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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
June 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                        | I.R.S. Employer    
|incorporation or organization)                         | Identification No.)
|                                                      
|50 Kennedy Plaza,
Suite 1250, Providence, Rhode Island | 02903              
|                                                      
|(Address of principal executive offices)               | (Zip Code)         
|                                                      
|(401)
453-2007                                        
|                                                      
|Registrants telephone number, including area code    

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

Yes
X          
No

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

|                               |  |                              
|------------------------------ |  | -----------------------------
|Class                          |  | Outstanding at August 1, 2002
|                               |  |                              
|Common Stock, $00.01 par value |  | 1,497,883                    



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TABLE OF CONTENTS



|                                 |                                                                                                |                                                      |  |  |  |  |  | 
|-------------------------------- | ---------------------------------------------------------------------------------------------- | ---------------------------------------------------- |  |  |  |  |  | 
|Part 1  FINANCIAL INFORMATION -
|                                 | Item 1  Financial Statements (unaudited)                                                     
|                                 |                                                                                                | 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 4. Submission of Matters to a Vote of Security Holders                                   
|                                 | Item 6. Exhibits and Reports on Form 8-K                                                      
|SIGNATURES                      
|Ex-99.1 Officers' Certificate   



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INDEX

LYNCH CORPORATION AND SUBSIDIARIES

|                                                                                              |                                                      
|--------------------------------------------------------------------------------------------- | -----------------------------------------------------
|PART
I. FINANCIAL INFORMATION                                                                
|                                                                                             
|Item 1. Financial Statements (Unaudited)                                                     
|                                                                                             
|                                                                                              | Condensed Consolidated Balance Sheets:               
|                                                                                              | - June 30, 2002                                      
|                                                                                              | - December 31, 2001                                  
|                                                                                             
|                                                                                              | Condensed Consolidated Statements of Operations:     
|                                                                                              | - Three months ended June 30, 2002 and 2001          
|                                                                                              | - Six months ended June 30, 2002 and 2001            
|                                                                                             
|                                                                                              | Condensed Consolidated Statements of Cash Flows:     
|                                                                                              | - Six months ended June 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 4. Submission of Matters to a Vote of Security Holders                                  
|                                                                                             
|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 (unaudited)




LYNCH CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share amounts)

|                                       |                                                                                                                    |                                                             |        |             |         |              |        |         |         |  
|-------------------------------------- | ------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------- | ------ | ----------- | ------- | ------------ | ------ | ------- | ------- | -
|                                       |                                                                                                                    |                                                             |        | June 30,    |         | December 31,
|                                       |                                                                                                                    |                                                             |        | 2002        |         | 2001        
|                                       |                                                                                                                    |                                                             |        | (unaudited) |         | (A)         
|                                       |                                                                                                                    |                                                             |        |             |         |             
|ASSETS                                 |                                                                                                                    |                                                             |        |             |         |              |        |        
|CURRENT ASSETS                         |                                                                                                                    |                                                             |        |             |         |              |        |        
|                                       |                                                                                                                    | Cash and cash equivalents                                   |        | $           | 9,153   |              |        | $       | 4,247   |  
|                                       |                                                                                                                    | Restricted cash                                             |        |             |        |              |        |         | 4,703   |  
|                                       |                                                                                                                    | Investments-marketable securities                           |        |             | 675     |              |        |         |        |  
|                                       |                                                                                                                    | Trade accounts receivables, less allowances of $91 and $118 |        |             | 8,552   |              |        |         | 9,818   |  
|                                       |                                                                                                                    | Inventories                                                 |        |             | 4,990   |              |        |         | 5,260   |  
|                                       |                                                                                                                    | Deferred income taxes                                       |        |             | 988     |              |        |         | 988     |  
|                                       |                                                                                                                    | Prepaid expense                                             |        |             | 927     |              |        |         | 836     |  
|                                       |                                                                                                                    |                                                             |        |             |         |              |        |        
|                                       |                                                                                                                    | TOTAL CURRENT ASSETS                                        |        |             | 25,285  |              |        |         | 25,852  |  
|                                      
|PROPERTY, PLANT AND EQUIPMENT          |                                                                                                                    |                                                             |        |             |         |              |        |        
|                                       |                                                                                                                    | Land                                                        |        |             | 291     |              |        |         | 291     |  
|                                       |                                                                                                                    | Buildings and improvements                                  |        |             | 4,158   |              |        |         | 4,158   |  
|                                       |                                                                                                                    | Machinery and equipment                                     |        |             | 12,091  |              |        |         | 11,949  |  
|                                       |                                                                                                                    |                                                             |        |             |         |              |        |        
|                                       |                                                                                                                    |                                                             | 16,540 |             |         |              | 16,398 |        
|                                       |                                                                                                                    | Less: accumulated depreciation                              |        |             | (11,460 | )            |        |         | (10,942 | )
|                                       |                                                                                                                    |                                                             |        |             |         |              |        |        
|                                       |                                                                                                                    |                                                             | 5,080  |             |         |              | 5,456  |        
|OTHER ASSETS                           |                                                                                                                    |                                                             | 526    |             |         |              | 537    |        
|                                       |                                                                                                                    |                                                             |        |             |         |              |        |        
|                                       | TOTAL ASSETS                                                                                                       |                                                             | $      | 30,891      |         |              | $      | 31,845  |        
|                                       |                                                                                                                    |                                                             |        |             |         |              |        |        
|LIABILITIES AND SHAREHOLDERS DEFICIT  |                                                                                                                    |                                                             |        |             |         |              |        |        
|CURRENT LIABILITIES:                   |                                                                                                                    |                                                             |        |             |         |              |        |        
|                                       |                                                                                                                    | Notes payable to banks                                      |        | $           | 1,334   |              |        | $       | 1,086   |  
|                                       |                                                                                                                    | Trade accounts payable                                      |        |             | 2,464   |              |        |         | 1,717   |  
|                                       |                                                                                                                    | Accrued liabilities (Note M)                                |        |             | 6,101   |              |        |         | 6,196   |  
|                                       |                                                                                                                    | Customer advances                                           |        |             | 5,611   |              |        |         | 6,781   |  
|                                       |                                                                                                                    | Current maturities of long-term debt                        |        |             | 176     |              |        |         | 521     |  
|                                       |                                                                                                                    |                                                             |        |             |         |              |        |        
|                                       |                                                                                                                    | TOTAL CURRENT LIABILITIES                                   |        |             | 15,686  |              |        |         | 16,301  |  
|LONG TERM DEBT                         |                                                                                                                    |                                                             | 1,497  |             |         |              | 1,678  |        
|DEFERRED INCOME TAXES                  |                                                                                                                    |                                                             | 578    |             |         |              | 578    |        
|OTHER LONG TERM LIABILITIES            |                                                                                                                    |                                                             | 1,325  |             |         |              | 1,319  |        
|                                       |                                                                                                                    |                                                             |        |             |         |              |        |        
|                                       |                                                                                                                    | TOTAL LIABILITIES                                           |        |             | 19,086  |              |        |         | 19,876  |  
|                                      
|LOSS IN EXCESS OF INVESTMENT           |                                                                                                                    |                                                             | 19,420 |             |         |              | 19,420 |        
|                                      
|COMMITMENTS AND CONTINGENCIES (NOTE L) |                                                                                                                    |                                                             |        |             |         |              |        |        
|                                      
|SHAREHOLDERS 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                                                                                                |                                                             |        | (22,933     | )       |              |        | (22,533 | )      
|                                       | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)                                                                      |                                                             |        | 116         |         |              |        | (2      | )      
|                                       | TREASURY STOCK OF 15,308 SHARES, AT COST                                                                           |                                                             |        | (458        | )       |              |        | (458    | )      
|                                       |                                                                                                                    |                                                             |        |             |         |              |        |        
|                                       | TOTAL SHAREHOLDERS DEFICIT                                                                                        |                                                             |        | (7,615      | )       |              |        | (7,451  | )      
|                                       |                                                                                                                    |                                                             |        |             |         |              |        |        
|                                       | TOTAL LIABILITIES AND SHAREHOLDERS DEFICIT                                                                        |                                                             | $      | 30,891      |         |              | $      | 31,845  |        
|                                       |                                                                                                                    |                                                             |        |             |         |              |        |        



|(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 and prospectively accounts for its ownership of Spinnaker using the
equity method of accounting. 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 |       | Six Months Ended
|                                                |                                                        |   | June 30            |       | June 30         
|                                                |                                                        |   |                    |       |                 
|                                                |                                                        |   | 2002               |       | 2001             |   | 2002      |        | 2001
|                                                |                                                        |   |                    |       |                  |   |           |        |     
|SALES AND REVENUES                              |                                                        | $ | 9,691              |       |                  | $ | 45,353    |        |      | $ | 16,694    |        |   | $ | 98,901    |       
|                                               
|Costs and expenses:                             |                                                        |   |                    |       |                  |   |           |        |      |   |           |        |   |   |           |       
|                                                | Manufacturing cost of sales                            |   |                    | 6,871 |                  |   |           | 44,661 |      |   |           | 11,725 |   |   |           | 93,214 |  
|                                                | Selling and administrative                             |   |                    | 3,013 |                  |   |           | 4,985  |      |   |           | 5,562  |   |   |           | 10,589 |  
|                                                | Asset impairment and restructuring charges  Spinnaker |   |                    |      |                  |   |           | 1,577  |      |   |           |       |   |   |           | 38,061 |  
|                                                |                                                        |   |                    |       |                  |   |           |        |      |   |           |        |   |   |           |       
|OPERATING LOSS                                  |                                                        |   | (193               | )     |                  |   | (5,870    | )      |      |   | (593      | )      |   |   | (42,963   | )     
|                                               
|Other income (expense):                         |                                                        |   |                    |       |                  |   |           |        |      |   |           |        |   |   |           |       
|                                                | Investment Income                                      |   |                    | 24    |                  |   |           | 138    |      |   |           | 63     |   |   |           | 317    |  
|                                                | Interest Expense                                       |   |                    | (52   | )                |   |           | (2,533 | )    |   |           | (92    | ) |   |           | (5,237 | )
|                                                |                                                        |   | (28                | )     |                  |   | (2,395    | )      |      |   | (29       | )      |   |   | (4,920    | )     
|                                                |                                                        |   |                    |       |                  |   |           |        |      |   |           |        |   |   |           |       
|                                               
|LOSS BEFORE INCOME TAXES AND MINORITY INTERESTS |                                                        |   | (221               | )     |                  |   | (8,265    | )      |      |   | (622      | )      |   |   | (47,883   | )     
|                                               
|(Provision) benefit from income taxes           |                                                        |   | 113                |       |                  |   | (298      | )      |      |   | 222       |        |   |   | (868      | )     
|Minority interests                              |                                                        |   |                   |       |                  |   | (110      | )      |      |   |          |        |   |   | 4,008     |       
|                                                |                                                        |   |                    |       |                  |   |           |        |      |   |           |        |   |   |           |       
|NET LOSS                                        |                                                        | $ | (108               | )     |                  | $ | (8,673    | )      |      | $ | (400      | )      |   | $ | (44,743   | )     
|                                                |                                                        |   |                    |       |                  |   |           |        |      |   |           |        |   |   |           |       
|                                               
|Weighted average shares outstanding             |                                                        |   | 1,497,900          |       |                  |   | 1,510,200 |        |      |   | 1,497,900 |        |   |   | 1,510,000 |       
|                                               
|BASIC AND DILUTED LOSS PER SHARE                |                                                        | $ | (0.07              | )     |                  | $ | (5.74     | )      |      | $ | (0.27     | )      |   | $ | (29.63    | )     

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

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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)

|                                                                                          |                                          |   |                  |        |      |   |         |        |  
|----------------------------------------------------------------------------------------- | ---------------------------------------- | - | ---------------- | ------ | ---- | - | ------- | ------ | -
|                                                                                          |                                          |   | Six Months Ended
|                                                                                          |                                          |   | June 30,        
|                                                                                          |                                          |   |                 
|                                                                                          |                                          |   | 2002             |        | 2001
|                                                                                          |                                          |   |                  |        |     
|OPERATING ACTIVITIES                                                                      |                                          |   |                  |        |      |   |         |       
|Net loss                                                                                  |                                          | $ | (400             | )      |      | $ | (44,743 | )     
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |                                          |   |                  |        |      |   |         |       
|Depreciation                                                                              |                                          |   | 518              |        |      |   | 2,807   |       
|Amortization of goodwill and other assets                                                 |                                          |   | 101              |        |      |   | 558     |       
|Amortization of deferred financing charges                                                |                                          |   |                 |        |      |   | 225     |       
|Impairment of assets                                                                      |                                          |   |                 |        |      |   | 38,061  |       
|Deferred taxes                                                                            |                                          |   |                 |        |      |   | 516     |       
|Minority interests                                                                        |                                          |   |                 |        |      |   | (4,008  | )     
|Changes in operating assets and liabilities:                                              |                                          |   |                  |        |      |   |         |       
|                                                                                          | Receivables                              |   |                  | 1,266  |      |   |         | 8,907  |  
|                                                                                          | Inventories                              |   |                  | 270    |      |   |         | 5,716  |  
|                                                                                          | Accounts payable and accrued liabilities |   |                  | (1,366 | )    |   |         | (9,256 | )
|                                                                                          | Other                                    |   |                  | 365    |      |   |         | (80    | )
|                                                                                          |                                          |   |                  |        |      |   |         |       
|Net cash provided by (used in) operating activities                                       |                                          |   | 754              |        |      |   | (1,297  | )     
|                                                                                         
|INVESTING ACTIVITIES                                                                      |                                          |   |                  |        |      |   |         |       
|Acquisition of minority interest                                                          |                                          |   | (220             | )      |      |   |        |       
|Capital expenditures                                                                      |                                          |   | (142             | )      |      |   | (776    | )     
|Restricted cash                                                                           |                                          |   | 4,703            |        |      |   | 6,500   |       
|Purchases of available-for-sale securities                                                |                                          |   | (262             | )      |      |   |        |       
|                                                                                          |                                          |   |                  |        |      |   |         |       
|Net cash provided by investing activities                                                 |                                          |   | 4,079            |        |      |   | 5,724   |       
|                                                                                          |                                          |   |                  |        |      |   |         |       
|FINANCING ACTIVITIES                                                                      |                                          |   |                  |        |      |   |         |       
|Net borrowings (repayments) of notes payable                                              |                                          |   | 248              |        |      |   | (3,505  | )     
|Repayment of long-term debt                                                               |                                          |   | (293             | )      |      |   | (734    | )     
|Proceeds of long-term debt                                                                |                                          |   |                 |        |      |   | 1,756   |       
|Other                                                                                     |                                          |   | 118              |        |      |   | (12     | )     
|                                                                                          |                                          |   |                  |        |      |   |         |       
|Cash provided by (used in) financing activities                                           |                                          |   | 73               |        |      |   | (2,495  | )     
|                                                                                          |                                          |   |                  |        |      |   |         |       
|Net Increase in cash and cash equivalents                                                 |                                          |   | 4,906            |        |      |   | 1,932   |       
|Cash and cash equivalents at beginning of period                                          |                                          |   | 4,247            |        |      |   | 10,543  |       
|                                                                                          |                                          |   |                  |        |      |   |         |       
|Cash and cash equivalents at end of period                                                |                                          | $ | 9,153            |        |      | $ | 12,475  |       
|                                                                                          |                                          |   |                  |        |      |   |         |       

See accompanying notes

On September 30, 2001, the Companys ownership and voting interest of
Spinnaker Industries, Inc. was reduced to 41.8% and 49.5%, respectively, due to
the disposition of shares of Spinnaker. As a result, effective September 30,
2001, the Company relinquished control of Spinnaker and has deconsolidated
Spinnaker and will prospectively account for its ownership of Spinnaker using
the equity method of accounting. See Note B.

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##### Table of Contents






NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A.     Subsidiaries of the Registrant

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

|                                        |                                         |                         |                               |                                   |                   |                   |                   | 
|--------------------------------------- | --------------------------------------- | ----------------------- | ----------------------------- | --------------------------------- | ----------------- | ----------------- | ----------------- | 
|Subsidiary                              |                                         | Owned By Lynch         
|                                        |                                         |                        
|Lynch Display Technologies, Inc.        |                                         |                         | 100.0%                        |                                  
|Lynch Systems, Inc.                     |                                         |                         | 100.0%                        |                                  
|                                        | Lynch International Holding Corporation |                         |                               | 100.0%                            |                  
|                                        | Lynch-AMAV LLC                          |                         |                               | 100.0%                            |                  
|                                        | M-tron Industries, Inc.                 |                         |                               | 100.0%                            |                  
|                                        |                                         | M-tron Industries, Ltd. |                               |                                   | 100.0%            |                  
|Spinnaker Industries, Inc. (see Note B) |                                         |                         | 41.8%(O)/49.5%(V)             |                                  
|                                        |                                         | Entoleter, Inc.         |                               |                                   | 41.8%(O)/49.5%(V) |                  
|                                        |                                         | Spinnaker Coating, Inc. |                               |                                   | 41.8%(O)/49.5%(V) |                  
|                                        |                                         |                         | Spinnaker Coating-Maine, Inc. |                                   |                   | 41.8%(O)/49.5%(V) |                  
|                                        |                                         |                         |                               | Spinnaker Electrical Tape Company |                   |                   | 41.8%(O)/49.5%(V) | 

Notes: (O)=Percentage of equity ownership; (V)=Percentage voting control.

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 six month period ended June 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 first half 2002 results of operations do not
include the operating results of Spinnaker and the balance sheet at June 30,
2002 and December 31, 2001 does not contain the assets and liabilities of
Spinnaker, due to the deconsolidation. This deconsolidation resulted in a
non-cash gain of $27,406,000 being recorded on September 30, 2001 to reduce the
Companys negative investment in Spinnaker to $19,420,000, which represents the
Companys interest in Spinnakers accumulated deficit at the date of
deconsolidation. This remaining interest represents losses in excess of
investment, which has been recorded as a deferred credit on the Companys
balance sheet. The Company will not record any additional losses from
Spinnaker as the company has no further obligations to Spinnaker.

6



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##### Table of Contents



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

In each case, no return to equity holders is anticipated. Therefore, as a
result, the Company anticipates eliminating its remaining interest in Spinnaker
and its subsidiaries upon conclusion of the bankruptcy proceedings expected to
occur in the third quarter of 2002. At that time, the $19,420,000 loss in
excess of investment on the Companys June 30, 2002 balance sheet will become
a non-cash income item and increase shareholders equity. If this event would
have occurred on June 30, 2002, the Companys pro-forma equity would have been
$11,805,000, not the reported deficit amount of ($7,615,000).

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, 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.

Pursuant to a plan of
reorganization, the German-based AMAV location will be shutdown and
its operations, as well as Mr. Haepe, will relocate to the Lynch
Systems plant in Bainbridge, Georgia. As a result, the Company
recorded $69,000 in severance costs in June, 2002 for the termination
of six employees and believes that any future reorganization costs
will be minimal and more than offset by savings accruing from closing
the facility in Germany.

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 six-month period ended June 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     
|June 30, 2002                 |  | Cost |     | Gains |  | Losses     |     | Value     
|                              |  |      |     |       |  |            |     |           
|Equity Securities             |  | $    | 557 |       |  | $          | 118 |            |  |           |  |  |  | $ | 675 | 
|                              |  |      |     |       |  |            |     |            |  |           |   |  |  |   |     | 
|Total included in Investments |  |      |     |       |  |            |     |            |  |           |   |  |  | $ | 675 | 
|                              |  |      |     |       |  |            |     |            |  |           |   |  |  |   |     | 

E.     Inventories

Inventories are stated at the lower of cost or market value. At June 30,
2002, inventories were valued by two methods: last-in, first-out (LIFO)  53%,
and first-in, first-out (FIFO)  47%. At December 31, 2001, inventories were
valued by the same two methods: LIFO  58%, and FIFO  42%.

|                |                   |   |                |       |              |   |       |       | 
|--------------- | ----------------- | - | -------------- | ----- | ------------ | - | ----- | ----- | 
|                |                   |   | June 30,       |       | December 31,
|                |                   |   | 2002           |       | 2001        
|                |                   |   |                |       |             
|                |                   |   | (In Thousands)
|Raw materials   |                   | $ | 1,471          |       |              | $ | 1,844 |      
|Work in process |                   |   | 2,218          |       |              |   | 2,003 |      
|Finished goods  |                   |   | 1,301          |       |              |   | 1,413 |      
|                |                   |   |                |       |              |   |       |      
|                | Total Inventories |   | $              | 4,990 |              |   | $     | 5,260 | 
|                |                   |   |                |       |              |   |       |      

Current costs exceed LIFO value of inventories by $1,027,000 and $991,000
respectively at June 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 credit facility expired on May 31, 2002 and is under extension
through August 31, 2002. Management is currently negotiating a new facility which
is expected to close by August 31, 2002.

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

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

|                                                                                                   |  |          |       |              |  |   |       |  
|-------------------------------------------------------------------------------------------------- |  | -------- | ----- | ------------ |  | - | ----- | -
|                                                                                                   |  | June 30, |       | December 31,
|                                                                                                   |  | 2002     |       | 2001        
|                                                                                                   |  |          |       |             
|Notes payable:                                                                                     |  |          |       |              |  |   |       |  
|M-tron bank revolving loan at variable interest rates (4.5% at June 30,
2002), due August 31, 2002 |  | $        | 1,334 |              |  | $ | 1,086 |  
|                                                                                                   |  |          |       |              |  |   |       |  
|Long-term debt:                                                                                    |  |          |       |              |  |   |       |  
|M-tron term loan at variable interest rates (5.0% at June 30, 2002), due
September, 2004           |  | $        | 1,082 |              |  | $ | 1,259 |  
|Lynch Systems term loan at a fixed interest rate of 8.0%, due August 2003                          |  |          | 591   |              |  |   | 607   |  
|Other debt at a fixed rate of 8.0%                                                                 |  |          |      |              |  |   | 333   |  
|                                                                                                   |  |          |       |              |  |   |       |  
|                                                                                                   |  |          | 1,673 |              |  |   | 2,199 |  
|Current maturities                                                                                 |  |          | (176  | )            |  |   | (521  | )
|                                                                                                   |  |          |       |              |  |   |       |  
|                                                                                                   |  | $        | 1,497 |              |  | $ | 1,678 |  
|                                                                                                   |  |          |       |              |  |   |       |  

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 in the first half of 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 3, 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 June 30,
2002 and December 31, 2001 balance sheets have been modified in accordance with
this change.

H.     Other
Comprehensive Loss

Total comprehensive loss was $22,000 in the three months ended June 30,
2002, as opposed to a total comprehensive loss of $8,673,000 in the second
quarter of 2001.

Total comprehensive loss was $282,000 and $44,743,000 for the six months
ended 6/30/02 and 6/30/01 respectively, including other comprehensive income of
$32,000 in the first quarter of 2002 and $86,000 in the second quarter of 2002
resulting from gains on available for sale securities.

I.     Segment
Information

The Company has four reportable business segments. The largest is
Spinnaker Coatings adhesive backed label stock for labels and related
applications. The second largest segment is Lynch Systems glass manufacturing
equipment business. Frequency control devices (quartz crystals and
oscillators) manufactured and sold by M-tron is the third segment. Entoleter
(subsidiary of Spinnaker Industries, Inc.) manufactures and sells industrial
process equipment and is the fourth segment. Spinnaker Coating and Entoleter
results are shown only for the six month period ending June 30, 2001 pursuant
to the deconsolidation of Spinnaker on September 30, 2001 (see Note B). All
four businesses are located domestically.

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

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I.     Segment
Information (continued)

Operating profit (loss) is equal to revenues less operating expenses,
unallocated general corporate expenses, 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 second quarter of
2002 and 2001, and $100,000 and $150,000 respectively in the first half 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.

|                                    |                                  |  |                    |       |                  |  |      |        |      |  |   |        |   |  |   |         |  
|----------------------------------- | -------------------------------- |  | ------------------ | ----- | ---------------- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ------- | -
|                                    |                                  |  | Three Months Ended |       | Six Months Ended
|                                    |                                  |  | June 30,           |       | June 30,        
|                                    |                                  |  |                    |       |                 
|                                    |                                  |  | 2002               |       | 2001             |  | 2002 |        | 2001
|                                    |                                  |  |                    |       |                  |  |      |        |     
|                                    |                                  |  | (In Thousands)     |       | (In Thousands)  
|Revenues                            |                                  |  |                    |       |                  |  |      |        |      |  |   |        |   |  |   |        
|                                    | Adhesive-backed label stock      |  | $                  |      |                  |  | $    | 31,627 |      |  | $ |       |   |  | $ | 68,760  |  
|                                    | Glass manufacturing equipment    |  |                    | 6,734 |                  |  |      | 6,748  |      |  |   | 11,049 |   |  |   | 12,294  |  
|                                    | Frequency control devices        |  |                    | 2,957 |                  |  |      | 5,762  |      |  |   | 5,645  |   |  |   | 15,804  |  
|                                    | Industrial process equipment     |  |                    |      |                  |  |      | 1,216  |      |  |   |       |   |  |   | 2,043   |  
|                                    |                                  |  |                    |       |                  |  |      |        |      |  |   |        |   |  |   |        
|                                    | Consolidated Total               |  | $                  | 9,691 |                  |  | $    | 45,353 |      |  | $ | 16,694 |   |  | $ | 98,901  |  
|                                    |                                  |  |                    |       |                  |  |      |        |      |  |   |        |   |  |   |        
|EBITDA (after corporate allocation) |                                  |  |                    |       |                  |  |      |        |      |  |   |        |   |  |   |        
|                                    | Adhesive-backed label stock      |  |                    |      |                  |  |      | (3,520 | )    |  |   |       |   |  |   | (3,778  | )
|                                    | Glass manufacturing equipment    |  |                    | 949   |                  |  |      | 1,793  |      |  |   | 1,770  |   |  |   | 2,900   |  
|                                    | Frequency control devices        |  |                    | (535  | )                |  |      | (640   | )    |  |   | (1,170 | ) |  |   | 333     |  
|                                    | Industrial process equipment     |  |                    |      |                  |  |      | 98     |      |  |   |       |   |  |   | (9      | )
|                                    | Corporate manufacturing expense  |  |                    |      |                  |  |      | (482   | )    |  |   |       |   |  |   | (807    | )
|                                    |                                  |  |                    |       |                  |  |      |        |      |  |   |        |   |  |   |        
|                                    | Total manufacturing              |  |                    | 414   |                  |  |      | (2,751 | )    |  |   | 600    |   |  |   | (1,361  | )
|                                   
|                                    | Corporate expenses, net          |  |                    | (297  | )                |  |      | (174   | )    |  |   | (574   | ) |  |   | (485    | )
|                                    | Restructuring charge  Spinnaker |  |                    |      |                  |  |      | (878   | )    |  |   |       |   |  |   | (1,309  | )
|                                    |                                  |  |                    |       |                  |  |      |        |      |  |   |        |   |  |   |        
|                                    | Consolidated Total               |  | $                  | 117   |                  |  | $    | (3,803 | )    |  | $ | 26     |   |  | $ | (3,155  | )
|                                    |                                  |  |                    |       |                  |  |      |        |      |  |   |        |   |  |   |        
|Operating Profit (Loss)             |                                  |  |                    |       |                  |  |      |        |      |  |   |        |   |  |   |        
|                                    | Adhesive-backed label stock      |  | $                  |      |                  |  | $    | (4,506 | )    |  | $ |       |   |  | $ | (6,082  | )
|                                    | Glass manufacturing equipment    |  |                    | 854   |                  |  |      | 1,688  |      |  |   | 1,580  |   |  |   | 2,691   |  
|                                    | Frequency control devices        |  |                    | (700  | )                |  |      | (832   | )    |  |   | (1,499 | ) |  |   | (40     | )
|                                    | Industrial process equipment     |  |                    |      |                  |  |      | 65     |      |  |   |       |   |  |   | (75     | )
|                                    | Corporate manufacturing expense  |  |                    |      |                  |  |      | (457   | )    |  |   |       |   |  |   | (757    | )
|                                    |                                  |  |                    |       |                  |  |      |        |      |  |   |        |   |  |   |        
|                                    | Total manufacturing              |  | $                  | 154   |                  |  | $    | (4,042 | )    |  | $ | 81     |   |  | $ | (4,263  | )
|                                   
|                                    | Unallocated Corporate expenses   |  |                    | (347  | )                |  |      | (251   | )    |  |   | (674   | ) |  |   | (639    | )
|                                    | Restructuring charge  Spinnaker |  |                    |      |                  |  |      | (1,577 | )    |  |   |       |   |  |   | (38,061 | )
|                                    |                                  |  |                    |       |                  |  |      |        |      |  |   |        |   |  |   |        
|                                    | Consolidated Total               |  | $                  | (193  | )                |  | $    | (5,870 | )    |  | $ | (593   | ) |  | $ | (42,963 | )
|                                    |                                  |  |                    |       |                  |  |      |        |      |  |   |        |   |  |   |        
|Depreciation and Amortization       |                                  |  |                    |       |                  |  |      |        |      |  |   |        |   |  |   |        
|                                    | Adhesive-backed label stock      |  | $                  |      |                  |  | $    | 986    |      |  | $ |       |   |  | $ | 2,304   |  
|                                    | Glass manufacturing equipment    |  |                    | 120   |                  |  |      | 130    |      |  |   | 240    |   |  |   | 259     |  
|                                    | Frequency control devices        |  |                    | 190   |                  |  |      | 217    |      |  |   | 379    |   |  |   | 423     |  
|                                    | Industrial process equipment     |  |                    |      |                  |  |      | 33     |      |  |   |       |   |  |   | 66      |  
|                                    | Corporate manufacturing expenses |  |                    |      |                  |  |      | 2      |      |  |   |       |   |  |   | 4       |  
|                                    |                                  |  |                    |       |                  |  |      |        |      |  |   |        |   |  |   |        
|                                    | Consolidated Total               |  | $                  | 310   |                  |  | $    | 1,368  |      |  | $ | 619    |   |  | $ | 3,056   |  
|                                    |                                  |  |                    |       |                  |  |      |        |      |  |   |        |   |  |   |        
|Capital Expenditures                |                                  |  |                    |       |                  |  |      |        |      |  |   |        |   |  |   |        
|                                    | Adhesive-backed label stock      |  | $                  |      |                  |  | $    | 70     |      |  | $ |       |   |  | $ | 270     |  
|                                    | Glass manufacturing equipment    |  |                    | 32    |                  |  |      | 65     |      |  |   | 41     |   |  |   | 118     |  
|                                    | Frequency control devices        |  |                    | 74    |                  |  |      | 55     |      |  |   | 101    |   |  |   | 363     |  

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##### Table of Contents



I.     Segment
Information (continued)

|                                             |                                                 |   |                    |      |                  |   |        |        |      |   |      |        |   |   |         |         |  
|-------------------------------------------- | ----------------------------------------------- | - | ------------------ | ---- | ---------------- | - | ------ | ------ | ---- | - | ---- | ------ | - | - | ------- | ------- | -
|                                             |                                                 |   | Three Months Ended |      | Six Months Ended
|                                             |                                                 |   | March 31           |      | June 30         
|                                             |                                                 |   |                    |      |                 
|                                             |                                                 |   | 2002               |      | 2001             |   | 2002   |        | 2001
|                                             |                                                 |   |                    |      |                  |   |        |        |     
|                                             |                                                 |   | (In Thousands)     |      | (In Thousands)  
|                                             |                                                 |   |                    |      |                 
|                                             | Industrial process equipment                    |   |                    |     |                  |   |        | 25     |      |   |      |       |   |   |         | 25      |  
|                                             |                                                 |   |                    |      |                  |   |        |        |      |   |      |        |   |   |         |        
|                                             | Consolidated Total                              |   | $                  | 106  |                  |   | $      | 215    |      |   | $    | 142    |   |   | $       | 776     |  
|                                             |                                                 |   |                    |      |                  |   |        |        |      |   |      |        |   |   |         |        
|Total Assets                                 |                                                 |   |                    |      |                  |   |        |        |      |   |      |        |   |   |         |        
|                                             | Adhesive-backed label stock                     |   | $                  |     |                  |   | $      |       |      |   | $    |       |   |   | $       | 67,549  |  
|                                             | Glass manufacturing equipment                   |   |                    |     |                  |   |        |       |      |   |      | 22,181 |   |   |         | 16,715  |  
|                                             | Frequency control devices                       |   |                    |     |                  |   |        |       |      |   |      | 7,233  |   |   |         | 12,136  |  
|                                             | Industrial process equipment                    |   |                    |     |                  |   |        |       |      |   |      |       |   |   |         | 2,435   |  
|                                             | General Corporate                               |   |                    |     |                  |   |        |       |      |   |      | 1,477  |   |   |         | 2,826   |  
|                                             |                                                 |   |                    |      |                  |   |        |        |      |   |      |        |   |   |         |        
|                                             | Consolidated Total                              |   | $                  |     |                  |   | $      |       |      |   | $    | 30,891 |   |   | $       | 101,661 |  
|                                             |                                                 |   |                    |      |                  |   |        |        |      |   |      |        |   |   |         |        
|Total operating profit of reporting segments |                                                 | $ | (193               | )    |                  | $ | (5,870 | )      |      | $ | (593 | )      |   | $ | (42,963 | )      
|Other profit or loss:                        |                                                 |   |                    |      |                  |   |        |        |      |   |      |        |   |   |         |        
|                                             | Investment income                               |   |                    | 24   |                  |   |        | 138    |      |   |      | 63     |   |   |         | 317     |  
|                                             | Interest expense                                |   |                    | (52  | )                |   |        | (2,533 | )    |   |      | (92    | ) |   |         | (5,237  | )
|                                             |                                                 |   |                    |      |                  |   |        |        |      |   |      |        |   |   |         |        
|                                             | Loss before income taxes and minority
interests |   | $                  | (221 | )                |   | $      | (8,265 | )    |   | $    | (622   | ) |   | $       | (47,883 | )
|                                             |                                                 |   |                    |      |                  |   |        |        |      |   |      |        |   |   |         |        

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
quarter and second quarter of 2001 related to Spinnaker of $36.5 million
and $1.6 million respectively. $36.8 million of the $38.1 million six
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
has also filed a Form 15 with the Securities and Exchange Commission to
terminate its obligations to file periodic reports under the Securities
Exchange Act of 1934.

On December 31, 2001, Spinnaker entered into a letter of intent (the
Letter of Intent) with WR Capital Partners, LLC (WR Capital) whereby
SP Acquisition LLC (SP Acquisition), and 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 are not included
in the sale. On January 4, 2002, Spinnaker filed a motion with the Court
to approve the sale of substantially all of its assets, subject to higher
and better offers, to SP Acquisition. On January 17, 2002, the Court
entered an order (i) approving bid procedures, including a break-up fee
and expense reimbursement, (ii) setting an auction date of March 4, 2002,
and (iii) setting a date to issue an order approving the sale of such
assets for March 5, 2002.

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

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##### Table of Contents



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

On March 28, 2002, the Court approved the sale of substantially all
of Entoleters assets to Welton LLC for $920,000 in cash plus certain
assumed obligations. The closing of the sale occurred on April 16, 2002.
Spinnaker estimates that, pursuant to a plan of liquidation, there will be
a minimal distribution to unsecured creditors and no return to Spinnaker,
Entoleters sole equity holder.

Therefore, as a result, the Company anticipates eliminating its
remaining interest in Spinnaker and its subsidiaries upon conclusion of
the bankruptcy proceedings now not expected to occur until the third
quarter of 2002 due to delays in filing with the court caused by a dispute
between the service providers and creditors committee. At that time, the
$19,420,000 loss in excess of investment on the Companys June 30, 2002
balance sheet will become a non-cash income item and increase
shareholders equity. If this event would have occurred on June 30, 2002,
the Companys pro-forma equity would have been $11,805,000, not the
reported deficit amount of ($7,615,000).

L.     Commitments and
Contingencies

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

The Company, Lynch Interactive Corporation (Interactive), and
several other parties have been named as defendants in a lawsuit brought
under the so-called qui tam provisions of the federal False Claims Act
in the United States District Court for the District of Columbia. 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 Company has until September 5,
2002 to answer, move to dismiss, or otherwise respond to the complaint.
The main allegation in the case is that the defendants participated in the
creation of sham bidding entities that allegedly defrauded the federal
Treasury by improperly participating in Federal Communications Commission
spectrum auctions restricted to small businesses, as well as obtaining
bidding credits in other spectrum auctions allocated to small and very
small businesses. The lawsuit seeks to recover an unspecified amount of
damages, which would be subject to mandatory trebling under the statute.

The U.S. Department of Justice has notified the court that it has
declined to intervene in the case. The defendants strongly believe that
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.
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.

On or about June 26, 2001, in anticipation of the July 15, 2001
closure of Spinnakers Westbrook, Maine facility, Plaintiff PACE Local
1-1069 filed a three count complaint in Cumberland County Superior Court,
CV-2001-00352 naming the following defendants: Spinnaker Industries, Inc.,
Spinnaker Coating, Inc., and Spinnaker Coating-Maine, Inc. (collectively,
the Spinnaker Entities) and Lynch. The complaint alleged that under
Maines Severance Pay Act both the Spinnaker Entities and Lynch would be
liable to pay approximately $1,166,000 severance pay under Maines
Severance Pay Act in connection with the plant closure. The Defendants
filed a notice of removal, thereby creating United States District Court
Civil Action C.V. No. 01-236. The case was remanded to state court. The
Spinnaker Entities also filed a separate complaint challenging the
constitutionality of the Maine Severance Pay Act, United States District
Court Civil Action 01-232. Thereafter, when the Spinnaker Defendants
filed for relief under Chapter 11 of the Bankruptcy Code, they filed a
second notice of removal, creating United States District Court for the
District of Maine case number C.V. No. 02-7. Upon entry of an order
confirming automatic reference, the C.V. No. 02-7 was referred to the
United States Bankruptcy Court, District of Maine, and assigned Adv. Pro.
No. 02-2007. This litigation was resolved as follows:

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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 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
appelate 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.
|
| | vi)  |  | Lynch believes that, in addition to other defenses, it
is not subject to the Maine Severance Pay Act, as now in
effect, and will move for summary judgment. 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:

|                             |  |          |           |              |  |   |           | 
|---------------------------- |  | -------- | --------- | ------------ |  | - | --------- | 
|                             |  | June 30, |           | December 31,
|                             |  | 2002     |           | 2001        
|                             |  |          |           |             
|Warranty Reserves            |  | $        | 1,636,000 |              |  | $ | 1,528,000 | 
|Commissions Payable          |  |          | 1,301,000 |              |  |   | 786,000   | 
|Accrued Compensation Expense |  |          | 1,017,000 |              |  |   | 1,210,000 | 
|Tax Accruals                 |  |          | 1,084,000 |              |  |   | 816,000   | 
|Other                        |  |          | 1,063,000 |              |  |   | 1,856,000 | 
|                             |  |          |           |              |  |   |           | 
|                             |  | $        | 6,101,000 |              |  | $ | 6,196,000 | 
|                             |  |          |           |              |  |   |           | 




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

Results of Operations

Second Quarter 2002 and Six Months 2002 Compared to 2001 (including Results of
Spinnaker for the six months ended June 30, 2001)

Effective September 30, 2001, the Companys ownership and voting interest
of Spinnaker Industries, Inc. was reduced to 41.8% and 49.5% respectively, due
to the disposition of shares of Spinnaker. As a result, effective September
30, 2001, the Company relinquished control of Spinnaker and has deconsolidated
Spinnaker and will prospectively account for its ownership of Spinnaker using
the equity method of accounting. See Note B  Basis of Presentation included
elsewhere herein. Accordingly, Spinnaker results of operations will only be
included for nine months in 2001.

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Sales and Revenues/Gross Margin

Revenues for the second quarter of 2002 decreased from $45.4 million to
$9.7 million due mainly to the previously described deconsolidation of
Spinnaker. Accordingly, Spinnakers net sales for the quarter ended June 30,
2001 of $32.8 million represented 72 percent of the quarter over quarter
unfavorable revenue variance. Six months 2002 sales of $16.7 million were
$82.2 million below the first six months of 2001 with the deconsolidation of
Spinnaker accounting for $70.8 million of the reduction.

Second quarter 2002 gross margin as a percent of revenues improved to
29.1% from 1.5% in the second quarter of 2001 due mainly to the deconsolidation
of Spinnaker. Spinnakers gross margin as a percentage of revenues for the
three months ended June 30, 2001 was negative 8.7% as a result of higher
material costs, inventory write-down, selling price erosion, and reduced sales.

Revenues at M-tron decreased by $2.8 million or 48.7% to $3.0 million for
the second quarter of 2002 due to the continuation of weak demand from the
infrastructure segment of the telecommunications industry which is still
working through the overcapacity caused by the Internet bubble. This dramatic
reduction in market demand resulted in a $10.2 million revenue decline or 64.3%
in the first six months of 2002.

Lynch Systems second quarter 2002 revenue of $6.7 million was equal to
the corresponding 2001 period. Six month 2002 revenue of $11.0 million was $1.2
million or 9.3% less than the first six months of 2001. Although glass machine
sales were up by $3.0 million, reduced volume in Lynch AMAV (Germany) of $2.1
million and $1.2 million less repair part sales resulted in a net revenue
decline. New orders for glass press machines by television set producers have
been weak causing the year over year revenue shortfall and resulting in a
significant drop in backlog to $4.1 million at June 30, 2002 in comparison to a
$15.5 million backlog last June and $12.0 million at December 31, 2001.

M-trons gross margin as a percentage of net sales for the second quarter
of 2002 was up slightly by 1.5% to 11.2% from the same period of 2001 because
second quarter 2001 margin was impaired 6.5% by a $374,000 inventory write-off
caused by customer order cancellations. The previously described sales decline
of 64.3% in the first half of 2002 caused the significant reduction in six
month gross margin to 9.6% from 19.4%.

Lynch Systems gross margin as a percentage of net sales for the first
half of 2002 was 40.0%, virtually equal to the 40.9% margin in the same period
of 2001. Second quarter 2002 gross margin of 37.0% was 7.4% below second
quarter 2001 due mainly to less higher margin repair parts sales.

Operating Loss

Operating loss for the second quarter 2002 was $0.2 million compared to
the second quarter 2001 operating loss of $5.9 million, or a positive swing of
$5.7 million. Six months 2002 operating loss of $0.6 million was $42.4 million
less than six months of 2001.

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 disposition of shares of Spinnaker. As a result,
effective September 30, 2001, the Company has deconsolidated Spinnaker and will
prospectively account for its ownership of Spinnaker using the equity method of
Accounting.

Accordingly, the Companys second quarter 2001 and six months 2001 include
the operating results of Spinnaker. Spinnakers loss from operations for the
three months ended June 30, 2001 was $6.5 million including an impairment
charge of $5.1 million associated with the closing of the Coating  Maine
facility. Spinnakers six month 2001 loss of $45.0 million included impairment
and restructuring charges of $41.5 million. Spinnakers 2001 six month loss
from continuing operations was $3.4 million, reflecting lower margins caused by
lower prices, less volume, and higher materials costs.

For the second
quarter of 2002, M-tron had an operating loss of $0.7
million compared to an operating loss of $0.8 million in the second quarter of
2001. The six month 2002 operating loss of $1.5 million was due mainly to the
dramatically decreased sales volumes mentioned above. In spite of a 37 percent
reduction in head count since last June, (14% this past quarter,) a further
curtailment in hours worked and salary reductions, M-tron could not compensate
for the 64 percent reduction in volume and lower selling prices.

For the 2002 second quarter, Lynch Systems had an operating profit of $0.9
million compared to an operating profit of $1.7 million in the second quarter
of 2001. Six months 2002 operating profit of $1.6 million was $1.1 million
less than the same period last year due to $1.2 million lower sales, one point
less gross profit due to product mix, and $0.5 million higher commissions
attributable to more glass machine sales.

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$1.1 million
less than the same period last year due to $1.2 million lower sales, one point
less gross profit due to product mix, and $0.5 million higher commissions
attributable to more glass machine sales.

For the second quarter of 2002, Lynchs corporate headquarters incurred
unallocated expenses of $0.3 million, bringing the six month total to $0.6
million, the same as 2001. As a result, the Companys second quarter 2002
operating loss was $0.2 million as compared to a second quarter 2001 operating
profit (excluding Spinnaker) of $0.6 million. Six month 2002 and 2001
operating profit (loss) after corporate expenses (excluding Spinnaker) were
($0.6) million and $2.0 million respectively.

Other Income (Expense), Net

Investment income decreased $114,000 for the three months ended June 30
and $254,000 for the six month period of 2002 due to the deconsolidation of
Spinnaker, which accounted for $66,000 of second quarter 2001 and $240,000 of
six month 2001 investment income.

Interest expense of $52,000 for the second quarter 2002 and $92,000
through June represents improvements of $2,481,000 and $5,145,000 due to
deconsolidating Spinnaker, which was included in 2001 interest expense, in the
amounts of $2,458,000 and $5,067,000 respectively.

Tax Benefit (Provision)

The income tax benefit (provision) includes federal, as well as state,
local, and foreign taxes. The second quarter 2002 and six month net tax
benefit is the result of operating losses expected to be recovered
through carry-back to prior periods.

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, 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.

Pursuant to a plan of
reorganization, the German-based AMAV location will be shutdown and
its operations, as well as Mr. Haepe, will relocate to the Lynch
Systems plant in Bainbridge, Georgia. As a result, the Company
recorded $69,000 in severance costs in June, 2002 for the termination
of six employees and believes that any future reorganization costs
will be minimal and more than offset by savings accruing from closing
the facility in Germany.

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

Net Loss

Net loss for the second quarter of 2002 was $0.1 million compared to a net
loss of $8.7 million in the quarter ending June 30, 2001. The $8.6 million
positive swing is primarily due to the deconsolidation of Spinnaker which had
accounted for a loss of $8.9 million in second quarter 2001. Fully diluted
second quarter 2002 loss per share was $0.07 compared to a loss of $5.74 per
share in second quarter 2002. Six month 2002 net loss was $0.4 million or
($0.27) per share compared to a six month 2001 loss of $44.7 million or
($29.63) per share. Absent Spinnaker, second quarter 2001 net income was $0.2
million or $0.13 per share and six month 2001 net income was $0.9 million or
$0.62 per share.

Backlog/New Orders

Total backlog of manufactured products (excluding Spinnaker in both years)
at June 30, 2002 was $6.2 million, a reduction of $7.2 million from the backlog
at December 31, 2001, and $11.9 million less than the balance at June 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 June due to the
timing of large glass machine orders. Quotations activity remains strong with
over $73,000,000 of quotes generated by Lynch Systems in the first half of this
year of which $40 million is still outstanding.

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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 June 30, 2002.

At June 30, 2002, the Company has current assets of $25.3 million and
current liabilities of $15.7 million. Working capital was therefore $9.6
million as compared to $9.6 million at December 31, 2001 and $9.4 million at
June 30, 2001. The ratio of current assets to current liabilities was 1.61 to
1.00 at June 30, 2002; 1.59 to 1.00 at December 31, 2001; and 1.60 to 1.00
ratio at June 30, 2001.

Cash provided by operating activities was approximately $0.8 million in
first half of 2002 compared to cash provided of approximately $3.5 million in
the first half of 2001. The year over year unfavorable change in operational
cash flow was mainly the result of $1.3 million less net profits and a $1.3
million difference in cash provided in working capital. Capital expenditures
were $142,000 in second half 2002 compared to $452,000 in the period ending
June 30, 2001.

Total debt of $3.0 million at June 30, 2002 was $0.3 million less than the
amount outstanding at December 31, 2001 and $1.3 million less than the debt at
June 30, 2001. The year over year reduction in debt is primarily due to
reductions in the revolving credit loans. Debt outstanding at June 31, 2002
included $591 thousand of fixed interest rate debt at an 8.0% interest rate,
and $2.4 million of variable interest rate debt at a June 30, 2002 average rate
of 4.7%.

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 expired May 31, 2002. The Companys long-time
lender, First National Bank of Omaha, extended the credit for three months
pending finalizing a new agreement. A parent company cash infusion of $500,000
to M-tron and a $1 million parent company Letter of Credit may be necessary to
obtain the new credit line that is expected to close by August 31, 2002.

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
half 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 equivalents and short-term investments
(approximately $9.2 million at June 30, 2002). The Company generally finances
the debt portion of the acquisition of long-term assets with fixed rate,
long-term debt. The Company generally maintains the majority of its debt in
nature by borrowing on a fixed long-term basis. The Company does not use
derivative financial instruments for trading or speculative purposes.
Management does not foresee any significant changes in the strategies used to
manage interest rate risk in the near future, although the strategies may be
reevaluated as market conditions dictate. There has been no significant change
in market risk since June 30, 2002.

At June 30, 2002, approximately $2.4 million of the Companys debt bears
interest at variable rates. Accordingly, the Companys earnings and cash
flows are only slightly affected by changes in interest rates. Assuming the
current level of borrowings for variable rate debt, and assuming a two
percentage point increase in the 2002 average interest rate, it is estimated
that the Companys annual interest expense would change by less than $0.1
million.

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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.

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.




Item 3. Quantitative and Qualitative Disclosure About Market Risk

See Market Risk under Item 2 above.




PART II. OTHER INFORMATION




Item 1. Legal Proceedings

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 Company has until September 5,
2002 to answer, move to dismiss, or otherwise respond to the complaint.
The main allegation in the case is that the defendants participated in the
creation of sham bidding entities that allegedly defrauded the federal
Treasury by improperly participating in Federal Communications Commission
spectrum auctions restricted to small businesses, as well as obtaining
bidding credits in other spectrum auctions allocated to small and very
small businesses. The lawsuit seeks to recover an unspecified amount of
damages, which would be subject to mandatory trebling under the statute.

The U.S. Department of Justice has notified the court that it has
declined to intervene in the case. The defendants strongly believe that
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.
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.




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

At the Annual Meeting of Stockholders of the Registrant held on May 2,
2002:

(a)  The following persons were elected as Directors with the following
votes:

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|                     |  |           |           |                |  |  |        | 
|-------------------- |  | --------- | --------- | -------------- |  |  | ------ | 
|Name                 |  | Votes For |           | Votes Withheld
|                     |  |           |           |               
|E. Val Cerutti       |  |           | 1,258,178 |                |  |  | 81,993 | 
|Avrum Gray           |  |           | 1,258,288 |                |  |  | 81,883 | 
|Mario J. Gabelli     |  |           | 1,253,678 |                |  |  | 86,493 | 
|Raymond H. Keller    |  |           | 1,253,589 |                |  |  | 86,582 | 
|Richard E. McGrail   |  |           | 1,250,360 |                |  |  | 89,811 | 
|Ralph R. Papitto     |  |           | 1,253,583 |                |  |  | 86,588 | 
|Anthony R. Pustorino |  |           | 1,258,178 |                |  |  | 81,993 | 

(b)  The Lynch Corporation 2001 Equity Incentive Plan, as described in Item
2 of the Proxy Statement for the Annual Meeting (Equity Incentive Plan), was
approved by the Stockholders by the following votes: Votes for  842,612;
Votes Against  117,408; Votes Abstain  9,954; and Broker Non-Vote  370,197.
The Equity Incentive Plan reserves 300,000 shares of Common Stock of Registrant
for issuance to employees of Registrant and its subsidiaries and other persons
who are in a position to make a significant contribution to the success of the
Registrant and its subsidiaries.

(c)  The Stockholders approved the grant of certain stock options under the
Equity Incentive Plan, as described in Item 3 of the Proxy Statement for the
Annual Meeting, by the following votes: Votes For  828,878; Votes Against -
134,042; Votes Abstain  7,054; and Broker Non-Vote  370,197. The Stock
Options approved included (1) an option for 180,000 shares to Ralph R. Papitto,
Chairman and Chief Executive Officer of Registrant; (2) an option for 24,000
shares to Raymond H. Keller, Chief Financial Officer of Registrant; and (3) an
option for 24,000 shares to Richard E. McGrail, President and Chief Operating
Officer of Registrant, all at an exercise price of $17.50 per share.

(d)  The Stockholders approved an amendment to the Restated Articles of
Incorporation of Registrant (Amendment), as described in Item 4 of the Proxy
Statement for the Annual Meeting, by the following votes: Votes For -
1,328,969; Votes Against  7,349; and Votes Abstain  3,853. The Amendment,
which became effective on May 3, 2002, effected a change of all 10,000,000
shares of Registrants authorized Common Stock from shares without par value
into shares having a par value of $0.01 per share for all purposes, without
otherwise changing the designations, rights, preferences, or limitations of
such shares and without increasing or decreasing the number of such shares.




Item 6. Exhibits and Reports on Form 8-K



| | (a) |  | Exhibits filed herewith:                                                 
| | --- |  | -------------------------------------------------------------------------
|
| |     |  | 99.1 Officers Certification.                                            
|
| | (b) |  | Reports on Form 8-K:                                                     
|
| |     |  | No reports on Form 8-K were filed during the quarter ended June 30,
2002.

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SIGNATURES

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



| | LYNCH CORPORATION
(Registrant)
| | ------------------------------



| | By:  /s/ Raymond H. Keller
| | --------------------------

| | 
| | 

| | Raymond H. Keller
Chief Financial Officer
| | -----------------------------------------



|August 12, 2002 | 
|--------------- | 

18