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SECURITIES & EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

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(Mark One)

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

For the quarterly period ended September 30, 2003

or

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

For the transition period from __________________ to __________________

Commission File No. 1-106

LYNCH CORPORATION

(Exact name of Registrant as specified in its charter)


|                                                       |                             
|------------------------------------------------------ | ----------------------------
|Indiana
(State or other jurisdiction of                | 38-1799862

(I.R.S. Employer
|incorporation or organization)                         | Identification No.)         
|                                                       |                             
|50 Kennedy Plaza, Suite 1250, Providence, Rhode Island | 02903                       
|(Address of principal executive offices)               | (Zip Code)                  

(401) 453-2007

Registrants telephone number, including area code


Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

Yes [X] No [   ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes [   ] No [X]

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

|                              |  |                                
|----------------------------- |  | -------------------------------
|Class                         |  | Outstanding at November 1, 2003
|                              |  |                                
|Common Stock, $0.01 par value |  | 1,497,883                      



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TABLE OF CONTENTS



|                                              |                                                                                               |                                                      |  |  |  |  |  | 
|--------------------------------------------- | --------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|Part 1 - FINANCIAL INFORMATION               
|                                              | Item 1 - Financial Statements                                                                
|                                              |                                                                                               | CONDENSED CONSOLIDATED BALANCE SHEETS               
|                                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS     
|                                              |                                                                                               | CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS      
|                                              |                                                                                               | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                              | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                              | Item 3. Quantitative and Qualitative Disclosure About Market Risk                            
|                                              | Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION                   
|                                              | Item 1. Legal Proceedings                                                                    
|                                              | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                   
|EXHIBIT INDEX                                
|EX-31.1 SECTION 302 CERTIFICATION (C.E.O.)   
|EX-31.2 SECTION 302 CERTIFICATION (C.F.O.)   
|EX-32.1 SECTION 906 CERTIFICATION (CEO & CFO)



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##### Table of Contents



INDEX

LYNCH CORPORATION AND SUBSIDIARIES

|                                                                                              |                                                       | 
|--------------------------------------------------------------------------------------------- | ----------------------------------------------------- | 
|PART I. FINANCIAL INFORMATION                                                                
|                                                                                             
|                                                                                             
|Item 1. Financial Statements (Unaudited)                                                     
|                                                                                             
|                                                                                              | Condensed Consolidated Balance Sheets:               
|                                                                                              | -     September 30, 2003                             
|                                                                                              | -     December 31, 2002                              
|                                                                                             
|                                                                                              | Condensed Consolidated Statements of Operations:     
|                                                                                              | -     Three months ended September 30, 2003 and 2002 
|                                                                                              | -     Nine months ended September 30, 2003 and 2002  
|                                                                                             
|                                                                                              | Condensed Consolidated Statements of Cash Flows:     
|                                                                                              | -     Nine months ended September 30, 2003 and 2002  
|                                                                                             
|                                                                                              | Notes to Condensed Consolidated Financial Statements:
|                                                                                             
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                                                             
|                                                                                             
|Item 3. Quantitative and Qualitative Disclosure About Market Risk                            
|                                                                                             
|                                                                                             
|Item 4. Controls and Procedures                                                              
|                                                                                             
|
|                                                                                             
|                                                                                             
|                                                                                             
|Item 1. Legal Proceedings                                                                    
|                                                                                             
|Item 6. Exhibits and Reports on Form 8-K                                                     
|                                                                                             
|                                                                                             
|SIGNATURES                                                                                   

2



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##### Table of Contents






Part 1 - FINANCIAL INFORMATION 




Item 1 - Financial
Statements




LYNCH CORPORATION AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - UNAUDITED
(In Thousands except share amounts)

|                                       |              |                                                                                                                     |        |               |        |      |        |              |        |  
|-------------------------------------- | ------------ | ------------------------------------------------------------------------------------------------------------------- | ------ | ------------- | ------ | ---- | ------ | ------------ | ------ | -
|                                       |              |                                                                                                                     |        |               |        |      |        | December 31,
|                                       |              |                                                                                                                     |        | September 30, |        | 2002
|                                       |              |                                                                                                                     |        | 2003          |        | (A) 
|                                       |              |                                                                                                                     |        |               |        |     
|ASSETS                                 |              |                                                                                                                     |        |               |        |      |        |             
|CURRENT ASSETS                         |              |                                                                                                                     |        |               |        |      |        |             
|                                       |              | Cash and cash equivalents                                                                                           |        | $             | 4,936  |      |        | $            | 5,986  |  
|                                       |              | Restricted cash (Note D)                                                                                            |        |               | 1,125  |      |        |              | 1,125  |  
|                                       |              | Investments - Marketable Securities (Note E)                                                                        |        |               | 1,894  |      |        |              | 861    |  
|                                       |              | Trade accounts receivables, less allowances of $89 and $91, respectively                                            |        |               | 2,499  |      |        |              | 2,820  |  
|                                       |              | Unbilled accounts receivable (Note H)                                                                               |        |               | 2,270  |      |        |              | 704    |  
|                                       |              | Inventories (Note F)                                                                                                |        |               | 6,350  |      |        |              | 5,624  |  
|                                       |              | Recoverable income taxes                                                                                            |        |               |       |      |        |              | 532    |  
|                                       |              | Deferred income taxes                                                                                               |        |               | 207    |      |        |              | 207    |  
|                                       |              | Prepaid expenses                                                                                                    |        |               | 555    |      |        |              | 324    |  
|                                       |              |                                                                                                                     |        |               |        |      |        |              |        |  
|                                       |              | TOTAL CURRENT ASSETS                                                                                                |        |               | 19,836 |      |        |              | 18,183 |  
|                                      
|PROPERTY, PLANT AND EQUIPMENT          |              |                                                                                                                     |        |               |        |      |        |             
|                                       |              | Land                                                                                                                |        |               | 291    |      |        |              | 291    |  
|                                       |              | Buildings and improvements                                                                                          |        |               | 4,198  |      |        |              | 4,198  |  
|                                       |              | Machinery and equipment                                                                                             |        |               | 11,382 |      |        |              | 11,841 |  
|                                       |              |                                                                                                                     |        |               |        |      |        |              |        |  
|                                       |              |                                                                                                                     | 15,871 |               |        |      | 16,330 |             
|                                       |              | Less: accumulated depreciation                                                                                      |        |               | 11,535 |      |        |              | 11,504 |  
|                                       |              |                                                                                                                     |        |               |        |      |        |              |        |  
|                                       |              |                                                                                                                     | 4,336  |               |        |      | 4,826  |             
|OTHER ASSETS                           |              |                                                                                                                     | 325    |               |        |      | 421    |             
|                                       |              |                                                                                                                     |        |               |        |      |        |              |        |  
|                                       | TOTAL ASSETS |                                                                                                                     | $      | 24,497        |        |      | $      | 23,430       |       
|                                       |              |                                                                                                                     |        |               |        |      |        |              |        |  
|LIABILITIES AND SHAREHOLDERS EQUITY   |              |                                                                                                                     |        |               |        |      |        |             
|CURRENT LIABILITIES:                   |              |                                                                                                                     |        |               |        |      |        |             
|                                       |              | Notes payable to banks (Note G)                                                                                     |        | $             | 2,500  |      |        | $            | 2,228  |  
|                                       |              | Trade accounts payable                                                                                              |        |               | 1,565  |      |        |              | 927    |  
|                                       |              | Accrued warranty expense (Note H)                                                                                   |        |               | 1,419  |      |        |              | 1,595  |  
|                                       |              | Accrued compensation expense                                                                                        |        |               | 1,195  |      |        |              | 921    |  
|                                       |              | Accrued income taxes                                                                                                |        |               | 866    |      |        |              | 1,053  |  
|                                       |              | Accrued professional fees                                                                                           |        |               | 271    |      |        |              | 327    |  
|                                       |              | Accrued commissions                                                                                                 |        |               | 140    |      |        |              | 214    |  
|                                       |              | Margin liability on marketable securities                                                                           |        |               | 1,023  |      |        |              | 251    |  
|                                       |              | Other accrued expenses                                                                                              |        |               | 767    |      |        |              | 659    |  
|                                       |              | Customer advances                                                                                                   |        |               | 2,365  |      |        |              | 1,147  |  
|                                       |              | Current maturities of long-term debt (Note G)                                                                       |        |               | 1,057  |      |        |              | 832    |  
|                                       |              |                                                                                                                     |        |               |        |      |        |              |        |  
|                                       |              | TOTAL CURRENT LIABILITIES                                                                                           |        |               | 13,168 |      |        |              | 10,154 |  
|                                      
|LONG-TERM DEBT (Note G)                |              |                                                                                                                     | 951    |               |        |      | 1,089  |             
|OTHER LONG TERM LIABILITIES            |              |                                                                                                                     |       |               |        |      | 1,253  |             
|                                       |              |                                                                                                                     |        |               |        |      |        |              |        |  
|                                       |              | TOTAL LIABILITIES                                                                                                   |        |               | 14,119 |      |        |              | 12,496 |  
|                                      
|COMMITMENTS AND CONTINGENCIES (Note L) |              |                                                                                                                     |        |               |        |      |        |             
|                                      
|SHAREHOLDERS EQUITY                   |              |                                                                                                                     |        |               |        |      |        |             
|                                       |              | Common stock, $0.01 par value - 10,000,000 shares authorized; 1,513,191 shares issued;
1,497,883 shares outstanding |        |               | 15     |      |        |              | 15     |  
|                                       |              | Additional paid-in capital                                                                                          |        |               | 15,645 |      |        |              | 15,645 |  
|                                       |              | Accumulated deficit                                                                                                 |        |               | (4,698 | )    |        |              | (4,570 | )
|                                       |              | Accumulated other comprehensive Income (Note J)                                                                     |        |               | (126   | )    |        |              | 302    |  
|                                       |              | Treasury stock of 15,308 shares at cost                                                                             |        |               | (458   | )    |        |              | (458   | )
|                                       |              |                                                                                                                     |        |               |        |      |        |              |        |  
|                                       |              | TOTAL SHAREHOLDERS EQUITY                                                                                          |        |               | 10,378 |      |        |              | 10,934 |  
|                                       |              |                                                                                                                     |        |               |        |      |        |              |        |  
|                                       |              | TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                          |        | $             | 24,497 |      |        | $            | 23,430 |  
|                                       |              |                                                                                                                     |        |               |        |      |        |              |        |  



|(A) |  | The Balance Sheet at December 31, 2002 has been derived from the audited
financial statements at that date, but does not include all of the
information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

See accompanying notes

3



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PART I  FINANCIAL INFORMATION

Item 1 - Financial Statements




LYNCH CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  UNAUDITED
(In Thousands, except share amounts)

|                                                   |                                  |   |                    |       |                   |   |           |        |      |   |           |        |   |   |           |        |  
|-------------------------------------------------- | -------------------------------- | - | ------------------ | ----- | ----------------- | - | --------- | ------ | ---- | - | --------- | ------ | - | - | --------- | ------ | -
|                                                   |                                  |   | Three Months Ended |       | Nine Months Ended
|                                                   |                                  |   | September 30,      |       | September 30,    
|                                                   |                                  |   |                    |       |                  
|                                                   |                                  |   | 2003               |       | 2002              |   | 2003      |        | 2002
|                                                   |                                  |   |                    |       |                   |   |           |        |     
|SALES AND REVENUES                                 |                                  | $ | 7,716              |       |                   | $ | 5,040     |        |      | $ | 19,174    |        |   | $ | 21,734    |       
|                                                  
|Cost and expenses:                                 |                                  |   |                    |       |                   |   |           |        |      |   |           |        |   |   |           |       
|                                                   | Manufacturing cost of sales      |   |                    | 5,495 |                   |   |           | 3,962  |      |   |           | 14,428 |   |   |           | 15,687 |  
|                                                   | Selling and administrative       |   |                    | 2,153 |                   |   |           | 2,302  |      |   |           | 5,996  |   |   |           | 7,864  |  
|                                                   | Gain on deconsolidation (Note B) |   |                    |      |                   |   |           | 19,420 |      |   |           |       |   |   |           | 19,420 |  
|                                                   |                                  |   |                    |       |                   |   |           |        |      |   |           |        |   |   |           |       
|                                                  
|OPERATING PROFIT (LOSS)                            |                                  |   | 68                 |       |                   |   | 18,196    |        |      |   | (1,250    | )      |   |   | 17,603    |       
|                                                  
|Other income (expense):                            |                                  |   |                    |       |                   |   |           |        |      |   |           |        |   |   |           |       
|                                                   | Investment Income                |   |                    | 360   |                   |   |           | 32     |      |   |           | 528    |   |   |           | 95     |  
|                                                   | Interest expense                 |   |                    | (63   | )                 |   |           | (48    | )    |   |           | (225   | ) |   |           | (140   | )
|                                                   | Other Income (Expense)           |   |                    | 754   |                   |   |           | (63    | )    |   |           | 763    |   |   |           | (63    | )
|                                                   |                                  |   |                    |       |                   |   |           |        |      |   |           |        |   |   |           |       
|                                                   |                                  |   | 1,051              |       |                   |   | (79       | )      |      |   | 1,066     |        |   |   | (108      | )     
|                                                   |                                  |   |                    |       |                   |   |           |        |      |   |           |        |   |   |           |       
|                                                  
|INCOME (LOSS) BEFORE INCOME TAXES                  |                                  |   | 1,119              |       |                   |   | 18,117    |        |      |   | (184      | )      |   |   | 17,495    |       
|                                                  
|Benefit from (provision for) income
taxes (Note M) |                                  |   | (336               | )     |                   |   | 1,150     |        |      |   | 56        |        |   |   | 1,372     |       
|                                                   |                                  |   |                    |       |                   |   |           |        |      |   |           |        |   |   |           |       
|NET INCOME (LOSS)                                  |                                  | $ | 783                |       |                   | $ | 19,267    |        |      | $ | (128      | )      |   | $ | 18,867    |       
|                                                   |                                  |   |                    |       |                   |   |           |        |      |   |           |        |   |   |           |       
|Weighted average shares outstanding.               |                                  |   | 1,497,900          |       |                   |   | 1,497,900 |        |      |   | 1,497,900 |        |   |   | 1,497,900 |       
|                                                   |                                  |   |                    |       |                   |   |           |        |      |   |           |        |   |   |           |       
|BASIC AND DILUTED LOSS PER SHARE:                  |                                  | $ | 0.52               |       |                   | $ | 12.86     |        |      | $ | (0.09     | )      |   | $ | 12.59     |       
|                                                   |                                  |   |                    |       |                   |   |           |        |      |   |           |        |   |   |           |       

See accompanying notes

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PART I  FINANCIAL INFORMATION

ITEM 1  Financial Statements




LYNCH CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS - UNAUDITED
(In Thousands)

|                                                                                          |                                          |   |                   |        |      |   |         |        |  
|----------------------------------------------------------------------------------------- | ---------------------------------------- | - | ----------------- | ------ | ---- | - | ------- | ------ | -
|                                                                                          |                                          |   | Nine Months Ended
|                                                                                          |                                          |   | September 30,    
|                                                                                          |                                          |   |                  
|                                                                                          |                                          |   | 2003              |        | 2002
|                                                                                          |                                          |   |                   |        |     
|OPERATING ACTIVITIES                                                                      |                                          |   |                   |        |      |   |         |       
|Net income (loss)                                                                         |                                          | $ | (128              | )      |      | $ | 18,867  |       
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |                                          |   |                   |        |      |   |         |       
|Gain on deconsolidation                                                                   |                                          |   |                  |        |      |   | (19,420 | )     
|Restricted operating cash                                                                 |                                          |   |                  |        |      |   | 4,703   |       
|Depreciation                                                                              |                                          |   | 736               |        |      |   | 779     |       
|Amortization of definite-lived intangible assets                                          |                                          |   | 196               |        |      |   | 153     |       
|Gain realized on sale of marketable securities                                            |                                          |   | (483              | )      |      |   |        |       
|Changes in operating assets and liabilities:                                              |                                          |   |                   |        |      |   |         |       
|                                                                                          | Receivables                              |   |                   | (1,245 | )    |   |         | 6,754  |  
|                                                                                          | Inventories                              |   |                   | (726   | )    |   |         | 328    |  
|                                                                                          | Accounts payable and accrued liabilities |   |                   | 3,049  |      |   |         | (6,778 | )
|                                                                                          | Other assets/liabilities                 |   |                   | (1,584 | )    |   |         | 196    |  
|                                                                                          |                                          |   |                   |        |      |   |         |       
|Net cash provided by (used in) operating activities                                       |                                          |   | (185              | )      |      |   | 5,582   |       
|                                                                                          |                                          |   |                   |        |      |   |         |       
|INVESTING ACTIVITIES                                                                      |                                          |   |                   |        |      |   |         |       
|Acquisition of minority interest                                                          |                                          |   |                  |        |      |   | (220    | )     
|Capital expenditures                                                                      |                                          |   | (246              | )      |      |   | (227    | )     
|Equipment disposals                                                                       |                                          |   |                  |        |      |   | 46      |       
|Restricted investing cash                                                                 |                                          |   |                  |        |      |   | (1,125  | )     
|Proceeds from sale of marketable securities                                               |                                          |   | 1,041             |        |      |   |        |       
|Payment on margin liability on marketable securities                                      |                                          |   | (454              | )      |      |   | (45     | )     
|Purchase of marketable securities                                                         |                                          |   | (1,565            | )      |      |   | (260    | )     
|                                                                                          |                                          |   |                   |        |      |   |         |       
|Cash (used in) investing activities                                                       |                                          |   | (1,224            | )      |      |   | (1,831  | )     
|                                                                                          |                                          |   |                   |        |      |   |         |       
|FINANCING ACTIVITIES                                                                      |                                          |   |                   |        |      |   |         |       
|Net borrowings of notes payable                                                           |                                          |   | 272               |        |      |   | 703     |       
|Repayment of long-term debt                                                               |                                          |   | (707              | )      |      |   | (341    | )     
|Proceeds from long-term debt                                                              |                                          |   | 794               |        |      |   |        |       
|                                                                                          |                                          |   |                   |        |      |   |         |       
|Cash provided by financing activities                                                     |                                          |   | 359               |        |      |   | 362     |       
|                                                                                          |                                          |   |                   |        |      |   |         |       
|Increase (decrease) in cash and cash equivalents                                          |                                          |   | (1,050            | )      |      |   | 4,113   |       
|Cash and cash equivalents at beginning of period                                          |                                          |   | 5,986             |        |      |   | 4,247   |       
|                                                                                          |                                          |   |                   |        |      |   |         |       
|Cash and cash equivalents at end of period                                                |                                          | $ | 4,936             |        |      | $ | 8,360   |       
|                                                                                          |                                          |   |                   |        |      |   |         |       

See accompanying notes

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##### Table of Contents






NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



|A. |  | Subsidiaries of the Registrant                                              
|-- |  | ----------------------------------------------------------------------------
|  
|   |  | As of September 30, 2003, the Subsidiaries of the Registrant are as follows:

|                        |                         |  |                |       |  
|----------------------- | ----------------------- |  | -------------- | ----- | -
|                        |                         |  | Owned By Lynch
|                        |                         |  |               
|Lynch Systems, Inc.     |                         |  | 100.0          | %    
|M-tron Industries, Inc. |                         |  | 100.0          | %    
|                        | M-tron Industries, Ltd. |  |                | 100.0 | %



|B. |  | Basis of Presentation
|-- |  | ---------------------

The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three month
and nine month period ended September 30, 2003 are not necessarily indicative
of the results that may be expected for the year ended December 31, 2003.

The balance sheet at December 31, 2002 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.

On September 23, 2002, Lynch disposed of its remaining interest in
Spinnaker Industries, Inc. (Spinnaker) for nominal consideration and
completed the deconsolidation that commenced on September 30, 2001. As a
result, the financial statements for the periods ending September 30, 2002,
December 31, 2002, and September 30, 2003 exclude Spinnaker. The net result of
the deconsolidation was the recording of a non-cash gain of $19.4 million in
the third quarter of 2002 and $27.4 million in the third quarter of 2001.

For further information, refer to the consolidated financial statements
and footnotes thereto included in the Registrant Company and Subsidiaries
annual report on Form 10-K for the year ended December 31, 2002.



|C. |  | Adoption of Accounting Pronouncements
|-- |  | -------------------------------------

In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Indebtedness of Others.

The Company presently guarantees (unsecured) the SunTrust Bank loans of
its subsidiary, Lynch Systems, and has guaranteed a Letter of Credit issued to
the First National Bank of Omaha on behalf of its subsidiary, M-tron
Industries, Inc. These guarantees are subject to FIN 45s disclosure
requirement only. As of September 30, 2003, there were no obligations to
SunTrust Bank. As of September 30, 2003, the $1,000,000 Letter of Credit
issued by Fleet Bank to The First National Bank of Omaha was secured by a
$1,125,000 deposit in a Fleet Bank Treasury Fixed Income Fund.

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

In July 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 146, Accounting for Costs
Associated with Exit or Disposal Activities (SFAS 146), which addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring). The
provisions of SFAS 146 are effective for exit or disposal activities that are
initiated after December 31, 2002; the Company does not have any exit or
disposal activities underway.

On December 31, 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure (SFAS 148), which amends the disclosure provisions of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation (SFAS 123) and APBN opinion No. 28, Interim
Financial Reporting (APB 28). See Note I to the Consolidated Financial
Statements  Earnings Per Share and Stockholders Equity.

6



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In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51 (FIN 46). FIN
46 clarifies the application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to certain entities in which equity
investors do not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other
parties. The adoption of these rules, FIN 46, has been deferred
until the fourth quarter of 2003; the Company does not have any interests in variable interest
entities.

D.     Restricted Cash

At both September 30, 2003 and December 31, 2002, the Company had $1.1
million of Restricted Cash that secures a Letter of Credit issued by Fleet Bank
to the First National Bank of Omaha as collateral for its M-tron subsidiarys
loans.



|E. |  | Investments
|-- |  | -----------

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

|                   |  |      |       |       |  |            |     |            |  |           |     |  |  |   |       | 
|------------------ |  | ---- | ----- | ----- |  | ---------- | --- | ---------- |  | --------- | --- |  |  | - | ----- | 
|                   |  |      |       |       |  | Gross      |     | Gross      |  | Estimated
|                   |  |      |       |       |  | Unrealized |     | Unrealized |  | Fair     
|Equity Securities  |  | Cost |       | Gains |  | Losses     |     | Value     
|                   |  |      |       |       |  |            |     |           
|September 30, 2003 |  | $    | 2,018 |       |  |            |    |            |  |           | 124 |  |  | $ | 1,894 | 
|                  
|December 31, 2002  |  | $    | 557   |       |  | $          | 304 |            |  |           |    |  |  | $ | 861   | 

The Company has a margin liability of $1,023,000 at September 30, 2003 and
$251,000 at December 31, 2002 which must be settled upon the disposition of the
related securities whose fair value is based on quoted market prices. The
Company has designated these investments as available for sale pursuant to
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities.



|F. |  | Inventories
|-- |  | -----------

Inventories are stated at the lower of cost or market value. At September
30, 2003, inventories were valued by two methods: last-in, first-out (LIFO)
46%, and first-in, first-out (FIFO) 54%. At December 31, 2002, inventories
were valued by the same two methods: LIFO  63%, and FIFO -37%.

|                |                   |   |                |       |              |   |       |       | 
|--------------- | ----------------- | - | -------------- | ----- | ------------ | - | ----- | ----- | 
|                |                   |   | September 30,  |       | December 31,
|                |                   |   | 2003           |       | 2002        
|                |                   |   |                |       |             
|                |                   |   | (In Thousands)
|Raw materials   |                   | $ | 1,566          |       |              | $ | 1,436 |      
|Work in process |                   |   | 4,406          |       |              |   | 2,376 |      
|Finished goods  |                   |   | 378            |       |              |   | 1,812 |      
|                |                   |   |                |       |              |   |       |      
|                | Total Inventories |   | $              | 6,350 |              |   | $     | 5,624 | 
|                |                   |   |                |       |              |   |       |      

Current costs exceed LIFO value of inventories by $1,341,000 and
$1,212,000 at September 30, 2003 and December 31, 2002 respectively.



|G. |  | Indebtedness
|-- |  | ------------

Lynch Systems, Inc. and M-tron Industries, Inc. maintain their own credit
facilities. The Lynch Systems facility includes an unsecured parent Company
guarantee. M-trons revolving credit agreement is supported by a $1.0 million Letter of Credit that is secured by a $1.1 million deposit in a
Fleet Bank Treasury Fixed Income Fund (see Note D - Restricted Cash).

7



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In general, the credit facilities are secured by property, plant and
equipment, inventory, receivables and common stock of certain subsidiaries and
contain certain covenants restricting distributions to the Company.

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

|                                                                                                              |  |                |        |              |  |   |       |  
|------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ | ------------ |  | - | ----- | -
|                                                                                                              |  | September 30,  |        | December 31,
|                                                                                                              |  |                |        |             
|                                                                                                              |  | 2003           |        | 2002        
|                                                                                                              |  |                |        |             
|                                                                                                              |  | (In Thousands)
|Notes payable:                                                                                                |  |                |        |              |  |   |       |  
|M-tron bank revolving loan at variable interest rates (4.75% at September 30, 2003), due May 2004             |  | $              | 2,500  |              |  | $ | 2,228 |  
|Lynch Systems bank revolving loan at variable interest rates, due June, 2004                                  |  |                |       |              |  |   |      |  
|                                                                                                              |  |                |        |              |  |   |       |  
|                                                                                                              |  | $              | 2,500  |              |  | $ | 2,228 |  
|                                                                                                              |  |                |        |              |  |   |       |  
|Long-term debt:                                                                                               |  |                |        |              |  |   |       |  
|M-tron commercial bank term loan at variable interest rates (4.5% at September 30, 2003), due
September, 2004 |  | $              | 888    |              |  | $ | 1,001 |  
|Yankton Area Progressive Growth loan at 0.0% interest, due April 2005                                         |  |                | 250    |              |  |   | 250   |  
|South Dakota Board of Economic Development at a fixed rate of 3%, due December, 2007                          |  |                | 287    |              |  |   |      |  
|Yankton Areawide Business Council loan at a fixed interest rate of 5.5%, due November 2007                    |  |                | 93     |              |  |   | 98    |  
|Lynch Systems term loan at a fixed interest rate of 5.5%, due August 2013                                     |  |                | 490    |              |  |   | 572   |  
|                                                                                                              |  |                |        |              |  |   |       |  
|                                                                                                              |  |                | 2,008  |              |  |   | 1,921 |  
|Current maturities                                                                                            |  |                | (1,057 | )            |  |   | (832  | )
|                                                                                                              |  |                |        |              |  |   |       |  
|                                                                                                              |  | $              | 951    |              |  | $ | 1,089 |  
|                                                                                                              |  |                |        |              |  |   |       |  



|H. |  | Long-Term Contracts and Warranty Expense
|-- |  | ----------------------------------------

Lynch Systems, a 100% wholly owned subsidiary of the Company, is engaged
in the manufacture and marketing of glass-forming machines and specialized
manufacturing machines. Certain sales contracts require an advance payment
(usually 30% of the contract price) which is accounted for as a customer
advance. The contractual sales prices are paid either (i) as the manufacturing
process reaches specified levels of completion or (ii) based on the shipment
date. Guarantees by letter of credit from a qualifying financial institution
are required for most sales contracts. Because of the specialized nature of
these machines and the period of time needed to complete production and
shipping, Lynch Systems accounts for these contracts using the
percentage-of-completion accounting method as costs are incurred compared to
total estimated project costs (cost to cost basis). At September 30, 2003 and
December 31, 2002, unbilled accounts receivable were $2.3 million and $0.7
million, respectively.

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

|                                                                                            |  |   |       |  
|------------------------------------------------------------------------------------------- |  | - | ----- | -
|Balance, December 31, 2002                                                                  |  | $ | 1,595 |  
|Warranties issued during the period                                                         |  |   | 232   |  
|Settlements made during the period                                                          |  |   | (415  | )
|Changes in liabilities for pre-existing warranties during the period, including
expirations |  |   | 7     |  
|                                                                                            |  |   |       |  
|Balance, September 30,
2003                                                                 |  | $ | 1,419 |  
|                                                                                            |  |   |       |  



|I. |  | Earnings Per Share and Stockholders Equity
|-- |  | -------------------------------------------

The Companys basic and diluted earnings per share are equivalent as the
options issued in May 2002 to purchase 228,000 shares of the Companys common
stock were anti-dilutive throughout 2002 and throughout the first nine months
of 2003.

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. Although the grants were approved by the shareholders on May 2, 2002,
the shares are not considered issued until exercised or in the money, neither
event having transpired to-date. 208,000 of these options are fully vested,
with the remaining options vesting quarterly over the next five quarters.

8



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

|                                                                                                                                           |  |                    |      |                   |  |      |        |      |  |   |       |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------------ | ---- | ----------------- |  | ---- | ------ | ---- |  | - | ----- | - |  | - | ------ | -
|                                                                                                                                           |  | Three Months Ended |      | Nine Months Ended
|                                                                                                                                           |  | September 30,      |      | September 30,    
|                                                                                                                                           |  |                    |      |                  
|                                                                                                                                           |  | 2003               |      | 2002              |  | 2003 |        | 2002
|                                                                                                                                           |  |                    |      |                   |  |      |        |     
|Net income (loss) as reported                                                                                                              |  | $                  | 783  |                   |  | $    | 19,267 |      |  | $ | (128  | ) |  | $ | 18,867 |  
|                                                                                                                                          
|Deduct: Total stock based employee
compensation expense determined under
fair value based method for all awards,
net of related tax
effect |  |                    | (39  | )                 |  |      | (39    | )    |  |   | (116  | ) |  |   | (1,221 | )
|                                                                                                                                           |  |                    |      |                   |  |      |        |      |  |   |       |   |  |   |        |  
|Pro forma net income (loss)                                                                                                                |  | $                  | 744  |                   |  | $    | 19,228 |      |  | $ | (244  | ) |  | $ | 17,646 |  
|                                                                                                                                           |  |                    |      |                   |  |      |        |      |  |   |       |   |  |   |        |  
|Basic and diluted loss per share:                                                                                                          |  |                    |      |                   |  |      |        |      |  |   |       |   |  |   |        |  
|As
reported                                                                                                                                |  | $                  | 0.52 |                   |  | $    | 12.86  |      |  | $ | (0.09 | ) |  | $ | 12.59  |  
|Pro
forma                                                                                                                                  |  | $                  | 0.50 |                   |  | $    | 12.84  |      |  | $ | (0.16 | ) |  | $ | 11.78  |  



|   |  | The net loss as reported in each period did not include any stock-based
compensation.
|-- |  | -------------------------------------------------------------------------------------
|  
|   |  | The weighted average fair value of options granted in 2002 is $17.50.                
|  
|J. |  | Accumulated Other Comprehensive Income (Loss)                                        

Total comprehensive income was $347,000 in the three months ended
September 30, 2003, as opposed to total comprehensive income of $19,259,000 in
the third quarter of 2002. Other comprehensive loss, resulting from losses
on available for sale securities, included in the total comprehensive income
was $436,000 in the third quarter of 2003 and $8,000 in the quarter ending
September 30, 2002.

Total comprehensive loss was $556,000 for the nine months ended 9/30/03 as
opposed to total comprehensive income of $18,977,000, for the nine months
ending 9/30/02, including other comprehensive loss of $428,000 in the first
nine months of 2003 and other comprehensive income of $110,000 in the first
nine months of 2002 resulting from losses and gains on available for sale
securities.



|K. |  | Segment Information
|-- |  | -------------------

The Company has two reportable business segments. The first segment is
Lynch Systems glass manufacturing equipment business. Frequency control
devices (quartz crystals and oscillators) manufactured and sold by M-tron is
the other segment. Both businesses are located domestically.

Operating profit (loss) is equal to revenues less operating expenses,
excluding investment income, interest expense and income taxes. The Company
allocates a negligible portion of its general corporate expenses to its
operating segments.

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|                                                    |                                       |                                               |       |                    |       |                   |        |        |       |      |        |        |        |   |        |        |        | 
|--------------------------------------------------- | ------------------------------------- | --------------------------------------------- | ----- | ------------------ | ----- | ----------------- | ------ | ------ | ----- | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                    |                                       |                                               |       | Three Months Ended |       | Nine Months Ended
|                                                    |                                       |                                               |       | September 30,      |       | September 30     
|                                                    |                                       |                                               |       |                    |       |                  
|                                                    |                                       |                                               |       | 2003               |       | 2002              |        | 2003   |       | 2002
|                                                    |                                       |                                               |       |                    |       |                   |        |        |       |     
|                                                    |                                       |                                               |       | (In Thousands)     |       | (In Thousands)   
|                                                    |                                       |                                               |       |                    |       |                  
|Revenues                                            |                                       |                                               |       |                    |       |                   |        |        |       |      |        |        |        |   |        |       
|Glass manufacturing equipment  USA                 |                                       | $                                             | 422   |                    |       | $                 | 352    |        |       | $    | 3,115  |        |        | $ | 1,122  |       
|                                                   
|Glass manufacturing equipment  Europe              |                                       |                                               | 442   |                    |       |                   | 1,249  |        |       |      | 1,239  |        |        |   | 7,125  |       
|Glass manufacturing equipment  Far East            |                                       |                                               | 2,723 |                    |       |                   | 433    |        |       |      | 3,788  |        |        |   | 4,750  |       
|Glass manufacturing equipment  Canada              |                                       |                                               |      |                    |       |                   | 3      |        |       |      | 4      |        |        |   | 6      |       
|Glass manufacturing equipment  All Other           |                                       |                                               | 47    |                    |       |                   | 189    |        |       |      | 153    |        |        |   | 272    |       
|                                                    |                                       |                                               |       |                    |       |                   |        |        |       |      |        |        |        |   |        |       
|                                                    |                                       | Total Glass manufacturing equipment - Foreign |       |                    | 3,212 |                   |        |        | 1,874 |      |        |        | 5,184  |   |        |        | 12,153 | 
|                                                   
|                                                    |                                       | Total Glass manufacturing equipment           |       |                    | 3,634 |                   |        |        | 2,226 |      |        |        | 8,299  |   |        |        | 13,275 | 
|                                                   
|                                                    | Frequency control devices  USA       |                                               |       | 2,084              |       |                   |        | 1,342  |       |      |        | 5,351  |        |   |        | 4,302  |       
|                                                   
|                                                    | Frequency control devices  Europe    |                                               |       | 445                |       |                   |        | 119    |       |      |        | 1,092  |        |   |        | 385    |       
|                                                    | Frequency control devices  Far East  |                                               |       | 903                |       |                   |        | 525    |       |      |        | 2,451  |        |   |        | 1,558  |       
|                                                    | Frequency control devices - Canada    |                                               |       | 512                |       |                   |        | 567    |       |      |        | 1,193  |        |   |        | 1,611  |       
|                                                    | Frequency control devices  All Other |                                               |       | 138                |       |                   |        | 261    |       |      |        | 788    |        |   |        | 603    |       
|                                                    |                                       |                                               |       |                    |       |                   |        |        |       |      |        |        |        |   |        |       
|                                                    |                                       | Total Frequency control devices - Foreign     |       |                    | 1,998 |                   |        |        | 1,472 |      |        |        | 5,524  |   |        |        | 4,157  | 
|                                                   
|                                                    |                                       | Total Frequency control devices               |       |                    | 4,082 |                   |        |        | 2,814 |      |        |        | 10,875 |   |        |        | 8,459  | 
|                                                    |                                       |                                               |       |                    |       |                   |        |        |       |      |        |        |        |   |        |       
|                                                    | Consolidated Total                    |                                               | $     | 7,716              |       |                   | $      | 5,040  |       |      | $      | 19,174 |        |   | $      | 21,734 |       
|                                                    |                                       |                                               |       |                    |       |                   |        |        |       |      |        |        |        |   |        |       
|Operating Profit (Loss)                             |                                       |                                               |       |                    |       |                   |        |        |       |      |        |        |        |   |        |       
|Glass manufacturing equipment                       |                                       | $                                             | 367   |                    |       | $                 | (303   | )      |       | $    | 30     |        |        | $ | 1,277  |       
|Frequency control devices                           |                                       |                                               | 57    |                    |       |                   | (524   | )      |       |      | (172   | )      |        |   | (2,023 | )     
|                                                    |                                       |                                               |       |                    |       |                   |        |        |       |      |        |        |        |   |        |       
|Total manufacturing                                 |                                       |                                               | 424   |                    |       |                   | (827   | )      |       |      | (142   | )      |        |   | (746   | )     
|                                                   
|Unallocated Corporate expenses                      |                                       |                                               | (356  | )                  |       |                   | (397   | )      |       |      | (1,108 | )      |        |   | (1,071 | )     
|Gain on deconsolidation of Spinnaker                |                                       |                                               |      |                    |       |                   | 19,420 |        |       |      |       |        |        |   | 19,420 |       
|                                                    |                                       |                                               |       |                    |       |                   |        |        |       |      |        |        |        |   |        |       
|Consolidated Total                                  |                                       | $                                             | 68    |                    |       | $                 | 18,196 |        |       | $    | (1,250 | )      |        | $ | 17,603 |       
|                                                    |                                       |                                               |       |                    |       |                   |        |        |       |      |        |        |        |   |        |       
|Capital Expenditures                                |                                       |                                               |       |                    |       |                   |        |        |       |      |        |        |        |   |        |       
|Glass manufacturing equipment                       |                                       | $                                             | 12    |                    |       | $                 | 48     |        |       | $    | 69     |        |        | $ | 89     |       
|Frequency control devices                           |                                       |                                               | 105   |                    |       |                   | 37     |        |       |      | 157    |        |        |   | 138    |       
|General Corporate                                   |                                       |                                               | 20    |                    |       |                   |       |        |       |      | 20     |        |        |   |       |       
|                                                    |                                       |                                               |       |                    |       |                   |        |        |       |      |        |        |        |   |        |       
|Consolidated Total                                  |                                       | $                                             | 137   |                    |       | $                 | 85     |        |       | $    | 246    |        |        | $ | 227    |       
|                                                    |                                       |                                               |       |                    |       |                   |        |        |       |      |        |        |        |   |        |       
|Total Assets                                        |                                       |                                               |       |                    |       |                   |        |        |       |      |        |        |        |   |        |       
|                                                    | Glass manufacturing equipment         |                                               |       |                   |       |                   |        |       |       |      | $      | 11,991 |        |   | $      | 13,240 |       
|                                                    | Frequency control devices             |                                               |       |                   |       |                   |        |       |       |      |        | 8,042  |        |   |        | 6,631  |       
|                                                    | General Corporate                     |                                               |       |                   |       |                   |        |       |       |      |        | 4,464  |        |   |        | 5,007  |       
|                                                    |                                       |                                               |       |                    |       |                   |        |        |       |      |        |        |        |   |        |       
|                                                    | Consolidated Total                    |                                               |       |                   |       |                   |        |       |       |      | $      | 24,497 |        |   | $      | 24,878 |       
|                                                    |                                       |                                               |       |                    |       |                   |        |        |       |      |        |        |        |   |        |       
|Total operating profit (loss) of reporting segments |                                       | $                                             | 68    |                    |       | $                 | 18,196 |        |       | $    | (1,250 | )      |        | $ | 17,603 |       
|                                                   
|Other profit or loss:                               |                                       |                                               |       |                    |       |                   |        |        |       |      |        |        |        |   |        |       
|                                                    | Investment income                     |                                               |       | 360                |       |                   |        | 32     |       |      |        | 528    |        |   |        | 95     |       
|                                                    | Interest expense                      |                                               |       | (63                | )     |                   |        | (48    | )     |      |        | (225   | )      |   |        | (140   | )     
|                                                    | Other income (expense)                |                                               |       | 754                |       |                   |        | (63    | )     |      |        | 763    |        |   |        | (63    | )     
|                                                    |                                       |                                               |       |                    |       |                   |        |        |       |      |        |        |        |   |        |       
|                                                    | Income (Loss) before income taxes     |                                               | $     | 1,119              |       |                   | $      | 18.117 |       |      | $      | (184   | )      |   | $      | 17,495 |       
|                                                    |                                       |                                               |       |                    |       |                   |        |        |       |      |        |        |        |   |        |       

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|L. |  | Commitments and Contingencies
|-- |  | -----------------------------

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 Companys financial condition or operations. In addition, Registrant
and/or one or more of its subsidiaries are parties to the following additional
legal proceedings:

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

On or about June 26, 2001, in anticipation of the July 15, 2001 closure of
Spinnakers Westbrook, Maine facility, Plaintiff PACE Local 1-1069 (PACE)
filed a three count complaint in Cumberland County Superior Court,
CV-2001-00352 naming the following defendants: Spinnaker Industries, Inc.,
Spinnaker Coating, Inc., and Spinnaker Coating-Maine, Inc. (collectively, the
Spinnaker Entities) and Lynch. The complaint alleged that under Maines
Severance Pay Act both the Spinnaker Entities and Lynch would be liable to pay
approximately $1,166,000 severance pay under Maines Severance Pay Act in
connection with the plant closure. The Defendants filed a notice of removal,
thereby creating United States District Court Civil Action C.V. No. 01-236. The
case was remanded to state court. The Spinnaker Entities also filed a separate
complaint challenging the constitutionality of the Maine Severance Pay Act,
United States District Court Civil Action No. 01-232 which later was dismissed
by stipulation of the Spinnaker Entities. PACE also filed three separate
Motions for Ex-Parte Attachment against the Spinnaker Entities and Lynch. PACE
filed the First Motion for Attachment with its original Complaint. PACE sought
to attach $1,166,483.44, an amount large enough to cover the claims of all
PACEs members seeking severance. The Court denied that Motion as being
premature. PACE then filed a Second Motion against the Spinnaker Entities and
Lynch for an attachment large enough to cover the claims of eight individual
employees seeking severance pay in the amount of $120,736.27. On August 20,
2001, the Court granted that Motion in the amount of $118,500. On April 4,
2002, PACE subsequently recorded this attachment through UCC-1 filings with the
Maine Secretary of State against Lynch Manufacturing and Lynch Corporation.
PACE filed a Third Motion for Ex-Parte Attachment on August 29, 2001. This
Motion sought an attachment large enough to cover the severance pay claimed by
the remaining PACE members, $1,048,003. The Court denied this Motion but
permitted PACE the opportunity to obtain an attachment after all defendants had
an opportunity to respond and after hearing.

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

On September 30, 2002, PACE requested a ruling from the Superior Court on
its Third Motion for Attachment. On October 21, 2002, Lynch filed a Motion for
Summary Judgment which incorporated its prior objection to any attachment. PACE
filed an Opposition to Lynchs Motion for Summary Judgment,which included a
request for summary judgment in its favor, and a Motion for Leave to Further
Amend the Complaint on November 12, 2002. Lynch thereafter filed a Reply
Memorandum in Support of its Motion for Summary Judgment on November 26, 2002
and an opposition to PACEs Motion for Leave to Further Amend the Complaint on
December 3, 2002. On December 31, 2002, the Superior Court held a hearing on
all pending Motions. The Superior Court requested that arguments focus on
Lynchs Motion for Summary Judgment since the granting of that Motion would
render PACEs Third Motion for Attachment and Motion to Further Amend the
Complaint moot.

On July 28, 2003, the Superior Court issued an Order deciding both Lynchs
and PACEs Motions for Summary Judgment. The Court denied Lynchs Motion for
Summary Judgment, finding that there remained a disputed issue of material fact
regarding one of Lynchs primary defenses. The Court granted partial summary
judgment in favor of PACE to the extent that the Court found Lynch was an
employer subject to potential liability under Maines Severance Pay Act. The
Court held, however, that PACE must still prove its entitlement to severance
pay under the Act. In a separate ruling also issued on July 28, 2003, the
Court denied PACEs Third Motion for Attachment.

11



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

The Company does not believe that it has any other contingent liabilities
related to Spinnaker.



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

Lynch Corporation, Lynch Interactive Corporation (Interactive), and
several other parties have been named as defendants in a lawsuit brought under
the so-called qui tam provisions of the federal False Claims Act in the
United States District Court for the District of Columbia. The complaint was
filed under seal with the court on February 14, 2001, and the seal was lifted
on January 11, 2002. The Company was formally served with the complaint on
July 9, 2002. The main allegation in the case is that the defendants
participated in the creation of sham bidding entities that allegedly
defrauded the federal Treasury by improperly participating in Federal
Communications Commission spectrum auctions restricted to small businesses, as
well as obtaining bidding credits in other spectrum auctions allocated to
small and very small businesses. The lawsuit seeks to recover an
unspecified amount of damages, which would be subject to mandatory trebling
under the statute. On September 19, 2002, Interactive, on behalf of itself and
Lynch, filed two Motions with the court: a Motion to Transfer the Action to the
Southern District of New York and a Motion to Dismiss the Lawsuit. The relator
filed an opposition reply to Interactives Motion to Dismiss and, on December
5, 2002, Interactive filed a Reply in Support of Its Motion to Dismiss. On
September 30, 2003, the Court granted Interactives Motion to Transfer the
Action to the Southern District of New York.

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



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

The Spinnaker Chapter 11 reorganization and joint plan of liquidation are
not reported herein because, on September 23, 2002, Lynch disposed of its
entire remaining interest in Spinnaker and no longer has any economic interest
in or affiliation with Spinnaker.



|M. |  | Income Taxes
|-- |  | ------------

The 2002 effective tax rate differs from the statutory tax rate primarily due
to the $860,000 tax benefit related to the Spinnaker investment.



|N. |  | Reclassifications
|-- |  | -----------------

Certain amounts in the 2002 financial statements and segment information
(Note K) have been eliminated or reclassified to conform to the 2003
presentation. These deletions and reclassifications are immaterial to the
consolidated financial statements and segment information taken as a whole.




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

Critical Accounting Policies

The Company has identified the accounting policies listed below that we
believe are most critical to our financial condition and results of operations,
and that require managements most difficult, subjective and complex judgments
in estimating the effect of inherent uncertainties. This section should be
read in conjunction with Note 1 to the consolidated financial statements, included in the Companys
Annual Report on Form 10K for the year ended December 31, 2002, which includes
other significant accounting policies.

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Accounts Receivable

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

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

Inventory Valuation

Inventories are stated at the lower of cost or market value. Inventories
valued using the last-in, first-out (LIFO) method comprised approximately 46%,
63%, and 58% of consolidated inventories at September 30, 2003, December 31,
2002 and 2001, respectively. The balance of inventories are valued using the
first-in-first-out (FIFO) method. If actual market conditions are more or less
favorable than those projected by management, including the demand for our
products, changes in technology, internal labor costs and the costs of
materials, adjustments may be required.

Revenue Recognition and Accounting for Long-Term Contracts

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

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

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

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Warranty Expense

Lynch Systems provides a full warranty to world-wide customers who acquire
machines. The warranty covers both parts and labor and normally covers a period
of one year or thirteen months. Based upon experience, the warranty accrual is
based upon three to five percent of the selling price of the machine. The
Company periodically assesses the adequacy of the reserve and adjusts the
amounts as necessary. Estimates used in determining the adequacy of the
reserve include the number and nature of product failures and the level of
returns of product, the cost of internal labor to address these warranty issues
and the costs of materials in repairing or replacing inventory covered under
our warranty programs. Should these estimates change, our original estimates
of warranty could increase or decrease.

Results of Operations

Third Quarter 2003 and Nine Months 2003 Compared to 2002

Sales and Revenues/Gross Margin

Revenues for the third quarter of 2003 increased by $2.7 million from
third quarter 2002 to $7.7 million due mainly to (a) improved performance at
Lynch Systems as shipments commenced on machine orders that were booked earlier
in the year and (b) at M-tron as a result of the successful scale-up and
resulting expanded product line M-tron is now offering to a mildly improving
market.

Nine months 2003 sales of $19.2 million were $2.5 million less than the
$21.7 million revenue recorded in the first nine months of 2002 due mainly to
the $12.0 million backlog at Lynch Systems as of 12/31/01, the subsequent low
bookings in the second half of 2002, and the timing of deliveries of orders
booked in March and April of 2003 for glass press machines sold by Lynch
Systems.

Third quarter 2003 gross margin as a percent of sales was 28.8% or 7.4
points better than the 21.4% gross margin achieved in the third quarter of 2002
due to the 53% volume increase.

Nine
month 2003 gross margin as a percent of revenues of 24.8% was 3.0 points
below the first nine months of 2002 due mainly to the 12% less sales.

Revenues at M-tron increased by $1.3 million, or 45.1%, to $4.1 million
for the third quarter of 2003 and by $2.4 million to $10.9 million for the nine
month period ending September 2003 due primarily to the acquisition on
October 18, 2002, of certain assets of an industry competitor, Champion
Technologies, Inc. (Champion).

M-tron has successfully completed the integration of its manufacturing
lines, incorporating the products of this acquisition with M-trons
pre-existing products. As a result of this investment in M-trons production
capacity and the expanded product line, M-tron has signed preferred-supplier
agreements with two of the leading, worldwide manufacturers of
telecommunications systems, and strengthened its relationship with a third
customer.

Lynch Systems third quarter 2003 revenue of $3.6 million was $1.4
million, or 63%, above the same period of 2002. Lynch Systems revenues for
the first nine months of 2003 declined by $5.0 million from the corresponding
2002 period to $8.3 million due mainly to depressed bookings for glass press
machines throughout 2002. However, order backlog of $7.1 million at September
30, 2003 represented an improvement of $3.2 million since December 31, 2002 and
was $3.8 million, or 111% above last September.

M-trons gross margin as a percentage of net sales for the third quarter
of 2003 improved over the same period of 2002 by 12.8 points to 24.4%. M-trons
gross margin of 23.0% for the nine month period ending September 30, 2003
represented a 12.7 point improvement over the 10.3% gross margin achieved in the
first nine months of 2002. The sales improvement in the third quarter and nine
month period ending September 30, 2003 of 45.1% and 28.6% respectively more
than offset the costs incurred in manufacturing the more sophisticated Champion
parts.

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Lynch Systems gross margin as a percentage of net sales for the third
quarter of 2003 of 33.8% was equal to the same period of 2002. Lynch Systems
gross margin of 27.0 points for the nine month period ending September, 2003 was
12.0 points below the first nine months 2002 gross margin of 39.0% due to 37.5% less
volume in the first nine months of 2003.

Operating (Profit) Loss

Operating profit for the third quarter 2003 was $68,000 compared to the
third quarter 2002 operating profit of $18.2 million, representing an
unfavorable variance of $18.1 million. Excluding the $19.4 million gain on
deconsolidation of Spinnaker that was included in third quarter 2002 income,
third quarter 2003 operating income was favorable to 2002 by $1.3 million on
$2.7 million additional volume.

Nine months 2003 operating loss of $1.3 million was $18.9 million
unfavorable to nine month 2002 operating profit of $17.6 million due to $2.5
million less revenue and the inclusion of a $19.4 million gain on
deconsolidation of Spinnaker in the 2002 results.

For the third quarter of 2003, M-tron had an operating profit of $57,000,
an improvement of $581,000 over the $524,000 million loss in the third quarter
of 2002. M-trons nine month 2003 operating loss of $172,000 represented a
major improvement of $1,851,000 when compared to M-trons $2,023,000 operating
loss in the nine month period ending September 30, 2002. The third quarter and
year-to-date improvements were due mainly to the additional sales mentioned
above and better product mix.

For the 2003 third quarter, Lynch Systems had an operating profit of
$366,000 compared to an operating loss of $303,000 in the third quarter of
2002. Lynch Systems first nine months 2003 operating profit of $29,000 was
$1,248,000 unfavorable to the nine month 2002 operating profit of $1,277,000.
Although Lynch Systems third quarter and nine months 2003 operating costs were
reduced by $0.2 million and $1.7 million respectively from 2002, the company
could not compensate for the volume decline in a cyclical marketplace.

Lynchs corporate headquarters incurred unallocated expenses of $356,000
in the third quarter of 2003, bringing the nine months 2003 headquarters
expense to $1,108,000. The third quarter and nine month 2003 headquarters
expenses were respectively $41,000 less than and $57,000 more than the prior
year.

Other Income (Expense), Net

Third quarter and nine month 2003 investment income were $328,000 and
$433,000 respectively more than last year due to realized gains of $349,000 on
the sale of marketable securities in the third quarter of 2003 and $483,000 for
nine month period ending September 30, 2003.

Third quarter interest expense of $63,000 exceeded 2002 by $15,000 due to
margin account interest and higher average borrowing to finance the Champion
acquisition.

Interest expense of $225,000 for the first nine months of 2003 was $85,000
higher than the $92,000 incurred in the first nine months of 2002 due to Letter
of Credit fees, margin account interest, and higher average borrowing to fund
losses and to finance the Champion acquisition.

Third quarter 2003 other income of $754,000 included $728,000 that was
realized upon the release of a customer related contingency resulting from the
final settlement reached during the third quarter. This June 30, 1998
contingency in the original amount of $2.4 million was a consequence of a
custom glass press order that was cancelled by the customer.

Nine month other income of $763,000 included the $728,000 negotiated
settlement mentioned above. Nine month 2002 other expense of $63,000 was the
result of a loss on equipment disposals.

Tax Benefit (Provision)

The income tax includes federal, as well as state, local, and foreign
taxes. The third quarter 2003 net tax provision of $336,000 is mainly the
result of investment and other income. The nine months 2003 net tax benefit
of $56,000 is the result of losses incurred which are expected to be realized
in the fourth quarter. Should fourth quarter 2003 income fail to materialize, it may be necessary for the Company to
reverse all or part of the $56,000 tax benefit recorded through September 2003.

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quarter 2003 income fail to materialize, it may be necessary for the Company to
reverse all or part of the $56,000 tax benefit recorded through September 2003.

The third quarter 2002 and nine month 2003 tax benefit of $1,150,000 and
$1,372,000 respectively included $860,400 for the capital loss carry-back on
the Companys investment in Spinnaker Industries. The 2002 effective tax rate
differed from the statutory tax rate primarily due to the tax benefit related
to the Spinnaker investment.

Net Income (Loss)

Net income for the third quarter of 2003 was $0.8 million compared to net
income of $19.3 million in the quarter ending September 30, 2002. Nine month
2003 net loss of $0.1 million was unfavorable to the $18.9 million net income
in the first nine months of 2002 by $18.8 million. The unfavorable profit
variance of $18.5 million in the third quarter is primarily the result of the
$1.1 million increase in gross profit caused by more volume and the $0.1
million reduction in selling and administration expenses, being more than
offset by the $20.3 million gain on deconsolidation in third quarter of 2002.
As a result, fully diluted third quarter 2003 income per share was $0.52
compared to $12.86 per share in the third quarter 2002.

Nine month 2003 fully diluted loss per share of $0.09 was $12.68 per share
worse than the $12.59 per share income in the first nine months of 2002 due
mainly to the gain on the deconsolidation of Spinnaker in the amount of $20.3
million in 2002 and lower sales of $2.5 million and the resultant $1.3 million
reduction in 2003 gross profit that could not be offset by the $1.9 reduction
in selling and administration expenses.

Backlog/New Orders

Total backlog of manufactured products at September 30, 2003 was $9.5
million, a $3.2 million improvement over the backlog at December 31, 2002, and
$4.3 million more than the backlog at September 30, 2002.

M-trons backlog improved by $0.5 million since last September as a result
of M-trons successfully integrating the Champion products with M-trons
pre-existing products and expanding its production capacity and product line
offering. This has enabled M-tron to sign preferred supplier agreements with
two of the leading, worldwide manufacturers of telecommunications systems and
strengthened its relationship with a third customer.

Lynch Systems backlog has improved by $3.2 million since December 31,2002
as a result of three significant orders for glass press machines. First nine
months 2003 bookings of $12.0 million exceeded nine month 2002 orders by $7.6
million; Lynch Systems continues to submit a large number of quotes,
predominantly to tableware manufacturers.

Financial Condition

At September 30, 2003, the Company has current assets of $19.8 million and
current liabilities of $13.2 million. Working capital was therefore $6.6
million as compared to $8.0 million at December 31, 2002 and $9.6 million at
September 30, 2002. The ratio of current assets to current liabilities was
1.50 to 1.00 at September 30, 2003; 1.79 to 1.00 at December 31, 2002; and 1.98
to 1.00 ratio at September 30, 2002. Current liabilities at September 30, 2003
include $0.7 million for a term loan that matures in September 2004 that was
previously included in long term debt.

Cash used in operating activities was approximately $0.2 million in the
first nine months of 2003 compared to cash provided of approximately $5.6
million in the first nine months of 2002. The year over year unfavorable
change in operating cash flow of $5.8 million was the result of (a) $0.1
million less profit, (b) $1.0 million more cash used in operating assets, and
(c) $4.7 million of restricted cash that was released for use in operations
in the first nine months of 2002.

Cash used in investing activities in
the nine month period ending September 30, 2003 included
$978,000 (purchases of $2,019,000 less sales of $1,041,000) for
marketable securities as opposed to purchases of $305,000 in the same period of 2002. Capital expenditures were $246,000 in first
nine months of 2003 compared to $227,000 in the period ending September 30,
2002.

Total debt of $4.5 million at September 30, 2003 was $0.4 million greater
than the amount outstanding at December 31, 2002 and $1.1 million more than the
debt at September 30, 2002. The year over year increase in debt is primarily
due to increases in M-trons loans to finance operating losses and acquire
Champion in October 2002. Debt outstanding at September 30, 2003 included $1.1 million of fixed rate
debt at an average interest rate of 3.6%, and $3.4 million of variable rate
debt at a September 30, 2003 average interest rate of 4.7%.

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

At September 30, 2003, the Companys total cash, cash equivalents and
investments in marketable securities total $7.9 million (including $1.1 million
of restricted cash). In addition, the Company had a consolidated borrowing
capacity of $5.0 million under M-trons and LSs revolving line of credit.
Therefore, gross cash and securities and availability under the revolving
credit loans total $12.9 million and exceed the combined outstanding debt and
margin liability on securities of $5.5 million by $7.4 million.

On May 30, 2003, Lynch Systems renewed its SunTrust Bank loan with a
maturity date of May 29, 2004. This long-time lender has provided a $7 million
line-of-credit which can be used entirely for stand-by Letters of Credit or up
to $2 million for domestic revolving credit within the credit line. This loan,
as well as the previous loan, includes an unsecured parent company guarantee.
At September 30, 2003, there were outstanding Letters of Credit of $2.1 million
and no borrowings under the working capital line.

On August 4, 2003, Lynch Systems entered into a new term loan agreement
with SunTrust Bank. The new loan is in the amount of $498,000 and is secured
by a lien on Lynch Systems real estate. The new loan has a 10-year term with
interest at 5.5%. Principal payments are $4,150 per month for 120 months
commencing August 2003. The loan proceeds were used to retire the First Port
City loan that was due in its entirety on August 5, 2003 in the amount of
$554,000.

On April 30, 2003, M-trons long-time lending bank, First National Bank of
Omaha, renewed the revolving credit loan that now matures on April 30, 2004.
The renewed loan includes the following conditions:



| | (a) |  | Effective May 20, 2003, the Company subordinates its October
3, 2002, $200,000 loan to M-tron to the bank, bringing the
subordinated total to $700,000;                                                                                                                                                                                                                                        
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | The bank reduces the minimum net worth and subordinated debt
limit from $3.1 million to $2.9 million. In return, the Company has
committed to fund any shortfall with an equity or subordinated debt
cash infusion within 45 days of the quarter end. Since M-trons
subordinated debt and equity total $2,977,000 as of September 30,
2003, no additional cash infusion is currently required.
|
| |     |  | In addition, the Companys outstanding Letter of Credit in the
amount of $1.0 million for the benefit of the bank can be reduced
to $500,000 when M-tron is profitable for 5 of 6 consecutive months
and the cumulative after tax profit equals or exceeds $500,000.
The remaining $500,000 Letter of Credit will be released when the
earning parameters are met for a second time.           

The Company does not at present have credit facilities at the parent
company level. The Company believes that existing cash and cash equivalents,
cash generated from operations and available borrowings under its subsidiaries
lines of credit will be sufficient to meet its on-going working capital and
capital expenditure requirements for the foreseeable future.

Adoption of Accounting Pronouncements

In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Indebtedness of Others.

The Company presently guarantees (unsecured) the SunTrust Bank loans of
its subsidiary, Lynch Systems, and has guaranteed a Letter of Credit issued to
the First National Bank of Omaha on behalf of its subsidiary, M-tron
Industries, Inc. These guarantees are subject to FIN 45s disclosure
requirement only. As of September 30, 2003, there were no parent company obligations to the SunTrust Bank. As of September
30, 2003, the $1,000,000 Letter of Credit issued by Fleet Bank to The First
National Bank of Omaha was secured by a $1,125,000 deposit in a Fleet Bank
Treasury Fixed Income Fund.

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

In July 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 146, Accounting for Costs
Associated with Exit or Disposal Activities (SFAS 146), which addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring). The
provisions of SFAS 146 are effective for exit or disposal activities that are
initiated after December 31, 2002; the Company does not have any exit or
disposal activities underway.

On December 31, 2002, the FASB issued Statement of Financial Accounting
Standards No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosure (SFAS 148), which amends the disclosure provisions of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS
123) and APBN opinion No. 28, Interim Financial Reporting (APB 28). See
Note I to the Consolidated Financial Statements  Earnings Per Share and
Stockholders Equity.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51 (FIN 46). FIN
46 clarifies the application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, to certain entities in which equity
investors do not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other
parties. The Company does not have any variable interest entities.

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 amount of
interest earned on the Companys cash equivalents and short-term investments
(approximately $6.1 million at September 30, 2003). 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
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 September 30, 2003.

At September 30, 2003, approximately $3.4 million of the Companys debt
bears interest at variable rates. Accordingly, the Companys earnings and
cash flows are only 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 2003 average interest rate under these
borrowings, it is estimated that the Companys interest expense would change by
less than $0.1 million.

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, and disruption of foreign economies.

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

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

Forward Looking Information

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

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

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




Item 3. Quantitative and Qualitative Disclosure About Market Risk

See Market Risk under Item 2 above.




Item 4. Controls and Procedures

The Chief Executive Officer and Chief Financial Officer have concluded
that the Companys disclosure controls and procedures were effective as of the
end of the period covered by this report based on the evaluation of these
controls and procedures required by Exchange Act Rule 13a-15.

There have been no changes in the Registrants internal control over
financial reporting that occurred during the Registrants last fiscal quarter
that has materially affected, or is reasonably likely to materially affect, the
Registrants internal control over financial reporting.

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PART II. OTHER INFORMATION




Item 1. Legal Proceedings



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

On or about June 26, 2001, in anticipation of the July 15, 2001 closure of
Spinnakers Westbrook, Maine facility, Plaintiff PACE Local 1-1069 (PACE)
filed a three count complaint in Cumberland County Superior Court,
CV-2001-00352 naming the following defendants: Spinnaker Industries, Inc.,
Spinnaker Coating, Inc., and Spinnaker Coating-Maine, Inc. (collectively, the
Spinnaker Entities) and Lynch. The complaint alleged that under Maines
Severance Pay Act both the Spinnaker Entities and Lynch would be liable to pay
approximately $1,166,000 severance pay under Maines Severance Pay Act in
connection with the plant closure. The Defendants filed a notice of removal,
thereby creating United States District Court Civil Action case was remanded
to state court. The Spinnaker Entities also filed a separate complaint
challenging the constitutionality of the Maine Severance Pay Act, United States
District Court Civil Action No. 01-232 which later was dismissed by stipulation
of the Spinnaker Entities. PACE also filed three separate Motions for Ex-Parte
Attachment against the Spinnaker Entities and Lynch. PACE filed the First
Motion for Attachment with its original Complaint. PACE sought to attach
$1,166,483.44, an amount large enough to cover the claims of all PACEs members
seeking severance. The Court denied that Motion as being premature. PACE then
filed a Second Motion against the Spinnaker Entities and Lynch for an
attachment large enough to cover the claims of eight individual employees
seeking severance pay in the amount of $120,736.27. On August 20, 2001, the
Court granted that Motion in the amount of $118,500. On April 4, 2002, PACE
subsequently recorded this attachment through UCC-1 filings with the Maine
Secretary of State against Lynch Manufacturing and Lynch Corporation. PACE
filed a Third Motion for Ex-Parte Attachment on August 29, 2001. This Motion
sought an attachment large enough to cover the severance pay claimed by the
remaining PACE members, $1,048,003. The Court denied this Motion but permitted
PACE the opportunity to obtain an attachment after all defendants had an
opportunity to respond and after hearing.

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

On September 30, 2002, PACE requested a ruling from the Superior Court on
its Third Motion for Attachment. On October 21, 2002, Lynch filed a Motion for
Summary Judgment which incorporated its prior objection to any attachment. PACE
filed an Opposition to Lynchs Motion for Summary Judgment,which included a
request for summary judgment in its favor, and a Motion for Leave to Further
Amend the Complaint on November 12, 2002. Lynch thereafter filed a Reply
Memorandum in Support of its Motion for Summary Judgment on November 26, 2002
and an opposition to PACEs Motion for Leave to Further Amend the Complaint on
December 3, 2002. On December 31, 2002, the Superior Court held a hearing on
all pending Motions. The Superior Court requested that arguments focus on
Lynchs Motion for Summary Judgment since the granting of that Motion would
render PACEs Third Motion for Attachment and Motion to Further Amend the
Complaint moot.

On July 28, 2003, the Superior Court issued an Order deciding both Lynchs
and PACEs Motions for Summary Judgment. The Court denied Lynchs Motion for
Summary Judgment, finding that there remained a disputed issue of material fact
regarding one of Lynchs primary defenses. The Court granted partial summary
judgment in favor of PACE to the extent that the Court found Lynch was an
employer subject to potential liability under Maines Severance Pay Act. The
Court held, however, that PACE must still prove its entitlement to severance
pay under the Act. In a separate ruling also issued on July 28, 2003, the
Court denied PACEs Third Motion for Attachment.

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

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The Company does not believe that it has any other contingent liabilities
related to Spinnaker.

2. Qui Tam Lawsuit

Lynch Corporation, Lynch Interactive Corporation (Interactive), and
several other parties have been named as defendants in a lawsuit brought under
the so-called qui tam provisions of the federal False Claims Act in the
United States District Court for the District of Columbia. The complaint was
filed under seal with the court on February 14, 2001, and the seal was lifted
on January 11, 2002. The Company was formally served with the complaint on
July 9, 2002. The main allegation in the case is that the defendants
participated in the creation of sham bidding entities that allegedly
defrauded the federal Treasury by improperly participating in Federal
Communications Commission spectrum auctions restricted to small businesses, as
well as obtaining bidding credits in other spectrum auctions allocated to
small and very small businesses. The lawsuit seeks to recover an
unspecified amount of damages, which would be subject to mandatory trebling
under the statute. On September 19, 2002, Interactive, on behalf of itself and
Lynch, filed two Motions with the court: a Motion to Transfer the Action to the
Southern District of New York and a Motion to Dismiss the Lawsuit. The relator
filed an opposition reply to Interactives Motion to Dismiss and, on December
5, 2002, Interactive filed a Reply in Support of Its Motion to Dismiss. On
September 30, 2003, the Court granted Interactives Motion to Transfer the
Action to the Southern District of New York.

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

3. Spinnaker Chapter 11 Reorganization Proceeding

The Spinnaker Chapter 11 reorganization and joint plan of liquidation are
not reported herein because, on September 23, 2002, Lynch disposed of its
entire remaining interest in Spinnaker and no longer has any economic interest
in or affiliation with Spinnaker.




Item 6. Exhibits and
Reports on Form 8-K

|    |  |                          |  |                                                                                                                                                                                                                                                                
|--- |  | ------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) |  | Exhibits filed herewith:
|   
|    |  | 31                       |  | Certifications of Registrants principal
executive and principal financial officers required by
Exchange Act Rule 13a-14(a).                                                                                                                                   
|    |  |                          |  |                                                                                                                                                                                                                                                                
|    |  | 32                       |  | Section 1350 Certifications of Registrants
principal executive and principal financial officers required
by Exchange Act Rule 13a-14(b).                                                                                                                      
|    |  |                          |  |                                                                                                                                                                                                                                                                
|(b) |  | Reports on Form 8-K:    
|   
|    |  | 1.                       |  | Registrants press release announcing its results
of operations for the second quarter and six months ending
June 30, 2003, together with an Amended and Restated Code of
Ethics for Senior Executive Personnel, were filed with a Form
8-K on August 14, 2003.

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SIGNATURES

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

|                  |  |  |  |                                          
|----------------- |  |  |  | -----------------------------------------
|                  |  |  |  | LYNCH CORPORATION
(Registrant)           
|                  |  |  |  |                                          
|                  |  |  |  | By:                                      
|                  |  |  |  |                                          
|November 11, 2003 |  |  |  | /s/ RAYMOND H. KELLER                    
|                  |  |  |  |                                          
|                  |  |  |  | Raymond H. Keller
Chief Financial Officer

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EXHIBIT INDEX

|            |  |                                                                                                                                             
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
No. |  | Description                                                                                                                                 
|            |  |                                                                                                                                             
|           
|31          |  | Certifications of Registrants principal executive and principal financial officers
required by Exchange Act Rule 13a-14(a).              
|            |  |                                                                                                                                             
|32          |  | Section 1350 Certifications of Registrants principal executive and principal
financial officers required by Exchange Act Rule 13a-14(b). 

     Filed herewith.

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

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