Germany) to the United States during 2002.



|    |                       
|--- | ----------------------
|13. | Employee Benefit Plans

The Company, through its operating subsidiaries,
has several defined contribution plans for the eligible
employees. The Companys former investee company,
Spinnaker, had various employee retirement type plans including
defined benefit, defined contribution, multi-employer, profit
sharing, and 401 (k) plans. The following table sets forth
the consolidated expenses (including Spinnakers expenses
through September 30, 2001) for these plans:

|                            |                        |                |    |      |  |      |     |     |  |   |     |     | 
|--------------------------- | ---------------------- | -------------- | -- | ---- |  | ---- | --- | --- |  | - | --- | --- | 
|                            |                        | 2002           |    | 2001 |  | 2000
|                            |                        |                |    |      |  |     
|                            |                        |               
|                            |                        | (In Thousands)
|Defined contribution:       |                        |                |    |      |  |      |     |     |  |   |     |    
|                            | Lynch Systems & M-tron |                | $  | 34   |  |      | $   | 17  |  |   | $   | 38  | 
|                            | Spinnaker              |                |    |     |  |      |     | 346 |  |   |     | 335 | 
|Defined benefit (Spinnaker) |                        |                |   |      |  |      | 202 |     |  |   | 98  |    
|Multi-employer (Spinnaker)  |                        |                |   |      |  |      | 42  |     |  |   | 88  |    
|                            |                        |                |    |      |  |      |     |     |  |   |     |    
|Total                       |                        | $              | 34 |      |  | $    | 607 |     |  | $ | 559 |    
|                            |                        |                |    |      |  |      |     |     |  |   |     |    

Under the Lynch Systems and M-tron defined
contribution plan, the Company contributes up to a maximum of
62.5 percent of participants contributions that do not
exceed $800 per participant in the plan year. The Company
contribution occurs at the end of the plan year and the
participant is immediately vested in the employers
contribution.

Spinnaker and its subsidiaries had several
defined benefit plans (both Union and non-Union). Spinnaker also
had a defined contribution plan for substantially all employees.
No disclosures are made for 2001 and 2000 due to the
deconsolidation of Spinnaker (see Note 1 to the
Consolidated Financial Statements  Basis of
Presentation).



|    |                              
|--- | -----------------------------
|14. | Commitments and Contingencies

In the normal course of business, subsidiaries of
the Company are defendants in certain product liability, worker
claims and other litigation in which the amounts being sought
may exceed insurance coverage levels. The resolution of these
matters is not expected to have a material effect on the
Companys financial condition or operations.

On or about June 26, 2001, in anticipation
of the July 15, 2001 closure of Spinnakers Westbrook,
Maine facility, Plaintiff PACE Local 1-1069 (PACE)
filed a three count complaint in Cumberland County Superior
Court, CV-2001-00352 naming the following defendants: Spinnaker
Industries, Inc., Spinnaker Coating, Inc., and Spinnaker
Coating-Maine, Inc. (collectively, the Spinnaker
Entities) and Lynch. The

47



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##### 



LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

complaint alleged that under Maines
Severance Pay Act both the Spinnaker Entities and Lynch would be
liable to pay approximately $1,166,000 severance pay under
Maines Severance Pay Act in connection with the plant
closure. The Defendants filed a notice of removal, thereby
creating United States District Court Civil Action C.V.
No. 01-236. The case was remanded to state court. The
Spinnaker Entities also filed a separate complaint challenging
the constitutionality of the Maine Severance Pay Act, United
States District Court Civil Action No. 01-232 which later
was dismissed by stipulation of the Spinnaker Entities. PACE
also filed three separate Motions for Ex-Parte Attachment
against the Spinnaker Entities and Lynch. PACE filed the First
Motion for Attachment with its original Complaint. PACE sought
to attach $1,166,483.44, an amount large enough to cover the
claims of all PACEs members seeking severance. The Court
denied that Motion as being pre-mature. PACE then filed a Second
Motion against the Spinnaker Entities and Lynch for an
attachment large enough to cover the claims of eight individual
employees seeking severance pay in the amount of $120,736.27. On
August 20, 2001, the Court granted that Motion in the
amount of $118,500. On April 4, 2002, PACE subsequently
recorded this attachment through UCC-1 filings with the Maine
Secretary of State against Lynch Manufacturing and Lynch
Corporation. PACE filed a Third Motion for Ex-Parte Attachment
on August 29, 2001. This Motion sought an attachment large
enough to cover the severance pay claimed by the remaining PACE
members, $1,048,003.00. The Court denied this Motion but
permitted PACE the opportunity to obtain an attachment after all
defendants had an opportunity to respond and after hearing.

Before any further action was taken with respect
to PACEs Third Motion for Attachment, the Spinnaker
Defendants filed for relief under Chapter 11 of the
Bankruptcy Code. Following a series of filings in the United
States District Court for the District of Maine and the United
States Bankruptcy Court for the District of Maine which, like
United States District Court Case No. 01-236, later were
dismissed by the parties with prejudice and without costs,
PACEs case continues to proceed against Lynch in
Cumberland County Superior Court in Maine on the issue of
whether Lynch has liability to PACEs members under the
Maine Severance Pay Act.

On September 30, 2002, PACE requested a
ruling from the Superior Court on its Third Motion for
Attachment. On October 21, 2002, Lynch filed a Motion for
Summary Judgment which incorporated its prior objection to any
attachment. PACE filed an Opposition to Lynchs Motion for
Summary Judgment and a Motion for Leave to Further Amend the
Complaint on November 12, 2002. Lynch thereafter filed a
Reply Memorandum in Support of its Motion for Summary Judgment
on November 26, 2002 and an opposition to PACEs
Motion for Leave to Further Amend the Complaint on
December 3, 2002. On December 31, 2002, the Superior
Court held a hearing on all pending Motions. The Superior Court
requested that arguments focus on Lynchs Motion for
Summary Judgment since the granting of this Motion will render
PACEs Third Motion for Attachment and Motion to Further
Amend the Complaint moot. As of the date of this filing, the
Superior Court has rendered no decision on Lynchs Motion
for Summary Judgment.

Lynch believes that, in addition to other
defenses, it is not subject to the Maine Severance Pay Act, as
now in effect. Management does not believe that the resolution
of this case will have a material adverse effect on the
Registrants consolidated financial condition or operations.

Lynch Corporation, Lynch Interactive Corporation
(Interactive), and several other parties have been
named as defendants in a lawsuit brought under the so-called
qui tam provisions of the federal False Claims Act
in the United States District Court for the District of
Columbia. The complaint was filed under seal with the court on
February 14, 2001, and the seal was lifted on
January 11, 2002. The Company was formally served with the
complaint on July 9, 2002. 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 Federal
Communications Commission spectrum auctions restricted to small
businesses, as well as obtaining bidding credits in other
spectrum auctions allocated to small and very
small businesses. The lawsuit seeks to recover an
unspecified amount of damages, which would be subject to
mandatory trebling

48



---



##### 



LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

under the statute. On September 19, 2002,
Interactive, on behalf of itself and Lynch, filed two Motions
with the court: a Motion to Transfer the Action to the Southern
District of New York and a Motion to Dismiss the Lawsuit. The
relator filed an opposition reply to Interactives Motion
to Dismiss and, on December 5, 2002, Interactive filed a
Reply in Support of Its Motion to Dismiss. As of the date of the
filing of this report, no hearing had been scheduled on
Interactives Motions.

The U.S. Department of Justice has notified
the court that it has declined to intervene in the case. The
defendants strongly believe that the lawsuit is completely
without merit and intend to defend the suit vigorously.
Furthermore, under the separation agreement between the Company
and Interactive pursuant to which Interactive was spun-off to
the Companys shareholders on September 1, 1999,
Interactive would be obligated to indemnify the Company for any
losses or damages incurred by the Company as a result of this
lawsuit; and Interactive has, in fact, agreed in writing to
defend the case on Lynchs behalf and to indemnify Lynch
for any losses it may incur as a result of the lawsuit.
Interactive has retained legal counsel to defend the claim on
behalf of Lynch and Interactive at the expense of Interactive.

Rent expense under operating leases was $320,000,
$846,000 (including Spinnaker for nine months), and $1,213,000
(including Spinnaker for twelve months) for the years ended
December 31, 2002, 2001 and 2000, respectively. The Company
leases certain property and equipment, including warehousing and
sales and distribution equipment, under operating leases that
extend from one to four years. Certain of these leases have
renewal options and escalation provisions.

Future minimum rental payments under long-term
non-cancelable operating leases for the five years subsequent to
December 31, 2002 are as follows (in thousands):

|     |  |   |     | 
|---- |  | - | --- | 
|2003 |  | $ | 253 | 
|2004 |  |   | 199 | 
|2005 |  |   | 150 | 
|2006 |  |   | 95  | 
|2007 |  |   | 0   | 
|     |  |   |     | 
|     |  | $ | 697 | 
|     |  |   |     | 



|    |                    
|--- | -------------------
|15. | Segment Information

The Company had two reportable business segments
in 2002, Lynch Systems (glass manufacturing equipment) and
M-tron (frequency control devices).

Prior to 2002, the Company had four reportable
business segments. The largest was Spinnaker Coatings
adhesive backed label stock for labels and related applications.
The second largest segment was Lynch Systems glass manufacturing
equipment business. Frequency control devises (quartz crystals
and oscillators) manufactured and sold by M-tron was the third
segment. Entoleter (then a subsidiary of Spinnaker Industries,
Inc.) manufactured and sold industrial process equipment and was
the fourth segment. Spinnaker Coating and Entoleter results for
2001 represent the nine-month period ending September 30,
2001 pursuant to the deconsolidation of Spinnaker on
September 30, 2001 (see Note 1 to the Consolidated
Financial Statements  Basis of
Presentation). Each of the businesses is located
domestically and consolidated export sales (primarily Canada and
China) were approximately $18.6 million in 2002,
$35.7 million in 2001 and $54.7 million in 2000. For
the year ended December 31, 2002, one customer accounted
for $6.3 million or 42.0 percent of Lynch
Systems sales while one customer represented
$1.0 million or 8.9% of frequency control sales. The
Company considers concentrations of credit risk to be minimal
due to its diverse customer base and because it requires letters
of credit of most foreign customers to support a significant
portion of the purchase price.

49



---



##### 



LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

M-tron attempts to utilize standard parts and
components that are available from multiple vendors located in
the United States or internationally; however, some components
used in its products are available from only a limited number of
sources.

EBITDA (after corporate allocation) for operating
segments is equal to operating profit before depreciation,
amortization and non-cash restructuring charges. 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 generally accepted accounting
principles.

Operating profit (loss) is equal to revenues less
operating expenses, excluding investment income, interest
expense, and income taxes. The Company allocates a portion of
its general corporate expenses to its operating segments. Such
allocation was $200,000 in 2002, $289,000 in 2001 and $300,000
in 2000. Identifiable assets of each industry segment are the
assets used by the segment in its operations excluding general
corporate assets. General corporate assets are principally cash
and cash equivalents, short-term investments and certain other
investments and receivables.

|                                          |  |                         |        |      |  |      |         |   |  |   |         |  
|----------------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                          |  |                        
|                                          |  | Years ended December 31
|                                          |  |                        
|                                          |  | 2002                    |        | 2001 |  | 2000
|                                          |  |                         |        |      |  |     
|Revenues                                  |  |                         |        |      |  |      |         |   |  |   |         |  
|Adhesive-backed label stock               |  | $                       |       |      |  | $    | 90,163  |   |  | $ | 150,136 |  
|Glass manufacturing equipment             |  |                         | 14,974 |      |  |      | 26,047  |   |  |   | 23,608  |  
|Frequency control devices                 |  |                         | 11,412 |      |  |      | 21,593  |   |  |   | 39,855  |  
|Industrial process equipment              |  |                         |       |      |  |      | 3,270   |   |  |   | 5,597   |  
|                                          |  |                         |        |      |  |      |         |   |  |   |         |  
|Consolidated total                        |  | $                       | 26,386 |      |  | $    | 141,073 |   |  | $ | 219,196 |  
|                                          |  |                         |        |      |  |      |         |   |  |   |         |  
|EBITDA (after corporation
    allocation) |  |                         |        |      |  |      |         |   |  |   |         |  
|Adhesive-backed label stock               |  | $                       |       |      |  | $    | (4,755  | ) |  | $ | 99      |  
|Glass manufacturing equipment             |  |                         | 1,321  |      |  |      | 5,125   |   |  |   | 3,239   |  
|Frequency control devices                 |  |                         | (1,909 | )    |  |      | (1,770  | ) |  |   | 4,054   |  
|Industrial process equipment              |  |                         |       |      |  |      | 77      |   |  |   | 440     |  
|Corporate manufacturing expenses          |  |                         |       |      |  |      | (1,140  | ) |  |   | (1,973  | )
|                                          |  |                         |        |      |  |      |         |   |  |   |         |  
|Total manufacturing                       |  |                         | (588   | )    |  |      | (2,463  | ) |  |   | 5,859   |  
|Corporate expenses, net                   |  |                         | (1,414 | )    |  |      | (985    | ) |  |   | (1,451  | )
|Restructuring charge  Spinnaker          |  |                         |       |      |  |      | (1,520  | ) |  |   | (1,650  | )
|                                          |  |                         |        |      |  |      |         |   |  |   |         |  
|Consolidated total                        |  | $                       | (2,002 | )    |  | $    | (4,968  | ) |  | $ | 2,758   |  
|                                          |  |                         |        |      |  |      |         |   |  |   |         |  

50



---



##### 



LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                               |                                                      |                                                                                         |        |      |        |      |         |        |         |   |         |         |         |  
|---------------------------------------------- | ---------------------------------------------------- | --------------------------------------------------------------------------------------- | ------ | ---- | ------ | ---- | ------- | ------ | ------- | - | ------- | ------- | ------- | -
|                                               |                                                      |                                                                                        
|                                               |                                                      | Years ended December 31                                                                
|                                               |                                                      |                                                                                        
|                                               |                                                      | 2002                                                                                    |        | 2001 |        | 2000
|                                               |                                                      |                                                                                         |        |      |        |     
|Operating Profit                               |                                                      |                                                                                         |        |      |        |      |         |        |         |   |         |        
|Adhesive-backed label stock                    |                                                      | $                                                                                       |       |      |        | $    | (7,860  | )      |         | $ | (5,137  | )      
|Glass manufacturing equipment                  |                                                      |                                                                                         | 936    |      |        |      | 4,778   |        |         |   | 2,867   |        
|Frequency control devices                      |                                                      |                                                                                         | (2,574 | )    |        |      | (2,549  | )      |         |   | 3,345   |        
|Industrial process equipment                   |                                                      |                                                                                         |       |      |        |      | (22     | )      |         |   | 280     |        
|Corporate manufacturing expenses               |                                                      |                                                                                         |       |      |        |      | (1,065  | )      |         |   | (1,873  | )      
|                                               |                                                      |                                                                                         |        |      |        |      |         |        |         |   |         |        
|Total manufacturing                            |                                                      |                                                                                         | (1,638 | )    |        |      | (6,718  | )      |         |   | (518    | )      
|Unallocated Corporate expense                  |                                                      |                                                                                         | (1,614 | )    |        |      | (1,656  | )      |         |   | (1,751  | )      
|Gain on deconsolidation                        |                                                      |                                                                                         | 19,420 |      |        |      | 27,406  |        |         |   |        |        
|Restructuring charge  Spinnaker               |                                                      |                                                                                         |       |      |        |      | (38,272 | )      |         |   | (2,708  | )      
|                                               |                                                      |                                                                                         |        |      |        |      |         |        |         |   |         |        
|Consolidated Total                             |                                                      | $                                                                                       | 16,168 |      |        | $    | (19,240 | )      |         | $ | (4,977  | )      
|                                               |                                                      |                                                                                         |        |      |        |      |         |        |         |   |         |        
|Depreciation and Amortization                  |                                                      |                                                                                         |        |      |        |      |         |        |         |   |         |        
|Adhesive-backed label stock                    |                                                      | $                                                                                       |       |      |        | $    | 3,105   |        |         | $ | 5,236   |        
|Glass manufacturing equipment                  |                                                      |                                                                                         | 485    |      |        |      | 461     |        |         |   | 472     |        
|Frequency control devices                      |                                                      |                                                                                         | 765    |      |        |      | 879     |        |         |   | 809     |        
|Industrial process equipment                   |                                                      |                                                                                         |       |      |        |      | 99      |        |         |   | 160     |        
|Corporate manufacturing expenses               |                                                      |                                                                                         |       |      |        |      | 15      |        |         |   | 1,058   |        
|                                               |                                                      |                                                                                         |        |      |        |      |         |        |         |   |         |        
|Consolidated Total                             |                                                      | $                                                                                       | 1,250  |      |        | $    | 4,559   |        |         | $ | 7,735   |        
|                                               |                                                      |                                                                                         |        |      |        |      |         |        |         |   |         |        
|Capital expenditures                           |                                                      |                                                                                         |        |      |        |      |         |        |         |   |         |        
|Adhesive-backed label stock                    |                                                      | $                                                                                       |       |      |        | $    | 430     |        |         | $ | 2,631   |        
|Glass manufacturing equipment                  |                                                      |                                                                                         | 89     |      |        |      | 217     |        |         |   | 183     |        
|Frequency control devices                      |                                                      |                                                                                         | 134    |      |        |      | 429     |        |         |   | 1,476   |        
|Industrial process equipment                   |                                                      |                                                                                         |       |      |        |      | 28      |        |         |   | 33      |        
|                                               |                                                      |                                                                                         |        |      |        |      |         |        |         |   |         |        
|Consolidated Total                             |                                                      | $                                                                                       | 223    |      |        | $    | 1,104   |        |         | $ | 4,323   |        
|                                               |                                                      |                                                                                         |        |      |        |      |         |        |         |   |         |        
|Total Assets                                   |                                                      |                                                                                         |        |      |        |      |         |        |         |   |         |        
|Adhesive-backed label stock                    |                                                      | $                                                                                       |       |      |        | $    |        |        |         | $ | 116,746 |        
|Glass manufacturing equipment                  |                                                      |                                                                                         | 13,181 |      |        |      | 22,496  |        |         |   | 17,908  |        
|Frequency control devices                      |                                                      |                                                                                         | 7,021  |      |        |      | 7,671   |        |         |   | 18,210  |        
|Industrial process equipment                   |                                                      |                                                                                         |       |      |        |      |        |        |         |   | 2,285   |        
|General Corporate                              |                                                      |                                                                                         | 3,228  |      |        |      | 1,448   |        |         |   | 7,671   |        
|                                               |                                                      |                                                                                         |        |      |        |      |         |        |         |   |         |        
|Consolidated Total                             |                                                      | $                                                                                       | 23,430 |      |        | $    | 31,615  |        |         | $ | 162,820 |        
|                                               |                                                      |                                                                                         |        |      |        |      |         |        |         |   |         |        
|Total operating profit for reportable segments |                                                      |                                                                                         |        |      |        |      |         |        |         |   |         |        
|Other profit or (loss):                        |                                                      | $                                                                                       | 16,168 |      |        | $    | (19,240 | )      |         | $ | (4,977  | )      
|                                               | Investment income                                    |                                                                                         |        | 121  |        |      |         | 384    |         |   |         | 1,481   |        
|                                               | Interest expense                                     |                                                                                         |        | (201 | )      |      |         | (7,741 | )       |   |         | (11,432 | )      
|                                               | Other expense                                        |                                                                                         |        | (92  | )      |      |         |       |         |   |         |        |        
|                                               | Impairment of Spinnakers investment in
    warrants |                                                                                         |        |     |        |      |         |       |         |   |         | (2,800  | )      
|                                               |                                                      |                                                                                         |        |      |        |      |         |        |         |   |         |        
|                                               |                                                      | Income (loss) from continuing operations before
    income taxes and minority interests |        | $    | 15,996 |      |         | $      | (26,597 | ) |         | $       | (17,728 | )
|                                               |                                                      |                                                                                         |        |      |        |      |         |        |         |   |         |        

51



---



##### 



LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

On September 30, 2001, the Companys
ownership and voting interest of Spinnaker Industries, Inc. was
reduced to 41.8% and 49.5% respectively, due to the disposition
of shares of Spinnaker. As a result, effective
September 30, 2001, the Company relinquished control of
Spinnaker and has deconsolidated Spinnaker. On
September 23, 2002, the Company disposed of its remaining
interest in Spinnaker (see Note 1 to the Consolidated
Financial Statements  Basis of
Presentation).



|    |                                                
|--- | -----------------------------------------------
|16. | Quarterly Results of Operations
    (unaudited)

The following is a summary of the quarterly
results of operations for the years ended December 31, 2002
and December 31, 2001, (in thousands, except per share
amounts):

|                                            |  |                            |       |         |  |         |       |         |  |   |        |  |  |   |        |  
|------------------------------------------- |  | -------------------------- | ----- | ------- |  | ------- | ----- | ------- |  | - | ------ |  |  | - | ------ | -
|                                            |  |                           
|                                            |  | 2002 Three Months Ended(a)
|                                            |  |                           
|                                            |  | Mar. 31                    |       | June 30 |  | Sep. 30 |       | Dec. 31
|                                            |  |                            |       |         |  |         |       |        
|Sales and revenues                          |  | $                          | 7,003 |         |  | $       | 9,691 |         |  | $ | 5,040  |  |  | $ | 4,652  |  
|Gross profit                                |  |                            | 2,149 |         |  |         | 2,820 |         |  |   | 1,078  |  |  |   | 902    |  
|Operating profit (loss)(b)                  |  |                            | (400  | )       |  |         | (193  | )       |  |   | 18,196 |  |  |   | (1,435 | )
|Net income (loss)                           |  |                            | (292  | )       |  |         | (108  | )       |  |   | 19,267 |  |  |   | (904   | )
|Basic and diluted earnings (loss) per share |  |                            | (0.19 | )       |  |         | (0.07 | )       |  |   | 12.86  |  |  |   | (0.60  | )

|                                            |  |                         |         |         |  |         |        |         |  |   |        |  |  |   |        |  
|------------------------------------------- |  | ----------------------- | ------- | ------- |  | ------- | ------ | ------- |  | - | ------ |  |  | - | ------ | -
|                                            |  |                        
|                                            |  | 2001 Three Months Ended
|                                            |  |                        
|                                            |  | Mar. 31                 |         | June 30 |  | Sep. 30 |        | Dec. 31
|                                            |  |                         |         |         |  |         |        |        
|Sales and revenues                          |  | $                       | 53,548  |         |  | $       | 45,353 |         |  | $ | 31,982 |  |  | $ | 10,190 |  
|Gross profit                                |  |                         | 4,995   |         |  |         | 692    |         |  |   | 2,661  |  |  |   | 2,435  |  
|Operating profit (loss)(c)                  |  |                         | (37,093 | )       |  |         | (5,870 | )       |  |   | 24,379 |  |  |   | (656   | )
|Net income (loss)                           |  |                         | (36,070 | )       |  |         | (8,673 | )       |  |   | 23,082 |  |  |   | (1,277 | )
|Basic and diluted earnings (loss) per share |  |                         | (23.89  | )       |  |         | (5.74  | )       |  |   | 15.36  |  |  |   | (0.85  | )



---

NOTE:



|   |  |                                                                                                                                                                                                                                                                  
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) |  | Effective September 30, 2001, the Company
    deconsolidated Spinnaker (see Note 1 to the Consolidated
    Financial Statements  Basis of
    Presentation). As a result, full year 2002 and fourth
    quarter 2001 results do not include Spinnaker results.
|  
|b) |  | Third quarter of 2002 includes $19,420 gain on
    deconsolidation. (See Note 1 to the Consolidated Financial
    Statements  Basis of Presentation).                                                                                                         
|  
|c) |  | Includes restructuring costs applicable to
    Spinnaker of: 1st Quarter  $36,484;
    2nd Quarter  $5,051;
    3rd Quarter  $219 and gain on deconsolidation of
    $27,406 in the 3rd Quarter.                                                              



|    |                  
|--- | -----------------
|17. | Subsequent Events



| |                        
| | -----------------------
| | M-tron Industries, Inc.

On January 2, 2003, the Companys
subsidiary, M-tron Industries, Inc., concluded a loan with the
South Dakota Board of Economic Development in the amount of
$296,000. The note carries a 3.0% coupon rate and has a
December 19, 2007 maturity date. Payments are
$1,642 per month, with a balloon payment due at maturity.

This State loan replaces the borrowing under the
revolving credit loan that was used to consummate the Champion
Technologies, Inc. acquisition. This State loan, along with
other local agency loans, totaled $646,000 and partially funded
the October 15, 2002 acquisition of certain Champion assets
that were purchased for $850,000. The State and local agency
loans are secured by M-trons real estate.

52



---



##### 



LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                    
| | -------------------
| | Lynch Systems, Inc.

On February 11, 2003, Lynch Systems booked
an order in the amount of $2.2 million for tableware
equipment that will be delivered in 2003. In addition, on
March 12, 2003, an order for $2.5 million for CRT
equipment was received which will also be delivered in 2003.
These orders, which total $4.7 million, have substantially
increased Lynch Systems open order backlog.

53



---



##### 



SCHEDULE I  CONDENSED FINANCIAL
INFORMATION OF

REGISTRANT LYNCH CORPORATION


CONDENSED BALANCE SHEET

|                                                                                            |                                     |                |        |       |  |   |        |       | 
|------------------------------------------------------------------------------------------- | ----------------------------------- | -------------- | ------ | ----- |  | - | ------ | ----- | 
|                                                                                            |                                     | 2002           |        | 2001 
|                                                                                            |                                     |                |        |      
|                                                                                            |                                     |               
|                                                                                            |                                     | (In Thousands)
|ASSETS                                                                                     
|CURRENT ASSETS                                                                              |                                     |                |        |       |  |   |        |      
|                                                                                            | Cash and Cash Equivalents(a)        |                | $      | 3,412 |  |   | $      | 2,208 | 
|                                                                                            | Investments  Marketable Securities |                |        | 861   |  |   |        |      | 
|                                                                                            | Dividend Receivable From Subsidiary |                |        | 6     |  |   |        |      | 
|                                                                                            | Deferred Income Taxes               |                |        | 166   |  |   |        | 412   | 
|                                                                                            | Other Current Assets                |                |        | 174   |  |   |        | 76    | 
|                                                                                            |                                     |                |        |       |  |   |        |      
|                                                                                            |                                     |                | 4,619  |       |  |   | 2,696  |      
|OTHER ASSETS (principally investment in and
    amounts due from wholly owned subsidiaries) |                                     |                | 9,942  |       |  |   | 10,517 |      
|                                                                                            |                                     |                |        |       |  |   |        |      
|TOTAL ASSETS                                                                                |                                     | $              | 14,561 |       |  | $ | 13,213 |      
|                                                                                            |                                     |                |        |       |  |   |        |      
|LIABILITIES AND SHAREHOLDERS
    (DEFICIENCY) EQUITY                                      
|CURRENT LIABILITIES                                                                         |                                     | $              | 4,589  |       |  | $ | 1,213  |      
|LONG TERM LIABILITIES                                                                       |                                     |                | (962   | )     |  |   | 31     |      
|LOSS IN EXCESS OF INVESTMENT                                                                |                                     |                |       |       |  |   | 19,420 |      
|TOTAL SHAREHOLDERS (DEFICIENCY) EQUITY                                                     |                                     |                | 10,934 |       |  |   | (7,451 | )    
|                                                                                            |                                     |                |        |       |  |   |        |      
|TOTAL LIABILITIES AND SHAREHOLDERS
    (DEFICIENCY) EQUITY                                 |                                     | $              | 14,561 |       |  | $ | 13,213 |      
|                                                                                            |                                     |                |        |       |  |   |        |      



---

Notes:



|    |                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | Cash and cash equivalents includes $1,125,000
    restricted cash that secures the $1,000,000 Letter of Credit
    issued on behalf of Lynch to M-trons lending bank.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | * | On September 30, 2001, the Companys
    ownership and voting interest of Spinnaker Industries, Inc. was
    reduced to 41.8% and 49.5% respectively, due to the disposition
    of shares of Spinnaker. As a result, effective
    September 30, 2001, the Company relinquished control of
    Spinnaker and has deconsolidated Spinnaker. On
    September 23, 2002, the Company disposed of its remaining
    interest in Spinnaker (See Note 1 to the Consolidated
    Financial Statements  Basis of
    Presentation).

54



---



##### 



LYNCH CORPORATION



CONDENSED FINANCIAL INFORMATION OF
REGISTRANT


CONDENSED STATEMENT OF OPERATIONS


|                                                                                      |  |                        |        |      |  |      |         |   |  |   |        |  
|------------------------------------------------------------------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                                                                      |  |                       
|                                                                                      |  | Year Ended December 31
|                                                                                      |  |                       
|                                                                                      |  | 2002                   |        | 2001 |  | 2000
|                                                                                      |  |                        |        |      |  |     
|                                                                                      |  |                       
|                                                                                      |  | (In Thousands)        
|Interest, Dividends & Gains on Sale of
    Marketable Securities                      |  | $                      | 40     |      |  | $    | 209     |   |  | $ | 187    |  
|Dividend from Subsidiary                                                              |  |                        | 1,306  |      |  |      |        |   |  |   | 1,500  |  
|Interest & Other Income from Subsidiaries                                             |  |                        | 12     |      |  |      | 24      |   |  |   | 348    |  
|                                                                                      |  |                        |        |      |  |      |         |   |  |   |        |  
|TOTAL INCOME                                                                          |  |                        | 1,358  |      |  |      | 233     |   |  |   | 2,035  |  
|Costs & Expenses:                                                                     |  |                        |        |      |  |      |         |   |  |   |        |  
|Unallocated Corporate Administrative Expense                                          |  |                        | 1,414  |      |  |      | 1,001   |   |  |   | 1,451  |  
|Interest Expense                                                                      |  |                        | 9      |      |  |      | 23      |   |  |   | 15     |  
|                                                                                      |  |                        |        |      |  |      |         |   |  |   |        |  
|TOTAL COST AND EXPENSE                                                                |  |                        | 1,423  |      |  |      | 1,024   |   |  |   | 1,466  |  
|                                                                                      |  |                        |        |      |  |      |         |   |  |   |        |  
|INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY
    IN NET INCOME (LOSS) OF SUBSIDIARIES |  |                        | (65    | )    |  |      | (791    | ) |  |   | 569    |  
|Income Tax Benefit (Provision)                                                        |  |                        | 20     |      |  |      | 269     |   |  |   | (215   | )
|Equity in Net Income (Loss) of Subsidiaries                                           |  |                        | 18,008 |      |  |      | (22,416 | ) |  |   | (3,792 | )
|                                                                                      |  |                        |        |      |  |      |         |   |  |   |        |  
|NET INCOME (LOSS)                                                                     |  | $                      | 17,963 |      |  | $    | (22,938 | ) |  | $ | (3,438 | )
|                                                                                      |  |                        |        |      |  |      |         |   |  |   |        |  



---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | On September 30, 2001, the Companys
    ownership and voting interest of Spinnaker Industries, Inc. was
    reduced to 41.8% and 49.5% respectively, due to the disposition
    of shares of Spinnaker. As a result, effective
    September 30, 2001, the Company relinquished control of
    Spinnaker and has deconsolidated Spinnaker. On
    September 23, 2002, the Company disposed of its remaining
    interest in Spinnaker.  See Note 1 to
    Consolidated Financial Statements  Basis of
    Presentation.

55



---



##### 



LYNCH CORPORATION



CONDENSED FINANCIAL INFORMATION OF
REGISTRANT


CONDENSED STATEMENTS OF CASH FLOW


|                                                          |  |                        |       |      |  |      |        |   |  |   |        |  
|--------------------------------------------------------- |  | ---------------------- | ----- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                          |  |                       
|                                                          |  | Year Ended December 31
|                                                          |  |                       
|                                                          |  | 2002                   |       | 2001 |  | 2000
|                                                          |  |                        |       |      |  |     
|                                                          |  |                       
|                                                          |  | (In Thousands)        
|Cash provided from (used in) Operating Activities         |  | $                      | 910   |      |  | $    | (1,220 | ) |  | $ | (2,210 | )
|                                                          |  |                        |       |      |  |      |        |   |  |   |        |  
|INVESTING ACTIVITIES:                                     |  |                        |       |      |  |      |        |   |  |   |        |  
|Purchase of available for-sale Securities                 |  |                        | (306  | )    |  |      |       |   |  |   |       |  
|Dividend from subsidiaries                                |  |                        | 1,300 |      |  |      | 1,500  |   |  |   |       |  
|                                                          |  |                        |       |      |  |      |        |   |  |   |        |  
|NET CASH PROVIDED FROM INVESTING ACTIVITIES               |  |                        | 994   |      |  |      | 1,500  |   |  |   |       |  
|                                                          |  |                        |       |      |  |      |        |   |  |   |        |  
|FINANCING ACTIVITIES:                                     |  |                        |       |      |  |      |        |   |  |   |        |  
|Sale of Treasury Stock                                    |  |                        |      |      |  |      |       |   |  |   | 1,191  |  
|Issuance of Common Stock                                  |  |                        |      |      |  |      |       |   |  |   | 1,809  |  
|Other (Loans to Subsidiary)                               |  |                        | (700  | )    |  |      |       |   |  |   | (16    | )
|                                                          |  |                        |       |      |  |      |        |   |  |   |        |  
|NET CASH (USED IN) PROVIDED FROM FINANCING
    ACTIVITIES |  |                        | (700  | )    |  |      |       |   |  |   | 2,984  |  
|                                                          |  |                        |       |      |  |      |        |   |  |   |        |  
|TOTAL INCREASE IN CASH AND CASH EQUIVALENTS               |  |                        | 1,204 |      |  |      | 280    |   |  |   | 774    |  
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR            |  |                        | 2,208 |      |  |      | 1,928  |   |  |   | 1,154  |  
|                                                          |  |                        |       |      |  |      |        |   |  |   |        |  
|CASH AND CASH EQUIVALENTS AT END OF YEAR                  |  | $                      | 3,412 |      |  | $    | 2,208  |   |  | $ | 1,928  |  
|                                                          |  |                        |       |      |  |      |        |   |  |   |        |  

NOTES TO CONDENSED FINANCIAL
STATEMENTS



| |                                   
| | ----------------------------------
| | NOTE A  BASIS OF
    PRESENTATION

In the parent companys financial
statements, the Companys investment in subsidiaries is
stated at cost plus equity in undistributed earnings of the
subsidiaries.



| |                                         
| | ----------------------------------------
| | NOTE B  DIVIDENDS FROM
    SUBSIDIARIES

Dividends paid to Lynch Corporation from the
Registrants consolidated subsidiaries were $1,300,000 in
2002 and $1,500,000 in 2001. No dividends were paid in 2000 and
no other dividends were received from subsidiaries or investees.



| |                                   
| | ----------------------------------
| | NOTE C  LOANS TO
    SUBSIDIARIES

In 2002, Lynch Corporation (parent) lent its
subsidiary, M-tron Industries, Inc., $700,000 to support its
banking relationship and to fund M-trons acquisition of
Champion Technologies, Inc.



| |                                 
| | --------------------------------
| | NOTE D  INCOME TAX
    RECOVERY

2002 cash provided from operations includes
income tax recoveries of $2,170,000.



| |                                                                                            
| | -------------------------------------------------------------------------------------------
| | NOTE E  SEE NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS FOR ADDITIONAL
    INFORMATION.

56



---



##### 



LYNCH CORPORATION AND SUBSIDIARIES

SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS

YEARS ENDED DECEMBER 31, 2002, 2001 AND
2000


|                             |  |            |           |            |  |             |           |               |  |            |          |   |  |   |         |  |  |   |           | 
|---------------------------- |  | ---------- | --------- | ---------- |  | ----------- | --------- | ------------- |  | ---------- | -------- | - |  | - | ------- |  |  | - | --------- | 
|                             |  |            |           |            |  |             |           |              
|Column A                     |  | Column B   |           | Column C   |  | Column D    |           | Column E     
|                             |  |            |           |            |  |             |           |              
|                             |  |            |           |            |  |             |           |              
|                             |  |            |           | Additions  |  |             |           |              
|                             |  |            |           |            |  |             |           |              
|                             |  | Balance at |           | Charged to |  | Charged to  |           |               |  | Balance at
|                             |  | Beginning  |           | Costs and  |  | Other       |           |               |  | End of    
|Description                  |  | of Period  |           | Expenses   |  | Accounts(A) |           | Deductions(B) |  | Period    
|                             |  |            |           |            |  |             |           |               |  |           
|Year ended December 31, 2002 |  |            |           |            |  |             |           |               |  |            |          |   |  |   |         |  |  |   |           | 
|Allowance for uncollectible  |  | $          | 118,000   |            |  | $           | 7,000     |               |  | $          | 0        |   |  | $ | 34,000  |  |  | $ | 91,000    | 
|                             |  |            |           |            |  |             |           |               |  |            |          |   |  |   |         |  |  |   |           | 
|Year ended December 31, 2001 |  |            |           |            |  |             |           |               |  |            |          |   |  |   |         |  |  |   |           | 
|Allowance for uncollectible  |  | $          | 1,582,000 |            |  | $           | 120,000   |               |  | $          | (589,000 | ) |  | $ | 995,000 |  |  | $ | 118,000   | 
|                             |  |            |           |            |  |             |           |               |  |            |          |   |  |   |         |  |  |   |           | 
|Year ended December 31, 2000 |  |            |           |            |  |             |           |               |  |            |          |   |  |   |         |  |  |   |           | 
|Allowance for uncollectible  |  | $          | 361,000   |            |  | $           | 1,312,000 |               |  | $          | 0        |   |  | $ | 91,000  |  |  | $ | 1,582,000 | 
|                             |  |            |           |            |  |             |           |               |  |            |          |   |  |   |         |  |  |   |           | 



---



|    |  |                                                                                                                                                                                 
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) |  | $589,000 is the result of the deconsolidation of
    Spinnaker Industries, Inc. on September 30, 2001 (as
    discussed in Note 1 to the Consolidated Financial
    Statements).
|   
|(B) |  | Uncollectible accounts written off are net of
    recoveries (majority attributable to Spinnaker in 2001).                                                                      

57



---



##### 



Pursuant to the requirements of Section 13
or 15(d) 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 CORPORATION



| |     |                     
| | --- | --------------------
| | By: | /s/ RALPH R. PAPITTO

| |                              
| | -----------------------------
| |                              
| | RALPH R. PAPITTO             
| | Chief Executive Officer      
| | (Principal Executive Officer)

March 26, 2003

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.

|                                             |  |                                                                                  |  |               
|-------------------------------------------- |  | -------------------------------------------------------------------------------- |  | --------------
|Signature                                    |  | Capacity                                                                         |  | Date          
|                                             |  |                                                                                  |  |               
|                                            
|/s/ RALPH R. PAPITTORALPH R. PAPITTO         |  | Principal Executive Officer, Chairman of the
    Board of Directors and Director |  | March 26, 2003
|                                            
|/s/ MARIO J. GABELLIMARIO J. GABELLI         |  | Vice Chairman of the Board of Directors and
    Director                         |  | March 26, 2003
|                                            
|/s/ E. VAL CERUTTIE. VAL CERUTTI             |  | Director                                                                         |  | March 26, 2003
|                                            
|/s/ AVRUM GRAYAVRUM GRAY                     |  | Director                                                                         |  | March 26, 2003
|                                            
|/s/ ANTHONY R. PUSTORINOANTHONY R. PUSTORINO |  | Director                                                                         |  | March 26, 2003
|                                            
|/s/ RICHARD E. MCGRAILRICHARD E. MCGRAIL     |  | President, Chief Operating Officer and Director                                  |  | March 26, 2003
|                                            
|/s/ RAYMOND H. KELLERRAYMOND H. KELLER       |  | Principal Financial and Accounting Officer and
    Director                      |  | March 26, 2003

58



---



##### 



CERTIFICATIONS

I, Ralph R. Papitto, certify that:

1. I have reviewed this annual report on
Form 10-K of Lynch Corporation;

2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operation and cash flows of the
Registrant as of, and for, the periods presented in this annual
report;

4. The Registrants other certifying
officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14), for the Registrant
and have:



| |                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) Designed such disclosure controls and
    procedures to ensure that material information relating to the
    Registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | (b) Evaluated the effectiveness of the
    Registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | (c) Presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The Registrants other certifying
officer and I have disclosed, based on our most recent
evaluation, to the Registrants auditors and the audit
committee of Registrants board of directors (or persons
performing the equivalent functions):



| |                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) All significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the Registrants ability to record, process,
    summarize and report financial data and have identified for the
    Registrants auditors any material weaknesses in internal
    controls; and
|
| | (b) Any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the Registrants internal controls; and                                                                                                                                                    

6. The Registrants other certifying
officer and I have indicated in this annual report whether
there were significant changes in internal controls or in other
factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.



| |                                     
| | ------------------------------------
| | /s/ RALPH R. PAPITTO                
| |                                     
| | RALPH R. PAPITTO                    
| | Chairman and Chief Executive Officer

Date: March 27, 2003

59



---



##### 



CERTIFICATIONS

I, Raymond H. Keller, certify that:

1. I have reviewed this annual report on
Form 10-K of Lynch Corporation;

2. Based on my knowledge, this annual report
does not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
annual report;

3. Based on my knowledge, the financial
statements, and other financial information included in this
annual report, fairly present in all material respects the
financial condition, results of operation and cash flows of the
Registrant as of, and for, the periods presented in this annual
report;

4. The Registrants other certifying
officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and have:



| |                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) Designed such disclosure controls and
    procedures to ensure that material information relating to the
    Registrant, including its consolidated subsidiaries, is made
    known to us by others within those entities, particularly during
    the period in which this annual report is being prepared;
|
| | (b) Evaluated the effectiveness of the
    Registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | (c) Presented in this annual report our
    conclusions about the effectiveness of the disclosure controls
    and procedures based on our evaluation as of the Evaluation Date;                                                                                                                                

5. The Registrants other certifying
officer and I have disclosed, based on our most recent
evaluation, to the Registrants auditors and the audit
committee of Registrants board of directors (or persons
performing the equivalent functions):



| |                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) All significant deficiencies in the
    design or operation of internal controls which could adversely
    affect the Registrants ability to record, process,
    summarize and report financial data and have identified for the
    Registrants auditors any material weaknesses in internal
    controls; and
|
| | (b) Any fraud, whether or not material, that
    involves management or other employees who have a significant
    role in the Registrants internal controls; and                                                                                                                                                    

6. The Registrants other certifying
officer and I have indicated in this annual report whether
there were significant changes in internal controls or in other
factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.



| |                                               
| | ----------------------------------------------
| | /s/ RAYMOND H. KELLER                         
| |                                               
| | RAYMOND H. KELLER                             
| | Vice President and Chief Financial
    Officer

Date: March 27, 2003

60



---



##### 



EXHIBIT INDEX

|        |  |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|------- |  | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |  |            
|Exhibit |  |            
|No.     |  | Description
|        |  |            
|2       |  | (a)         |  | Asset Purchase Agreement (Asset Purchase
    Agreement) dated January 18, 2002 by and among
    Spinnaker Industries, Inc., Spinnaker Coating, Inc., Spinnaker
    Coating-Maine, Inc. and SP Acquisition, LLC.                                                                                                                                                                                                                                                                                                                                                                                   
|        |  | (b)         |  | Asset Purchase Agreement Amendment No. 1
    dated February 15, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |  | (c)         |  | Asset Purchase Agreement Amendment No. 2
    dated February 25, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |  | (d)         |  | Asset Purchase Agreement Amendment No. 3
    dated March 5, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |  | (e)         |  | Asset Purchase Agreement Amendment No. 4
    dated March 8, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |  | (f)         |  | Asset Purchase Agreement Amendment No. 5
    dated March 18, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |  | (g)         |  | Schedules to Asset Purchase Agreement dated
    January 18, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |  | (h)         |  | United States Bankruptcy Court Order dated
    March 6, 2002; In Re: Spinnaker Industries, Inc.,
    et al., C.A. No. 01-38066.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|3       |  | (a)         |  | Restated Articles of Incorporation of Registrant
    (incorporated by reference to Exhibit 3(a) of the
    Registrants Annual Report on Form 10-K for the year
    ended December 31, 1987).                                                                                                                                                                                                                                                                                                                                                                                                       
|        |  | (b)         |  | By-laws of the Registrant, (incorporated by
    reference to the Exhibit 3(b) of the Registrants
    Annual Report on Form 10-K for the year ended
    December 31, 1987).                                                                                                                                                                                                                                                                                                                                                                                                                         
|4       |  | (a)         |  | Purchase Agreement, dated October 18, 1996
    (the Purchase Agreement) among Spinnaker Industries,
    Inc., a Delaware corporation (Spinnaker),
    Brown-Bridge Industries, Inc., a Delaware corporation
    (Brown-Bridge), Central Products Company, a Delaware
    corporation (Central Products), and Entoleter, Inc.,
    (Entoleter) and together with Brown-Bridge and
    Central Products, (the Guarantors) and BT Securities
    Corporation (the Initial Purchaser) (incorporated by
    reference to Exhibit 4.1 to Registrants
    Form 8-K, dated October 23, 1996).
|        |  | (b)         |  | Indenture, dated October 23, 1996, among
    Spinnaker, the Guarantors and the Chase Manhattan Bank, as
    Trustee (incorporated by reference to Exhibit 4.3 to
    Registrants Form 8-K, dated April 19, 1996).                                                                                                                                                                                                                                                                                                                                                                                  
|        |  | (b)(i)      |  | First Supplemental Indenture dated as of
    March 17, 1998, among Spinnaker Industries, Inc., Central
    Products Company, Entoleter, Inc., Spinnaker Coating, Inc.,
    Spinnaker Coating-Maine, Inc. and the Chase Manhattan Bank, as
    Trustee (incorporated by reference by Exhibit 99.6 to the
    Form 8-K of Spinnaker Industries, Inc., dated as of
    March 17, 1998.)                                                                                                                                                                                                                
|        |  | (c)         |  | Credit Agreement (the Spinnaker Credit
    Agreement) amended as of December 31, 1997, among
    Central Products Company, Brown-Bridge Industries, Inc. and
    Entoleter, Inc. as Borrowers, Spinnaker Industries, Inc. as
    Guarantor, each of the financial institutions listed on
    Schedule 1 thereto, BT Commercial Corporation, as Agent,
    Transamerican Business Credit Corporation, as Collateral Agent,
    and Bankers Trust Company as Issuing Bank (incorporated by
    reference to Exhibit 99.1 to Registrants
    Form 8-K dated October 23, 1996).                      
|        |  | (c)(i)      |  | Fourth Amendment to the Spinnaker Credit
    Agreement (incorporated by reference to Exhibit 9.3 to the
    Form 8-K of Spinnaker Industries, Inc. dated as of
    March 17, 1998).                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |  | (c)(ii)     |  | Fifth Amendment to Spinnaker Credit Agreement
    (incorporated by reference to Exhibit 9.4 to the
    Form 8-K of Spinnaker Industries, Inc. dated as of
    March 17, 1998).                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |  | (c)(iii)    |  | Sixth Amendment to the Spinnaker Credit Agreement
    (incorporated by reference by Exhibit 9.5 to the
    Form 8-K of Spinnaker Industries, Inc. dated as of
    March 17, 1998).                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |  | (d)         |  | Refinanced Credit Agreement among Spinnaker
    Coating, Inc., Spinnaker Coating-Maine, Inc. and Entoleter, Inc.
    as Borrowers, Spinnaker Industries, Inc. as Guarantor, each of
    the financial institutions listed as Schedule 1 hereto and
    Transamerica Business Corporation, as Agent, dated
    August 9, 1999 and the First, Second and Third Amendments
    thereto (incorporated by reference to Exhibits 10.5, 10.6, 10.7
    and 10.8 to Spinnakers Form 10-K for the year ended
    December 31, 1999).                                                                        
|        |  | (d)(i)      |  | Fourth Amendment to financed Credit Agreement
    dated April 17, 2000 (incorporated by reference to
    Exhibit 10.1 to Spinnakers Form 10-Q for the
    quarter ended March 31, 2000).                                                                                                                                                                                                                                                                                                                                                                                                           

61



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##### 



|                                                                                                                                                                                                                                                                                                                                    |  |             |  |                                                                                                                                                                                                                                                                                                                                                      
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                    |  |            
|Exhibit                                                                                                                                                                                                                                                                                                                             |  |            
|No.                                                                                                                                                                                                                                                                                                                                 |  | Description
|                                                                                                                                                                                                                                                                                                                                    |  |            
|                                                                                                                                                                                                                                                                                                                                    |  | (d)(ii)     |  | Fifth Amendment to Refinanced Credit Agreement
    dated September 30, 2000 (incorporated by reference to
    Exhibit 10.1 to Spinnakers Form 10-Q for the
    quarter ended September 30, 2000).                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                    |  | (d)(iv)     |  | Sixth Amendment to Refinanced Credit Agreement
    dated March 2001 (incorporated by reference to
    Exhibit 10.16 to Spinnakers Form 10-K for the
    year ended December 31, 2001).                                                                                                                                                              
|The Registrant, by signing this Form 10-K
    Annual Report, agrees to furnish to the Securities and Exchange
    Commission a copy of any long-term debt instrument where the
    amount of the securities authorized thereunder does not exceed
    10 percent of the total assets of the Registrant on a
    consolidated basis.
|                                                                                                                                                                                                                                                                                                                                   
|10                                                                                                                                                                                                                                                                                                                                  |  | (a)*        |  | Lynch Corporation 401(k) Savings Plan.                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                    |  | (b)         |  | Acquisition Agreement between Brown-Bridge
    Acquisition Corporation and Kimberly-Clark Corporation, dated
    June 15, 1994 (exhibit omitted) (incorporated by reference
    to Exhibit 10® to Registrants Form 10-Q for
    the quarter ended June 10, 1994).                                                                                  
|                                                                                                                                                                                                                                                                                                                                    |  | (c)*        |  | Management Agreement, dated as of June 10,
    1994, by and among Boyle, Fleming, George & Co., Inc.
    and Safety Railway Service Corporation (incorporated by
    reference by Exhibit 7.1 to the Registrants
    Form 8-K, dated June 13, 1994).                                                                                                
|                                                                                                                                                                                                                                                                                                                                    |  | (d)         |  | Subscription Agreement dated March 9, 2000
    between Registrant and Mario J. Gabelli (incorporated by
    reference to Exhibit E to Amendment No. 41 to
    Schedule 13D of Registrant dated March 15, 2000 filed
    by Mario J. Gabelli et. al.).                                                                                                
|                                                                                                                                                                                                                                                                                                                                    |  | (e)         |  | Warrant Purchase Agreement dated as of
    June 10, 1994, by and among Boyle, Fleming,
    George & Co., Inc. and Safety Railway Service
    Corporation (incorporated by reference by Exhibit 7.1 to
    the Registrants Form 8-K, dated June 13, 1994).                                                                                           
|                                                                                                                                                                                                                                                                                                                                    |  | (f)         |  | A Warrant, dated as of June 10, 1994,
    executed by Safety Railway Service Corporation (incorporated by
    reference to Exhibit 7.1 to Registrants
    Form 8-K, dated June 12, 1994).                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                    |  | (g)         |  | Asset Purchase Agreement, dated as of
    June 15, 1994, between Kimberly-Clark Corporation and
    Brown-Bridge Acquisition Corp. (Exhibits omitted) (incorporated
    by reference to Exhibit 10® to Registrants
    Form 10-Q for the quarter ended June 30, 1994).                                                                             
|                                                                                                                                                                                                                                                                                                                                    |  | (h)         |  | Stock Purchase and Loan Program (incorporated by
    reference to Exhibit 10(p) to Registrants
    Form 10-K for the year ended December 31, 1994).                                                                                                                                                                                                 
|                                                                                                                                                                                                                                                                                                                                    |  | (i)         |  | Shareholders and Voting Agreement, dated
    September 16, 1994, among Safety Railway Service
    Corporation, Brown-Bridge Industries, Inc. and the other
    stockholders of Brown-Bridge (incorporated by reference to
    Exhibit 10(q) to Registrants Form 10-K for the
    year ended December 31, 1994).                                    
|                                                                                                                                                                                                                                                                                                                                    |  | (j)         |  | Put Option Agreement, dated September 16,
    1994, among Safety Railway Service Corporation, Brown-Bridge
    Industries, Inc. and certain stockholders of Brown-Bridge
    (incorporated by reference to Exhibit 10(q) to
    Registrants Form 10-K for the year ended
    December 31, 1994).                                                    
|                                                                                                                                                                                                                                                                                                                                    |  | (k)*        |  | Directors Stock Plan (incorporated by reference
    to Exhibit 10(o) to Registrants Form 10-K for
    the year ended December 31, 1997).                                                                                                                                                                                                            
|                                                                                                                                                                                                                                                                                                                                    |  | (l)         |  | Amended Phantom Stock Plan (incorporated by
    reference to Exhibit 10(p) to Registrants
    Form 10-Q for the year ended September 30, 1998).                                                                                                                                                                                                     
|                                                                                                                                                                                                                                                                                                                                    |  | (m)         |  | Stock and Asset Purchase Agreement, dated as of
    September 27, 1995, by and among Central Products
    Acquisition Corp. Unisource Worldwide, Inc. and Alco Standard
    Corporation (incorporated by reference to Exhibit 7.1 to
    Registrants Form 8-K, dated October 19,
    1995).                                                        
|                                                                                                                                                                                                                                                                                                                                    |  | (n)         |  | Agreement and Plan of Merger (Brown-Bridge
    Minority Interest), by and among Spinnaker Industries, Inc., BB
    Merger Corp., Brown-Bridge Industries, Inc. and the stockholder
    of Brown-Bridge Industries, Inc. on Exhibit A Thereto
    (incorporated by reference to Exhibit 99.2 to
    Registrants Form 8-K, dated April 19,
    1996).
|                                                                                                                                                                                                                                                                                                                                    |  | (o)         |  | Lease Agreement between Registrant and Gabelli
    Funds, Inc. (incorporated by reference to Exhibit 10(a)(a)
    to Registrants Form 10-Q for the Quarter Ended
    March 31, 1998).                                                                                                                                                               

62



---



##### 



|        |  |             |  |                                                                                                                                                                                                                                                                                                                                          
|------- |  | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |  |            
|Exhibit |  |            
|No.     |  | Description
|        |  |            
|        |  | (p)         |  | Asset Purchase Agreement, dated as of
    November 18, 1997, by and between S.D. Warren Company
    (Seller) and Spinnaker Industries, Inc.
    (incorporated by reference to Exhibit 2.1 to the
    Form 8-K of Spinnaker Industries, Inc., dated as of
    March 17, 1998).                                                          
|        |  | (p)(i)      |  | First Amendment to Asset Purchase Agreement,
    dated March 17, 1998, by and between S.D. Warren
    Company and Spinnaker Industries, Inc. (incorporated by
    reference by Exhibit 4.2 to the Form 8-K of Spinnaker
    Industries, Inc., dated as of March 17, 1998).                                                              
|        |  | (p)(ii)     |  | Subordinated Note, dated March 17, 1998,
    issued by Spinnaker Industries, Inc. to S.D. Warren Company in
    the original principal amount of $7 million bearing
    interest at a rate of 20% per annum (incorporated by
    reference to Exhibit 4.1 to the Form 8-K of Spinnaker
    Industries, Inc., dated as of March 17, 1998).
|        |  | (p)(iii)    |  | Site Separation and Service Agreement, dated
    March 17, 1998, between S.D. Warren Company and Spinnaker
    Industries, Inc. (incorporated by reference by Exhibit 99.1
    to the Form 8-K of Spinnaker Industries, Inc., dated
    March 17, 1998).                                                                                 
|        |  | (p)(iv)     |  | Lease Agreement, dated March 17, 1998,
    between S.D. Warren Company and Spinnaker Industries, Inc.
    (incorporated by reference by Exhibit 99.2 to the
    Form 8-K of Spinnaker Industries, Inc., dated as of
    March 17, 1998.)                                                                                                 
|        |  | (q)         |  | Stock Purchase Agreement between Spinnaker
    Industries, Inc. and Intertape Polymer Group, Inc., dated
    April 9, 2000 (incorporated by reference to
    Exhibit 2.1 to Spinnaker Industries, Inc. Form 8-K,
    dated August 16, 2000).                                                                                             
|        |  | (r)         |  | Asset Purchase Agreement by and among Registrant,
    Spinnaker Electrical Tape Company and Intertape Polymer Group,
    Inc., dated April 9, 2000 (incorporated by reference to
    Exhibit 2.2 to Spinnaker Industries, Inc. Form 8-K,
    dated August 16, 2000).                                                                     
|        |  | (s)         |  | Information Statement of Lynch Interactive
    Corporations (incorporated by reference to
    Exhibit 99.1 to Lynch Interactive Corporations
    Form 10-A-1, dated August 18, 2000).                                                                                                                                                  
|        |  | (t)         |  | Separation Agreement, dated as of August 31,
    2000, between Registrant and Lynch Interactive Corporation
    (incorporated by reference to Exhibit 2 to Lynch
    Interactive Corporations Form 10a-1, dated
    August 18, 2000).                                                                                                   
|        |  | (u)*        |  | Letter of Understanding between Registrant and
    Louis A. Guzzetti (incorporated by reference to Exhibit
    (u) to Registrants Form 10-K for the year ended
    December 31, 1999).                                                                                                                                                  
|        |  | (v)         |  | Note from Louis A. Guzzetti, Jr. to Registrant
    (incorporated by reference to Exhibit 10(v) to
    Registrants Form 10-K for the year ended
    December 31, 2000).                                                                                                                                                                  
|        |  | (w)*        |  | Agreement among Registrant, Mario J. Gabelli
    and Ralph R. Papitto dated August 17, 2001 pursuant to
    which, among other things, Registrant agreed to grant
    Mr. Papitto an option (incorporated by reference to Exhibit
    10(w) to Registrants Form 8-K dated August 17,
    2001).                                         
|        |  | (x)*        |  | Amendment dated February 7, 2002 among
    Registrant, Mario J. Gabelli and Ralph R. Papitto, amending the
    Agreement at Exhibit 10(w) to terminate Registrants
    obligation to grant an option to Mr. Papitto.                                                                                                                    
|        |  | (y)*        |  | Lynch Corporation 2001 Equity Incentive Plan
    adopted December 10, 2001.                                                                                                                                                                                                                                                              
|        |  | (z)         |  | Amended and Restated Credit Agreement by and
    between Lynch Systems, Inc. and SunTrust Bank dated as of
    June 10, 2002.                                                                                                                                                                                                          
|        |  | (aa)        |  | Unlimited Continuing Guaranty Agreement by
    Guarantor, Lynch Corporation, dated June 10,
    2002.                                                                                                                                                                                                                                  
|        |  | (bb)        |  | Restated Loan and Security Agreement by and
    between M-tron Industries, Inc. and First National Bank of Omaha
    dated August 31, 2001.                                                                                                                                                                                            
|        |  | (cc)        |  | First Amendment to Restated Loan and Security
    Agreement by and between M-tron Industries, Inc. and First
    National Bank of Omaha dated August 31, 2002.                                                                                                                                                                         
|14      |  |             |  | Business Conduct (Ethics) Policy.                                                                                                                                                                                                                                                                                                      
|16      |  |             |  | Letter Re: Change in Certifying Accountant
    (incorporated by reference to Exhibit 16 to
    Registrants Form 8-K, dated March 19, 1996).                                                                                                                                                                                             
|21      |  |             |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                        

63



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##### 



|        |  |             |  |                                                                                                                                                                                                                                                                           
|------- |  | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |  |            
|Exhibit |  |            
|No.     |  | Description
|        |  |            
|23      |  |             |  | Consent of Ernst & Young LLP.                                                                                                                                                                                                                                           
|24      |  |             |  | Powers of Attorney.                                                                                                                                                                                                                                                     
|99      |  | (a)         |  | Certification of Registrants Chief
    Executive Officer Pursuant to 18 U.S.C. Section 1350,
    as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002 (incorporated by reference to Exhibit 99(a) to
    Registrants Form 8-K dated March 27, 2003).
|        |  | (b)         |  | Certificate of Registrants Chief Financial
    Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
    Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    (incorporated by reference to Exhibit 99(b) to
    Registrants Form 8-K dated March 27, 2003).  



---



|  |                                                 
|- | ------------------------------------------------
|* | Management contract or compensatory arrangement.



|   |                                                                                                                                         
|-- | ----------------------------------------------------------------------------------------------------------------------------------------
|  | Registrant agrees to furnish a supplemental copy
    of any omitted schedule to the Securities and Exchange
    Commission upon request.
|  
| | Filed herewith.                                                                                                                         

The Exhibits listed above have been filed
separately with the Securities and Exchange Commission in
conjunction with this Annual Report on Form 10-K or have
been incorporated by reference into this Annual Report on
Form 10-K. Lynch Corporation will furnish to each of its
shareholders a copy of any such Exhibit for a fee equal to Lynch
Corporations cost in furnishing such Exhibit. Requests
should be addressed to the Office of the Secretary, Lynch
Corporation, 50 Kennedy Plaza, Suite 1250, Providence, RI
02903.

64