##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




---

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,
	2001           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, No 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 March 15, 2002 of $17.00 per share) was
$17,719,729. (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 15, 2002.

DOCUMENTS INCORPORATED BY REFERENCE:

Part III: Certain portions of Registrants
Proxy Statement for the 2002 Annual Meeting of Shareholders.



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TABLE OF CONTENTS



|                                                                                                                                                                                                             |                                                                                                |  |  |  |  |  |  | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|FORWARD LOOKING INFORMATION                                                                                                                                                                                 
|PART I                                                                                                                                                                                                      
|Item 1. Business                                                                                                                                                                                            
|                                                                                                                                                                                                             | A. Lynch Systems, Inc.                                                                        
|                                                                                                                                                                                                             | B. M-tron Industries, Inc. (M-tron)                                                         
|                                                                                                                                                                                                             | C. Spinnaker Industries, Inc. (Spinnaker)                                                   
|                                                                                                                                                                                                             | D. Other Information                                                                          
|                                                                                                                                                                                                             | E. Executive Officers of the Registrant                                                       
|Item 2. Properties                                                                                                                                                                                          
|Item 3. Legal Proceedings                                                                                                                                                                                   
|Item 4. Submission of Matters to a Vote of Security Holders                                                                                                                                                 
|PART II                                                                                                                                                                                                     
|Item 5. Market for the Registrants Common Equity and Related Stockholder Matters                                                                                                                           
|                                                                                                                                                                                                             | 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)
|                                                                                                                                                                                                             | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations 
|                                                                                                                                                                                                             | Item 7A. Quantitative and Qualitative Disclosure About Market Risk                            
|                                                                                                                                                                                                             | Item 8. Financial Statements and Supplementary Data                                           
|                                                                                                                                                                                                             | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  
|PART III                                                                                                                                                                                                    
|                                                                                                                                                                                                             | Item 10. Directors and Executive Officers of the Registrant                                   
|                                                                                                                                                                                                             | Item 11. Executive Compensation                                                               
|                                                                                                                                                                                                             | Item 12. Security Ownership of Certain Beneficial Owners and Management                       
|                                                                                                                                                                                                             | Item 13. Certain Relationships and Related Transactions                                       
|PART IV                                                                                                                                                                                                     
|                                                                                                                                                                                                             | Item 14. Exhibits, Financial Statements, Financial Statement Schedules and Reports on Form 8-K
|LYNCH CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS                                                                                                                                    
|LYNCH CORPORATION AND SUBSIDIARIES Consolidated Statements of Shareholders Equity For the Three Years Ended December 31, 2001                                                                              
|SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT LYNCH CORPORATION                                                                                                                               
|LYNCH CORPORATION CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENT OF OPERATIONS                                                                                                           
|SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999                                                                                                               
|EXHIBIT INDEX                                                                                                                                                                                               
|Ex-2.(a) Asset Purchase Agreement                                                                                                                                                                           
|Ex-2.(b) Asset Purchase Agreement Amend. No. 1                                                                                                                                                              
|Ex-2.(c) Asset Purchase Agreement Amend. No.2                                                                                                                                                               
|Ex-2.(d) Asset Purchase Agreement Amend. No.3                                                                                                                                                               
|Ex-2.(e) Asset Purchase Agreement Amend. No.4                                                                                                                                                               
|Ex-2.(f) Asset Purchase Agreement Amend. No.5                                                                                                                                                               
|Ex-2.(g) Schedules to Asset Purchase Agreement                                                                                                                                                              
|Ex-2.(h) U.S. Bankruptcy Court Order                                                                                                                                                                        
|Ex-10.(x) Amendment of Agreement                                                                                                                                                                            
|Ex-10.(y) 2001 Equity Incentive Plan                                                                                                                                                                        
|Ex-21 Subsidiaries                                                                                                                                                                                          
|Ex-23 Consent of Ernst & Young LLP                                                                                                                                                                          
|Ex-24 Powers of Attorney                                                                                                                                                                                    



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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).




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 also
owns 41.8% of the equity (and 49.5% of the voting power) of
Spinnaker Industries, Inc., a Delaware corporation
(Spinnaker).

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.

On September 1, 1999, Registrant spun off to
its shareholders the stock of Lynch Interactive Corporation,
which holds the multimedia and service operations previously
owned by Registrant and which accounted for approximately 40% of
the Registrants 1998 revenues and 47.6% of
Registrants total assets at December 31, 1998.




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.

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

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 new
expertise obtained from Lynch AMAV in the feeder and shear
markets (discussed below) 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 has a 75% interest in the joint
venture. The joint venture designs and develops feeders, shears
and presses, most of which are manufactured for the joint
venture by LS. LS believes that this joint venture has expanded
LSs glass tableware equipment business, particularly in
Europe.

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.

During 2001, LS, including Lynch-AMAV, built TV
(television) and consumer glass press machines for customers, as
well as selling feeders, shears and spare parts. LS delivered
four large TV glass press machines in 2001. These four large
machines had a selling price of approximately $14 million,
all of which was recognized as income in 2001. In 2001 LS sold
four additional large TV glass press machines to be delivered in
2002. These additional machines sold for approximately
$14 million, of which $5.5 million was recognized as
income in 2001 using the percentage of completion method and the
balance of $8.5 million will be recognized in 2002.

At December 31, 2001, LS had orders for
$12 million for large TV glass press machines as well as
for glass press machines, feeders, shears and spare parts for
the tableware market, all of which are scheduled to be

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delivered in 2002. LS is also in negotiations to
obtain other orders for large TV glass presses; however, there
can be no assurance that LS will obtain any other orders.


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 R&D programs to manufacture new
lines of capital equipment such as Stretch Machines for
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. 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 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. All Tableware capital equipment requires moulds in the
production of any article. In 2002, agreement was reached with
Merkad, a producer of high quality moulds, to represent and
distribute moulds throughout North and South America.

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.

International
Sales

LSs revenues from international sales were
$22.9 million, $20.3 million and $4.7 million for
2001, 2000 and 1999, respectively, representing approximately
88%, 88% and 83% of LSs net sales for 2001, 2000 and 1999,
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
$12 million at December 31, 2001, compared with
approximately $13.5 million at December 31, 2000. All
of LSs $12 million backlog as of December 31,
2001 is scheduled to be delivered in 2002. 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 dollar 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
$1.5 million as of December 31, 2001 as a result of
sales to this customer.

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

LSs business is not dependent upon a single
customer or a few customers.

Raw
Materials

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

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Research and
Development

Research and development expense was $146,000 in
2001 and zero in each of 2000 and 1999. R&D expense for 2002
is budgeted at $100,000.

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 approximately 93 employees
at its Bainbridge, Georgia facility and 7 employees at
Lynch-AMAV 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.

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.

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 included herein.

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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 intends to increase the use of its
offshore contract manufacturers who have added capacity on its
behalf. However, during the current economic slowdown, this
additional capacity is not being fully utilized. In addition,
M-trons long term objective is to reduce the time it takes
to manufacture its products which will result in further
increases in its manufacturing capacity. 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.

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.

M-tron designs and produces a 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.

Currently, M-trons oscillator products
operate at frequencies ranging from 32 kilohertz to over
800 megahertz 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 frequencies in excess of 800 megahertz.

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

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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.

Research and
Development

At December 31, 2001, M-tron employed 10
engineers and technicians in South Dakota who devoted most of
their time to research and development. M-tron intends to
maintain the number of engineers and technicians who perform
research and development in 2002. Its research and development
expense was approximately $1,348,000 in 2001, $994,000 in 2000
and $856,000 in 1999. At its current level of resources, which
is reduced from the level of 2001, M-tron expects to reduce its
spending on research and development by 25% during 2002.

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 2001, Celestica (with Primetech) accounted for
approximately 14% of M-trons net sales, compared to less
than 10% in 2000. No other customer accounted for more than 10%
of its 2001 revenues. Sales to its ten largest customers
accounted for approximately 60% of net sales for 2001, 2000 and
1999.

International
Sales

M-trons revenues from international sales
were $9.5 million, $17.6 million and
$11.3 million for 2001, 2000 and 1999, respectively,
representing approximately 44%, 48% and 43% of its net sales for
2001, 2000 and 1999, respectively. In 2001, this consisted of
approximately 27% from customers in Canada, 11% from customers
in Asia, 4% from customers in Western Europe and 2% from
customers in Mexico. M-tron is increasing its international
sales efforts by adding distributors and manufacturers
representatives in Western Europe and Asia.

Backlog

M-tron had backlog orders of approximately
$1.4 million at December 31, 2001 compared with
approximately $12.4 million at December 31, 2000.
However, monthly new orders for the first two months of 2002
were 20% higher than the average monthly orders for the last
three months of 2001. 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

7



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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. M-tron maintains a rigorous quality
control system and is an ISO 9001 qualified manufacturer.

In 1990, 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, it believes that it is the largest customer for each of
these contract suppliers 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.

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, 2001, M-tron employed
136 people. It has also employed independent contractors
and temporary employees. None of its employees is represented by
a labor union and it considers its employee relations to be good.




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

Lynch (through its subsidiary LS) currently owns
1,829,063 shares of the Class A Common Stock and 1,237,203
shares of the Common Stock of Spinnaker Industries, Inc.
(Spinnaker). Lynchs combined holdings in
Spinnaker represent 41.8% and 49.5% of the equity and voting
power of Spinnaker, respectively. Spinnaker conducts its
business through two wholly-owned subsidiaries, Spinnaker
Coating, Inc. (Spinnaker Coating) and Entoleter,
Inc. (Entoleter).

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
their current level of 41.8% and 49.5%, respectively,
(b) Lynch deconsolidated Spinnaker for financial reporting
purposes, effective September 30, 2001, (c) since
September 30, 2001, Lynch has accounted for its ownership
of Spinnaker using the equity method of accounting and
(d) Lynch will not record any additional losses from
Spinnaker, as Lynch has no obligation to further fund such
losses.

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Spinnaker
Chapter 11 Reorganization Proceeding

On November 13, 2001 (the Filing
Date), Spinnaker and its Spinnaker Coating, Spinnaker
Coating-Maine, Inc. and Entoleter subsidiaries filed voluntary
petitions for relief under Chapter 11 of the United States
Bankruptcy Code (11 U.S.C. §101 et. al.) in the
United States Bankruptcy Court for the Southern District of
Ohio, Dayton Division (the Court). The cases are
being jointly administered under Case No. 01-38066.

Effective December 28, 2001,
Spinnakers Common Stock and Class A Common Stock were
de-listed from the American Stock Exchange. Spinnaker has also
filed a Form 15 with the Securities and Exchange Commission
to terminate its obligation to file periodic reports under the
Securities Exchange Act of 1934.

On December 31, 2001, Spinnaker entered into
a letter of intent (the Letter of Intent) with WR
Capital Partners, LLC (WR Capital) whereby SP
Acquisition LLC (SP Acquisition), an acquisition
entity established by WR Capital, agreed to purchase
substantially all of Spinnakers (and its
subsidiaries) assets (and assumption of substantial
liabilities) for an amount not to exceed $25,763,000 (including
assumed obligations). Entoleters assets are not included
in the sale. On January 4, 2002, Spinnaker filed a motion
with the Court to approve the sale of substantially all of its
assets, subject to higher and better offers, to SP Acquisition.
On January 17, 2002, the Court entered an order
(i) approving bid procedures, including a break-up fee and
expense reimbursement, (ii) setting an auction date of
March 4, 2002 and (iii) setting a date to issue an
order approving the sale of such assets for March 5, 2002.

On January 18, 2002, Spinnaker entered into
that certain Asset Purchase Agreement (as amended, the
Asset Purchase Agreement) with SP Acquisition as
contemplated by the Letter of Intent. On March 6, 2002, the
Court entered an order approving the sale of substantially all
of Spinnakers assets to SP Acquisition.

The closing of the Asset Purchase Agreement
occurred on March 28, 2002. Spinnaker estimates that,
pursuant to a plan of liquidation, there will be a minimal
distribution to unsecured creditors and no return to
Spinnakers equity holders.

On March 28, 2002, the Court approved the sale of
substantially all of Entoleters assets to Welton LLC for
$920,000 in cash plus certain assumed obligations. The closing
of the sale is expected to occur on or before April 5, 2002. If
the sale closes, Spinnaker estimates that pursuant to a plan of
liquidation, there will be a minimal distribution to unsecured
creditors and no return to Spinnaker, Entoleters sole
equity holder. If the sale does not close, Spinnaker may, among
other actions, (i) search for another purchaser of Entoleter,
(ii) attempt to cause Entoleter to reorganize pursuant to a plan
of reorganization, or (iii) if unsuccessful with respect to (i)
and (ii), liquidate Entoleters assets.

Spinnakers business and properties are
described below (in this Section C of Item 1 and in Item 2)
without regard to the impact of Spinnakers reorganization
proceeding and the sale of its assets pursuant thereto.

Business

Spinnaker, through Spinnaker Coating, is a
manufacturer and marketer of adhesive-backed material, primarily
for the pressure sensitive label stock market.

Spinnaker Coating primarily manufactures custom,
low-volume, pressure sensitive products used for specialty
applications. Customers convert its label stock into labels used
for a broad range of end use applications, including bar-coding,
mailing and shipping, packaging for pharmaceutical, food and
other consumer products, office identification and business
forms, postage stamps, decorative labels and other specialty
industrial uses. Spinnaker Coating is the largest supplier of
pressure sensitive postage stamp stock for ultimate use by the
United States Postal Service. In March 1998, Spinnaker Coating
was selected by Paper Corporation of the U.S. (PCUS)
to be its exclusive source of pressure sensitive postage stamp
stock for delivery under a five year supply contract it was
awarded by the U.S. Bureau of Engraving and Printing.
Spinnaker also supplies, through PCUS, pressure sensitive
postage stamp stock to private printers who supply postage
stamps directly to the United States Postal Service.

In March 1998, Spinnaker Coating acquired the
pressure sensitive manufacturing facilities of S.D. Warren
Company (Warren) in Westbrook, Maine for an
aggregate purchase price of approximately

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$51.8 million plus the assumption of certain
liabilities (excluding substantially all trade payables). The
purchase price was paid by the issuance of a subordinated
convertible note to Warren, in the original principal amount of
$7.0 million, and the remainder with funds available under
Spinnakers asset-backed working capital revolving credit.
The facility became unprofitable and was closed in July 2001.


Spinnaker also manufactures and markets
industrial process equipment and air pollution control scrubbers
through Entoleter.

Selected
Financial Information

For financial reporting purposes, until
September 30, 2001 when Spinnaker was deconsolidated from
Registrant, Spinnaker Coating comprised the Registrants
adhesive-backed label stock segment and Entoleter
comprised the industrial process equipment segment.
For information about these segments 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 included in
this report.

Adhesive-backed
Label Stock

Spinnaker Coating develops, manufactures and
markets pressure sensitive adhesive-backed label stock that is
converted by printers and industrial users into products that
are utilized for marking, identifying, labeling and decorating
applications and products. To better concentrate on Spinnaker
Coatings strengths and market niche, a decision was made
by Spinnakers management to reorganize and realign the
business in the fourth quarter of 2000 and going forward in
2001. The restructuring involved the elimination of non-pressure
sensitive product lines, outsourcing of non-core manufacturing
processes and termination of approximately 100 employees.

Pressure sensitive products, which are activated
by the application of pressure, are manufactured with a
three-element construction consisting of face stock, adhesive
coating and silicone coated release liner. The adhesive product
is sold in roll or sheet form for further conversion into
products used primarily for marking, identification and
promotional labeling. Spinnaker Coatings pressure
sensitive products are sold under the trade names Strip
Tac® and Strip Tac Plus®. Roll pressure sensitive
products are generally sold to label printers that produce
products used primarily for informational labels (shipping
labels, price labels, warning labels, etc.), product
identification and postage stamps. Sheet pressure sensitive
products are sold to commercial sheet printers, who provide
information labels and other products (such as laser printer
stock).

Marketing and
Customers

Spinnaker Coating markets its broad range of
products to a variety of customers. Its marketing strategy
focuses not only on products but also customer service and
specific customer applications. Spinnaker has conducted business
with its top 10 customers for approximately 20 years
on average. During 2001, one customer, Paper Corporation of the
United States, accounted for approximately 17.1% of
Spinnakers net sales.

Spinnaker Coating generally markets its products
through its own sales representatives to regional and national
printers, converters and merchants. A major portion of sales
represent product manufactured and shipped to customers directly
from Spinnaker Coatings facilities in Troy, Ohio. However,
to broaden its market penetration, Spinnaker Coating also
contracts with regional processors throughout the United States,
with whom Spinnaker Coating stores product until sold.
Generally, these processors perform both slitting and
distribution services for Spinnaker Coating.

Manufacturing
and Raw Materials

Spinnaker Coating manufactures its
adhesive-backed label stock products at two plants in Troy,
Ohio. Spinnaker has made approximately $8.4 million in
capital expenditures at the Ohio facilities over the last five
years.

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Raw materials are the most significant cost
component in Spinnaker Coatings production process. The
material component accounts for approximately 65-75% of the
total cost of its products, with the most important raw
materials being paper (gumming kraft and face stock), adhesive
materials, and polypropylene film. These materials are currently
readily available and are procured from numerous suppliers. The
cost of Spinnakers principal raw materials have generally
remained stable or decreased over recent years. Historically,
the increases in raw material costs for Spinnakers
products have not materially impacted Spinnakers gross
margin. The future impact of a change in raw material costs on
Spinnakers profitability is based, in part, on pricing by
Spinnakers competitors. Although, changes in
Spinnakers raw material costs have recently not materially
impacted Spinnakers gross margin, Spinnaker cannot be
assured that future raw material cost increases can be passed
through to its customers or that such cost increases will not
negatively impact Spinnakers gross margin.

Competition

The adhesive-backed label stock industry is
highly competitive. Spinnaker Coating competes with several
national manufacturers, including the Fasson unit of Avery
Dennison and the MACtac unit of Bemis Company, Inc., as well as
a number of importers and smaller regional manufacturers. As a
result of the competitive environment in the markets in which
Spinnaker Coating operates, the company faces (and will continue
to face) pricing pressure on its products. As a result of such
pricing pressure, Spinnaker Coating has experienced, and may
continue to experience, reductions in the profit margins on its
sales, or has and may be unable to pass future raw material
price increases to its customers (which would also reduce profit
margins).

Backlog

Spinnaker Coatings label stock backlog
believed to be firm was $5.0 million at December 31,
2001, as compared to $8.4 million at December 31, 2000.

Industrial
Process Equipment Business

Through Entoleter, Spinnaker engineers,
manufactures and markets a line of industrial process equipment
and a line of air pollution control equipment. Entoleters
net sales consist entirely of sales to commercial and industrial
customers.

Environmental
Regulations

Spinnakers operations are subject to
environmental laws and regulations governing emissions to the
air, discharges to waterways, and generation, handling, storage,
transportation, treatment and disposal of waste materials.
Spinnaker is also subject to other federal and state laws and
regulations regarding health and safety matters. Environmental
laws and regulations are constantly evolving and it is
impossible to predict the effect that these laws and regulations
will have on Spinnaker in the future. While Spinnaker believes
it is currently in substantial compliance with all such
environmental laws and regulations, there can be no assurance
that it will at all times be in complete compliance with all
such requirements. Spinnaker has made, and expects to continue
to make, capital expenditures to comply with environmental
requirements. As is the case with manufacturers in general, if a
release of hazardous substances occurs on or from
Spinnakers properties or any associated offsite disposal
location, or if contamination from prior activities is
discovered at any of Spinnakers properties, Spinnaker may
be held liable and the amount of such liability could be
material.

Patents and
Trademarks

Patents are held by Spinnaker with respect to the
manufacture of certain of its products, but its management does
not consider such patents to be important to Spinnakers
operations. The patents expire over various lengths of time with
the last patent expiring in about 10 years. Spinnaker has
registered several of its trade names and trademarks for
adhesive-backed materials.

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International
Sales

Spinnakers international sales were
$13.3 million, $20.1 million and $17.5 million in
2001, 2000 and 1999, respectively, representing approximately
11.4%, 17.4%, and 10.8% of Spinnakers net sales for 2001,
2000 and 1999, respectively. Of the $13.3 million in 2001
international sales, approximately 99% were represented by
exports of Spinnaker Coating. The substantial majority of these
sales were to Canadian customers and, consequently, Spinnaker
believes that the risks commonly associated with doing business
in international countries are minimal. The gross margin on
international sales is substantially equivalent to that of
domestic sales. Because international sales are transacted in
United States dollars, payments in many cases are secured by
irrevocable letters of credit.

Employees

As of December 31, 2001, Spinnaker employed
263 persons, of whom 231 were Spinnaker Coating employees
and 32 were Entoleter employees. Spinnaker Coatings Troy,
Ohio plants began negotiating a collective bargaining agreement
with the Paper, Allied Industrial, Chemical and Energy Workers
International Union, AFL-CIO (PACE) in February
2001, but have yet to reach an agreement. This agreement will
cover approximately 132 hourly employees. Entoleters
approximately 14 hourly production employees are members of the
United Electrical, Radio and Machine Workers of America Union.
The current collective bargaining agreement expires in 2002.
Spinnaker and Entoleter believe that their relations with their
employees are good; however, there can be no assurance that they
will not experience work stoppages or slowdowns in the future.




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 for each of Lynch Systems, M-tron and
Spinnaker above.

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. See also
Environmental Regulations under Item 1.
Business  C. Spinnaker Industries, Inc. for more
information with respect to Spinnaker.

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

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 14(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 2002 Annual Meeting of Shareholders.
Such list sets forth the names and ages of all 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.

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|                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |     |    | 
|------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --- | -- | 
|Name               |  | Offices and Positions Held                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | Age
|                   |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |    
|Ralph R. Papitto   |  | Chairman and Chief Executive Officer (since
	August 2001) of Lynch; Chief Executive Officer of Avtek Inc., a
	private holding company co-owned by Mario J. Gabelli and Ralph
	R. Papitto (since 2000); 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 Lynch Interactive Corporation (since 1999);
	Spinnaker Industries, Inc.; AFC Cable Systems, Inc.; and Global
	Sports & Gaming.Com; Chairman of the Board of Trustees
	of Roger Williams University.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |     | 75 | 
|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. |  |     | 59 | 
|Richard E. McGrail |  | President and Chief Operating Officer (since
	October 2001) of Lynch; President of Avtek Inc., a private
	holding company co-owned by Mario J. Gabelli and
	Ralph R. Papitto (since 2001); 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).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |     | 47 | 
|Raymond H. Keller  |  | Chief Financial Officer, Vice President and
	Secretary (since October 2001) of Lynch; Chief Financial Officer
	of Avtek Inc., a private holding company co-owned by
	Mario J. Gabelli and Ralph R. Papitto (since 2000);
	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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |     | 64 | 

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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 co-owned by Mario J. Gabelli and
Ralph R. Papitto. Mr. Gabelli is Vice Chairman and a
Director of Lynch. Mr. Papitto is Chairman and Chief
Executive Officer of Lynch.

During 2000 Spinnaker moved its corporate
headquarters from Dallas, Texas to Troy, Ohio, where it has
major facilities.

Spinnaker Coating owns two manufacturing
facilities, Plant One and Plant Two, in Troy, Ohio. Plant One is
a 200,000 square foot complex and Plant Two is a
98,000 square foot facility. The facilities house
manufacturing, administrative and shipping operations.

In connection with Spinnaker Coatings
acquisition of the Warren facilities in March 1998, the parties
entered into a site lease, which provides for Warrens
lease of a portion of its Westbrook, Maine facility to
Spinnaker. Such lease is for a term of 99 years, provides
for nominal rent of $1.00 per year, with an option to purchase
for $1.00. The facility contains approximately
50,000 square feet. With Spinnaker Coatings closure
of its Maine business in July 2001, the facility is currently
vacant and efforts are being made to sublease or sell the
property. Spinnakers plants are subject to security
interests relating to its indebtedness.

Entoleter owns a manufacturing plant containing
72,000 square feet located on approximately 5 acres of land
in Hamden, Connecticut. The land and building are subject to a
mortgage and security agreement executed in support of a bank
loan. Entoleter also owns approximately 6 unimproved acres
located in Hamden, Connecticut adjacent to its property.

LSs operations are housed in two adjacent
buildings situated on 3.19 acres of land in Bainbridge, Georgia.
In January 1997, LS completed an expansion of its manufacturing
capacity at this site, which added approximately
15,000 square feet, bringing total manufacturing space to
approximately 73,000 square feet. Finished office area in
the two buildings totals approximately 17,000 square feet.
All such properties are subject to security deeds relating to
loans.

Lynch-Amav located in Germany leases certain real
and personal property under a commercial lease agreement that
expires in December 2003. The lease agreement is between
Lynch-Amav and the minority joint venture members family
and provides for annual lease payments of $120,000.

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 and is situated on approximately
15 acres of land. The other Yankton facility containing
approximately 16,000 square feet is leased, which 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

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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 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. Thereafter, when the Spinnaker
Defendants filed for relief under Chapter 11 of the
Bankruptcy Code, they filed a second notice of removal, creating
United States District Court for the District of Maine case
number C.V. No. 02-7. Upon entry of an order confirming
automatic reference, the C.V. No. 02-7 was referred to the
United States Bankruptcy Court, District of Maine, and assigned
Adv. Pro. No. 02-2007. This litigation was resolved as
follows:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | i) To the extent the United States District
	Court Civil Action No. 01-236 and 02-7 had not already been
	closed, the parties agreed to, as necessary, stipulations of
	dismissal disposing of those actions;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | ii) The Spinnaker Entities stipulated to
	dismissal with prejudice, without costs, of United States
	District Court Civil Action No. 01-232;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | iii) In Adv. Pro. No. 02-2007, Count I
	of the Plaintiffs complaint was dismissed with prejudice
	and without costs to any party;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | iv) In Adv. Pro. No. 02-2007 Count III
	of the Plaintiffs complaint was dismissed without
	prejudice and without costs to any party;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | v) In Adv. Pro. No. 02-2007 Count II of
	the Plaintiffs complaint was remanded to Cumberland County
	Superior Court, without costs and attorneys fees to any party.
	In consenting to remand, Lynch agreed that it would not
	challenge the subject matter jurisdiction of the Cumberland
	County Superior Court to conduct the trial and would not attempt
	to remove or otherwise invoke the jurisdiction of the federal
	court (except for appellate review to the extent permitted under
	applicable law), so long as the Plaintiff does not amend the
	complaint. Now Plaintiffs case will proceed against Lynch
	in Cumberland County Superior Court in Maine on the issue of
	whether Lynch has liability to Plaintiffs under the Maine
	Severance Pay Act. Lynch believes that, in addition to other
	defenses, it is not subject to the Maine Severance Pay Act, as
	now in effect, and will move for summary judgment. Management
	firmly believes that, under current law, the resolution of this
	case will not have a material adverse effect on the
	Registrants consolidated financial condition or
	operations. Lynch has, however, become aware that
	plaintiffs counsel is sponsoring legislation to amend the
	Maine Severance Pay Act that, if enacted, could conceivably
	adversely affect the outcome of this case. At this time,
	management is unable to assess the prospects for enactment of
	any such legislation or, if enacted, how it might affect the
	outcome of this case.

2.     Spinnaker
Chapter 11 Reorganization Proceeding

On November 13, 2001 (the Filing
Date), Spinnaker and its Spinnaker Coating, Spinnaker
Coating-Maine, Inc. and Entoleter subsidiaries filed voluntary
petitions for relief under Chapter 11 of the United States

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Bankruptcy Code (11 U.S.C. §101 et. al.) in
the United States Bankruptcy Court for the Southern District of
Ohio, Dayton Division (the Court). The cases are
being jointly administered under Case No. 01-38066.


Effective December 28, 2001,
Spinnakers Common Stock and Class A Common Stock were
de-listed from the American Stock Exchange. Spinnaker has also
filed a Form 15 with the Securities and Exchange Commission
to terminate its obligation to file periodic reports under the
Securities Exchange Act of 1934.

On December 31, 2001, Spinnaker entered into
a letter of intent (the Letter of Intent) with WR
Capital Partners, LLC (WR Capital) whereby SP
Acquisition LLC (SP Acquisition), an acquisition
entity established by WR Capital, agreed to purchase
substantially all of Spinnakers (and its
subsidiaries) assets (and assumption of substantial
liabilities) for an amount not to exceed $25,763,000 (including
assumed obligations). Entoleters assets are not included
in the sale. On January 4, 2002, Spinnaker filed a motion
with the Court to approve the sale of substantially all of its
assets, subject to higher and better offers, to SP Acquisition.
On January 17, 2002, the Court entered an order
(i) approving bid procedures, including a break-up fee and
expense reimbursement, (ii) setting an auction date of
March 4, 2002 and (iii) setting a date to issue an
order approving the sale of such assets for March 5, 2002.

On January 18, 2002, Spinnaker entered into
that certain Asset Purchase Agreement (as amended, the
Asset Purchase Agreement) with SP Acquisition as
contemplated by the Letter of Intent. On March 6, 2002, the
Court entered an order approving the sale of substantially all
of Spinnakers assets to SP Acquisition.

The closing of the Asset Purchase Agreement
occurred on March 28, 2002. Spinnaker estimates that,
pursuant to a plan of liquidation, there will be a minimal
distribution to unsecured creditors and no return to
Spinnakers equity holders.

On March 28, 2002, the Court approved the sale of
substantially all of Entoleters assets to Welton LLC for
$920,000 in cash plus certain assumed obligations. The closing
of the sale is expected to occur on or before April 5, 2002. If
the sale closes, Spinnaker estimates that pursuant to a plan of
liquidation, there will be a minimal distribution to unsecured
creditors and no return to Spinnaker, Entoleters sole
equity holder. If the sale does not close, Spinnaker may, among
other actions, (i) search for another purchaser of Entoleter,
(ii) attempt to cause Entoleter to reorganize pursuant to a plan
of reorganization, or (iii) if unsuccessful with respect to (i)
and (ii), liquidate Entoleters assets.

3.     Qui Tam
Lawsuit

Lynch Interactive Corporation
(Interactive), Registrant 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. At the initiative of one of the
defendants, the seal was lifted on January 11, 2002. Under
the False Claims Act, a private plaintiff, termed a
relator, may file a civil action on the
U.S. governments behalf against another party for
violation of the statute. In return, the relator receives a
statutory bounty from the governments litigation proceeds
if he is successful.

The relator in this lawsuit is R.C. Taylor III.
The main allegation in the case is that the defendants
participated in the creation of sham bidding
entities that allegedly defrauded the federal Treasury by
improperly participating in certain Federal Communications
Commission 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.

The U.S. Department of Justice has notified the
court that it has declined to intervene in the case. The
defendants strongly believe that this lawsuit is completely
without merit and intend to defend the suit vigorously.
Furthermore, Registrant believes that, under the separation
agreement between Registrant and Interactive pursuant to which
Interactive was spun off to Registrants shareholders on
September 1, 1999, Interactive would be obligated to
indemnify Registrant for any losses or damages incurred by
Registrant as a result of this lawsuit. Nevertheless, Registrant
cannot predict the ultimate outcome of the litigation, nor can

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Registrant predict the effect that the lawsuit or
its outcome will have on Registrants business or plan of
operation. The defendants have yet to be formally served with
the complaint.





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, 2001
and 2000 are as follows:

|     |  |                    |    |         |  |              |    |             |  |  |        |  |  |  |    | 
|---- |  | ------------------ | -- | ------- |  | ------------ | -- | ----------- |  |  | ------ |  |  |  | -- | 
|     |  |                   
|     |  | Three Months Ended
|     |  |                   
|2001 |  | March 31           |    | June 30 |  | September 30 |    | December 31
|     |  |                    |    |         |  |              |    |            
|High |  |                    | 42 |         |  |              | 30 |             |  |  | 34 6/8 |  |  |  | 23 | 
|Low  |  |                    | 29 |         |  |              | 26 |             |  |  | 23     |  |  |  | 13 | 

|     |  |          |        |         |  |              |        |             |  |  |        |  |  |  |    | 
|---- |  | -------- | ------ | ------- |  | ------------ | ------ | ----------- |  |  | ------ |  |  |  | -- | 
|2000 |  | March 31 |        | June 30 |  | September 30 |        | December 31
|     |  |          |        |         |  |              |        |            
|High |  |          | 33 1/2 |         |  |              | 32 7/8 |             |  |  | 51     |  |  |  | 50 | 
|Low  |  |          | 25 1/4 |         |  |              | 25 1/2 |             |  |  | 31 7/8 |  |  |  | 43 | 

At March 15, 2002, the Company had 836
shareholders of record.

Compliance with Listing Standards

On December 11, 2001 AMEX 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 Exchange,
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 9-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 
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 included in
this report); 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 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.

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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.

The subsequent event described in Note 17 to the
Consolidated Financial Statements should have a positive effect
on Lynchs eligibility for continued listing.

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 2002. Substantially all of the subsidiaries assets
are restricted under the companies current credit
agreements and limit the companies ability to pay
dividends.

18



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##### Table of Contents








|        |                        
|------- | -----------------------
|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)
|                                                                                                                                    |                                                                                                   |                          
|                                                                                                                                    |                                                                                                   | 2001*                     |         | 2000 |        | 1999 |         | 1998 |       | 1997
|                                                                                                                                    |                                                                                                   |                           |         |      |        |      |         |      |       |     
|Revenues                                                                                                                            |                                                                                                   | $                         | 141,073 |      |        | $    | 219,196 |      |       | $    | 194,222 |   |       | $ | 187,644 |   |      | $ | 153,735 |  
|Operating profit (loss)(b)                                                                                                          |                                                                                                   |                           | (19,240 | )    |        |      | (4,977  | )    |       |      | 85      |   |       |   | 4,074   |   |      |   | 6,730   |  
|Net financial activities                                                                                                            |                                                                                                   |                           | (7,357  | )    |        |      | (12,751 | )    |       |      | (9,528  | ) |       |   | (8,392  | ) |      |   | (4,884  | )
|Gain (loss) on sale of subsidiary stock and other
	operating assets                                                                 |                                                                                                   |                           |        |      |        |      |        |      |       |      |        |   |       |   | 2,090   |   |      |   | (91     | )
|                                                                                                                                    |                                                                                                   |                           |         |      |        |      |         |      |       |      |         |   |       |   |         |   |      |   |         |  
|Income (loss) from continuing operations before
	income Taxes, minority interests, discontinued operations and
	Extraordinary items |                                                                                                   |                           | (26,597 | )    |        |      | (17,728 | )    |       |      | (9,443  | ) |       |   | (2,228  | ) |      |   | 1,755   |  
|(Provision) benefit for income taxes                                                                                                |                                                                                                   |                           | (358    | )    |        |      | 2,793   |      |       |      | 2,544   |   |       |   | 1,408   |   |      |   | (301    | )
|Minority interests                                                                                                                  |                                                                                                   |                           | 4,017   |      |        |      | 9,252   |      |       |      | 2,647   |   |       |   | 1,107   |   |      |   | (121    | )
|                                                                                                                                    |                                                                                                   |                           |         |      |        |      |         |      |       |      |         |   |       |   |         |   |      |   |         |  
|Income (loss) from continuing operations before
	Discontinued operations and extraordinary items                                    |                                                                                                   |                           | (22,938 | )    |        |      | (5,683  | )    |       |      | (4,252  | ) |       |   | 287     |   |      |   | 1,333   |  
|Operations of Lynch Interactive Corporation(f)                                                                                      |                                                                                                   |                           |        |      |        |      |        |      |       |      | (7,493  | ) |       |   | 4,929   |   |      |   | (3,349  | )
|Discontinued operations(c)                                                                                                          |                                                                                                   |                           |        |      |        |      |        |      |       |      | (572    | ) |       |   | (1,859  | ) |      |   | (862    | )
|Gain on sale of Spinnakers industrial tape
	Segment                                                                                |                                                                                                   |                           |        |      |        |      |        |      |       |      | 10,431  |   |       |   |        |   |      |   |        |  
|Extraordinary items(d)                                                                                                              |                                                                                                   |                           |        |      |        |      | 2,245   |      |       |      | 303     |   |       |   |        |   |      |   |        |  
|                                                                                                                                    |                                                                                                   |                           |         |      |        |      |         |      |       |      |         |   |       |   |         |   |      |   |         |  
|Net income (loss)                                                                                                                   |                                                                                                   | $                         | (22,938 | )    |        | $    | (3,438  | )    |       | $    | (1,583  | ) |       | $ | 3,357   |   |      | $ | (2,878  | )
|                                                                                                                                    |                                                                                                   |                           |         |      |        |      |         |      |       |      |         |   |       |   |         |   |      |   |         |  
|Per Common Share:(e)                                                                                                                |                                                                                                   |                           |         |      |        |      |         |      |       |      |         |   |       |   |         |   |      |   |         |  
|                                                                                                                                    | Income (loss) from continuing operations before
	Discontinued operations and extraordinary items: |                           |         |      |        |      |         |      |       |      |         |   |       |   |         |   |      |   |         |   |      
|                                                                                                                                    |                                                                                                   | Basic                     |         | $    | (15.24 | )    |         | $    | (3.81 | )    |         | $ | (3.00 | ) |         | $ | .20  |   |         | $ | .94   |  
|                                                                                                                                    |                                                                                                   | Diluted                   |         |      | (15.24 | )    |         |      | (3.81 | )    |         |   | (3.00 | ) |         |   | .20  |   |         |   | .94   |  
|                                                                                                                                    | Net income (loss):                                                                                |                           |         |      |        |      |         |      |       |      |         |   |       |   |         |   |      |   |         |   |      
|                                                                                                                                    |                                                                                                   | Basic                     |         |      | (15.24 | )    |         |      | (2.31 | )    |         |   | (1.12 | ) |         |   | 2.37 |   |         |   | (2.03 | )
|                                                                                                                                    |                                                                                                   | Diluted                   |         |      | (15.24 | )    |         |      | (2.31 | )    |         |   | (1.12 | ) |         |   | 2.37 |   |         |   | (2.03 | )
|Cash, securities and short-term investments(g)                                                                                      |                                                                                                   | $                         | 4,247   |      |        | $    | 10,543  |      |       | $    | 13,106  |   |       | $ | 1,132   |   |      | $ | 6,499   |  
|Restricted cash(g)(h)                                                                                                               |                                                                                                   |                           | 4,703   |      |        |      | 6,500   |      |       |      | 56,026  |   |       |   |        |   |      |   |        |  
|Total assets (net of discontinued
	operations)(c)(f)(g)                                                                             |                                                                                                   |                           | 32,091  |      |        |      | 162,820 |      |       |      | 211,192 |   |       |   | 251,658 |   |      |   | 183,720 |  
|Long-term debt, exclusive of current portion(g)                                                                                     |                                                                                                   |                           | 1,678   |      |        |      | 61,350  |      |       |      | 116,765 |   |       |   | 126,976 |   |      |   | 115,159 |  
|Shareholders (deficiency) equity(f)(g)                                                                                             |                                                                                                   |                           | (7,451  | )    |        |      | 15,432  |      |       |      | 15,991  |   |       |   | 11,441  |   |      |   | 14,464  |  

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 Spinnaker and
	prospectively accounts for its ownership of Spinnaker using the
	equity method of accounting. See Note 1 to Consolidated
	Financial Statements  Basis of
	Presentation included elsewhere herein.

19



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|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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.
|   
|(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 3 to Financial
	Statements included elsewhere herein).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|(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). In 1997, for each share of
	Lynch Common Stock, shareholders received one share of East/West
	Communications, Inc., an F block PCS licensee with licenses
	covering a population of 20 million.



|    |                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(g) | 2001 excludes 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.
|   
|(h) | See discussion of Restricted Cash in
	Note 6  Notes Payable and Long-Term Debt
	included elsewhere herein.                                                                                                                                                                            



|    |                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------
|(i) | For three year trend data of revenues and
	operating profit (loss) by segment, see Note 15-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.

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

The Company maintains allowances for doubtful
accounts for estimated losses resulting from the inability of
its customers to make required payments. The Company estimates
potential losses based on its knowledge

20



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##### Table of Contents



of the financial condition of certain customers.
Historically, losses have been within the Companys
expectations. If the financial condition of the Companys
customers were to change, adjustments may be required to these
estimates.


Inventory
Valuation

The Company values its inventory at the lower of
cost or market. If actual market conditions are more or less
favorable than those projected by management, adjustments may be
required.

Accounting
for Long-Term Contracts

One of the Companys subsidiaries is engaged
in the manufacture of machines and accounts for the related
long-term contracts using the percentage-of-completion
accounting method as costs are incurred. Estimates are used to
determine the completion percentages and projected profitability
of these contracts based on available information. Actual
progress made on these contracts may result in future changes to
these estimates.

Income
Taxes

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.

Recently
Issued Accounting Standards

The Company has described the impact anticipated
from the adoption of certain new accounting pronouncements
effective in 2002 in Note 1 to the consolidated financial
statements included elsewhere herein.

Results of Operations



| |                                                                                      
| | -------------------------------------------------------------------------------------
| | Year 2001 Compared to 2000 (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 and will
prospectively account for its ownership of Spinnaker using the
equity method of accounting. See Note 1 
Basis of Presentation included elsewhere herein.
Accordingly, Spinnaker results of operations have only been
included for nine months in 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 percent 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

21



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##### Table of Contents



internet bubble. 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 included elsewhere herein. Subsequent to
the Companys deconsolidation of Spinnaker, Spinnaker filed
for Chapter 11 bankruptcy protection in November, 2001. As
of March 6, 2002, an agreement to sell the majority of the
Spinnaker business had been approved by the bankruptcy court.
See Note 17 to the consolidated financial statements
included elsewhere herein for further details.

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 included elsewhere herein.

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

22



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


Year 2000
Compared to 1999

Net
Sales

Revenues for the year ended December 31,
2000 were $219.2 million, an increase of $25.0 million
from the comparable 1999 period. Spinnakers 2000 net sales
were $155.7 million, compared to $162.1 million in
1999. The decrease in net sales for 2000 is attributed to
entering into a joint venture to outsource the manufacturing and
sales of non-pressure sensitive product lines in the fourth
quarter of 1999 and lower sales volumes of general purpose
pressure-sensitive products. Net sales were also impacted by
lower prices from intense price competition in the general
purpose and other pressure-sensitive product lines. Offsetting
these declines were increased sales of pressure-sensitive sheet
products.

Additionally, net sales at Spinnakers
Entoleter business declined by $1.4 million due to
continued lower unit pricing. Revenues at M-tron increased by
$13.4 million due to increased demand from the
telecommunications industry and increased sales of new products.
Lynch Systems revenues increased by $18.0 million due
to increased order flow and sales of glass press machines.

Operating
Loss

Operating loss for 2000 was $5.0 million
compared to an operating profit of $.1 million in 1999.
Spinnakers operating loss was $9.5 million compared
to operating profit of $1.6 million in 1999.
Spinnakers operating results primarily reflect lower
operating margins, increased depreciation and amortization
associated with capital expenditures used in the manufacturing
process, lower product volumes, and an increase in product
development costs. Spinnaker recognized certain restructuring
charges, affiliated with its Coating business, during the fourth
quarter 2000 of approximately $2.2 million and had
previously recorded approximately $.5 million in the first
quarter of 2000. To better concentrate on Coatings
strengths and market niche, the decision was made by Spinnaker
management to reorganize and realign the business in the fourth
quarter of 2000 and going forward in 2001. The restructuring
involved the elimination of product lines and related
manufacturing operations, outsourcing of non-core manufacturing
processes and the termination of seven salaried employees,
primarily senior management.

M-trons operating profit increased by
$1.4 million to $3.3 million due to increased volume
and increased margins. Lynch Systems operating profit increased
by $4.9 million to $2.7 million due to increased order
volume and a significant increase in margins over 1999 depressed
levels.



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

Investment income decreased by $.6 million
due to the utilization of restricted cash from the 1999 sale of
Spinnakers industrial tape units to buy back debt which
reduced the funds available for short-term investments.

Interest expense was $11.4 million and
decreased by $.4 million from the prior year primarily due
to the reduction of Spinnakers Senior Notes by the
repurchase mentioned above, offset by interest costs for
short-term borrowings at various subsidiaries.

In addition, Spinnaker recognized an impairment
loss of $2.8 million in its investment in certain warrants
as a result of the decline during the third and fourth quarter
of 2000 in the underlying value of the stock associated with
such warrants.

The income tax benefit includes federal, as well
as state and local taxes. The tax benefit for the year ended
December 31, 2000, and 1999, represents effective tax rates
of 16% for 2000 and 27% for 1999. The

23



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##### Table of Contents



differences from the federal statutory rate are
principally due to the effect of state income taxes, foreign
sales amortization of non-deductible goodwill and a valuation
allowance on Spinnakers deferred tax assets.


Minority interests contribution to the net income
(loss) increased by $6.6 million for the year from the
prior year due to the increased losses from continuing
operations at Spinnaker.

Net loss for the year ended December 31,
2000, was $3.4 million, or ($2.31) per share, which
compares to the net loss of $1.6 million, or ($1.12) per
share, for the same period of 1999, due primarily to the
operating losses mentioned above, offset by Spinnakers
gain on repurchase of its Senior Notes ($2.2 million after
income taxes and minority interest).

Liquidity and Capital Resources (Excluding
Spinnaker Industries)

The discussion below excludes the impact of
Spinnaker, which was deconsolidated at September 30, 2001
as discussed in Note 1 to the consolidated financial
statements included elsewhere herein. Thus, the discussion below
reflects liquidity and capital resource matters for the
Companys remaining consolidated subsidiaries at
December 31, 2001.

At December 31, 2001, the Company had
current assets of $25.9 million and current liabilities of
$16.3 million. Working capital was therefore
$9.6 million as compared to $9.2 million at
December 31, 2000. The ratio of current assets to current
liabilities was 1.59 to 1.00 at December 31, 2001, an
improvement over the 1.42 to 1.00 ratio at December 31,
2000.

Cash provided by operating activities was
approximately $8.4 million in 2001 compared to cash used of
approximately $2.9 million in 2000.

Capital expenditures, on a comparable basis, were
$0.6 million in 2001 and $1.6 million in 2000. Capital
expenditures in 2002 may return to the 2000 level of
$1.6 million. The Company anticipates that it will have
sufficient cash flow from operations and borrowing availability
under various credit facilities at the subsidiaries to fund such
capital expenditures.

At December 31, 2001, total debt was
$3.3 million, which was $2.3 million less than the
$5.6 million outstanding at the end of 2000. The reduction
in debt is primarily due to reductions in the revolving credit
loans. Debt outstanding at December 31, 2001 included $940
thousand of fixed interest rate debt, at an 8.0% interest rate,
and $2.3 million of variable interest rate debt at a year
end 2001 average rate of 5.0%. In May of 2001, Lynch Systems
entered into an agreement with a bank for a $4 million line
of credit to be used only for the issuance of standby letters of
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 and certain warranty coverages. In August of 2001,
M-tron entered into a credit agreement with its bank to set the
line at $6.2 million, including a $5.0 million working
capital line. In addition, the company has aggregate lease
commitments of $786,000. (See Note 14 to the Consolidated
Financial Statements).

Lynch Systems has a February 2002 commitment from
another bank to provide a $6 million export/ import line, a
$2 million domestic revolving credit line, and a
$944 thousand term loan. Interest rates will be variable
and currently would average about 4.6 percent. All of the
new lenders loan conditions have been met and the lender
expects to close the loan by mid-April 2002. In the event the
new loan is not closed, Lynch Systems would pursue other
alternatives that could include funding by its parent, renewing
the present bank line, and entering into a lending agreement
with another financing source.

In 1987, the Board of Directors of Lynch
authorized the repurchase of 400,000 common shares. As of
December 31, 2001, Lynchs remaining authorization is
to repurchase an additional 148,700 shares of common stock. On
August 9, 2001, the Company purchased 12,300 shares of its
Common Stock from a former director, 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.

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

24



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##### Table of Contents



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 2002.
(See Note 6 to the Consolidated Financial Statements for
restrictions on the companies assets).


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 $8.9 million at
December 31, 2001). The Company generally finances the debt
portion of the acquisition of long-term assets with fixed rate,
long-term debt. The Company generally maintains the majority of
its debt as fixed rate in nature by borrowing on a fixed
long-term basis. The Company does not use derivative financial
instruments for trading or speculative purposes. Management does
not foresee any significant changes in the strategies used to
manage interest rate risk in the near future, although the
strategies may be reevaluated as market conditions dictate.
There has been no significant change in market risk since
December 31, 2001.

At December 31, 2001, approximately
$2.3 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 2001 average
interest rate under these borrowings, it is estimated that the
Companys interest expense would change by only
$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 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 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.

25



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##### Table of Contents








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

See Item 14(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 2002, which information is
incorporated herein by reference.






|         |                       
|-------- | ----------------------
|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 2002, 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 2002,
which information is included herein by reference.






|         |                                                
|-------- | -----------------------------------------------
|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 2002, which information is included herein by
reference.




PART IV






|         |                                                                                       
|-------- | --------------------------------------------------------------------------------------
|Item 14. | 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,
	2001 and 2000                                                                  
|
| | Consolidated Statements of Operations 
	Years ended December 31, 2001, 2000 and 1999                                       
|
| | Consolidated Statements of Shareholders
	Equity  Years ended December 31, 2001, 2000, and
	1999                           
|
| | Consolidated Statements of Cash Flows 
	Years ended December 31, 2001, 2000, and 1999                                      
|
| | Notes to Consolidated Financial Statements                                                                                  

26



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##### Table of Contents





| |                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------
| | (2) Financial Statement Schedules as of
	December 31, 2001 and 2000 and for the three years ended
	December 31, 2001:



| |                                                            
| | -----------------------------------------------------------
| | 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: None

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



| |                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.   
|
| | 2(b)   Asset Purchase Agreement
	Amendment No. 1 dated February 15, 2002.                                                                                                                                           
|
| | 2(c)   Asset Purchase Agreement
	Amendment No. 2 dated February 25, 2002.                                                                                                                                           
|
| | 2(d)   Asset Purchase Agreement
	Amendment No. 3 dated March 5, 2002.                                                                                                                                               
|
| | 2(e)   Asset Purchase Agreement
	Amendment No. 4 dated March 8, 2002.                                                                                                                                               
|
| | 2(f)   Asset Purchase Agreement
	Amendment No. 5 dated March 18, 2002.                                                                                                                                              
|
| | 2(g)   Schedules to Asset
	Purchase Agreement dated January 18, 2002.                                                                                                                                               
|
| | 2(h)   United States Bankruptcy
	Court Order dated March 6, 2002;, In Re: Spinnaker
	Industries, Inc., et al., C.A. No. 01-38066.                                                                                   
|
| | 10(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.
|
| | 10(y)  Registrants 2001 Equity
	Incentive Plan adopted December 10, 2001.                                                                                                                                          
|
| | 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 14(a)(2)

27



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##### Table of Contents



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, 2001 and 2000, and the related consolidated
statements of operations, shareholders equity, and cash
flows for each of the three years in the period ended
December 31, 2001. Our audits also included the financial
statement schedules listed in the index at Item 14(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, 2001 and 2000
and the consolidated results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2001, 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

Stamford, Connecticut

March 29, 2002


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##### Table of Contents



LYNCH CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                      |                                                                                                                                            |                                                          |        |              |        |   |        |         |         | 
|------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------- | ------ | ------------ | ------ | - | ------ | ------- | ------- | 
|                                      |                                                                                                                                            | December 31,                                             |        | December 31,
|                                      |                                                                                                                                            | 2001                                                     |        | 2000        
|                                      |                                                                                                                                            |                                                          |        |             
|                                      |                                                                                                                                            |                                                         
|                                      |                                                                                                                                            | (In thousands, except share                             
|                                      |                                                                                                                                            | amounts)                                                
|ASSETS                                |                                                                                                                                            |                                                          |        |             
|Current Assets:                       |                                                                                                                                            |                                                          |        |              |        |   |        |        
|                                      | Cash and cash equivalents                                                                                                                  |                                                          | $      | 4,247        |        |   | $      | 10,543  |        
|                                      | Restricted cash (Note 1)                                                                                                                   |                                                          |        | 4,703        |        |   |        | 6,500   |        
|                                      | Trade accounts receivable, less allowances of
	$118 and $1,582, respectively                                                               |                                                          |        | 9,818        |        |   |        | 35,019  |        
|                                      | Inventories                                                                                                                                |                                                          |        | 5,260        |        |   |        | 35,139  |        
|                                      | Deferred income taxes                                                                                                                      |                                                          |        | 988          |        |   |        | 7,624   |        
|                                      | Prepaid expense                                                                                                                            |                                                          |        | 836          |        |   |        | 1,807   |        
|                                      |                                                                                                                                            |                                                          |        |              |        |   |        |        
|                                      |                                                                                                                                            | Total Current Assets                                     |        |              | 25,852 |   |        |         | 96,632  | 
|Property, Plant and Equipment         |                                                                                                                                            |                                                          |        |              |        |   |        |        
|                                      | Land                                                                                                                                       |                                                          |        | 291          |        |   |        | 797     |        
|                                      | Buildings and improvements                                                                                                                 |                                                          |        | 4,158        |        |   |        | 11,076  |        
|                                      | Machinery and equipment                                                                                                                    |                                                          |        | 11,949       |        |   |        | 56,951  |        
|                                      |                                                                                                                                            |                                                          |        |              |        |   |        |        
|                                      |                                                                                                                                            |                                                          | 16,398 |              |        |   | 68,824 |        
|                                      | Less: Accumulated depreciation                                                                                                             |                                                          |        | (10,942      | )      |   |        | (27,713 | )      
|                                      |                                                                                                                                            |                                                          |        |              |        |   |        |        
|                                      |                                                                                                                                            |                                                          | 5,456  |              |        |   | 41,111 |        
|                                      | Excess of cost over fair value of net assets
	acquired, net                                                                                |                                                          |        |             |        |   |        | 21,589  |        
|                                      | Other assets                                                                                                                               |                                                          |        | 537          |        |   |        | 3,488   |        
|                                      |                                                                                                                                            |                                                          |        |              |        |   |        |        
|                                      |                                                                                                                                            | Total Assets                                             |        | $            | 31,845 |   |        | $       | 162,820 | 
|                                      |                                                                                                                                            |                                                          |        |              |        |   |        |        
|LIABILITIES AND SHAREHOLDERS
	EQUITY |                                                                                                                                            |                                                          |        |             
|Current Liabilities:                  |                                                                                                                                            |                                                          |        |              |        |   |        |        
|                                      | Notes payable to banks                                                                                                                     |                                                          | $      | 1,086        |        |   | $      | 30,288  |        
|                                      | Trade accounts payable                                                                                                                     |                                                          |        | 1,717        |        |   |        | 19,251  |        
|                                      | Accrued interest payable                                                                                                                   |                                                          |        | 7            |        |   |        | 1,185   |        
|                                      | Accrued liabilities                                                                                                                        |                                                          |        | 6,189        |        |   |        | 15,234  |        
|                                      | Customer advances                                                                                                                          |                                                          |        | 6,781        |        |   |        | 3,916   |        
|                                      | Current maturities of long-term debt                                                                                                       |                                                          |        | 521          |        |   |        | 1,376   |        
|                                      |                                                                                                                                            |                                                          |        |              |        |   |        |        
|                                      |                                                                                                                                            | Total Current Liabilities                                |        |              | 16,301 |   |        |         | 71,250  | 
|                                      | Long-term debt                                                                                                                             |                                                          |        | 1,678        |        |   |        | 61,350  |        
|                                      | Deferred income taxes                                                                                                                      |                                                          |        | 578          |        |   |        | 6,752   |        
|                                      | Other long-term liabilities                                                                                                                |                                                          |        | 1,319        |        |   |        | 3,908   |        
|                                      | Minority interests                                                                                                                         |                                                          |        |             |        |   |        | 4,128   |        
|                                      |                                                                                                                                            |                                                          |        |              |        |   |        |        
|                                      |                                                                                                                                            | Total Liabilities                                        |        |              | 19,876 |   |        |         | 147,388 | 
|Loss in Excess of Investment (Note 1) |                                                                                                                                            |                                                          | 19,420 |              |        |   |       |        
|Comments and Contingencies (Note 14)  |                                                                                                                                            |                                                          |        |              |        |   |        |        
|Shareholders (Deficiency) Equity     |                                                                                                                                            |                                                          |        |              |        |   |        |        
|                                      | Common stock, no par or stated value 
	10,000,000 shares Authorized; 1,513,191 shares issued; 1,497,883
	and 1,510,183 shares outstanding |                                                          |        | 5,139        |        |   |        | 5,139   |        
|                                      | Additional paid-in capital                                                                                                                 |                                                          |        | 10,403       |        |   |        | 10,403  |        
|                                      | (Accumulated deficit) retained earnings                                                                                                    |                                                          |        | (22,533      | )      |   |        | 405     |        
|                                      | Officers note receivable                                                                                                                  |                                                          |        |             |        |   |        | (382    | )      
|                                      | Accumulated other comprehensive loss                                                                                                       |                                                          |        | (2           | )      |   |        | (71     | )      
|                                      | Treasury stock of 15,308 and 3,008 shares at cost                                                                                          |                                                          |        | (458         | )      |   |        | (62     | )      
|                                      |                                                                                                                                            |                                                          |        |              |        |   |        |        
|                                      |                                                                                                                                            | Total Shareholders (Deficiency) Equity                  |        |              | (7,451 | ) |        |         | 15,432  | 
|                                      |                                                                                                                                            |                                                          |        |              |        |   |        |        
|                                      |                                                                                                                                            | Total Liabilities and Shareholders
	(Deficiency) Equity |        | $            | 31,845 |   |        | $       | 162,820 | 
|                                      |                                                                                                                                            |                                                          |        |              |        |   |        |        

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 and
prospectively accounts for its ownership of Spinnaker using the
equity method of accounting. See Note 1.

29



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##### Table of Contents






LYNCH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                                                                                                   |                                                                 |                                           |           |         |   |      |           |         |   |   |           |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------- | ----------------------------------------- | --------- | ------- | - | ---- | --------- | ------- | - | - | --------- | ------- | -
|                                                                                                                                                                   |                                                                 |                                          
|                                                                                                                                                                   |                                                                 | Years ended December 31,                 
|                                                                                                                                                                   |                                                                 |                                          
|                                                                                                                                                                   |                                                                 | 2001                                      |           | 2000    |   | 1999
|                                                                                                                                                                   |                                                                 |                                           |           |         |   |     
|                                                                                                                                                                   |                                                                 |                                          
|                                                                                                                                                                   |                                                                 | (In thousands, except share and per-share
|                                                                                                                                                                   |                                                                 | amounts)                                 
|SALES AND REVENUES                                                                                                                                                 |                                                                 | $                                         | 141,073   |         |   | $    | 219,196   |         |   | $ | 194,222   |        
|Costs and expenses:                                                                                                                                                |                                                                 |                                           |           |         |   |      |           |         |   |   |           |        
|                                                                                                                                                                   | Manufacturing cost of sales                                     |                                           |           | 130,290 |   |      |           | 192,980 |   |   |           | 172,567 |  
|                                                                                                                                                                   | Selling and administrative                                      |                                           |           | 19,157  |   |      |           | 28,485  |   |   |           | 21,120  |  
|                                                                                                                                                                   | Asset impairment and restructuring charges                      |                                           |           | 38,272  |   |      |           | 2,708   |   |   |           | 450     |  
|                                                                                                                                                                   |                                                                 |                                           |           |         |   |      |           |         |   |   |           |        
|                                                                                                                                                                   |                                                                 |                                           | 187,719   |         |   |      | 224,173   |         |   |   | 194,137   |        
|Gain on deconsolidation (Note 1)                                                                                                                                   |                                                                 |                                           | 27,406    |         |   |      |          |         |   |   |          |        
|                                                                                                                                                                   |                                                                 |                                           |           |         |   |      |           |         |   |   |           |        
|OPERATING PROFIT (LOSS)                                                                                                                                            |                                                                 |                                           | (19,240   | )       |   |      | (4,977    | )       |   |   | 85        |        
|Other income (expense):                                                                                                                                            |                                                                 |                                           |           |         |   |      |           |         |   |   |           |        
|                                                                                                                                                                   | Investment income                                               |                                           |           | 384     |   |      |           | 1,481   |   |   |           | 2,354   |  
|                                                                                                                                                                   | Interest expense                                                |                                           |           | (7,741  | ) |      |           | (11,432 | ) |   |           | (11,882 | )
|                                                                                                                                                                   | Impairment of Spinnakers investment in
	warrants               |                                           |           |        |   |      |           | (2,800  | ) |   |           |        |  
|                                                                                                                                                                   |                                                                 |                                           |           |         |   |      |           |         |   |   |           |        
|                                                                                                                                                                   |                                                                 |                                           | (7,357    | )       |   |      | (12,751   | )       |   |   | (9,528    | )      
|                                                                                                                                                                   |                                                                 |                                           |           |         |   |      |           |         |   |   |           |        
|LOSS FROM CONTINUING OPERATIONS BEFORE INCOME
	TAXES, MINORITY INTERESTS, DISCONTINUED OPERATIONS AND
	EXTRAORDINARY ITEM                                          |                                                                 |                                           | (26,597   | )       |   |      | (17,728   | )       |   |   | (9,443    | )      
|(Provision) Benefit for income taxes                                                                                                                               |                                                                 |                                           | (358      | )       |   |      | 2,793     |         |   |   | 2,544     |        
|Minority interests                                                                                                                                                 |                                                                 |                                           | 4,017     |         |   |      | 9,252     |         |   |   | 2,647     |        
|                                                                                                                                                                   |                                                                 |                                           |           |         |   |      |           |         |   |   |           |        
|LOSS FROM CONTINUING OPERATIONS BEFORE
	DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEM                                                                             |                                                                 |                                           | (22,938   | )       |   |      | (5,683    | )       |   |   | (4,252    | )      
|DISCONTINUED OPERATIONS:                                                                                                                                           |                                                                 |                                           |           |         |   |      |           |         |   |   |           |        
|Loss from operations of Lynch Interactive
	Corporation distributed to
	shareholders (less income tax benefit of $3,068 and minority
	interests
	of $578)           |                                                                 |                                           |          |         |   |      |          |         |   |   | (7,493    | )      
|Loss from discontinued operations of industrial
	tape segment of Spinnaker Industries (less applicable income tax
	benefit of $308 and minority interests of $558) |                                                                 |                                           |          |         |   |      |          |         |   |   | (572      | )      
|Gain on sale of Spinnakers industrial tape
	operations (less income tax provision of $6,495 and minority
	interest of $7,013)                                     |                                                                 |                                           |          |         |   |      |          |         |   |   | 10,431    |        
|EXTRAORDINARY ITEM:                                                                                                                                                |                                                                 |                                           |           |         |   |      |           |         |   |   |           |        
|Gain on early extinguishments of debt (less
	income tax provision of $2,612 and $355 and minority interest of
	$2,472 and $300)                                    |                                                                 |                                           |          |         |   |      | 2,245     |         |   |   | 303       |        
|                                                                                                                                                                   |                                                                 |                                           |           |         |   |      |           |         |   |   |           |        
|NET LOSS                                                                                                                                                           |                                                                 | $                                         | (22,938   | )       |   | $    | (3,438    | )       |   | $ | (1,583    | )      
|                                                                                                                                                                   |                                                                 |                                           |           |         |   |      |           |         |   |   |           |        
|Weighted average shares outstanding                                                                                                                                |                                                                 |                                           | 1,505,300 |         |   |      | 1,491,000 |         |   |   | 1,415,000 |        
|Basic and diluted loss per share:                                                                                                                                  |                                                                 |                                           |           |         |   |      |           |         |   |   |           |        
|                                                                                                                                                                   | Loss from continuing operations before
	discontinued operations |                                           | $         | (15.24  | ) |      | $         | (3.81   | ) |   | $         | (3.00   | )
|                                                                                                                                                                   | Loss from Lynch Interactive Corporation                         |                                           |           |        |   |      |           |        |   |   |           | (5.30   | )
|                                                                                                                                                                   | Income from discontinued operations                             |                                           |           |        |   |      |           |        |   |   |           | 6.97    |  
|                                                                                                                                                                   | Extraordinary item                                              |                                           |           |        |   |      |           | 1.51    |   |   |           | .21     |  
|                                                                                                                                                                   |                                                                 |                                           |           |         |   |      |           |         |   |   |           |        
|NET LOSS                                                                                                                                                           |                                                                 | $                                         | (15.24    | )       |   | $    | (2.30     | )       |   | $ | (1.12     | )      
|                                                                                                                                                                   |                                                                 |                                           |           |         |   |      |           |         |   |   |           |        

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 and
prospectively accounts for its ownership of Spinnaker using the
equity method of accounting. See Note 1.

See accompanying notes

30



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##### Table of Contents






LYNCH CORPORATION AND SUBSIDIARIES

Consolidated Statements of Shareholders
Equity


For the Three Years Ended December 31,
2001


|                              |                                                |                                                  |           |         |   |            |       |          |  |            |        |               |   |          |         |         |   |    |     |      |   |   |     |     |   |   |        |       |   |   |        |         |         |  
|----------------------------- | ---------------------------------------------- | ------------------------------------------------ | --------- | ------- | - | ---------- | ----- | -------- |  | ---------- | ------ | ------------- | - | -------- | ------- | ------- | - | -- | --- | ---- | - | - | --- | --- | - | - | ------ | ----- | - | - | ------ | ------- | ------- | -
|                              |                                                | 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, 1998      |                                                |                                                  | 1,418,248 |         |   |            | 5,139 |          |  |            | 8,554  |               |   |          | 26,771  |         |   | $  | 0   |      |   |   | 59  |     |   |   | (730   | )     |   |   | 39,793 |        
|Comprehensive Income (Loss):  |                                                |                                                  |           |         |   |            |       |          |  |            |        |               |   |          |         |         |   |    |     |      |   |   |     |     |   |   |        |       |   |   |        |        
|                              | Net loss for year                              |                                                  |           |        |   |            |       |         |  |            |        |              |   |          |         | (1,583  | ) |    |     |     |   |   |     |    |   |   |        |      |   |   |        | (1,583  | )      
|                              | Other comprehensive income (loss)              |                                                  |           |        |   |            |       |         |  |            |        |              |   |          |         |        |   |    |     |     |   |   |     | (40 | ) |   |        |      |   |   |        | (40     | )      
|                              |                                                |                                                  |           |         |   |            |       |          |  |            |        |               |   |          |         |         |   |    |     |      |   |   |     |     |   |   |        |       |   |   |        |        
|                              |                                                | Comprehensive Income (Loss)                      |           |         |   |            |       |          |  |            |        |               |   |          |         |         |   |    |     |      |   |   |     |     |   |   |        |       |   |   |        |         | (1,623  | )
|                              | Purchase of Treasury Stock                     |                                                  |           | (8,065  | ) |            |       |         |  |            |        |              |   |          |         |        |   |    |     |     |   |   |     |     |   |   |        | (523  | ) |   |        | (523    | )      
|                              | Capital transactions of The Morgan Group, Inc. |                                                  |           |        |   |            |       |         |  |            |        | (252          | ) |          |         |        |   |    |     |      |   |   |     |    |   |   |        |      |   |   |        | (252    | )      
|                              | Dividend of Lynch Interactive Corporation      |                                                  |           |        |   |            |       |         |  |            |        |              |   |          |         | (21,345 | ) |    |     |     |   |   |     | (59 | ) |   |        |      |   |   |        | (21,404 | )      
|                              |                                                |                                                  |           |         |   |            |       |          |  |            |        |               |   |          |         |         |   |    |     |      |   |   |     |     |   |   |        |       |   |   |        |        
|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 income (loss)              |                                                  |           |        |   |            |       |         |  |            |        |              |   |          |         |        |   |    |     |     |   |   |     | (31 | ) |   |        |      |   |   |        | (31     | )      
|                              |                                                |                                                  |           |         |   |            |       |          |  |            |        |               |   |          |         |         |   |    |     |      |   |   |     |     |   |   |        |       |   |   |        |        
|                              |                                                | Comprehensive Income (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 Income (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 | )      
|                              |                                                |                                                  |           |         |   |            |       |          |  |            |        |               |   |          |         |         |   |    |     |      |   |   |     |     |   |   |        |       |   |   |        |        

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 and
prospectively accounts for its ownership of Spinnaker using the
equity method of accounting. See Note 1.

See accompanying notes.

31



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##### Table of Contents



LYNCH CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                                                                                                                     |                                                        |                                          |         |      |         |      |         |   |         |   |         |         |        |  
|-------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------ | ---------------------------------------- | ------- | ---- | ------- | ---- | ------- | - | ------- | - | ------- | ------- | ------ | -
|                                                                                                                     |                                                        |                                         
|                                                                                                                     |                                                        | Years Ended December 31,                
|                                                                                                                     |                                                        |                                         
|                                                                                                                     |                                                        | 2001                                     |         | 2000 |         | 1999
|                                                                                                                     |                                                        |                                          |         |      |         |     
|                                                                                                                     |                                                        |                                         
|                                                                                                                     |                                                        | (In thousands)                          
|OPERATING ACTIVITIES                                                                                                 |                                                        |                                          |         |      |         |      |         |   |         |   |         |        
|Net loss                                                                                                             |                                                        | $                                        | (22,938 | )    |         | $    | (3,438  | ) |         | $ | (1,583  | )      
|Adjustments to reconcile net loss to net cash
	provided by (used in) operating activities of continuing
	operations: |                                                        |                                          |         |      |         |      |         |   |         |   |         |        
|Gain on deconsolidation                                                                                              |                                                        |                                          | (27,406 | )    |         |      |        |   |         |   |        |        
|Loss on donation of shares                                                                                           |                                                        |                                          | 366     |      |         |      |        |   |         |   |        |        
|Asset impairment and restructuring charges                                                                           |                                                        |                                          | 38,272  |      |         |      |        |   |         |   |        |        
|Extraordinary item, net                                                                                              |                                                        |                                          |        |      |         |      | (2,245  | ) |         |   | (303    | )      
|Depreciation                                                                                                         |                                                        |                                          | 4,315   |      |         |      | 6,734   |   |         |   | 5,147   |        
|Amortization of goodwill and other assets                                                                            |                                                        |                                          | 244     |      |         |      | 1,001   |   |         |   | 1,087   |        
|Amortization of deferred financing charges                                                                           |                                                        |                                          | 703     |      |         |      | 876     |   |         |   | 786     |        
|Deferred taxes                                                                                                       |                                                        |                                          | 501     |      |         |      | 1,846   |   |         |   | (2,719  | )      
|Minority interests                                                                                                   |                                                        |                                          | (4,017  | )    |         |      | (7,072  | ) |         |   | (2,636  | )      
|Other                                                                                                                |                                                        |                                          | 761     |      |         |      | 2,800   |   |         |   | (854    | )      
|Adjustment from discontinued operations:                                                                             |                                                        |                                          |         |      |         |      |         |   |         |   |         |        
|                                                                                                                     | Loss from operations of Lynch Interactive
	Corporation |                                          |         |     |         |      |         |  |         |   |         | 7,493   |       
|                                                                                                                     | Loss from operations of industrial tape segment        |                                          |         |     |         |      |         |  |         |   |         | 572     |       
|                                                                                                                     | Gain on sale of industrial tape segment                |                                          |         |     |         |      |         |  |         |   |         | (10,431 | )     
|Changes in operating assets and liabilities:                                                                         |                                                        |                                          |         |      |         |      |         |   |         |   |         |        
|                                                                                                                     |                                                        | Receivables                              |         |      | 10,861  |      |         |   | (10,377 | ) |         |         | 678    |  
|                                                                                                                     |                                                        | Inventories                              |         |      | 13,430  |      |         |   | (3,459  | ) |         |         | (3,284 | )
|                                                                                                                     |                                                        | Accounts payable and accrued liabilities |         |      | (14,269 | )    |         |   | 10,112  |   |         |         | (3,949 | )
|                                                                                                                     |                                                        | Other Assets/ Liabilities                |         |      | 4,727   |      |         |   | (212    | ) |         |         | 864    |  
|                                                                                                                     |                                                        |                                          |         |      |         |      |         |   |         |   |         |        
|Net cash provided by (used in) operating
	activities of continuing operations                                        |                                                        |                                          | 5,550   |      |         |      | (3,434  | ) |         |   | (9,132  | )      
|INVESTING ACTIVITIES                                                                                                 |                                                        |                                          |         |      |         |      |         |   |         |   |         |        
|Capital Expenditures                                                                                                 |                                                        |                                          | (1,104  | )    |         |      | (4,323  | ) |         |   | (3,795  | )      
|Restricted Cash                                                                                                      |                                                        |                                          | 1,797   |      |         |      | 49,526  |   |         |   | (56,026 | )      
|Reduction in cash due to deconsolidation                                                                             |                                                        |                                          | (5,728  | )    |         |      |        |   |         |   |        |        
|Proceeds from sale of industrial tape segment                                                                        |                                                        |                                          |        |      |         |      |        |   |         |   | 104,450 |        
|Proceeds from sale of fixed assets                                                                                   |                                                        |                                          |        |      |         |      |        |   |         |   | 2,403   |        
|Other                                                                                                                |                                                        |                                          | (860    | )    |         |      | (767    | ) |         |   | 509     |        
|                                                                                                                     |                                                        |                                          |         |      |         |      |         |   |         |   |         |        
|Net cash provided by (used in) investing
	activities of continuing operations                                        |                                                        |                                          | (5,895  | )    |         |      | 44,436  |   |         |   | 47,541  |        
|FINANCING ACTIVITIES                                                                                                 |                                                        |                                          |         |      |         |      |         |   |         |   |         |        
|Net borrowings (repayments) of notes payable                                                                         |                                                        |                                          | (7,587  | )    |         |      | 7,110   |   |         |   | (36,127 | )      
|Repayment of long-term debt                                                                                          |                                                        |                                          | (420    | )    |         |      | (53,433 | ) |         |   | (10,937 | )      
|Proceeds from long-term debt                                                                                         |                                                        |                                          | 1,987   |      |         |      |        |   |         |   |        |        
|(Purchase) sale of treasury stock                                                                                    |                                                        |                                          |        |      |         |      | 1,191   |   |         |   | (523    | )      
|Issuance of common stock                                                                                             |                                                        |                                          |        |      |         |      | 1,809   |   |         |   |        |        
|Other                                                                                                                |                                                        |                                          | 69      |      |         |      | (242    | ) |         |   | (580    | )      
|                                                                                                                     |                                                        |                                          |         |      |         |      |         |   |         |   |         |        
|Net cash used in financing activities of
	continuing operations                                                      |                                                        |                                          | (5,951  | )    |         |      | (43,565 | ) |         |   | (48,167 | )      
|                                                                                                                     |                                                        |                                          |         |      |         |      |         |   |         |   |         |        
|Net decrease in cash and cash equivalents                                                                            |                                                        |                                          | (6,296  | )    |         |      | (2,563  | ) |         |   | (9,758  | )      
|Cash provided by Lynch Interactive Corporation                                                                       |                                                        |                                          |        |      |         |      |        |   |         |   | 15,987  |        
|Cash provided by industrial tape segment                                                                             |                                                        |                                          |        |      |         |      |        |   |         |   | 5,745   |        
|                                                                                                                     |                                                        |                                          |         |      |         |      |         |   |         |   |         |        
|Increase (decrease) in cash and cash equivalents                                                                     |                                                        |                                          | (6,296  | )    |         |      | (2,563  | ) |         |   | 11,974  |        
|Cash and cash equivalents at beginning of year                                                                       |                                                        |                                          | 10,543  |      |         |      | 13,106  |   |         |   | 1,132   |        
|                                                                                                                     |                                                        |                                          |         |      |         |      |         |   |         |   |         |        
|Cash and cash equivalents at end of year                                                                             |                                                        | $                                        | 4,247   |      |         | $    | 10,543  |   |         | $ | 13,106  |        
|                                                                                                                     |                                                        |                                          |         |      |         |      |         |   |         |   |         |        

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 and
prospectively accounts for its ownership of Spinnaker using the
equity method of accounting. See Note 1.

See accompanying notes

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##### Table of Contents



LYNCH CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2001


1.     Accounting and
Reporting Policies

Organization

Lynch Corporation 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. and M-tron Industries, Inc.) and an
investment in Spinnaker Industries, Inc. (Spinnaker)
accounted for under the equity method of accounting; 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; as such, 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 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 accounts for its ownership of Spinnaker using
the equity method of accounting.

Accordingly, 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, 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, which
represents the Companys interest in Spinnakers
accumulated deficit at the date of deconsolidation. This
remaining interest represents losses in excess of investment,
which has been recorded as a deferred credit on the
Companys balance sheet until such time as Spinnaker
achieves profitability or the Company disposes of its remaining
interests in Spinnaker. The Company will not record any
additional losses from Spinnaker as the Company has no further
obligations to Spinnaker (see Note 17).

The following summarized balance sheet
information of Spinnaker is presented as follows at
September 30, 2001 (date of deconsolidation) and
December 31, 2000):

|                      |  |               |         |              |  |   |         |  
|--------------------- |  | ------------- | ------- | ------------ |  | - | ------- | -
|                      |  | (unaudited)   |         |             
|                      |  | September 30, |         | December 31,
|                      |  | 2001          |         | 2000        
|                      |  |               |         |             
|Current Assets        |  | $             | 36,881  |              |  | $ | 59,496  |  
|Total Assets          |  |               | 54,902  |              |  |   | 119,031 |  
|Current Liabilities   |  |               | 38,759  |              |  |   | 49,409  |  
|Long-Term Debt        |  |               | 61,239  |              |  |   | 60,310  |  
|Shareholders Deficit |  |               | (46,460 | )            |  |   | (7,468  | )

Principles of
Consolidation

The consolidated financial statements include the
accounts of Lynch Corporation (the Company or
Lynch) and entities in which Lynch had majority
voting control. All material intercompany transactions

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LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

and accounts have been eliminated in
consolidation. See Note 4 for details of the spin off of
Lynch Interactive Corporation, which occurred on
September 1, 1999.

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.

Cash
Equivalents

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

At December 31, 2001 and 2000, assets of
$2.1 million and $8.7 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, 2001 and 2000, the Company
had $4.7 million and $6.5 million of Restricted Cash.
(See Note 6.)

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 (See discussion of
Accounting for Long Term Contracts below). 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.

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. For income tax purposes,
accelerated depreciation methods are used.



| |                                                            
| | -----------------------------------------------------------
| | Excess of Cost over Fair Value of Net
	Assets Acquired, Net

As of December 31, 2001, there is no
goodwill on the books of Lynch Corporation. The majority of
goodwill on Spinnaker books at December 31, 2000
($20.8 million) was written-off in 2001 and is included in
asset impairment and restructuring charges in the statements of
operations (See Note 2).

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LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Revenue
Recognition

Revenues, with the exception of certain long-term
contracts discussed below, are recognized on shipment. 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 (cost to cost basis). At
December 31, 2001 and 2000, costs and estimated earnings in
excess of billings (included in accounts receivable) were
$5.3 million and $2.7 million, respectively.

Research and
Development Costs

Research and development costs are charged to
operations as incurred. Such costs were $1,772,000, $1,603,000,
and $1,386,000 in 2001, 2000, and 1999, respectively.

Advertising
Expense

The cost of advertising is expensed as incurred.
The Company incurred $177,000, $472,000, and $340,000 in
advertising costs during 2001, 2000 and 1999, respectively.



| |                   
| | ------------------
| | Earnings Per Share

The Companys basic and diluted earnings per
share are equivalent as the Company has no dilutive securities
(see Note 9).



| |                    
| | -------------------
| | 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 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. 121, Accounting for the Impairment of Long-Lived
Assets and Assets to be Disposed Of . 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

35



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LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 2
regarding Spinnakers restructuring costs for fiscal years
2001 and 2000.



| |                         
| | ------------------------
| | Stock Based Compensation

The Company grants stock options for a fixed
number of shares to employees with an exercise price equal to
the fair value of the shares at the date of grant. The Company
accounts for stock option grants in accordance with APB Opinion
No. 25, Accounting for Stock Issued to Employees
(APB 25) and related Interpretations because the
Company believes the alternative fair value accounting provided
for under FASB Statement No. 123, Accounting for
Stock-Based Compensation, (FAS 123) requires the use of
option valuation models that were not developed for use in
valuing employee stock options.



| |                      
| | ---------------------
| | 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, 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.



| |                                                 
| | ------------------------------------------------
| | Issuance of Stock by Subsidiaries and
	Investees

Changes in the Companys equity in a
subsidiary or an investee caused by issuance of the
subsidiarys or investees stock are accounted for as
gains or losses where such issuance is not part of a broader
reorganization (see Note 10).



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

The consolidated financial statements reflect the
spin off of Lynch Interactive Corporation (Interactive) from
Lynch Corporation that occurred in the third quarter of 1999 and
also the sale by Spinnaker Industries, Inc. (Spinnaker), of its
two industrial tape units, Central Products Company and
Spinnaker Electrical that also 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 on the financial statements as discontinued
operations.

Certain other amounts in the 2000 and 1999
financial statements have been reclassified to conform to the
2001 presentation. These other reclassifications are immaterial
to the consolidated financial statements taken as a whole.

36



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LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



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

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.

The Company will apply FAS 142 beginning in
the first quarter of 2002. The Company will test
indefinite-lived intangible assets for impairment using the
two-step process prescribed by FAS 142. The first step is a
screen for potential impairment, while the second step measures
the amount of impairment, if any. The Company expects to perform
the first of the required impairment tests of indefinite-lived
intangible assets as of January 1, 2002 in the first
quarter of 2002. Any impairment charge resulting from these
transitional impairment tests will be reflected as the
cumulative effect of a change in accounting principles in the
first quarter of 2002. The Company does not anticipate that the
effect of these tests will be material to the earnings and
financial position of the Company.

In August 2001, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (FAS 144),
which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets and supersedes
Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets to be
Disposed Of , and the accounting and reporting
provisions of APB Opinion No. 30, Reporting the
Results of Operations  Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequent Occurring Events and Transactions.
FAS 144 is effective for fiscal years beginning after
December 15, 2001. The Company will adopt FAS 144 as
of January 1, 2002 and it does not expect that the adoption
of the Statement will have a significant impact on the
Companys financial position or results of operations.

2.     Asset
Impairment and Restructuring Charges

Prior to the deconsolidation of Spinnaker on
September 30, 2001 (see Note 1), the Company
recognized certain restructuring charges in 2001 related to
Spinnaker, totaling $41.8 million. 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; (b) impairment of goodwill associated with the
acquisition of Coating  Maine in 1998;
(c) severance and related costs; and (d) inventory
write-downs of $3.5 million (recorded through manufacturing
costs of sales).

To better concentrate on Coatings strengths
and market niche, a decision was made by Spinnakers
management to reorganize and realign the business in the fourth
quarter of 2000. Spinnaker recognized certain restructuring
charges, primarily affiliated with its Spinnaker Coating and
Spinnaker Coating  Maine businesses, in 2000 of
approximately $2.7 million.

3.     Discontinued
Operations

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

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LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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
are recorded in other assets.

The sale of the two industrial tape businesses
closed on August 10, 1999 and July 30, 1999.
Accordingly, operating results of the industrial tape segment
have been segregated from continuing operations and reported as
a separate line item in the statements of operations. The
Company recorded gains totaling $17.4 million, net of
applicable income taxes of approximately $6.5 million.
Spinnaker offset the cash tax liability by utilizing net
operating loss carry forwards. The industrial tape segments net
sales were $69.5 million in the period ended
December 31, 1999 (through the date of sale).

General corporate office expenses related to
finance and administrative functions including public company
compliance reporting, bank and investor relations, taxes other
than income taxes and holding company payroll, historically
allocated and charged to the industrial tape segment were
reversed and allocated back to continuing operations. These
expenses were not considered to be directly attributed to
discontinued operations. Historical expenses allocated back to
continuing operations totaled $1.0 million for the period
ended December 31, 1999.

Interest expense attributed to the Spinnaker
senior notes and related deferred financing had historically
been allocated based on the pro rata share of subsidiary
debt obligations retired with the proceeds from the issuance of
the senior notes, to total debt obligations retired. The senior
note proceeds were used to extinguish certain outstanding term
and revolver obligations in October 1996. Interest expense
charged to the discontinued industrial tape segment totaled
$5.2 million for the period ended December 31, 1999.

4.     Spin
Off

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 the
spin off of Lynch Interactive Corporation
(Interactive) on September 1, 1999, to
stockholders of record on August 23, 1999. Pursuant to the
spin off, each Lynch shareholder received one share of
Interactive common stock for each share of Lynch owned. Lynch
had received a private letter ruling from the Internal Revenue
Service that the spin off would be tax free to Lynch
shareholders. Interactive is listed on the American Stock
Exchange under the symbol LIC.

Interactive owns all of what were Lynchs
multimedia and service businesses while Lynch retained the
manufacturing businesses. Interactive owns the telephone
companies, television interests and PCS interests, as well as
the 55% equity interest of The Morgan Group, Inc. In addition,
Interactive owns a 13.6% equity interest in Spinnaker
Industries, Inc. In the third quarter of 1999, Lynch acquired by
merger, all of the stock of Central Scott Telephone Company.
This company became part of Lynch Interactive and was included
in the spin off.

As a result, the Companys multimedia and
services segments are being reported as operations distributed
to shareholders in the accompanying consolidated financial
statements. Accordingly, operating results of Lynch Interactive
Corporation for 1999 have been segregated from continuing
operations and reported as a separate line item on the
statements of operations. Interactives net sales were $
204.6 million for the fiscal year ended December 31,
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

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LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

to Lynch. The Company was charged a management
fee for these services amounting to approximately $180,000,
$265,000 and $200,000 in 2001, 2000 and 1999, respectively. Note
that this arrangement was terminated in August, 2001.

The net assets distributed to Interactive were
estimated to be $22.6 million at September 1, 1999.
Such amount was subsequently decreased in the fourth quarter by
$1.6 million to reflect revised estimates of liabilities
distributed.

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 20% (which excluded
Spinnaker due to the deconsolidation discussed in Note 1)
and 28% of consolidated inventories at December 31, 2001
and 2000, respectively. The balance of inventories at
December 31, 2001 are valued using the first-in-first-out
(FIFO) method. At December 31, 2000, the balance of
inventories were valued using the FIFO method and specific
identification method (for Spinnaker).

|                           |       |                |       |       |  |   |        |        | 
|-------------------------- | ----- | -------------- | ----- | ----- |  | - | ------ | ------ | 
|                           |       |               
|                           |       | December 31,  
|                           |       |               
|                           |       | 2001           |       | 2000 
|                           |       |                |       |      
|                           |       |               
|                           |       | (In Thousands)
|Raw materials and supplies |       | $              | 1,844 |       |  | $ | 10,172 |       
|Work in progress           |       |                | 2,003 |       |  |   | 2,796  |       
|Finished goods             |       |                | 1,413 |       |  |   | 22,171 |       
|                           |       |                |       |       |  |   |        |       
|                           | Total |                | $     | 5,260 |  |   | $      | 35,139 | 
|                           |       |                |       |       |  |   |        |       

Current cost exceeded the LIFO value of
inventories by $991,000 and $966,000 at December 31, 2001
and 2000, respectively.

6.     Notes Payable
to Banks and Long-term Debt

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

|                                                                                                 |  |                |       |      |  |   |        |  
|------------------------------------------------------------------------------------------------ |  | -------------- | ----- | ---- |  | - | ------ | -
|                                                                                                 |  |               
|                                                                                                 |  | December 31,  
|                                                                                                 |  |               
|                                                                                                 |  | 2001           |       | 2000
|                                                                                                 |  |                |       |     
|                                                                                                 |  |               
|                                                                                                 |  | (In Thousands)
|Notes payable:                                                                                   |  |                |       |      |  |   |        |  
|M-tron bank revolving loan at variable interest
	rates (4.5% at December 31, 2001), due May 2002 |  | $              | 1,086 |      |  | $ | 3,004  |  
|Lynch Systems bank revolving loan at variable
	interest rates, due August 2002                   |  |                |      |      |  |   | 1,150  |  
|Spinnaker notes payable with variable interest
	rates                                            |  |                |      |      |  |   | 26,134 |  
|                                                                                                 |  |                |       |      |  |   |        |  
|                                                                                                 |  | $              | 1,086 |      |  | $ | 30,288 |  
|                                                                                                 |  |                |       |      |  |   |        |  
|Long-term debt:                                                                                  |  |                |       |      |  |   |        |  
|M-tron term loan at variable interest rates (5.0%
	at December 31, 2001), due September 2004     |  | $              | 1,259 |      |  | $ |       |  
|Lynch Systems term loan at a fixed interest rate
	of 8.0%, due August 2003                       |  |                | 607   |      |  |   | 635    |  
|Spinnaker 10.75% senior secured notes, due 2006                                                  |  |                |      |      |  |   | 51,135 |  
|Spinnaker subordinated note at a fixed interest
	rate of 14%, due 2003                           |  |                |      |      |  |   | 9,172  |  
|Other debt                                                                                       |  |                | 333   |      |  |   | 1,784  |  
|                                                                                                 |  |                |       |      |  |   |        |  
|                                                                                                 |  |                | 2,199 |      |  |   | 62,726 |  
|Current maturities                                                                               |  |                | (521  | )    |  |   | (1,376 | )
|                                                                                                 |  |                |       |      |  |   |        |  
|                                                                                                 |  | $              | 1,678 |      |  | $ | 61,350 |  
|                                                                                                 |  |                |       |      |  |   |        |  

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LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

On a consolidated basis, at December 31,
2001, Lynch maintains short-term and long-term line of credit
facilities totaling $10.2 million, of which
$5.9 million was available for future borrowings. 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, 2001,
all of these facilities expire within one year. The weighted
average interest rate for short-term borrowings at
December 31, 2001 and 2000 was 5.0% and 9.5%, respectively.
In May of 2001, Lynch Systems entered into an agreement with a
bank for a $4 million line of credit to be used only for
the issuance of standby letters of 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 and certain warranty
coverages. Cash of $4.7 million at December 31, 2001
has been disclosed as restricted as required under certain
letters of credit outstanding. Total letters of credit
outstanding at December 31, 2001 totaled $7.9 million.
In August of 2001, M-tron entered into a credit agreement with
its bank to set the line at $6.2 million including a
$5.0 million working capital line. Lynch Systems has a
February 2002 commitment from another bank to provide a
$6 million export/ import line, a $2 million domestic
revolving credit line, and a $944 thousand term loan. Interest
rates will be variable and would currently average about
4.6 percent. All of the new lenders loan conditions
have been met and the lender expects to close the loan by
mid-April 2002. This new financing will be used to repay the
existing Lynch Systems debt.

Cash payments for interest were
$2.0 million, $10.4 million, and $10.3 million
for the years ended December 31, 2001, 2000 and 1999,
respectively. Interest payments in 2001 are substantially below
2000 due to Spinnakers defaulting on interest payments.

Aggregate principal maturities of long-term debt
(excluding Spinnaker) for each of the next five years that total
2.1 million are as follows: 2002  $521 thousand;
2003  $816 thousand; 2004  $863 thousand;
and 0 thereafter.

7.     Minority
Interests and Related Party Transactions

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.



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

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
2001, 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 co-owned by
Mr. Papitto (Company Chairman) and Mr. Gabelli. Since
August 2001, Avtek and the Company have shared, on an
approximately equal basis, (i) all occupancy costs of the
shared premises and

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

(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 in 2001 was $73,000, a
portion of which represents compensation to Mr. McGrail and
Mr. Keller that is reported in the Summary Compensation
Table of the Proxy Statement which was paid subsequent to
December 31, 2001.

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 Chapter 11
Reorganization Proceeding

On November 13, 2001 (the Filing
Date), Spinnaker and its Spinnaker Coating, Inc.,
Spinnaker Coating-Maine, Inc. and Entoleter, Inc. subsidiaries
filed voluntary petitions for relief under chapter 11 of
the United States Bankruptcy Code (11 U.S.C. &
101 et. al.) in the United States Bankruptcy Court for the
Southern District of Ohio, Dayton Division (the
Court). The cases are being jointly administered
under Case No. 01-38066. Effective December 28, 2001,
Spinnakers Common Stock and Class A Common Stock were
de-listed from the American Stock Exchange. Spinnaker has also
filed a Form 15 with the Securities and Exchange Commission
to terminate its obligations to file periodic reports under the
Securities Exchange Act of 1934.

On December 31, 2001, Spinnaker entered into
a letter of intent (the Letter of Intent) with WR
Capital Partners, LLC (WR Capital) whereby SP
Acquisition LLC (SP Acquisition), and acquisition
entity established by WR Capital, agreed to purchase
substantially all of Spinnakers (and its
subsidiaries) assets (and assumption of substantial
liabilities) for an amount not to exceed $25,763,000 (including
assumed obligations), subject to adjustment. Entoleters
assets are not included in the sale. On January 4, 2002,
Spinnaker filed a motion with the Court to approve the sale of
substantially all of its assets, subject to higher and better
offers, to SP Acquisition. On January 17, 2002, the Court
entered an order (i) approving bid procedures, including a
break-up fee and expense reimbursement, (ii) setting an
auction date of March 4, 2002 and (iii) setting a date
to issue an order approving the sale of such assets for
March 5, 2002.

On January 18, 2002, Spinnaker entered into
that certain Asset Purchase Agreement (the Asset Purchase
Agreement) with SP Acquisition as contemplated by the
Letter of Intent. On March 6, 2002, the Court entered an
order approving the sale of substantially all of
Spinnakers assets to SP Acquisition.

The closing of the Asset Purchase Agreement
occurred on March 28, 2002. Spinnaker estimates that,
pursuant to a plan of liquidation, there will be a minimal
distribution to unsecured creditors and no return to

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NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Spinnakers equity holders. As a result,
management believes that the Companys investment in
Spinnaker is worthless.

On March 28, 2002, the Court approved the
sale of substantially all of Entoleters assets to Welton
LLC for $920,000 in cash plus certain assumed obligations. The
closing of the sale is expected to occur on or before
April 15, 2002. If the sale closes, Spinnaker estimates
that, pursuant to a plan of liquidation, there will be a minimal
distribution to unsecured creditors and no return to Spinnaker,
Entoleters sole equity holder. If the sale does not close,
Spinnaker may, among other actions, (i) search for another
purchaser of Entoleter, (ii) attempt to cause Entoleter to
reorganize pursuant to a plan of reorganization, or
(iii) if unsuccessful with respect to (I) and (ii),
liquidate Entoleters assets. (See Note 17).

9.     Stock Option
Plans

On December 10, 2001, the Board of Directors
approved, subject to shareholder approval at the May 2002 Annual
Meeting, 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. As the grants required shareholder approval,
they are not considered issued until the approval is received.
As a result, the Company may be required to record a non-cash
charge associated with these options if the market price of the
Companys stock exceeds $17.50 at the approval date. If
approved, 180,000 of these options would be fully vested, with
the remaining options vesting quarterly over the next three
years.

Spinnaker has two plans (Directors and
Stock Incentive Plans) under which stock options for the
purchase of common shares can be granted. Total options
outstanding under these plans were 82,000 and 92,000 at weighted
average exercise prices of $21.53 and $24.95 per share at
December 31, 2000 and 1999, respectively. At
December 31, 2000, 44,669 options were exercisable. These
options are not presented at December 31, 2001 due to the
deconsolidation of Spinnaker (see Note 1).

The pro forma effect on the Companys
operations, under the disclosure requirements of FAS 123 was net
loss of $3,464,000 and $2,832,000 and basic and diluted loss per
share of ($2.32) and ($2.00) in 2000 and 1999, respectively. The
fair value of each option grant was estimated using the
Black-Scholes option-pricing model, assuring 50% volatility, 6%
risk-free interest rates, a 3-year expected option life and no
dividends. No FAS 123 disclosure has been provided for 2001
as such amounts are not materially different from reported
results.

10.     Shareholders
Equity

The Board of Directors has 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.

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, 2001, a total of 4,126 shares have
been awarded under this program. No stock was issued for
compensation during 2001, 2000 and 1999.

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 $195,000 in 2001, $145,000 in 2000, and $62,000
in 1999. At December 31, 2001 and 2000 $402,000 and $207,000
respectively are accrued for the SARs.

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LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Subsequent to the spin off of Interactive in
1999, the Company, with the concurrence of the holders of all
outstanding Stock Appreciation Rights units, terminated its
Stock Appreciation Rights program for corporate management,
including all outstanding units, thus eliminating possible
future profit and loss and cash flow distortions associated with
the program. As a result of the termination, the Company
recorded approximately $700,000 of related corporate expense in
the fourth quarter of 1999.

11.     Income
Taxes

The Company files consolidated federal income tax
returns which include all subsidiaries including Interactive
through the date of the spin off in 1999, but excluding
Spinnaker for all periods.

Deferred income taxes for 2001 and 2000 are
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, 2001 and 2000 are as follows:

|                                                                                  |  |                   |       |                   |  |       |       |           |  |   |        |   |  |   |       | 
|--------------------------------------------------------------------------------- |  | ----------------- | ----- | ----------------- |  | ----- | ----- | --------- |  | - | ------ | - |  | - | ----- | 
|                                                                                  |  |                   |       |                  
|                                                                                  |  | December 31, 2001 |       | December 31, 2000
|                                                                                  |  |                   |       |                  
|                                                                                  |  |                   |       |                  
|                                                                                  |  | Deferred Tax      |       | Deferred Tax     
|                                                                                  |  | Asset             |       | Liability         |  | Asset |       | Liability
|                                                                                  |  |                   |       |                   |  |       |       |          
|                                                                                  |  |                  
|                                                                                  |  | (In Thousands)   
|Inventory reserve                                                                 |  | $                 | 744   |                   |  | $     |      |           |  | $ | 465    |   |  | $ |      | 
|Fixed assets written up under Purchase accounting
	and tax over book depreciation |  |                   |      |                   |  |       | 499   |           |  |   |       |   |  |   | 5,249 | 
|Basis difference in subsidiary and affiliate Stock                                |  |                   |      |                   |  |       |      |           |  |   |       |   |  |   | 1,105 | 
|Net operating losses of Subsidiaries                                              |  |                   |      |                   |  |       |      |           |  |   | 6,027  |   |  |   |      | 
|Other reserves and accruals                                                       |  |                   | 1,215 |                   |  |       |      |           |  |   | 4,268  |   |  |   |      | 
|Other                                                                             |  |                   |      |                   |  |       | 1,050 |           |  |   |       |   |  |   | 398   | 
|Capital loss and other carry forwards                                             |  |                   | 938   |                   |  |       |      |           |  |   |       |   |  |   |      | 
|                                                                                  |  |                   |       |                   |  |       |       |           |  |   |        |   |  |   |       | 
|Total deferred income taxes                                                       |  |                   | 2,897 |                   |  |       | 1,549 |           |  |   | 10,760 |   |  | $ | 6,752 | 
|                                                                                  |  |                   |       |                   |  |       |       |           |  |   |        |   |  |   |       | 
|Valuation allowance                                                               |  |                   | (938  | )                 |  |       |       |           |  |   | (3,136 | ) |  |   |       | 
|                                                                                  |  |                   |       |                   |  |       |       |           |  |   |        |   |  |   |       | 
|                                                                                  |  | $                 | 1,959 |                   |  |       |       |           |  | $ | 7,624  |   |  |   |       | 
|                                                                                  |  |                   |       |                   |  |       |       |           |  |   |        |   |  |   |       | 

At December 31, 2001, Lynch Corporation had
capital loss carry-forwards that are fully offset by a valuation
allowance of $938,000. At December 31,2000, Spinnaker had
federal and state net operating loss carry-forwards. For
financial reporting purposes, a valuation allowance of
$3.1 million was recognized to offset the deferred tax
assets related to those carry-forwards.

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LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|               |                 |                |      |      |   |      |        |        |   |   |        |        |  
|-------------- | --------------- | -------------- | ---- | ---- | - | ---- | ------ | ------ | - | - | ------ | ------ | -
|               |                 | 2001           |      | 2000 |   | 1999
|               |                 |                |      |      |   |     
|               |                 |               
|               |                 | (In Thousands)
|Current:       |                 |                |      |      |   |      |        |        |   |   |        |       
|               | Federal         |                | $    | (439 | ) |      | $      | 136    |   |   | $      | (158   | )
|               | State and local |                |      | 274  |   |      |        |       |   |   |        |       |  
|               |                 |                |      |      |   |      |        |        |   |   |        |       
|               | Foreign         |                |      | 22   |   |      |        |       |   |   |        |       |  
|               |                 |                |      |      |   |      |        |        |   |   |        |       
|Total Current  |                 |                | (143 | )    |   |      | 136    |        |   |   | (158   | )     
|               |                 |                |      |      |   |      |        |        |   |   |        |       
|Deferred:      |                 |                |      |      |   |      |        |        |   |   |        |       
|               | Federal         |                |      | 489  |   |      |        | (2,731 | ) |   |        | (2,386 | )
|               | State and local |                |      | 12   |   |      |        | (198   | ) |   |        |       |  
|               |                 |                |      |      |   |      |        |        |   |   |        |       
|Total Deferred |                 |                | 501  |      |   |      | (2,929 | )      |   |   | (2,386 | )     
|               |                 |                |      |      |   |      |        |        |   |   |        |       
|               |                 | $              | 358  |      |   | $    | (2,793 | )      |   | $ | (2,544 | )     
|               |                 |                |      |      |   |      |        |        |   |   |        |       

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:

|                                              |  |                |         |      |  |      |        |   |  |   |        |  
|--------------------------------------------- |  | -------------- | ------- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                              |  | 2001           |         | 2000 |  | 1999
|                                              |  |                |         |      |  |     
|                                              |  |               
|                                              |  | (In Thousands)
|Tax (benefit) at statutory rate               |  | $              | (9,043  | )    |  | $    | (6,028 | ) |  | $ | (3,211 | )
|State and local taxes, net of federal benefit |  |                | 189     |      |  |      | (130   | ) |  |   |       |  
|Amortization of goodwill                      |  |                |        |      |  |      | 111    |   |  |   | 60     |  
|Operating losses of subsidiaries              |  |                |        |      |  |      |       |   |  |   | 164    |  
|Provision for contingencies                   |  |                |        |      |  |      |       |   |  |   | 338    |  
|Spinnaker operating loss                      |  |                | 18,533  |      |  |      |       |   |  |   |       |  
|Deconsolidation gain                          |  |                | (10,132 | )    |  |      |       |   |  |   |       |  
|Foreign Sales Corporation                     |  |                | (236    | )    |  |      | (199   | ) |  |   |       |  
|Valuation allowance                           |  |                | 938     |      |  |      | 3,136  |   |  |   |       |  
|Other                                         |  |                | 109     |      |  |      | 317    |   |  |   | 105    |  
|                                              |  |                |         |      |  |      |        |   |  |   |        |  
|                                              |  | $              | 358     |      |  | $    | (2,793 | ) |  | $ | (2,544 | )
|                                              |  |                |         |      |  |      |        |   |  |   |        |  

Gain (loss) before income taxes from foreign
operations was $671,000, ($313,000) and ($579,000) in 2001,
2000, and 1999 respectively.

Income tax payments were $1.2 million,
$1.3 million, and $1.2 million for the years 2001,
2000 and 1999, respectively.

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LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

12.     Accumulated
Other Comprehensive Loss

The components of accumulated other comprehensive
loss, net of related tax, at December 31, 2001, 2000, and
1999 are as follows:

|                                              |  |                |     |      |  |      |     |   |  |   |     |  
|--------------------------------------------- |  | -------------- | --- | ---- |  | ---- | --- | - |  | - | --- | -
|                                              |  | 2001           |     | 2000 |  | 1999
|                                              |  |                |     |      |  |     
|                                              |  |               
|                                              |  | (In Thousands)
|Balance beginning of year                     |  | $              | (71 | )    |  | $    | (40 | ) |  | $ | 59  |  
|Foreign currency translation                  |  |                | 69  |      |  |      | (31 | ) |  |   | (40 | )
|Distribution to Lynch Interactive Corporation |  |                |    |      |  |      |    |   |  |   | (59 | )
|                                              |  |                |     |      |  |      |     |   |  |   |     |  
|Accumulated other comprehensive loss          |  | $              | (2  | )    |  | $    | (71 | ) |  | $ | (40 | )
|                                              |  |                |     |      |  |      |     |   |  |   |     |  

13.     Employee
Benefit Plans

The Company, through its operating subsidiaries,
has several and 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:

|                            |                        |                |     |      |  |      |     |     |  |   |     |     | 
|--------------------------- | ---------------------- | -------------- | --- | ---- |  | ---- | --- | --- |  | - | --- | --- | 
|                            |                        | 2001           |     | 2000 |  | 1999
|                            |                        |                |     |      |  |     
|                            |                        |               
|                            |                        | (In Thousands)
|Defined contribution:       |                        |                |     |      |  |      |     |     |  |   |     |    
|                            | Lynch Systems & M-tron |                | $   | 17   |  |      | $   | 38  |  |   | $   | 19  | 
|                            | Spinnaker              |                |     | 346  |  |      |     | 335 |  |   |     | 542 | 
|Defined benefit (Spinnaker) |                        |                | 202 |      |  |      | 98  |     |  |   | 166 |    
|Multi-employer (Spinnaker)  |                        |                | 42  |      |  |      | 88  |     |  |   | 121 |    
|                            |                        |                |     |      |  |      |     |     |  |   |     |    
|Total                       |                        | $              | 607 |      |  | $    | 559 |     |  | $ | 848 |    
|                            |                        |                |     |      |  |      |     |     |  |   |     |    

Under the Lynch Systems and M-tron defined
contribution plan, the Company contributes up to a maximum of
25 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 have several
defined benefit plans (both Union and non-Union). At
December 31, 2000, total benefit obligations for these
plans were $2.4 million. The assumptions used in
determining the obligations included average discount rates of
8.0%, an average compensation increases of 0 to 4% and average
long-term rate of return on plan assets of 8%. Total plan assets
were $2.0 million at December 31, 2000. Spinnaker also
has a defined contribution plan for substantially all employees,
under which Spinnaker can match up to 50% of employee
contributions not exceeding 8% of compensation. No disclosure
was made for 2001 due to the deconsolidation of Spinnaker (see
Note 1).

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.

The Company, 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. Although the complaint was filed under

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LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

seal with the court on February 14, 2001,
and the seal was lifted on January 11, 2002, the defendants
have yet to be formally served with the complaint. The main
allegation in the case is that the defendants participated in
the creation of sham bidding entities that allegedly
defrauded the federal Treasury by improperly participating in
certain Federal Communications Commission 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.

The U.S. Department of Justice has notified
the court that it has declined to intervene in the case. The
defendants strongly believe that this lawsuit is completely
without merit and intend to defend the suit vigorously.
Furthermore, the Company believes that, 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 damaged incurred by the
Company as a result of this lawsuit.

Rent expense under operating leases was $846,000
(including Spinnaker for nine months), $1,213,000, and
$1,222,000 for the years ended December 31, 2001, 2000 and
1999, respectively. The Company leases certain property and
equipment, including warehousing and sales and distribution
equipment, under operating leases that extend from one to five
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, 2001 are as follows (in thousands):

|           |  |   |     | 
|---------- |  | - | --- | 
|2002       |  | $ | 303 | 
|2003       |  |   | 167 | 
|2004       |  |   | 156 | 
|2005       |  |   | 108 | 
|2006       |  |   | 52  | 
|Thereafter |  |   | 0   | 
|           |  |   |     | 
|           |  | $ | 786 | 
|           |  |   |     | 

15.     Segment
Information

The Company has four reportable business
segments. The largest is Spinnaker Coatings adhesive
backed label stock for labels and related applications. The
second largest segment is Lynch Systems glass manufacturing
equipment business. Frequency control devises (quartz crystals
and oscillators) manufactured and sold by M-tron is the third
segment. Entoleter (subsidiary of Spinnaker Industries, Inc.)
manufactures and sells industrial process equipment and is 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). Each of the
businesses is located domestically and consolidated export sales
(primarily Canada and China) were approximately
$38.3 million in 2001, $54.7 million in 2000, and
$31.5 million in 1999. For the year ended December 31,
2001, one customer accounted for $5.6 million or
24.5 percent of Lynch Systems sales while one
customer represented $2.9 million or 13.5% 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.

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

Operating profit (loss) is equal to revenues less
operating expenses, excluding unallocated general corporate
expenses, interest and income taxes. The Company allocates a
portion of its general corporate expenses to its operating
segments. Such allocation was $289,000 in 2001 and $300,000 per
year in 2000 and 1999. 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
|                                        |  |                        
|                                        |  | 2001                    |         | 2000 |  | 1999
|                                        |  |                         |         |      |  |     
|Revenues                                |  |                         |         |      |  |      |         |   |  |   |         |  
|Adhesive-backed label stock             |  | $                       | 90,163  |      |  | $    | 150,136 |   |  | $ | 155,112 |  
|Glass manufacturing equipment           |  |                         | 26,047  |      |  |      | 23,608  |   |  |   | 5,656   |  
|Frequency control devices               |  |                         | 21,593  |      |  |      | 39,855  |   |  |   | 26,484  |  
|Industrial process equipment            |  |                         | 3,270   |      |  |      | 5,597   |   |  |   | 6,970   |  
|                                        |  |                         |         |      |  |      |         |   |  |   |         |  
|Consolidated total                      |  | $                       | 141,073 |      |  | $    | 219,196 |   |  | $ | 194,222 |  
|                                        |  |                         |         |      |  |      |         |   |  |   |         |  
|EBITDA (before corporation
	allocation) |  |                         |         |      |  |      |         |   |  |   |         |  
|Adhesive-backed label stock             |  | $                       | (4,755  | )    |  | $    | 99      |   |  | $ | 8,940   |  
|Glass manufacturing equipment           |  |                         | 5,125   |      |  |      | 3,239   |   |  |   | (1,766  | )
|Frequency control devices               |  |                         | (1,770  | )    |  |      | 4,054   |   |  |   | 2,540   |  
|Industrial process equipment            |  |                         | 77      |      |  |      | 440     |   |  |   | 473     |  
|Corporate manufacturing expenses        |  |                         | (1,140  | )    |  |      | (1,973  | ) |  |   | (1,930  | )
|                                        |  |                         |         |      |  |      |         |   |  |   |         |  
|Total manufacturing                     |  |                         | (2,463  | )    |  |      | 5,859   |   |  |   | 8,257   |  
|Corporate expenses, net                 |  |                         | (985    | )    |  |      | (1,451  | ) |  |   | (1,152  | )
|Restructuring charge  Spinnaker        |  |                         | (1,520  | )    |  |      | (1,650  | ) |  |   |        |  
|                                        |  |                         |         |      |  |      |         |   |  |   |         |  
|Consolidated total                      |  | $                       | (4,968  | )    |  | $    | 2,758   |   |  | $ | 7,105   |  

47



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##### Table of Contents



LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                               |                                                   |                                                                                                           |         |        |         |      |         |         |         |   |         |         |        |  
|---------------------------------------------- | ------------------------------------------------- | --------------------------------------------------------------------------------------------------------- | ------- | ------ | ------- | ---- | ------- | ------- | ------- | - | ------- | ------- | ------ | -
|                                               |                                                   |                                                                                                          
|                                               |                                                   | Years ended December 31                                                                                  
|                                               |                                                   |                                                                                                          
|                                               |                                                   | 2001                                                                                                      |         | 2000   |         | 1999
|                                               |                                                   |                                                                                                           |         |        |         |     
|                                               |                                                   |                                                                                                           |         |        |         |      |         |         |         |   |         |        
|Operating Profit                               |                                                   |                                                                                                           |         |        |         |      |         |         |         |   |         |        
|Adhesive-backed label stock                    |                                                   | $                                                                                                         | (7,860  | )      |         | $    | (5,137  | )       |         | $ | 4,155   |        
|Glass manufacturing equipment                  |                                                   |                                                                                                           | 4,778   |        |         |      | 2,867   |         |         |   | (2,042  | )      
|Frequency control devices                      |                                                   |                                                                                                           | (2,549  | )      |         |      | 3,345   |         |         |   | 1,900   |        
|Industrial process equipment                   |                                                   |                                                                                                           | (22     | )      |         |      | 280     |         |         |   | 321     |        
|Corporate manufacturing expenses               |                                                   |                                                                                                           | (1,065  | )      |         |      | (1,873  | )       |         |   | (2,794  | )      
|                                               |                                                   |                                                                                                           |         |        |         |      |         |         |         |   |         |        
|Total manufacturing                            |                                                   |                                                                                                           | (6,718  | )      |         |      | (518    | )       |         |   | 1,540   |        
|Unallocated Corporate expense                  |                                                   |                                                                                                           | (1,656  | )      |         |      | (1,751  | )       |         |   | (1,455  | )      
|Gain on deconsolidation                        |                                                   |                                                                                                           | 27,406  |        |         |      |        |         |         |   |        |        
|Restructuring charge  Spinnaker               |                                                   |                                                                                                           | (38,272 | )      |         |      | (2,708  | )       |         |   |        |        
|                                               |                                                   |                                                                                                           |         |        |         |      |         |         |         |   |         |        
|Consolidated Total                             |                                                   | $                                                                                                         | (19,240 | )      |         | $    | (4,977  | )       |         | $ | 85      |        
|                                               |                                                   |                                                                                                           |         |        |         |      |         |         |         |   |         |        
|Depreciation and Amortization                  |                                                   |                                                                                                           |         |        |         |      |         |         |         |   |         |        
|Adhesive-backed label stock                    |                                                   | $                                                                                                         | 3,105   |        |         | $    | 5,236   |         |         | $ | 4,785   |        
|Glass manufacturing equipment                  |                                                   |                                                                                                           | 461     |        |         |      | 472     |         |         |   | 376     |        
|Frequency control devices                      |                                                   |                                                                                                           | 879     |        |         |      | 809     |         |         |   | 740     |        
|Industrial process equipment                   |                                                   |                                                                                                           | 99      |        |         |      | 160     |         |         |   | 152     |        
|Corporate manufacturing expenses               |                                                   |                                                                                                           | 15      |        |         |      | 1,058   |         |         |   | 181     |        
|                                               |                                                   |                                                                                                           |         |        |         |      |         |         |         |   |         |        
|Consolidated Total                             |                                                   | $                                                                                                         | 4,559   |        |         | $    | 7,735   |         |         | $ | 6,234   |        
|                                               |                                                   |                                                                                                           |         |        |         |      |         |         |         |   |         |        
|Capital expenditures                           |                                                   |                                                                                                           |         |        |         |      |         |         |         |   |         |        
|Adhesive-backed label stock                    |                                                   | $                                                                                                         | 430     |        |         | $    | 2,631   |         |         | $ | 2,625   |        
|Glass manufacturing equipment                  |                                                   |                                                                                                           | 217     |        |         |      | 183     |         |         |   | 154     |        
|Frequency control devices                      |                                                   |                                                                                                           | 429     |        |         |      | 1,476   |         |         |   | 804     |        
|Industrial process equipment                   |                                                   |                                                                                                           | 28      |        |         |      | 33      |         |         |   | 212     |        
|                                               |                                                   |                                                                                                           |         |        |         |      |         |         |         |   |         |        
|Consolidated Total                             |                                                   | $                                                                                                         | 1,104   |        |         | $    | 4,323   |         |         | $ | 3,795   |        
|                                               |                                                   |                                                                                                           |         |        |         |      |         |         |         |   |         |        
|Total Assets                                   |                                                   |                                                                                                           |         |        |         |      |         |         |         |   |         |        
|Adhesive-backed label stock                    |                                                   | $                                                                                                         |        |        |         | $    | 116,746 |         |         | $ | 105,674 |        
|Glass manufacturing equipment                  |                                                   |                                                                                                           | 22,496  |        |         |      | 17,908  |         |         |   | 7,695   |        
|Frequency control devices                      |                                                   |                                                                                                           | 7,901   |        |         |      | 18,210  |         |         |   | 10,940  |        
|Industrial process equipment                   |                                                   |                                                                                                           |        |        |         |      | 2,285   |         |         |   | 2,730   |        
|General Corporate                              |                                                   |                                                                                                           | 1,448   |        |         |      | 7,671   |         |         |   | 84,153  |        
|                                               |                                                   |                                                                                                           |         |        |         |      |         |         |         |   |         |        
|Consolidated Total                             |                                                   | $                                                                                                         | 31,845  |        |         | $    | 162,820 |         |         | $ | 211,192 |        
|                                               |                                                   |                                                                                                           |         |        |         |      |         |         |         |   |         |        
|Total operating profit for reportable segments |                                                   |                                                                                                           |         |        |         |      |         |         |         |   |         |        
|Other profit or loss:                          |                                                   | $                                                                                                         | (19,240 | )      |         | $    | (4,977  | )       |         | $ | 85      |        
|                                               | Investment income                                 |                                                                                                           |         | 384    |         |      |         | 1,481   |         |   |         | 2,354   |       
|                                               | Interest expense                                  |                                                                                                           |         | (7,741 | )       |      |         | (11,432 | )       |   |         | (11,882 | )     
|                                               | Impairment of Spinnakers investment in
	warrants |                                                                                                           |         |       |         |      |         | (2,800  | )       |   |         |        |       
|                                               |                                                   |                                                                                                           |         |        |         |      |         |         |         |   |         |        
|                                               |                                                   | Income (loss) from continuing operations before
	income taxes, minority interests and extraordinary items |         | $      | (26,597 | )    |         | $       | (17,728 | ) |         | $       | (9,443 | )
|                                               |                                                   |                                                                                                           |         |        |         |      |         |         |         |   |         |        

48



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##### Table of Contents



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 and prospectively
accounts for its ownership of Spinnaker using the equity method
of accounting (see Note 1).

16.     Quarterly
Results of Operations (unaudited)

The following is a summary of the quarterly
results of operations for the years ended December 31, 2001
and December 31, 2000 (in thousands, except per share
amounts):

|                                            |  |                         |         |         |  |            |        |            |  |   |        |  |  |   |        |  
|------------------------------------------- |  | ----------------------- | ------- | ------- |  | ---------- | ------ | ---------- |  | - | ------ |  |  | - | ------ | -
|                                            |  |                        
|                                            |  | 2001 Three Months Ended
|                                            |  |                        
|                                            |  | Mar. 31                 |         | June 30 |  | Sep. 30(b) |        | Dec. 31(b)
|                                            |  |                         |         |         |  |            |        |           
|Sales and revenues                          |  | $                       | 53,548  |         |  | $          | 45,353 |            |  | $ | 31,982 |  |  | $ | 10,190 |  
|Gross profit                                |  |                         | 4,995   |         |  |            | 692    |            |  |   | 2,661  |  |  |   | 2,435  |  
|Operating profit (loss)(a)                  |  |                         | (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  | )

|                                                                    |                                                                     |                         |        |            |     |         |        |            |      |   |        |      |      |   |        |       |       |  
|------------------------------------------------------------------- | ------------------------------------------------------------------- | ----------------------- | ------ | ---------- | --- | ------- | ------ | ---------- | ---- | - | ------ | ---- | ---- | - | ------ | ----- | ----- | -
|                                                                    |                                                                     |                        
|                                                                    |                                                                     | 2000 Three Months Ended
|                                                                    |                                                                     |                        
|                                                                    |                                                                     | Mar. 31(c)              |        | June 30(c) |     | Sep. 30 |        | Dec. 31(d)
|                                                                    |                                                                     |                         |        |            |     |         |        |           
|Sales and revenues                                                  |                                                                     | $                       | 52,474 |            |     | $       | 53,008 |            |      | $ | 56,192 |      |      | $ | 57,522 |      
|Gross profit                                                        |                                                                     |                         | 6,147  |            |     |         | 7,560  |            |      |   | 8,266  |      |      |   | 4,243  |      
|Operating profit (loss)                                             |                                                                     |                         | (142   | )          |     |         | 1,532  |            |      |   | 508    |      |      |   | (6,875 | )    
|Income (loss) from continuing operations before
	extraordinary item |                                                                     |                         | (758   | )          |     |         | 140    |            |      |   | 226    |      |      |   | (5,291 | )    
|Net income (loss)                                                   |                                                                     |                         | 496    |            |     |         | 1,131  |            |      |   | 226    |      |      |   | (5,291 | )    
|Basic and diluted earnings (loss) per share:                        |                                                                     |                         |        |            |     |         |        |            |      |   |        |      |      |   |        |      
|                                                                    | Income (loss) from continuing operations before
	extraordinary item |                         |        | (.53       | )   |         |        | 0.09       |      |   |        | 0.15 |      |   |        | (3.50 | )    
|                                                                    |                                                                     | Net income (loss)       |        |            | .35 |         |        |            | 0.75 |   |        |      | 0.15 |   |        |       | (3.50 | )



---

NOTE:



|   |                                                                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) | 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.
|  
|b) | Effective September 30, 2001, the Company
	deconsolidated Spinnaker (see Note 1). As a result, fourth
	quarter results do not include Spinnaker results.                              
|  
|c) | Includes gain on early extinguishments of debt of
	$2.2 million after income taxes and minority interests.                                                                            
|  
|d) | Includes restructuring charge of approximately
	$2.2 million, deferred tax asset valuation allowance of
	$3.1 million and investment write-down of $2.8 million
	all at Spinnaker.    

17.     Subsequent
Events

On March 28, 2002, Spinnaker Industries
(excluding Entoleter) was acquired by S P Acquisition LLC
(an entity of WR Capital Partners LLC) for $25.8 million.
On March 26, 2002, an auction was held with a subsequent
hearing on March 28, 2002 for the Bankruptcy Court which
approved the sale of Entoleter to Welton, LLC for approximately
$0.9 million plus certain assumed obligations.

49



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##### Table of Contents



LYNCH CORPORATION AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In each case, no return to equity holders is
anticipated. Therefore, as a result, the Company anticipates
eliminating its remaining interest in Spinnaker and its
subsidiaries upon conclusion of the bankruptcy proceedings
expected to occur in the second quarter of 2002. At that time,
the $19,420,000 loss in excess of investment on the
Companys December 31, 2001 balance sheet will become
a non-cash income item and increase shareholders equity.
If this event would have occurred on December 31, 2001, the
Companys pro-forma equity would have been $11,969,000, not
the reported deficit amount of ($7,451,000).

50



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##### Table of Contents






SCHEDULE I  CONDENSED
FINANCIAL INFORMATION OF

REGISTRANT LYNCH CORPORATION


CONDENSED BALANCE SHEET

|                                                                                         |                                     |                |        |       |  |   |        |       | 
|---------------------------------------------------------------------------------------- | ----------------------------------- | -------------- | ------ | ----- |  | - | ------ | ----- | 
|                                                                                         |                                     | 2001           |        | 2000 
|                                                                                         |                                     |                |        |      
|                                                                                         |                                     |               
|                                                                                         |                                     | (In Thousands)
|ASSETS                                                                                  
|CURRENT ASSETS                                                                           |                                     |                |        |       |  |   |        |      
|                                                                                         | Cash and Cash Equivalents           |                | $      | 2,208 |  |   | $      | 1,928 | 
|                                                                                         | Dividend Receivable From Subsidiary |                |        |      |  |   |        | 1,500 | 
|                                                                                         | Deferred Income Taxes               |                |        | 412   |  |   |        | 412   | 
|                                                                                         | Other Current Assets                |                |        | 76    |  |   |        | 980   | 
|                                                                                         |                                     |                |        |       |  |   |        |      
|                                                                                         |                                     |                | 2,696  |       |  |   | 4,820  |      
|OFFICE EQUIPMENT (Net of depreciation)                                                   |                                     |                |       |       |  |   | 16     |      
|OTHER ASSETS (principally investment in and
	amounts due from wholly owned subsidiaries) |                                     |                | 10,517 |       |  |   | 13,057 |      
|                                                                                         |                                     |                |        |       |  |   |        |      
|TOTAL ASSETS                                                                             |                                     | $              | 13,213 |       |  | $ | 17,893 |      
|                                                                                         |                                     |                |        |       |  |   |        |      
|LIABILITIES AND SHAREHOLDERS
	(DEFICIENCY) EQUITY                                      
|CURRENT LIABILITIES                                                                      |                                     | $              | 1,213  |       |  | $ | 2,303  |      
|LONG TERM LIABILITIES                                                                    |                                     |                | 31     |       |  |   | 158    |      
|LOSS IN EXCESS OF INVESTMENT                                                             |                                     |                | 19,420 |       |  |   |       |      
|TOTAL SHAREHOLDERS (DEFICIENCY) EQUITY                                                  |                                     |                | (7,451 | )     |  |   | 15,432 |      
|                                                                                         |                                     |                |        |       |  |   |        |      
|Total Liabilities and Shareholders
	(Deficiency) Equity                                 |                                     | $              | 13,213 |       |  | $ | 17,893 |      
|                                                                                         |                                     |                |        |       |  |   |        |      



---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | 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 and prospectively
	accounts for its ownership of Spinnaker using the equity method
	of accounting. See Note 1 to Consolidated Financial
	Statements  Basis of Presentation
	included elsewhere herein.

51



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##### Table of Contents






LYNCH CORPORATION

CONDENSED FINANCIAL INFORMATION OF
REGISTRANT

CONDENSED STATEMENT OF OPERATIONS


|                                                                          |  |                        |         |      |  |      |        |   |  |   |        |  
|------------------------------------------------------------------------- |  | ---------------------- | ------- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                                          |  |                       
|                                                                          |  | Year Ended December 31
|                                                                          |  |                       
|                                                                          |  | 2001                   |         | 2000 |  | 1999
|                                                                          |  |                        |         |      |  |     
|                                                                          |  |                       
|                                                                          |  | (In Thousands)        
|Interest, Dividends & Gains on Sale of
	Marketable Securities             |  | $                      | 209     |      |  | $    | 187    |   |  | $ | 17     |  
|Dividend from Subsidiary                                                  |  |                        |        |      |  |      | 1,500  |   |  |   |       |  
|Interest & Other Income from Subsidiaries                                 |  |                        | 24      |      |  |      | 348    |   |  |   | 23     |  
|                                                                          |  |                        |         |      |  |      |        |   |  |   |        |  
|TOTAL INCOME                                                              |  | $                      | 233     |      |  | $    | 2,035  |   |  |   | 40     |  
|Costs & Expenses:                                                         |  |                        |         |      |  |      |        |   |  |   |        |  
|Unallocated Corporate Administrative Expense                              |  |                        | 1,001   |      |  |      | 1,451  |   |  |   | 1,155  |  
|Interest Expense                                                          |  |                        | 23      |      |  |      | 15     |   |  |   | 7      |  
|Interest Expense to Subsidiaries                                          |  |                        |        |      |  |      |       |   |  |   | 23     |  
|                                                                          |  |                        |         |      |  |      |        |   |  |   |        |  
|TOTAL COST AND EXPENSE                                                    |  |                        | 1,024   |      |  |      | 1,466  |   |  |   | 1,185  |  
|                                                                          |  |                        |         |      |  |      |        |   |  |   |        |  
|INCOME (LOSS) BEFORE INCOME TAXES AND EQUITY IN
	NET LOSS OF SUBSIDIARIES |  |                        | (791    | )    |  |      | 569    |   |  |   | (1,145 | )
|Income Tax Benefit (Provision)                                            |  |                        | 269     |      |  |      | (215   | ) |  |   | 321    |  
|Equity in Net Loss of Subsidiaries                                        |  |                        | (22,416 | )    |  |      | (3,792 | ) |  |   | (759   | )
|                                                                          |  |                        |         |      |  |      |        |   |  |   |        |  
|NET LOSS                                                                  |  | $                      | (22,938 | )    |  | $    | (3,438 | ) |  | $ | (1,583 | )
|                                                                          |  |                        |         |      |  |      |        |   |  |   |        |  



---



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | 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 and prospectively
	accounts for its ownership of Spinnaker using the equity method
	of accounting. See Note 1 to Consolidated Financial
	Statements  Basis of Presentation
	included elsewhere herein.

52



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##### Table of Contents



LYNCH CORPORATION

CONDENSED FINANCIAL INFORMATION OF
REGISTRANT

CONDENSED STATEMENTS OF CASH FLOW


|                                                       |         |                        |        |       |  |      |        |       |  |   |       |     | 
|------------------------------------------------------ | ------- | ---------------------- | ------ | ----- |  | ---- | ------ | ----- |  | - | ----- | --- | 
|                                                       |         |                       
|                                                       |         | Year Ended December 31
|                                                       |         |                       
|                                                       |         | 2001                   |        | 2000  |  | 1999
|                                                       |         |                        |        |       |  |     
|                                                       |         |                       
|                                                       |         | (In Thousands)        
|Cash provided from (used in) Operating Activities      |         | $                      | (1,220 | )     |  | $    | (2,210 | )     |  | $ | 405   |    
|                                                       |         |                        |        |       |  |      |        |       |  |   |       |    
|INVESTING ACTIVITIES:                                  |         |                        |        |       |  |      |        |       |  |   |       |    
|Investment in Lynch Manufacturing                      |         |                        |       |       |  |      |       |       |  |   | 981   |    
|Dividend from subsidiaries                             |         |                        | 1,500  |       |  |      |       |       |  |   |      |    
|                                                       |         |                        |        |       |  |      |        |       |  |   |       |    
|NET CASH PROVIDED FROM INVESTING ACTIVITIES            |         |                        | 1,500  |       |  |      |       |       |  |   | 981   |    
|                                                       |         |                        |        |       |  |      |        |       |  |   |       |    
|FINANCING ACTIVITIES:                                  |         |                        |        |       |  |      |        |       |  |   |       |    
|(Purchase) Sale of Treasury Stock                      |         |                        |       |       |  |      | 1,191  |       |  |   | (523  | )  
|Issuance of Common Stock                               |         |                        |       |       |  |      | 1,809  |       |  |   |      |    
|Other                                                  |         |                        |       |       |  |      | (16    | )     |  |   |      |    
|                                                       |         |                        |        |       |  |      |        |       |  |   |       |    
|NET CASH (USED IN) PROVIDED FROM FINANCING
	ACTIVITIES |         |                        |       |       |  |      | 2,984  |       |  |   | (523  | )  
|                                                       |         |                        |        |       |  |      |        |       |  |   |       |    
|TOTAL INCREASE IN CASH AND CASH EQUIVALENTS            |         |                        | 280    |       |  |      | 774    |       |  |   | 863   |    
|CASH AND CASH EQUIVALENTS AT BEGINNING                 |         |                        |        |       |  |      |        |       |  |   |       |    
|                                                       | OF YEAR |                        |        | 1,928 |  |      |        | 1,154 |  |   |       | 291 | 
|                                                       |         |                        |        |       |  |      |        |       |  |   |       |    
|CASH AND CASH EQUIVALENTS AT END OF YEAR               |         | $                      | 2,208  |       |  | $    | 1,928  |       |  | $ | 1,154 |    
|                                                       |         |                        |        |       |  |      |        |       |  |   |       |    

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  SPIN OFF OF LYNCH
	INTERACTIVE CORPORATION

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 the
spin off of Lynch Interactive Corporation
(Interactive) on September 1, 1999, to
stockholders of record on August 23, 1999. Pursuant to the
spin off, each Lynch shareholder received one share of
Interactive common stock for each share of Lynch owned. Lynch
had received a private letter ruling from the Internal Revenue
Service that the spin off would be tax free to Lynch
shareholders. Interactive is listed on the American Stock
Exchange under the symbol LIC.



| |                                      
| | -------------------------------------
| | NOTE C  DIVIDENDS FROM
	SUBSIDIARIES

Dividends paid to Lynch Corporation from the
Registrants consolidated subsidiaries were $1,500,000 in
2001. No dividends were paid in 2000 and 1999 and no other
dividends were received from subsidiaries or investees.

53



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##### Table of Contents





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

LYNCH CORPORATION AND SUBSIDIARIES






SCHEDULE II  VALUATION AND
QUALIFYING ACCOUNTS


YEARS ENDED DECEMBER 31, 2001, 2000 AND
1999


|                                                          |  |            |           |            |  |             |           |               |  |            |          |   |  |   |         |  |  |   |           | 
|--------------------------------------------------------- |  | ---------- | --------- | ---------- |  | ----------- | --------- | ------------- |  | ---------- | -------- | - |  | - | ------- |  |  | - | --------- | 
|                                                          |  |            |           |            |  |             |           |              
|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, 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 | 
|                                                          |  |            |           |            |  |             |           |               |  |            |          |   |  |   |         |  |  |   |           | 
|Year ended December 31, 1999
	Allowance for uncollectible |  | $          | 395,000   |            |  | $           | 81,000    |               |  | $          | 0        |   |  | $ | 115,000 |  |  | $ | 361,000   | 
|                                                          |  |            |           |            |  |             |           |               |  |            |          |   |  |   |         |  |  |   |           | 



---



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

54



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##### Table of Contents



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 31, 2002

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/ MARIO J. GABELLIMARIO J. GABELLI     |  | Vice Chairman of theBoard of Directorsand Director                         |          |      | March 31, 2002 | 
|                                        
|/s/ RALPH R. PAPITTORALPH R. PAPITTO     |  | Principal Executive Officer,Chairman of the Board of Directorsand Director |          |      | March 31, 2002 | 
|                                        
|/s/ E. VAL CERUTTIE. VAL CERUTTI         |  |                                                                            | Director |      |                |  | March 31, 2002 | 
|                                        
|/s/ AVRUM GRAYAVRUM GRAY                 |  |                                                                            | Director |      |                |  | March 31, 2002 | 
|                                        
|/s/ RICHARD E. MCGRAILRICHARD E. MCGRAIL |  | President, Chief Operating Officerand Director                             |          |      | March 31, 2002 | 
|                                        
|/s/ RAYMOND H. KELLERRAYMOND H. KELLER   |  | Principal Financial and Accounting Officer and Director                    |          |      | March 31, 2002 | 

55



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##### Table of Contents






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).                                                                  

56



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##### Table of Contents



|        |  |             |  |                                                                                                                                                                                          
|------- |  | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |  |            
|Exhibit |  |            
|No.     |  |            
|        |  |            
|        |  | Description
|        |  |            
|        |  | (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).         
|        |  | (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).                                                                                                                                                      

57



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##### Table of Contents



|        |  |             |  |                                                                                                                                                                                                                                                                                                                           
|------- |  | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |  |            
|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.                                                                                                                                                                                                                                                
|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.                                                                                                                                                                                                                                                                                         
|23      |  |             |  | Consent of Ernst & Young LLP.                                                                                                                                                                                                                                                                                           
|24      |  |             |  | Powers of Attorney.                                                                                                                                                                                                                                                                                                     



---



|  |                                                 
|- | ------------------------------------------------
|* | 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.                                                                                                                   

58



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##### Table of Contents



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.

59