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SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended
September 30, 2002

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                                                        |  | 38-1799862                         
|                                                               |  |                                    
|(State or other jurisdiction of
incorporation or organization) |  | I.R.S. Employer
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 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, 2002
|                              |  |                                
|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                             
|PART II. OTHER INFORMATION             
|                                        | Item 1. Legal Proceedings                                                                     
|                                        | Item 6. Exhibits and Reports on Form 8-K                                                      
|SIGNATURES                             
|OFFICER'S CERTIFICATION PURSUANT TO 906



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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, 2002                                                                 
|           |  | - December 31, 2001                                                                  
|           |  |                                                                                      
|           |  | Condensed Consolidated Statements of Operations:                                     
|           |  | - Three months ended September 30, 2002 and 2001                                     
|           |  | - Nine months ended September 30, 2002 and 2001                                      
|           |  |                                                                                      
|           |  | Condensed Consolidated Statements of Cash Flows:                                     
|           |  | - Nine months ended September 30, 2002 and 2001                                      
|           |  |                                                                                      
|           |  | 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                            
|           |  |                                                                                      
|PART II    |  | OTHER INFORMATION                                                                    
|           |  |                                                                                      
|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
(In thousands except share amounts)


|                                       |                                                                                                                    |                                                             |        |               |         |              |        |         |         |  
|-------------------------------------- | ------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------- | ------ | ------------- | ------- | ------------ | ------ | ------- | ------- | -
|                                       |                                                                                                                    |                                                             |        | September 30, |         | December 31,
|                                       |                                                                                                                    |                                                             |        | 2002          |         | 2001        
|                                       |                                                                                                                    |                                                             |        | (unaudited)   |         | (A)         
|                                       |                                                                                                                    |                                                             |        |               |         |             
|ASSETS                                 |                                                                                                                    |                                                             |        |               |         |              |        |        
|CURRENT ASSETS                         |                                                                                                                    |                                                             |        |               |         |              |        |        
|                                       |                                                                                                                    | Cash and cash equivalents                                   |        | $             | 8,360   |              |        | $       | 4,247   |  
|                                       |                                                                                                                    | Restricted cash                                             |        |               | 1,125   |              |        |         | 4,703   |  
|                                       |                                                                                                                    | Investments-marketable securities                           |        |               | 667     |              |        |         |        |  
|                                       |                                                                                                                    | Trade accounts receivables, less allowances of $91 and $118 |        |               | 3,064   |              |        |         | 9,818   |  
|                                       |                                                                                                                    | Inventories                                                 |        |               | 4,932   |              |        |         | 5,260   |  
|                                       |                                                                                                                    | Deferred income taxes                                       |        |               | 988     |              |        |         | 988     |  
|                                       |                                                                                                                    | Prepaid expense                                             |        |               | 410     |              |        |         | 606     |  
|                                       |                                                                                                                    |                                                             |        |               |         |              |        |        
|                                       |                                                                                                                    | TOTAL CURRENT ASSETS                                        |        |               | 19,546  |              |        |         | 25,622  |  
|PROPERTY, PLANT AND EQUIPMENT          |                                                                                                                    |                                                             |        |               |         |              |        |        
|                                       |                                                                                                                    | Land                                                        |        |               | 291     |              |        |         | 291     |  
|                                       |                                                                                                                    | Buildings and improvements                                  |        |               | 4,197   |              |        |         | 4,158   |  
|                                       |                                                                                                                    | Machinery and equipment                                     |        |               | 11,716  |              |        |         | 11,949  |  
|                                       |                                                                                                                    |                                                             |        |               |         |              |        |        
|                                       |                                                                                                                    |                                                             | 16,204 |               |         |              | 16,398 |        
|                                       |                                                                                                                    | Less: accumulated depreciation                              |        |               | (11,346 | )            |        |         | (10,942 | )
|                                       |                                                                                                                    |                                                             |        |               |         |              |        |        
|                                       |                                                                                                                    |                                                             | 4,858  |               |         |              | 5,456  |        
|                                       |                                                                                                                    |                                                             |        |               |         |              |        |        
|OTHER ASSETS                           |                                                                                                                    |                                                             | 474    |               |         |              | 537    |        
|                                       |                                                                                                                    |                                                             |        |               |         |              |        |        
|                                       | TOTAL ASSETS                                                                                                       |                                                             | $      | 24,878        |         |              | $      | 31,615  |        
|                                       |                                                                                                                    |                                                             |        |               |         |              |        |        
|LIABILITIES AND SHAREHOLDERS DEFICIT  |                                                                                                                    |                                                             |        |               |         |              |        |        
|CURRENT LIABILITIES:                   |                                                                                                                    |                                                             |        |               |         |              |        |        
|                                       |                                                                                                                    | Notes payable to banks                                      |        | $             | 1,789   |              |        | $       | 1,086   |  
|                                       |                                                                                                                    | Trade accounts payable                                      |        |               | 583     |              |        |         | 1,717   |  
|                                       |                                                                                                                    | Accrued liabilities (Note M)                                |        |               | 6,131   |              |        |         | 5,966   |  
|                                       |                                                                                                                    | Customer advances                                           |        |               | 1,210   |              |        |         | 6,781   |  
|                                       |                                                                                                                    | Current maturities of long-term debt                        |        |               | 177     |              |        |         | 521     |  
|                                       |                                                                                                                    |                                                             |        |               |         |              |        |        
|                                       |                                                                                                                    | TOTAL CURRENT LIABILITIES                                   |        |               | 9,890   |              |        |         | 16,071  |  
|                                       |                                                                                                                    |                                                             |        |               |         |              |        |        
|LONG TERM DEBT                         |                                                                                                                    |                                                             | 1,461  |               |         |              | 1,678  |        
|DEFERRED INCOME TAXES                  |                                                                                                                    |                                                             | 578    |               |         |              | 578    |        
|OTHER LONG TERM LIABILITIES            |                                                                                                                    |                                                             | 1,305  |               |         |              | 1,319  |        
|                                       |                                                                                                                    |                                                             |        |               |         |              |        |        
|                                       |                                                                                                                    | TOTAL LIABILITIES                                           |        |               | 13,234  |              |        |         | 19,646  |  
|                                       |                                                                                                                    |                                                             |        |               |         |              |        |        
|LOSS IN EXCESS OF INVESTMENT (Note B)  |                                                                                                                    |                                                             |       |               |         |              | 19,420 |        
|                                       |                                                                                                                    |                                                             |        |               |         |              |        |        
|COMMITMENTS AND CONTINGENCIES (Note L) |                                                                                                                    |                                                             |        |               |         |              |        |        
|                                       |                                                                                                                    |                                                             |        |               |         |              |        |        
|SHAREHOLDERS EQUITY (DEFICIT)         |                                                                                                                    |                                                             |        |               |         |              |        |        
|                                       | COMMON
STOCK PAR $00.01 VALUE  10,000,000 SHARES
AUTHORIZED 1,513,191 SHARES ISSUED; 1,497,883 SHARES OUTSTANDING |                                                             |        | 15            |         |              |        | 15      |        
|                                       | ADDITIONAL PAID-IN CAPITAL                                                                                         |                                                             |        | 15,645        |         |              |        | 15,527  |        
|                                       | ACCUMULATED DEFICIT                                                                                                |                                                             |        | (3,666        | )       |              |        | (22,533 | )      
|                                       | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)                                                                      |                                                             |        | 108           |         |              |        | (2      | )      
|                                       | TREASURY STOCK OF 15,308 SHARES, AT COST                                                                           |                                                             |        | (458          | )       |              |        | (458    | )      
|                                       |                                                                                                                    |                                                             |        |               |         |              |        |        
|                                       | TOTAL SHAREHOLDERS EQUITY (DEFICIT)                                                                               |                                                             |        | 11,644        |         |              |        | (7,451  | )      
|                                       |                                                                                                                    |                                                             |        |               |         |              |        |        
|                                       | TOTAL LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)                                                               |                                                             | $      | 24,878        |         |              | $      | 31,615  |        
|                                       |                                                                                                                    |                                                             |        |               |         |              |        |        

| | (A) |  | The Balance Sheet at December 31, 2001 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

Effective September 30, 2001, the Companys ownership and voting interest
of Spinnaker Industries, Inc. was reduced to 41.8% and 49.5%, respectively, due
to the disposition of shares of Spinnaker. As a result, effective September 30,
2001, the Company relinquished control of Spinnaker and has deconsolidated
Spinnaker. On September 23, 2002, the Company disposed of its remaining
interest in Spinnaker. See Note B.

3



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##### Table of Contents



PART I  FINANCIAL INFORMATION
Item 1  Financial Statements

LYNCH CORPORATION AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except share amounts)


|                                                         |                                                        |   |                    |        |                   |   |           |        |      |   |           |        |   |   |           |         |  
|-------------------------------------------------------- | ------------------------------------------------------ | - | ------------------ | ------ | ----------------- | - | --------- | ------ | ---- | - | --------- | ------ | - | - | --------- | ------- | -
|                                                         |                                                        |   | Three Months Ended |        | Nine Months Ended
|                                                         |                                                        |   | September 30       |        | September 30     
|                                                         |                                                        |   |                    |        |                  
|                                                         |                                                        |   | 2002               |        | 2001              |   | 2002      |        | 2001
|                                                         |                                                        |   |                    |        |                   |   |           |        |     
|SALES AND REVENUES                                       |                                                        | $ | 5,040              |        |                   | $ | 31,982    |        |      | $ | 21,734    |        |   | $ | 130,883   |        
|                                                         |                                                        |   |                    |        |                   |   |           |        |      |   |           |        |   |   |           |        
|Costs and expenses:                                      |                                                        |   |                    |        |                   |   |           |        |      |   |           |        |   |   |           |        
|                                                         | Manufacturing cost of sales                            |   |                    | 3,962  |                   |   |           | 29,321 |      |   |           | 15,687 |   |   |           | 122,535 |  
|                                                         | Selling and administrative                             |   |                    | 2,302  |                   |   |           | 5,477  |      |   |           | 7,864  |   |   |           | 16,066  |  
|                                                         | Asset impairment and restructuring charges  Spinnaker |   |                    |       |                   |   |           | 211    |      |   |           |       |   |   |           | 38,272  |  
|                                                         | Gain on deconsolidation (Note B)                       |   |                    | 19,420 |                   |   |           | 27,406 |      |   |           | 19,420 |   |   |           | 27,406  |  
|                                                         |                                                        |   |                    |        |                   |   |           |        |      |   |           |        |   |   |           |        
|                                                         |                                                        |   |                    |        |                   |   |           |        |      |   |           |        |   |   |           |        
|OPERATING PROFIT (LOSS)                                  |                                                        |   | 18,196             |        |                   |   | 24,379    |        |      |   | 17,603    |        |   |   | (18,584   | )      
|                                                         |                                                        |   |                    |        |                   |   |           |        |      |   |           |        |   |   |           |        
|Other income (expense):                                  |                                                        |   |                    |        |                   |   |           |        |      |   |           |        |   |   |           |        
|                                                         | Investment Income                                      |   |                    | 32     |                   |   |           | 194    |      |   |           | 95     |   |   |           | 591     |  
|                                                         | Interest Expense                                       |   |                    | (48    | )                 |   |           | (2,353 | )    |   |           | (140   | ) |   |           | (7,590  | )
|                                                         | Other Expense                                          |   |                    | (63    | )                 |   |           | (111   | )    |   |           | (63    | ) |   |           | (191    | )
|                                                         |                                                        |   |                    |        |                   |   |           |        |      |   |           |        |   |   |           |        
|                                                         |                                                        |   | (79                | )      |                   |   | (2,270    | )      |      |   | (108      | )      |   |   | (7,190    | )      
|                                                         |                                                        |   |                    |        |                   |   |           |        |      |   |           |        |   |   |           |        
|                                                         |                                                        |   |                    |        |                   |   |           |        |      |   |           |        |   |   |           |        
|INCOME (LOSS) BEFORE INCOME TAXES AND
MINORITY INTERESTS |                                                        |   | 18,117             |        |                   |   | 22,109    |        |      |   | 17,495    |        |   |   | (25,774   | )      
|                                                         |                                                        |   |                    |        |                   |   |           |        |      |   |           |        |   |   |           |        
|Benefit from income taxes (Note N)                       |                                                        |   | 1,150              |        |                   |   | 950       |        |      |   | 1,372     |        |   |   | 82        |        
|Minority interests                                       |                                                        |   |                   |        |                   |   | 23        |        |      |   |          |        |   |   | 4,031     |        
|                                                         |                                                        |   |                    |        |                   |   |           |        |      |   |           |        |   |   |           |        
|                                                         |                                                        |   |                    |        |                   |   |           |        |      |   |           |        |   |   |           |        
|NET INCOME (LOSS)                                        |                                                        | $ | 19,267             |        |                   | $ | 23,082    |        |      | $ | 18,867    |        |   | $ | (21,661   | )      
|                                                         |                                                        |   |                    |        |                   |   |           |        |      |   |           |        |   |   |           |        
|                                                         |                                                        |   |                    |        |                   |   |           |        |      |   |           |        |   |   |           |        
|Weighted average shares outstanding                      |                                                        |   | 1,497,900          |        |                   |   | 1,503,100 |        |      |   | 1,497,900 |        |   |   | 1,507,800 |        
|                                                         |                                                        |   |                    |        |                   |   |           |        |      |   |           |        |   |   |           |        
|BASIC AND DILUTED INCOME (LOSS) PER SHARE                |                                                        | $ | 12.86              |        |                   | $ | 15.36     |        |      | $ | 12.59     |        |   | $ | (14.36    | )      

See accompanying notes



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

4



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##### Table of Contents



PART I  FINANCIAL INFORMATION
ITEM 1  Financial Statements

LYNCH CORPORATION AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS


(In Thousands)


|                                                                                          |                                          |   |                   |        |      |   |         |         |  
|----------------------------------------------------------------------------------------- | ---------------------------------------- | - | ----------------- | ------ | ---- | - | ------- | ------- | -
|                                                                                          |                                          |   | Nine Months Ended
|                                                                                          |                                          |   | September 30,    
|                                                                                          |                                          |   |                  
|                                                                                          |                                          |   | 2002              |        | 2001
|                                                                                          |                                          |   |                   |        |     
|OPERATING ACTIVITIES                                                                      |                                          |   |                   |        |      |   |         |        
|Net income (loss)                                                                         |                                          | $ | 18,867            |        |      | $ | (21,661 | )      
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |                                          |   |                   |        |      |   |         |        
|Gain on deconsolidation                                                                   |                                          |   | (19,420           | )      |      |   | (27,406 | )      
|Loss on donation of shares                                                                |                                          |   |                  |        |      |   | 366     |        
|Asset impairment and restructuring charges                                                |                                          |   |                  |        |      |   | 38,272  |        
|Depreciation                                                                              |                                          |   | 779               |        |      |   | 4,013   |        
|Amortization of goodwill and other assets                                                 |                                          |   | 153               |        |      |   | 228     |        
|Amortization of deferred financing charges                                                |                                          |   |                  |        |      |   | 703     |        
|Deferred taxes                                                                            |                                          |   |                  |        |      |   | 516     |        
|Minority interests                                                                        |                                          |   |                  |        |      |   | (4,031  | )      
|Other                                                                                     |                                          |   |                  |        |      |   | 761     |        
|Changes in operating assets and liabilities:                                              |                                          |   |                   |        |      |   |         |        
|                                                                                          | Receivables                              |   |                   | 6,754  |      |   |         | 15,230  |  
|                                                                                          | Inventories                              |   |                   | 328    |      |   |         | 11,867  |  
|                                                                                          | Accounts payable and accrued liabilities |   |                   | (6,778 | )    |   |         | (15,202 | )
|                                                                                          | Other Assets/Liabilities                 |   |                   | 196    |      |   |         | (205    | )
|                                                                                          |                                          |   |                   |        |      |   |         |        
|Net cash provided by operating activities of continuing operations                        |                                          |   | 879               |        |      |   | 3,451   |        
|                                                                                          |                                          |   |                   |        |      |   |         |        
|INVESTING ACTIVITIES                                                                      |                                          |   |                   |        |      |   |         |        
|Acquisition of minority interest                                                          |                                          |   | (220              | )      |      |   |        |        
|Capital expenditures                                                                      |                                          |   | (227              | )      |      |   | (1,077  | )      
|Equipment disposals                                                                       |                                          |   | 46                |        |      |   |        |        
|Restricted cash                                                                           |                                          |   | 3,578             |        |      |   | 6,500   |        
|Reduction in cash due to deconsolidation                                                  |                                          |   |                  |        |      |   | (5,728  | )      
|Purchases of available-for-sale securities                                                |                                          |   | (305              | )      |      |   |        |        
|                                                                                          |                                          |   |                   |        |      |   |         |        
|Net cash provided by (used in) investing activities of continuing operations              |                                          |   | 2,872             |        |      |   | (305    | )      
|                                                                                          |                                          |   |                   |        |      |   |         |        
|FINANCING ACTIVITIES                                                                      |                                          |   |                   |        |      |   |         |        
|Net borrowings (repayments) of notes payable                                              |                                          |   | 703               |        |      |   | (6,627  | )      
|Repayment of long-term debt                                                               |                                          |   | (341              | )      |      |   | (370    | )      
|Proceeds of long-term debt                                                                |                                          |   |                  |        |      |   | 929     |        
|                                                                                          |                                          |   |                   |        |      |   |         |        
|Net cash provided by (used in) financing activities of continuing operations              |                                          |   | 362               |        |      |   | (6,068  | )      
|                                                                                          |                                          |   |                   |        |      |   |         |        
|Net increase (decrease) in cash and cash equivalents                                      |                                          |   | 4,113             |        |      |   | (2,922  | )      
|Cash and cash equivalents at beginning of period                                          |                                          |   | 4,247             |        |      |   | 10,543  |        
|                                                                                          |                                          |   |                   |        |      |   |         |        
|Cash and cash equivalents at end of period                                                |                                          | $ | 8,360             |        |      | $ | 7,621   |        
|                                                                                          |                                          |   |                   |        |      |   |         |        

See accompanying notes

Effective September 30, 2001, the Companys ownership and voting interest
of Spinnaker Industries, Inc. was reduced to 41.8% and 49.5%, respectively, due
to the disposition of shares of Spinnaker. As a result, effective September 30,
2001, the Company relinquished control of Spinnaker and has deconsolidated
Spinnaker. On September 23, 2002, the Company disposed of its remaining
interest in Spinnaker. See Note B.

5



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##### Table of Contents






NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A.  Subsidiaries of the
Registrant

As of September 30, 2002, the Subsidiaries of the Registrant are as follows:

|                                                                                                                                                             |  |                |                                           | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------- | ----------------------------------------- | 
|                                                                                                                                                             |  | Owned By Lynch
|                                                                                                                                                             |  |               
|Lynch Display Technologies,
Inc.

Lynch Systems, Inc.
Lynch International Holding Corporation
Lynch-AMAV LLC
M-tron Industries, Inc.
M-tron Industries, Ltd. |  |                | 100.0%
100.0%
100.0%
100.0%
100.0%
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, 2002 are not necessarily indicative
of the results that may be expected for the year ended December 31, 2002.

The balance sheet at December 31, 2001 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.

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, 2001.

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

Effective September 30, 2001, the Company donated 430,000 shares of
Spinnaker Class A common stock to a university on whose board several of the
Companys executives serve as Trustees, thereby relinquishing control of such
securities. This resulted in the reduction of the Companys ownership and
voting interests in Spinnaker to 41.8% and 49.5%, respectively. As a result,
effective September 30, 2001, the Company deconsolidated Spinnaker and
prospectively accounts for its ownership of Spinnaker using the equity method
of accounting.

Accordingly, the Companys nine month 2002 results of operations do not
include the operating results of Spinnaker and the balance sheet at September
30, 2002 and December 31, 2001 does not contain the assets and liabilities of
Spinnaker. The deconsolidation had resulted in a non-cash gain of $27,406,000
being recorded on September 30, 2001 to reduce the Companys negative
investment in Spinnaker to $19,420,000, which represented the Companys
interest in Spinnakers accumulated deficit at the date of deconsolidation.
This remaining interest that represented losses in excess of investment was
recorded as a deferred credit on the Companys balance sheet.

Lynch determined that the Spinnaker shares were worthless as a result of
Spinnakers on-going reorganization under Chapter 11 of the bankruptcy code.
Therefore, on September 23, 2002, Lynch transferred all of its remaining
shareholdings in Spinnaker Industries, Inc. to a New York brokerage firm for
$1.00 consideration. As a result of this transfer of shares, the $19,420,000
loss in excess of investment was recognized in the income statement as a
non-cash operating income item.

Note that certain reclassifications have been made to the September 30,
2001 and December 31, 2001 financial statements to conform with the current
year presentation.

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C.  Adoption of
Accounting Pronouncements

The Company does not have any indefinite-lived intangible assets;
accordingly, the adoption of FAS 142 had no material impact during the three
and nine-month periods ended September 30, 2002.

D.  Investments

The following is a summary of available for-sale securities held by the
Company (in thousands):

|                              |  |      |     |       |  |            |     |            |  |           |   |  |  |   |     | 
|----------------------------- |  | ---- | --- | ----- |  | ---------- | --- | ---------- |  | --------- | - |  |  | - | --- | 
|                              |  |      |     |       |  | Gross      |     | Gross      |  | Estimated
|                              |  |      |     |       |  | Unrealized |     | Unrealized |  | Fair     
|September 30,
2002            |  | Cost |     | Gains |  | Losses     |     | Value     
|Equity Securities             |  | $    | 557 |       |  | $          | 110 |            |  |           |  |  |  | $ | 667 | 
|                              |  |      |     |       |  |            |     |            |  |           |   |  |  |   |     | 
|Total included in Investments |  |      |     |       |  |            |     |            |  |           |   |  |  | $ | 667 | 
|                              |  |      |     |       |  |            |     |            |  |           |   |  |  |   |     | 

E.  Inventories

Inventories are stated at the lower of cost or market value. At September
30, 2002, inventories were valued by two methods: last-in, first-out (LIFO) 
51%, and first-in, first-out (FIFO)  49%. At December 31, 2001, inventories
were valued by the same two methods: LIFO  58%, and FIFO  42%.

|                |                   |   |                |       |              |   |       |       | 
|--------------- | ----------------- | - | -------------- | ----- | ------------ | - | ----- | ----- | 
|                |                   |   | September 30,  |       | December 31,
|                |                   |   | 2002           |       | 2001        
|                |                   |   |                |       |             
|                |                   |   | (In Thousands)
|Raw materials   |                   | $ | 1,103          |       |              | $ | 1,844 |      
|Work in process |                   |   | 2,508          |       |              |   | 2,003 |      
|Finished goods  |                   |   | 1,321          |       |              |   | 1,413 |      
|                |                   |   |                |       |              |   |       |      
|                | Total Inventories |   | $              | 4,932 |              |   | $     | 5,260 | 
|                |                   |   |                |       |              |   |       |      

Current costs exceed LIFO value of inventories by $1,045,000 and $991,000
respectively at September 30, 2002 and December 31, 2001.

F.  Indebtedness

Lynch Systems, Inc. and M-tron Industries, Inc. maintain their own credit
facilities. Lynch Systems facility is backed by an unsecured parent company
guarantee. M-trons revolving credit agreement was renewed on August 31, 2002
with an April 30, 2003 maturity date. M-trons facility is backed by a $1
million Letter of Credit issued by Fleet Bank to First National Bank of Omaha
that is secured by the Companys $1.1 million deposit in a Fleet Treasury Fixed
Income Fund and a parent cash infusion of $500,000.

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,
|                                                                                                       |  | 2002          |       | 2001        
|                                                                                                       |  |               |       |             
|Notes payable:                                                                                         |  |               |       |              |  |   |       |  
|M-tron bank revolving loan at variable interest rates (5.0% at September 30,
2002), due April 30, 2003 |  | $             | 1,789 |              |  | $ | 1,086 |  
|                                                                                                       |  |               |       |              |  |   |       |  
|Long-term debt:                                                                                        |  |               |       |              |  |   |       |  
|M-tron term loan at variable interest rates (5.0% at September 30, 2002), due
September, 2004          |  | $             | 1,055 |              |  | $ | 1,259 |  
|Lynch Systems term loan at a fixed interest rate of 8.0%, due August 2003                              |  |               | 583   |              |  |   | 607   |  
|Other debt at a fixed rate of 8.0%                                                                     |  |               |      |              |  |   | 333   |  
|                                                                                                       |  |               |       |              |  |   |       |  
|                                                                                                       |  |               | 1,638 |              |  |   | 2,199 |  
|Current maturities                                                                                     |  |               | (177  | )            |  |   | (521  | )
|                                                                                                       |  |               |       |              |  |   |       |  
|                                                                                                       |  | $             | 1,461 |              |  | $ | 1,678 |  
|                                                                                                       |  |               |       |              |  |   |       |  

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G.  Earnings Per Share
and Stockholders Equity

The Companys basic and diluted earnings per share are equivalent as the
Company has no dilutive securities at the present time because the options
issued in May 2002 to purchase 228,000 shares of the Companys common stock
were anti-dilutive throughout 2002.

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. 180,000 of these options are fully vested,
with the remaining options vesting quarterly over the next three years.

On May 2, 2002, the stockholders approved an amendment to the Articles of
Incorporation changing the Companys authorized common stock from shares having
no par value into shares having a par value of $0.01. The Companys September
30, 2002 and December 31, 2001 balance sheets have been modified in accordance
with this change.

H.  Other Comprehensive
Income (Loss)

Total comprehensive income was $19,259,000 for the three months ended
September 30, 2002, as opposed to a total comprehensive income of $23,082,000
in the third quarter of 2001.

Total comprehensive income was $18,977,000 in the nine months ended
9/30/02 and a loss of ($21,661,000) at 9/30/01. Other comprehensive income,
which resulted from gains on available for sale securities, was $110,000
through September 30, 2002 including an $8,000 loss in the third quarter.

I.  Segment Information

The Company has two reportable business segments in 2002. The largest
segment is Lynch Systems, a glass manufacturing equipment business. Frequency
control devices (quartz crystals and oscillators) manufactured and sold by
M-tron is the second segment. Spinnaker Coating and Entoleter results are
shown only for the nine month period ending September 30, 2001 pursuant to the
deconsolidation of Spinnaker on September 30, 2001 (see Note B). The
businesses are located domestically.

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

Operating profit (loss) is equal to revenues less operating expenses,
unallocated general corporate expenses, gains on the disposition of Spinnaker,
and restructuring charges. The Company allocates a portion of its general
corporate expenses to its operation segments. Such allocation was $50,000 and
$75,000 in the third quarter of 2002 and 2001, and $150,000 and $225,000
respectively in the nine months of 2002 and 2001. Identifiable assets of each
industry segment are the assets used by the segment in its operations excluding
general corporate assets. General corporate assets are principally cash and
cash equivalents, short-term investments and certain other investments and
receivables.

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I.  Segment Information
(continued)

|                                    |                                      |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |         |  
|----------------------------------- | ------------------------------------ |  | ------------------ | ------ | ----------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------- | -
|                                    |                                      |  | Three Months Ended |        | Nine Months Ended
|                                    |                                      |  | September 30,      |        | September 30,    
|                                    |                                      |  |                    |        |                  
|                                    |                                      |  | 2002               |        | 2001              |  | 2002 |        | 2001
|                                    |                                      |  |                    |        |                   |  |      |        |     
|                                    |                                      |  | (In Thousands)     |        | (In Thousands)   
|                                    |                                      |  |                    |        |                  
|Revenues                            |                                      |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        
|                                    | Adhesive-backed label stock          |  | $                  |       |                   |  | $    | 21,403 |      |  | $ |       |   |  | $ | 90,163  |  
|                                    | Glass manufacturing equipment        |  |                    | 2,226  |                   |  |      | 6,353  |      |  |   | 13,275 |   |  |   | 18,647  |  
|                                    | Frequency control devices            |  |                    | 2,814  |                   |  |      | 2,999  |      |  |   | 8,459  |   |  |   | 18,803  |  
|                                    | Industrial process equipment         |  |                    |       |                   |  |      | 1,227  |      |  |   |       |   |  |   | 3,270   |  
|                                    |                                      |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        
|                                    | Consolidated Total                   |  | $                  | 5,040  |                   |  | $    | 31,982 |      |  | $ | 21,734 |   |  | $ | 130,883 |  
|                                    |                                      |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        
|EBITDA (after corporate allocation) |                                      |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        
|                                    | Adhesive-backed label stock          |  | $                  |       |                   |  | $    | (981   | )    |  | $ |       |   |  | $ | (4,755  | )
|                                    | Glass manufacturing equipment        |  |                    | (207   | )                 |  |      | 858    |      |  |   | 1,563  |   |  |   | 3,761   |  
|                                    | Frequency control devices            |  |                    | (357   | )                 |  |      | (794   | )    |  |   | (1,527 | ) |  |   | (461    | )
|                                    | Industrial process equipment         |  |                    |       |                   |  |      | 85     |      |  |   |       |   |  |   | 77      |  
|                                    | Corporate manufacturing expense      |  |                    |       |                   |  |      | (333   | )    |  |   |       |   |  |   | (1,140  | )
|                                    |                                      |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        
|                                    | Total manufacturing                  |  |                    | (564   | )                 |  |      | (1,165 | )    |  |   | 36     |   |  |   | (2,518  | )
|                                    |                                      |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        
|                                    | Corporate expenses, net              |  |                    | (347   | )                 |  |      | (108   | )    |  |   | (921   | ) |  |   | (593    | )
|                                    | Restructuring charge  Spinnaker     |  |                    |       |                   |  |      | (211   | )    |  |   |       |   |  |   | (1,520  | )
|                                    |                                      |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        
|                                    | Consolidated Total                   |  | $                  | (911   | )                 |  | $    | (1,484 | )    |  | $ | (885   | ) |  | $ | (4,631  | )
|                                    |                                      |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        
|Operating Profit (Loss)             |                                      |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        
|                                    | Adhesive-backed label stock          |  | $                  |       |                   |  | $    | (1,778 | )    |  | $ |       |   |  | $ | (7,860  | )
|                                    | Glass manufacturing equipment        |  |                    | (303   | )                 |  |      | 757    |      |  |   | 1,277  |   |  |   | 3,447   |  
|                                    | Frequency control devices            |  |                    | (524   | )                 |  |      | (988   | )    |  |   | (2,023 | ) |  |   | (1,028  | )
|                                    | Industrial process equipment         |  |                    |       |                   |  |      | 52     |      |  |   |       |   |  |   | (22     | )
|                                    | Corporate manufacturing expense      |  |                    |       |                   |  |      | (308   | )    |  |   |       |   |  |   | (1,065  | )
|                                    |                                      |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        
|                                    | Total manufacturing                  |  | $                  | (827   | )                 |  | $    | (2,265 | )    |  | $ | (746   | ) |  | $ | (6,528  | )
|                                    |                                      |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        
|                                    | Unallocated Corporate expenses       |  |                    | (397   | )                 |  |      | (551   | )    |  |   | (1,071 | ) |  |   | (1,190  | )
|                                    | Restructuring charge  Spinnaker     |  |                    |       |                   |  |      | (211   | )    |  |   |       |   |  |   | (38,272 | )
|                                    | Gain on deconsolidation of Spinnaker |  |                    | 19,420 |                   |  |      | 27,406 |      |  |   | 19,420 |   |  |   | 27,406  |  
|                                    |                                      |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        
|                                    | Consolidated Total                   |  | $                  | 18,196 |                   |  | $    | 24,379 |      |  | $ | 17,603 |   |  | $ | (18,584 | )
|                                    |                                      |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        
|Depreciation and Amortization       |                                      |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        
|                                    | Adhesive-backed label stock          |  | $                  |       |                   |  | $    | 797    |      |  | $ |       |   |  | $ | 3,105   |  
|                                    | Glass manufacturing equipment        |  |                    | 121    |                   |  |      | 126    |      |  |   | 361    |   |  |   | 389     |  
|                                    | Frequency control devices            |  |                    | 192    |                   |  |      | 219    |      |  |   | 571    |   |  |   | 642     |  
|                                    | Industrial process equipment         |  |                    |       |                   |  |      | 33     |      |  |   |       |   |  |   | 99      |  
|                                    | Corporate manufacturing expenses     |  |                    |       |                   |  |      | 2      |      |  |   |       |   |  |   | 6       |  
|                                    |                                      |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        
|                                    | Consolidated Total                   |  | $                  | 313    |                   |  | $    | 1,177  |      |  | $ | 932    |   |  | $ | 4,241   |  
|                                    |                                      |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        
|Capital Expenditures                |                                      |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        
|                                    | Adhesive-backed label stock          |  | $                  |       |                   |  | $    | 163    |      |  | $ |       |   |  | $ | 433     |  
|                                    | Glass manufacturing equipment        |  |                    | 48     |                   |  |      | 121    |      |  |   | 89     |   |  |   | 239     |  
|                                    | Frequency control devices            |  |                    | 37     |                   |  |      | 17     |      |  |   | 138    |   |  |   | 380     |  
|                                    | Industrial process equipment         |  |                    |       |                   |  |      |       |      |  |   |       |   |  |   | 25      |  
|                                    |                                      |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        
|                                    | Consolidated Total                   |  | $                  | 85     |                   |  | $    | 301    |      |  | $ | 227    |   |  | $ | 1,077   |  
|                                    |                                      |  |                    |        |                   |  |      |        |      |  |   |        |   |  |   |        

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I.  Segment Information
(continued)

|                                             |                                                          |   |                    |        |                   |   |        |        |      |   |        |        |   |   |         |         |  
|-------------------------------------------- | -------------------------------------------------------- | - | ------------------ | ------ | ----------------- | - | ------ | ------ | ---- | - | ------ | ------ | - | - | ------- | ------- | -
|                                             |                                                          |   | Three Months Ended |        | Nine Months Ended
|                                             |                                                          |   | September 30       |        | September 30     
|                                             |                                                          |   |                    |        |                  
|                                             |                                                          |   | 2002               |        | 2001              |   | 2002   |        | 2001
|                                             |                                                          |   |                    |        |                   |   |        |        |     
|                                             |                                                          |   | (In Thousands)     |        | (In Thousands)   
|                                             |                                                          |   |                    |        |                  
|Total Assets                                 |                                                          |   |                    |        |                   |   |        |        |      |   |        |        |   |   |         |        
|                                             | Adhesive-backed label stock                              |   | $                  |       |                   |   | $      |       |      |   | $      |       |   |   | $       |        |  
|                                             | Glass manufacturing equipment                            |   |                    | 13,240 |                   |   |        | 16,140 |      |   |        | 13,240 |   |   |         | 16,140  |  
|                                             | Frequency control devices                                |   |                    | 6,631  |                   |   |        | 9,461  |      |   |        | 6,631  |   |   |         | 9,461   |  
|                                             | Industrial process equipment                             |   |                    |       |                   |   |        |       |      |   |        |       |   |   |         |        |  
|                                             | General Corporate                                        |   |                    | 5,007  |                   |   |        | 1,992  |      |   |        | 5,007  |   |   |         | 1,992   |  
|                                             |                                                          |   |                    |        |                   |   |        |        |      |   |        |        |   |   |         |        
|                                             | Consolidated Total                                       |   | $                  | 24,878 |                   |   | $      | 27,593 |      |   | $      | 24,878 |   |   | $       | 27,593  |  
|                                             |                                                          |   |                    |        |                   |   |        |        |      |   |        |        |   |   |         |        
|Total operating profit of reporting segments |                                                          | $ | 18,196             |        |                   | $ | 24,379 |        |      | $ | 17,603 |        |   | $ | (18,584 | )      
|                                             |                                                          |   |                    |        |                   |   |        |        |      |   |        |        |   |   |         |        
|Other profit or loss:                        |                                                          |   |                    |        |                   |   |        |        |      |   |        |        |   |   |         |        
|                                             | Investment income                                        |   |                    | 32     |                   |   |        | 194    |      |   |        | 95     |   |   |         | 591     |  
|                                             | Interest expense                                         |   |                    | (48    | )                 |   |        | (2,353 | )    |   |        | (140   | ) |   |         | (7,590  | )
|                                             | Other expense                                            |   |                    | (63    | )                 |   |        | (111   | )    |   |        | (63    | ) |   |         | (191    | )
|                                             |                                                          |   |                    |        |                   |   |        |        |      |   |        |        |   |   |         |        
|                                             | Income (Loss) before income taxes and
Minority interests |   | $                  | 18,117 |                   |   | $      | 22,109 |      |   | $      | 17,495 |   |   | $       | (25,774 | )
|                                             |                                                          |   |                    |        |                   |   |        |        |      |   |        |        |   |   |         |        

J.  Asset Impairment and
Restructuring Charges

Prior to the deconsolidation of Spinnaker on September 30, 2001 (see
Note B), the Company recognized certain restructuring charges in the first
half and third quarter of 2001 related to Spinnaker of $38.1 million and
$0.2 million respectively. $36.8 million of the $38.3 million nine month
total was a non-cash charge. The charges resulted from (a) the write-down
to estimated fair market value of fixed assets to be taken out of service
and held for sale or disposal; (b) impairment of goodwill associated with
the acquisition of Coating  Maine in 1998; and (c) severance and related
costs.

K.  Spinnaker
Chapter 11 Reorganization Proceedings

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

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

On January 18, 2002, Spinnaker entered into that certain Asset
Purchase Agreement (the Asset Purchase Agreement) with SP Acquisition as
contemplated by the Letter of Intent. On March 6, 2002, the Court entered
an order approving the sale of substantially all of Spinnakers assets to
SP Acquisition. The closing of the Asset Purchase Agreement occurred on
March 28, 2002.

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On March 28, 2002, the Court approved the sale of substantially all of
Entoleters assets to Welton LLC for $920,000 in cash plus certain assumed
obligations. The closing of the sale occurred on April 16, 2002.

In either case, there will be a minimal distribution to unsecured
creditors and no return to equity holders.

As a result, the Company eliminated its remaining interest in
Spinnaker by transferring its remaining Spinnaker stockholdings to a broker
on September 23, 2003 for $1.00. At that time, the $19,420,000 loss in
excess of investment on the Companys balance sheet became a non-cash
income item and increased shareholders equity by the same amount.

L.  Commitments and
Contingencies

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

2.     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 has until November 25, 2002, to respond
to Interactives motions.

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

3.     On or about June 26, 2001, in anticipation of the July 15, 2001 closure
of Spinnakers Westbrook, Maine facility, 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 01-232.
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 claim of all PACEs members seeking
severance. The Court denied that motion as being pre-mature. PACE then
filed a second motion against the Spinnaker Entities and Lynch for an
attachment large enough to cover the claims of eight individual employees
seeking severance pay in the amount of $120,736.27. On August 20, 2001,
the Court granted that motion in the amount of $118,500. On April 4, 2002,
PACE subsequently recorded this attachment through UCC-1 filings with the
Maine Secretary of State against Lynch Manufacturing and Lynch Corporation.
PACE filed a third motion for ex parte Attachment on August 29, 2001.
This Motion sought an attachment large enough to cover the severance pay
claimed by the remaining PACE members, $1,048,0003.00. The Court denied
this Motion but permitted PACE the opportunity to obtain an attachment
after all defendants had no opportunity to respond and after hearing.

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Before any further action was taken with respect to PACEs Third
Motion for Attachment, the Spinnaker Defendants had filed for relief under
Chapter 11 of the Bankruptcy Code. The Spinnaker Defendants then filed a
second notice of removal, creating United States District Court for the
District of Maine case number C.V. No. 02-7. Upon entry of an order
confirming automatic reference, the C.V. No. 02-7 was referred to the
United States Bankruptcy Court, District of Maine, and assigned Adv. Pro.
No. 02-2007. This litigation was resolved as follows:

|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|i)   |  | To the extent the United States District Court Civil Action
No. 01-236 and 02-7 had not already been closed, the parties
agreed to, as necessary, stipulations of dismissal disposing of
those actions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|ii)  |  | The Spinnaker Entities stipulated to dismissal with
prejudice, without costs, of United States District Court Civil
Action No. 01-232;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|iii) |  | In Adv. Pro. No. 02-2007, Count I of the Plaintiffs
complaint was dismissed with prejudice and without costs to the
party.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|iv)  |  | In Adv. Pro. No. 02-2007 Count III of the Plaintiffs
complaint was dismissed without prejudice and without costs to
any party;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|v)   |  | In Adv. Pro. No. 02-2007 Count II of the Plaintiffs
complaint was remanded to Cumberland County Superior Court,
without costs and attorneys fees to any party. In consenting to
remand, Lynch agreed that it would not challenge the subject
matter jurisdiction of the Cumberland County Superior Court to
conduct the trial and would not attempt to remove or otherwise
invoke the jurisdiction of the federal court (except for
appellate review to the extent permitted under applicable law),
so long as the Plaintiff does not amend the complaint. Now
Plaintiffs case will proceed against Lynch in Cumberland County
Superior Court in Maine on the issue of whether Lynch has
liability to Plaintiffs under the Maine Severance Pay Act.

Paces case is proceeding 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. A granting of
Lynchs Motion for Summary Judgment would render PACEs Third Motion for
Attachment moot. PACE has not yet filed an opposition to Lynchs Motion
for Summary Judgment nor has the Superior Court scheduled a hearing on
either the Motion for Summary Judgment or on the 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. At this time, management
is unable to assess the prospects for a favorable summary judgment
decision, but firmly believes that, under current law, the resolution of
this case will not have a material adverse effect on the Registrants
consolidated financial condition or operations.

M.  Accrued Liabilities

The components of accrued liabilities are as follows:

|                             |  |               |           |              |  |   |           | 
|---------------------------- |  | ------------- | --------- | ------------ |  | - | --------- | 
|                             |  | September 30, |           | December 31,
|                             |  | 2002          |           | 2001        
|                             |  |               |           |             
|Warranty Reserves            |  | $             | 1,662,000 |              |  | $ | 1,528,000 | 
|Commissions Payable          |  |               | 857,000   |              |  |   | 786,000   | 
|Accrued Compensation Expense |  |               | 1,130,000 |              |  |   | 1,210,000 | 
|Income Tax                   |  |               | 1,324,000 |              |  |   | 586,000   | 
|Other                        |  |               | 1,158,000 |              |  |   | 1,856,000 | 
|                             |  |               |           |              |  |   |           | 
|                             |  | $             | 6,131,000 |              |  | $ | 5,966,000 | 
|                             |  |               |           |              |  |   |           | 

12



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N.  Income Taxes

The effective tax rate differs from the statutory tax rate primarily due to
the tax benefit related to the Spinnaker investment.




Item 2.    MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Results of Operations

Third Quarter 2002 and Nine
Months 2002 Compared to 2001 (including Results of Spinnaker for the
nine months ended September 30, 2001)

Effective September 30, 2001, the Companys ownership and voting interest
of Spinnaker Industries, Inc. was reduced to 41.8% and 49.5% respectively, due
to the disposition of shares of Spinnaker. As a result, effective September 30,
2001, the Company relinquished control of Spinnaker. Accordingly, Spinnaker
results of operations are only included for nine months in 2001. See Note B 
Basis of Presentation included elsewhere herein. On September 23, 2002, Lynch
disposed of its remaining Spinnaker shareholdings.

Sales and Revenues/Gross Margin

Revenues for the third quarter of 2002 decreased from $32.0 million to
$5.0 million due mainly to the previously described deconsolidation of
Spinnaker. Accordingly, Spinnakers net sales for the quarter ended September
30, 2001 of $22.6 million represented 84 percent of the quarter over quarter
unfavorable revenue variance. Nine months 2002 sales of $21.7 million were
$109.2 million below the first nine months of 2001 with the elimination of
Spinnaker accounting for $93.4 million of the reduction.

Third quarter 2002 gross margin as a percent of revenues improved to 21.4%
from 8.3% in the third quarter of 2001 due mainly to the deconsolidation of
Spinnaker. Spinnakers gross margin as a percentage of revenues for the three
months ended September 30, 2001 was 0.1% as a result of competitive pressure
that caused lower selling prices and reduced volume.

Revenues at M-tron decreased by $0.2 million or 6.2% to $2.8 million for
the third quarter of 2002 due to the continuation of weak demand from the
infrastructure segment of the telecommunications industry which is still
working through worldwide overcapacity. This dramatic reduction in market
demand resulted in a $10.3 million revenue decline or 55.0% in the first nine
months of 2002.

Lynch Systems third quarter 2002 revenue of $2.2 million was $4.1
million, or 64.9% below the same period of 2001. Nine month 2002 revenue of
$13.3 million was $5.4 million or 28.8% less than the first nine months of
2001. The nine month net revenue decline of $5.4 million was the result of $1.4
million less glass machine sales and $1.3 million spare parts volume in the
United States, and $2.6 million less sales through Lynch AMAV (Germany). New
orders for glass press machines by television set producers have been weak all
year causing a significant drop in backlog to $3.4 million at September 30,
2002 in comparison to a $17.8 million backlog last September and $12.0 million
at December 31, 2001. Requests for quotes have been solid throughout the year.
Lynch Systems has prepared 328 quotes in 2002 with a sales value of $105
million. Such quotes may not result in actual orders.

M-trons gross margin as a percentage of net sales for the third quarter
of 2002 was up by 6.8% to 11.6% from the same period of 2001 on slightly lower
volume due to cost-cutting measures. The previously described sales decline
of 55.0% in the first nine months of 2002 and lower selling prices caused the
significant reduction in nine month gross margin to 10.3% from 17.1%.

Lynch Systems gross margin as a percentage of net sales for the first
nine months of 2002 was 39.0%, virtually equal to the 40.4% margin in the same
period of 2001. Third quarter 2002 gross margin of 33.8% was 5.5% below third
quarter 2001 due mainly to the 64.9% sales decline.

Operating Profit (Loss)

Operating profit for the third quarter 2002 was $18.2 million compared to
the third quarter 2001 operating profit of $24.4 million. Nine months 2002
operating profit of $17.6 million was $36.2 million better than nine months of
2001. The third quarter of 2002 and year-to-date operating profit includes
$19.4 million resulting from the final

13



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##### Table of Contents



disposition of Lynchs remaining
interest in Spinnaker. Similarly, the third quarter and nine month 2001
operating profit include a $27.4 million gain from the deconsolidation of
Spinnaker. See Note B; Basis of Presentation.

On September 30, 2001, the Companys ownership interest and voting control
of Spinnaker Industries, Inc. (Spinnaker) was reduced to 41.8% and 49.5%,
respectively, due to the initial disposition of shares of Spinnaker. As a
result, effective September 30, 2001, the Company has deconsolidated Spinnaker.
The Company disposed of its remaining stockholding in Spinnaker on September
23, 2002.

Accordingly, the Companys third quarter 2001 and nine months 2001 include
the operating results of Spinnaker. Spinnakers loss from operations for the
three months ended September 30, 2001 was $2.3 million including an impairment
charge of $0.2 million associated with the closing of the Coating  Maine
facility. Spinnakers nine month 2001 loss of $47.2 million included
impairment and restructuring charges of $41.8 million. Spinnakers 2001 nine
month loss from continuing operations was $5.4 million, reflecting lower
margins caused by lower prices, less volume, and higher materials costs.

For the third quarter of 2002, M-tron had an operating loss of $0.5
million compared to an operating loss of $1.0 million in the third quarter of
2001. The nine month 2002 operating loss of $2.0 million exceeded the prior
year-to-date operating loss by $1.0 million and was due mainly to the
dramatically reduced sales mentioned above. In spite of a 26 percent reduction
in head count since last September, (63% since December 2000,) a further
curtailment in hours worked and salary reductions, M-tron could not compensate
for the 55 percent reduction in volume and lower selling prices.

For the 2002 third quarter, Lynch Systems had an operating loss of $0.3
million compared to an operating profit of $0.8 million in the third quarter of
2001. Nine months 2002 operating profit of $1.3 million was $2.2 million less
than the same period last year due to $5.4 million lower sales, 1.4 points less
gross profit due to product mix, mainly repair parts, and $0.5 million higher
commissions attributable to certain glass machine sales.

For the third quarter of 2002, Lynchs corporate headquarters incurred
unallocated expenses of $0.4 million, bringing the nine month total to $1.1
million, or $0.1 million less than last year. As a result, the Companys third
quarter 2002 operating loss, before the gain on disposing Spinnaker stock, was
$1.2 million as compared to a third quarter 2001 operating loss (excluding
Spinnaker) of $0.8 million. Nine month 2002 and 2001 operating profit (loss)
after corporate expenses (excluding Spinnaker) were ($1.8) million and $1.2
million respectively.

Other Income (Expense), Net

Investment income decreased $162,000 for the three months ended September
30 and $496,000 for the nine month period of 2002 due to the deconsolidation of
Spinnaker, which accounted for $375,000 of nine month 2001 investment income.

Interest expense of $48,000 for the third quarter 2002 and $140,000
through September represents improvements of $2,305,000 and $7,450,000 due to
deconsolidating Spinnaker, which was included in 2001 interest expense, in the
amounts of $2,333,000 and $7,400,000 respectively.

Tax Benefit

The income tax benefit includes federal, as well as state, local, and
foreign taxes. $860,400 of the third quarter and nine month tax benefit is the
result of a capital loss carry-back on the Companys investment in Spinnaker
Industries. In addition, the third quarter 2002 and nine month net tax benefit
includes $290,000 and $512,000 respectively for operating losses expected to be
recovered through carry-backs to prior periods. The effective tax rate differs
from the statutory tax rate primarily due to the tax benefit related to the
Spinnaker investment.

Minority Interest

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

Minority interests contributed $4.0 million to nine month 2001 net income
as the result of the absorption of Spinnakers losses by minority interests to
the extent of their investment.

14



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Net Income (Loss)

Net income for the third quarter of 2002 was $19.3 million compared to net
income of $23.1 million in the quarter ending September 30, 2001. The $3.8
million unfavorable net profit swing is primarily the result of: (a) third
quarter 2001 gain on deconsolidation of Spinnaker of $27.4 million, less (b)
Spinnakers third quarter 2001 net loss of ($4.1) million, less (c) third
quarter 2002 gain on disposing the Companys remaining interest in Spinnaker of
$19.4 million.

Fully diluted third quarter 2002 income per share was $12.86 compared to a
$15.36 per share in third quarter 2002. Nine month 2002 net income was $18.9
million or $12.59 per share compared to a nine month 2001 loss of $21.7 million
or $14.36 per share. Absent Spinnaker, third quarter 2001 net income was $0.1
million or $0.06 per share and nine month 2001 net income was $1.0 million or
$0.68 per share.

Backlog/New Orders

Total backlog of manufactured products (excluding Spinnaker in both years)
at September 30, 2002 was $5.2 million, a reduction of $8.2 million from the
backlog at December 31, 2001, and $14.7 million less than the balance at
September 30, 2001. Decreased purchases by infrastructure suppliers to the
telecommunications industry which started in March of 2001 continue to depress
M-trons backlog. Lynch Systems backlog is also down substantially from last
September due to the timing of large glass machine orders in both the CRT and
tableware industries. Quotations activity has been constant with approximately
$105,000,000 of quotes generated by Lynch Systems in the first nine months of
this year but potential buyers continue to defer placing orders due to the weak
worldwide economy.

Financial Condition 
Excluding Spinnaker

The discussion below excludes the impact of Spinnaker, which was
deconsolidated at September 30, 2001 as discussed in Note B to the condensed
consolidated financial statements included elsewhere herein. Thus, the
discussion below reflects liquidity and capital resource matters for the
Companys remaining consolidated subsidiaries at September 30, 2002.

At September 30, 2002, the Company had current assets of $19.5 million and
current liabilities of $9.9 million. Working capital was therefore $9.6
million as compared to $9.6 million at December 31, 2001 and $9.4 million at
September 30, 2001. The ratio of current assets to current liabilities was
1.98 to 1.00 at September 30, 2002; 1.59 to 1.00 at December 31, 2001; and 1.80
to 1.00 ratio at September 30, 2001.

Cash provided by operating activities was
approximately $0.9 million in
first nine months of 2002 compared to cash provided of approximately $7.8
million in the same period of 2001. The year over year unfavorable change in
operational cash flow of $6.9 million was mainly the result of $1.4 million
less profit and $4.9 million less cash provided in working capital. Capital
expenditures were $227 thousand in the first nine months of 2002 compared to
$619 thousand in the period ending September 30, 2001.

Cash and equivalent at September 30, 2002 of $8.4 million represented a
$4.1 million increase from year-end 2001 and a $0.8 million improvement from
the September 30, 2001 cash balance of $7.6 million.

Total debt of $3.4 million at September 30, 2002 was $0.1 million more
than the amount outstanding at December 31, 2001 and $0.2 million more than the
debt at September 30, 2001. Debt outstanding at September 30, 2002 included
$583 thousand of fixed interest rate debt at an 8.0% interest rate, and $2.8
million of variable interest rate debt at a September 30, 2002 average rate of
5.0%.

Lynch Systems finalized a new loan agreement with SunTrust Bank on May 30,
2002, effective June 10, 2002. This incumbent 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 to finance working capital within
the $7 million line. The new credit line has a May 30, 2003 maturity date,
standard extension terms, and includes an unsecured parent company guaranty.

M-trons revolving credit agreement was renewed on August 31, 2002 with an
April 30, 2003 maturity date. A parent company cash infusion of $500,000 and a
$1 million parent company Letter of Credit were necessary to obtain the $3
million credit line at M-trons long-time lender, First National Bank of Omaha.
The Letter of Credit is secured by the Companys $1.1 million deposit in a
Fleet Bank Treasury Fixed Income Fund.

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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

The Company does not have any indefinite-lived intangible assets;
accordingly the adoption of FAS 142 had no material impact during the first
nine months of 2002.

Market Risk

The Company is exposed to market risk relating to changes in the general
level of U.S. interest rates. Changes in interest rates affect the amounts of
interest earned on the Companys cash and short-term investments (approximately
$9.5 million at September 30, 2002). The Company generally finances the debt
portion of the acquisition of long-term assets with fixed rate, long-term debt.
The Company does not use derivative financial instruments for trading or
speculative purposes. Management does not foresee any significant changes in
the strategies used to manage interest rate risk in the near future, although
the strategies may be reevaluated as market conditions dictate. There has been
no significant change in market risk since September 30, 2002.

At September 30, 2002, approximately $2.8 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 2002 average interest rate, it is estimated
that the Companys annual 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 flow.

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

Subsequent Events

On October 18, 2002, M-tron Industries, Inc. signed the agreement to
acquire certain assets of Champion Technologies, Inc., from US Bank for
$850,000 plus a 7.5% royalty on certain sales through December 31, 2004. With
this acquisition, M-tron enters the timing module market, and will offer the
complete line of Champion crystals, clock oscillators, and specialized crystal
oscillators, which are complementary to existing M-tron lines. The Companys
initial acquisition deposit of $120,000 is included in the September 30, 2002
balance sheet in Prepaid Expenses.

A transition team will consolidate the Champions Franklin Park operation
into M-trons Yankton, South Dakota manufacturing facility. Financing for this
purchase of certain Champion Technologies assets and its customer backlog will
be provided by state and local agencies to the extent of $700,000. Interest
rates will range from 0 to 5.5% with an average rate of 2.3%. Repayment terms
range from thirty months to ten years with loan amortization of $110,000 in
each of the first two years. Security for the three loans will be M-trons
real estate, plus a further $200,000 cash infusion by the parent Company.

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 and Spinnaker with the Securities and
Exchange Commission. As a result, such information is subject to
uncertainties, risks and inaccuracies, which could be material.

16



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Item 3.    Quantitative
and Qualitative Disclosure About Market Risk

See Market Risk under Item 2 above.




PART
II.    OTHER INFORMATION




Item 1.    Legal
Proceedings

1.     The Company, Lynch Interactive Corporation (Interactive), and several
other parties have been named as defendants in a lawsuit brought under the
so-called qui tam provisions of the federal False Claims Act in the
United States District Court for the District of Columbia. 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 has until November 25, 2002, to respond
to Interactives motions.

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

2.     On or about June 26, 2001, in anticipation of the July 15, 2001 closure
of Spinnakers Westbrook, Maine facility, 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 01-232.
PACE also filed three separate motions for ex parte attachment against the
Spinnaker Entities and Lynch. PACE filed the first motion for attachment
with its original Complaint. PACE sought to attach $1,166,483.44, an amount
large enough to cover the claims of all PACEs members seeking severance.
The Court denied that motion as being pre-mature. PACE then filed a second
motion against the Spinnaker Entities and Lynch for an attachment large
enough to cover the claims of eight individual employees seeking severance
pay in the amount of $120,736.27. On August 20, 2001, the Court granted
that motion in the amount of $118,500. On April 4, 2002, PACE subsequently
recorded this attachment through UCC-1 filings with the Maine Secretary of
State against Lynch Manufacturing and Lynch Corporation. PACE filed a
Third Motion for ex parte attachment on August 29, 2001. This Motion
sought an attachment large enough to cover the severance pay claimed by the
remaining PACE members, $1,048,003.00. The Court denied this Motion but
permitted PACE the opportunity to obtain an attachment after all defendants
had an opportunity to respond and after hearing.

Before any further action was taken with respect to PACEs Third
Motion for Attachment, the Spinnaker Defendants had filed for relief under
Chapter 11 of the Bankruptcy Code. The Spinnaker Defendants then filed a
second notice of removal, creating United States District Court for the
District of Maine case number C.V. No. 02-7. Upon entry of an order
confirming automatic reference, the C.V. No. 02-7 was referred to the
United States Bankruptcy Court, District of Maine, and assigned Adv. Pro.
No. 02-2007. This litigation was resolved as follows:

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|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|i)   |  | To the extent the United States District Court Civil Action
No. 01-236 and 02-7 had not already been closed, the parties
agreed to, as necessary, stipulations of dismissal disposing of
those actions.                                                                                                                                                                                                                                                                                                                                                     
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|ii)  |  | The Spinnaker Entities stipulated to dismissal with
prejudice, without costs, of United States District Court Civil
Action No. 01-232;                                                                                                                                                                                                                                                                                                                                                                                                                      
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|iii) |  | In Adv. Pro. No. 02-2007, Count I of the Plaintiffs
complaint was dismissed with prejudice and without costs to any
party.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|iv)  |  | In Adv. Pro. No. 02-2007 Count III of the Plaintiffs
complaint was dismissed without prejudice and without costs to
any party.                                                                                                                                                                                                                                                                                                                                                                                                                             
|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|v)   |  | In Adv. Pro. No. 02-2007, Count II of the Plaintiffs
complaint was remanded to Cumberland County Superior Court,
without costs and attorneys fees to any party. In consenting to
remand, Lynch agreed that it would not challenge the subject
matter jurisdiction of the Cumberland County Superior Court to
conduct the trial and would not attempt to remove or otherwise
invoke the jurisdiction of the federal court (except for
appellate review to the extent permitted under applicable law),
so long as the Plaintiff does not amend the complaint.

PACEs case is proceeding 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, 2001, Lynch filed a Motion for Summary Judgment
which incorporated its prior objection to any attachment. A granting of
Lynchs Motion for Summary Judgment would render PACEs Third Motion for
Attachment moot. PACE has not yet filed an opposition to Lynchs Motion
for Summary Judgment nor has the Superior Court scheduled a hearing on
either the Motion for Summary Judgment or on the 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. At this time, management
is unable to assess the prospects for a favorable summary judgment
decision, but firmly believes that, under current law, the resolution of
this case will not have a material adverse effect on the Registrants
consolidated financial condition or operations.




Item 6.      Exhibits
and Reports on Form 8-K



| | (a) |  | Exhibits filed herewith:     
| | --- |  | -----------------------------
|
| |     |  | 99.1 Officers Certification.
|
| | (b) |  | Reports on Form 8-K:         



| |                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A report on Form 8-K was filed on October 1, 2002 that
described Lynchs disposition of its remaining shareholdings in
Spinnaker Industries, Inc. No financial statements were filed
therewith.

18



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##### Table of Contents






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:
| | ---



| | -s- RAYMOND H. KELLER

Raymond H. Keller
Chief Financial Officer
| | -----------------------------------------------------------------------------

November 4, 2002

CERTIFICATIONS

I, Ralph R. Papitto, certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Lynch
Corporation.                                                                                                                                                                                                                                                      
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report.
|
| | 3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.                   

Date:        November 4, 2002

|    |  |                                          
|--- |  | -----------------------------------------
|By: |  | -s- Ralph R. Papitto                     
|    |  |                                          
|    |  | RALPH R. PAPITTO, CHIEF EXECUTIVE OFFICER

I, Raymond H. Keller, certify that:



| | 1. |  | I have reviewed this quarterly report on Form 10-Q of Lynch
Corporation.                                                                                                                                                                                                                                                      
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report.
|
| | 4. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.                   

Date:        November 4, 2002

|    |  |                                           
|--- |  | ------------------------------------------
|By: |  | -s- Raymond H. Keller                     
|    |  |                                           
|    |  | RAYMOND H. KELLER, CHIEF FINANCIAL OFFICER

19