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SECURITIES AND EXCHANGE COMMISSION

Form 10-K

LYNCH CORPORATION

Registrant’s telephone number, including area code:

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

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

      Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes þ          No o

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

      Indicate by check mark whether the registrant is an accelerated filer (as defined) in Rule 12b-2 under the Securities Act of 1934).     Yes o          No þ

      The aggregate market value of voting stock held by non-affiliates of the Registrant (based upon the closing price of the Registrant’s Common Stock on the American Stock Exchange on June 30, 2003 of $9.90 per share) was $10.0 million. (In determining this figure, the Registrant has assumed that all of the Registrant’s directors and officers are affiliates. This assumption shall not be deemed conclusive for any other purpose.)

      The number of outstanding shares of the Registrant’s Common Stock was 1,495,483 as of March 12, 2004.

DOCUMENTS INCORPORATED BY REFERENCE:

      Certain portions of Registrant’s definitive Proxy Statement for the 2004 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission not later than April 13, 2004, are incorporated by reference in Part III of this Report.

FORWARD LOOKING INFORMATION

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

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

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

PART I

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

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

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

A.     Lynch Systems, Inc.

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

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

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

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

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

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

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

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

      In 2003, LS sold three large glass press machines with an aggregate value of $7.3 million. Using the percentage of completion method, $5.5 million was recognized in 2003 revenue with the balance expected to be recognized in 2004.

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

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      LS’s worldwide customers require capital equipment that produces a wide variety of Tableware products to remain competitive. In support of this market demand, Lynch Systems has invested in Research & Development (R&D) programs to manufacture new lines of capital equipment such as Stretch Machines for one-piece Stemware, Firepolishers for high quality Tableware and Spinning Machines for high speed, high quality Dishware.

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

      LS’s revenues from international sales were $9.1 million, $13.2 million and $23.1 million for 2003, 2002 and 2001, respectively, representing approximately 71%, 88% and 89% of LS’s net sales for 2003, 2002 and 2001, respectively. International sales the past three years were mainly to customers in China, South Korea, Lithuania, and the Netherlands. The profitability of international sales is approximately equivalent to that of domestic sales. Because many international orders require partial advance deposits, with the balance often secured by irrevocable letters of credit from banks in the foreign country, the Registrant believes that most of the credit risks commonly associated with doing business in international markets are minimized. The Registrant avoids currency exchange risk by transacting substantially all international sales in United States dollars.

      LS had an order backlog of approximately $2.8 million at December 31, 2003, compared to $3.9 million at December 31, 2002. Backlog declined due to the lack of orders from television and tableware manufactures. All of LS’s $2.8 million backlog as of December 31, 2003 is scheduled to be delivered in 2004. LS includes as backlog only those orders which are subject to written contract or written purchase orders.

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

      Although one customer accounted for 27% of Lynch Systems 2003 revenue, and three customers accounted for 66% of 2003 sales, its pool of potential customers is diverse and LS does not believe it is dependent upon a single customer.

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

      Research and development expense was $180,000 in 2003, $220,000 in 2002 and $146,000 in 2001. 2003 R&D expense was for television related activities while prior year R&D was mainly for stemware.

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

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

B.     M-tron Industries, Inc. (“M-tron”)

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

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

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

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

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

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

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

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

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

      M-tron has a long-standing relationship with offshore contract manufacturers who have added capacity on its behalf. M-tron’s near term objective is to reduce the time it takes to manufacture its products, which will result in better service to its customers.

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

      M-tron intends to design, manufacture and sell devices that offer higher frequencies or greater precision than its current products. It intends to achieve this through a combination of focused research and development and strategic acquisitions, if they are appropriate.

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

      M-tron’s products are high quality, reliable, technically advanced frequency control devices, including packaged quartz crystals and oscillators incorporating those crystals. The October 2002 acquisition of “Champion” provided M-tron an entry to the timing modules market.

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

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

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

      The crystals and oscillators M-tron sells for use in non-communications applications are used in industrial applications such as security systems, metering systems, electronic test instruments and industrial control systems. They are used in military and medical instrumentation applications as well as in various computer peripheral equipment such as printers, modems, monitors, video cards and sound cards.

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

      At December 31, 2003, M-tron employed 7 engineers and technicians in South Dakota who devoted most of their time to research and development. Its research and development expense was approximately $565,000 in 2003, $724,000 in 2002, and $1,348,000 in 2001. M-tron expects to increase its spending on research and development by up to 15% during 2004.

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

	•	original equipment manufacturers of communications and networking equipment;
	•	contract manufacturers for original equipment manufacturers; and
	•	distributors who sell to original equipment manufacturers and contract manufacturers.

      In 2003, a Distributor accounted for approximately 13% of M-tron’s net sales, compared to less than 8% in 2002. No other customer accounted for more than 7% of its 2003 revenues. Sales to its ten largest customers accounted for approximately 44% of net sales in 2003, compared to approximately 60% of net sales for 2002 and 2001.

      M-tron’s revenues from international sales were $7.9 million, $5.8 million, and $10.8 million for 2003, 2002 and 2001, representing approximately 52%, 51%, and 50% of its net sales for 2003, 2002 and 2001, respectively. In 2003, these revenues included approximately 12% from customers in Canada, 24% from customers in Asia, 9% from customers in Western Europe and 5% from customers in Mexico. M-tron has increased its international sales efforts by adding distributors and manufacturers’ representatives in Western Europe and Asia. As anticipated, the Champion products acquisition improved the Company’s market position in Western Europe by doubling year over year sales. See Note 2 — “Acquisitions” to the Registrant’s Consolidated Financial Statements. The Registrant avoids currency exchange risk by transacting substantially all international sales in United States dollars.

      M-tron had backlog orders of approximately $2.8 million at December 31, 2003, compared to $2.3 million at December 31, 2002. The $0.5 million improvement is mainly the result of purchased oscillator bookings stemming from M-tron’s becoming more price competitive by moving the production of components requiring less engineering content to lower cost offshore contractors. M-tron includes as backlog those orders which are subject to specific production release orders under written contracts, verbal and written orders from

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

      M-tron has one manufacturing facility in Yankton, South Dakota, and has established long-term relationships with two contract manufacturers in Asia, with one contract manufacturer currently enjoying all of M-tron’s business. M-tron maintains a rigorous quality control system and is an ISO 9001 qualified manufacturer. M-tron’s Hong Kong subsidiary (M-tron Industries, Limited) does not manufacture, but acts as a buying agent and sales representative for its parent company.

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

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

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

      As of December 31, 2002, M-tron employed 136 people, including 6 in its Hong Kong subsidiary. None of its employees is represented by a labor union and it considers its employee relations to be good.

C.     Spinnaker Industries, Inc. (“Spinnaker”)

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

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      Prior to September 30, 2001, Lynch owned 48% and 60%, respectively, of the equity and voting power of Spinnaker. As such, under accounting principles generally accepted in the United States, Lynch consolidated the results of Spinnaker and was required to record all of the losses of Spinnaker, since the non-Lynch interests were not required to absorb their shares of losses (52%) after their investment was fully absorbed by losses. On September 26, 2001, Lynch caused LS to make a charitable disposition of 430,000 shares of Spinnaker’s Class A Common Stock. As a result of that transaction: (a) Lynch’s equity interest and voting power in Spinnaker were reduced to 41.8% and 49.5%, respectively, (b) Lynch deconsolidated Spinnaker for financial reporting purposes, effective September 30, 2001, (c) Lynch recorded a non-cash gain of $27,406,000 on September 30, 2001, (d) from September 30, 2001 until September 23, 2002, Lynch accounted for its ownership of Spinnaker using the equity method of accounting and (e) Lynch did not record any additional losses from Spinnaker, as Lynch had no obligation to further fund such losses.

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

D.     Other Information

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

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

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

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

      In 2003, the largest single customer accounted for 12% of consolidated sales, while the next largest customer represented 10% of revenue. In 2002, a single customer, who represented 42% of Lynch Systems sales, accounted for 24% of consolidated net sales, while the next largest customer represented less than 8% of consolidated revenue. There were no customers in 2001 that represent 10% or more of consolidated revenues. The Registrant does not believe that it is dependent on any single customer.

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

E.     Executive Officers of the Registrant

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

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

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

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

      M-tron’s operations are housed in two separate facilities in Yankton, South Dakota. These facilities contain approximately 51,000 square feet in the aggregate. The manufacturing facility that is owned by M-tron contains approximately 35,000 square feet, is situated on approximately 15 acres of land and is subject to security deeds relating to loans. The other facility is leased and contains approximately 16,000 square feet. The lease expires on September 30, 2006, with no options to extend the lease.

      M-tron’s Hong Kong office contains approximately 1,500 square feet; the lease expires October 5, 2005 and does not include renewal options.

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

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

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

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

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

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

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

      On March 8, 2004, Lynch filed a Motion for Summary Judgment on the issue of an exemption under the Maine Severance Pay Act based upon the nexus between the plant closure in Westbrook, Maine and the Spinnaker Defendants’ bankruptcy filing. PACE concurrently filed a Motion for Summary Judgment on Count II of the Complaint on March 8, 2004.

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

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

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

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

      Not applicable.

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PART II

      The Common Stock of Lynch Corporation is traded on the American Stock Exchange under the symbol “LGL.” The market price highs and lows in consolidated trading of the Common Stock during the two years ended December 31, 2003 and 2002 are as follows:

      At March 12, 2004, the Company had 806 shareholders of record.

Dividend Policy

      The Board of Directors has adopted a policy of not paying cash dividends, a policy which is reviewed annually. This policy takes into account the long term growth objectives of the Company, especially its acquisition program, shareholders’ desire for capital appreciation of their holdings and the current tax law disincentives for corporate dividend distributions. Accordingly, no cash dividends have been paid since January 30, 1989 and none are expected to be paid in 2004. Substantially all of the subsidiaries’ assets are restricted under the companies’ current credit agreements and limit the companies’ ability to pay dividends.

Equity Compensation Plan Information

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

      The following table sets forth the Equity Compensation Plan information required by Item 201(d) of Regulation S-K at the end of fiscal 2003:

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LYNCH CORPORATION AND SUBSIDIARIES

CONSOLIDATED SELECTED FINANCIAL DATA

      The following selected financial data is qualified by reference to, and should be read in conjunction with, the financial statements, including the notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Annual Report.

Notes:

*

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

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Critical Accounting Policies

      The Company’s significant accounting policies are described in Note 1 to the Consolidated Financial Statements included in Item 8 of this Form 10-K. The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to the carrying value of inventories, realizability of outstanding accounts receivable, percentage of completion of long-term contracts, and the provision for income taxes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. In the past, actual results have not been materially different from the Company’s estimates. However, results may differ from these estimates under different assumptions or conditions.

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

      Accounts receivable on a consolidated basis consist principally of amounts due from both domestic and foreign customers. Credit is extended based on an evaluation of the customer’s financial condition and collateral is not generally required except at Lynch Systems. The Company considers concentrations of credit risk to be minimal due to the Company’s diverse customer base. In relation to export sales, the Company requires letters of credit supporting a significant portion of the sales price prior to production to limit exposure

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

      Inventories are stated at the lower of cost or market value. Inventories valued using the last-in, first-out (LIFO) method comprised approximately 73% and 63% of consolidated inventories at December 31, 2003 and 2002, respectively. The balance of inventories at December 31, 2003 and 2002 are valued using the first-in-first-out (FIFO) method. If actual market conditions are more or less favorable than those projected by management, adjustments may be required.

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

      Lynch Systems, a 100% owned subsidiary of the Company, is engaged in the manufacture and marketing of glass-forming machines and specialized manufacturing machines. Certain sales contracts require an advance payment (usually 30% of the contract price), which is accounted for as a customer advance. The contractual sales prices are paid either (i) as the manufacturing process reaches specified levels of completion or (ii) based on the shipment date. Guarantees by letter of credit from a qualifying financial institution are required for most sales contracts. Because of the specialized nature of these machines and the period of time needed to complete production and shipping, Lynch Systems accounts for these contracts using the percentage-of-completion accounting method as costs are incurred compared to total estimated project costs (cost to cost basis). At December 31, 2003 and 2002, unbilled accounts receivable (included in accounts receivable) were $2.4 million and $0.7 million, respectively.

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

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

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      The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes,” which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. A valuation allowance is recorded for deferred tax assets whose realization is not likely. As of December 31, 2003 and December 31, 2002, a valuation allowance of $1,034,000 and $967,000, respectively, was recorded.

      The carrying value of the Company’s net deferred tax asset at December 31, 2003 of $57,000 is equal to the amount of the Company’s carry-forward alternative minimum tax (“AMT”) at that date.

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

      At December 31, 2003, the Company has a stock-based employee compensation plan which is described in Note 9 to the Consolidated Financial Statements — “Stock Options Plans”. The Company accounts for the plan under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The Company provides pro forma disclosures of the compensation expense determined under the fair value provisions of Financial Accounting Standards Board Statement No. 123, “Accounting for Stock-Based Compensation.” See Notes 1 and 9 to the Consolidated Financial Statements.

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

      The Company presently guarantees (unsecured) the SunTrust Bank loans of its subsidiary, Lynch Systems, and has guaranteed a Letter of Credit issued to the First National Bank of Omaha on behalf of its subsidiary, M-tron Industries, Inc. (see Note 6 to the Consolidated Financial Statements — “Notes Payable to Banks and Long-term Debt”). These guarantees are subject to FIN 45’s disclosure requirement only. As of December 31, 2003, there were no obligations to the SunTrust Bank. As of December 31, 2003, the $1,000,000 Letter of Credit issued by Fleet Bank to The First National Bank of Omaha was secured by a

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

      In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (“FIN 46”). FIN 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The consolidation requirements of FIN 46, as revised, are required to be applied for periods ending after December 15, 2003 for interests in structures that are commonly referred to as special-purpose entities while the application of this Interpretation for all other types of variable interest entities is required for periods ending after March 15, 2004. The Company does not have any interests in variable interest entities.

Results of Operations

      Consolidated revenues for the year ended December 31, 2003 of $28.0 million, represented an improvement of $1.6 million, or 6.1%, over Fiscal Year 2002. This improvement was attributable to Lynch’s M-tron unit, whose additional revenue more than offset declines at Lynch Systems.

      Lynch Systems’ revenues declined by $2.2 million, or 14.7%, to $12.8 million due to low order in-flow. In spite of an improving general economy, producers of television and computer-monitor screens and other devices that incorporate electronic display ordered few glass press machines. Sales of glass press machines and their related spare parts of $11.9 million were $1.5 million less than 2002.

      Although Lynch Systems 2003 orders of $12.7 million exceeded 2002 by $6.9 million, Lynch Systems’ backlog declined by $1.1 million from December 31, 2002 to $2.8 million at December 31, 2003 due to the low opening backlog caused by low order-input in the last half of 2002.

      M-tron’s served market, the infrastructure segment of the telecommunications industry, has improved in relation to the downward correction in 2001 and 2002 of worldwide overcapacity caused by the internet bubble. Revenues at M-tron increased by $3.8 million, or 33.3%, to $15.2 million for fiscal 2003 due partly to the acquisition on October 18, 2002, of certain assets of an industry competitor, Champion Technologies, Inc. (“Champion”).

      M-tron has successfully completed the integration of Champion’s manufacturing lines, incorporating the products of this acquisition with M-tron’s pre-existing products. As a result of this investment in M-tron’s production capacity and the expanded product line, M-tron has signed preferred-supplier agreements with two of the leading, worldwide manufacturers of telecommunications systems, and strengthened its relationship with a third customer. M-tron’s December 31, 2003 backlog improved by $0.5 million to $2.8 million from the prior year-end backlog of $2.3 million, and improved by $1.4 million compared to the backlog at December 31, 2001, partly due to the Champion acquisition in October 2002.

      Consolidated operating loss was $0.8 million in 2003, compared to an operating profit of $16.2 million in 2002. Fiscal 2002 operating profit includes a $19.4 million non-recurring gain on deconsolidation of Spinnaker. (See Note 1 to the Consolidated Financial Statements — “Basis of Presentation”). Excluding the $19.4 million non-recurring gain in 2002, the 2003 operating loss of $0.8 million represented an improvement of $2.4 million on $1.6 million additional revenue.

      M-tron’s operating loss of $0.2 million was $2.4 million less than the $2.6 million loss in 2002 due mainly to $2.2 million additional gross profit caused mainly by $3.8 million additional revenue and manufacturing efficiencies.

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      Lynch Systems 2003 operating profit of $0.8 million was less than 2002 by $0.1 million due to $2.2 million, or 15%, less revenue that resulted in $1.5 million less gross profit. To help offset the 26% decline in gross profit, selling and administrative expenses were reduced by $1.4 million.

      Investment income of $534,000 at December 31, 2003 represented an increase of $413,000 from the previous year, of which $483,000 was attributable to realized gains on the sale of marketable securities. Less cash invested in money market funds and low interest rates on invested funds were factors in reducing investment income by $70,000 in relation to 2002.

      Interest expense of $282,000 was $81,000 more than the prior year, primarily due to Letter of Credit fees of $39,000; margin account interest of $9,000; borrowings to finance the “Champion” acquisition of $18,000 and higher average borrowing to fund losses.

      2003 other income of $763,000 was comprised of (a) $728,000 realized upon the expiration of a credit memo that was originally the consequence of a $2.4 million custom glass press order cancellation in 1998; (b) $14,000 for insurance related matters; (c) $13,000 for currency gains; (d) fee income of $5,000 for collecting accounts receivable on behalf of Champion’s bank; and (e) other miscellaneous matters.

      2002 other expense of $92,000 was mainly the result of a $108,000 loss on disposing certain fixed assets at Lynch Systems that was partly offset by gains of $13,000 related to the Champion purchase transaction.

      Income tax benefit (expense) includes federal, state, local and foreign taxes. The Company has a $2,735,000 net operating loss (“NOL”) carry forward as of 12/31/03. This NOL expires in 2024 if not utilized prior to that date. There was no state income tax provision in 2003 due to deductions applicable to the Company’s Georgia business. There was no federal tax benefit as a result of 2003 net operating losses because the Company utilized its applicable carry-back (“NOL”) in 2003 and there is uncertainty regarding the utilization of the NOL carry-forward. The $73,000 tax expense recorded in 2003 represents the applicable tax at the Hong Kong tax rate on M-tron’s foreign subsidiaries’ earnings.

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

      Net income for the year ended December 31, 2003 was $110,000, or $0.07 per share compared to net income of $18.0 million in 2002, or $11.99 per share. Net income for 2003 included non-recurring gains ($452,000 realized on settlement of customer contingency, and $319,000 gain on sale of marketable securities) totaling $771,000. Net income for 2002 of $18.0 million was due primarily to the $19.4 million gain on the final deconsolidation of Spinnaker Industries and related tax benefit of $0.9 million.

      Total backlog of manufactured products at December 31, 2003 was $5.6 million, which represents a decrease of $0.6 million from the comparable backlog of $6.2 million at December 31, 2002. The backlog at Lynch Systems declined from $3.9 million to $2.8 million due to the continuation of weak demand from the CRT and tableware industries. Meanwhile, the backlog at M-tron increased to $2.8 million from $2.3 million due to M-tron’s becoming more competitive by moving more production of high volume oscillators to lower cost offshore contract manufacturers.

      Effective September 30, 2001, the Company’s ownership and voting interest of Spinnaker Industries, Inc. was reduced to 41.8% and 49.5% respectively, due to the disposition of shares of Spinnaker. As a result, effective September 30, 2001, the Company relinquished control of Spinnaker and has deconsolidated Spinnaker. On September 23, 2002, Lynch disposed of its remaining interest in Spinnaker. See Note 1 to the

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Liquidity and Capital Resources

      The Company’s total cash, cash equivalents and investments in marketable securities at December 31, 2003, total $7.4 million (including $1.1 million of restricted cash). In addition, the Company had a $2.4 million borrowing capacity under LS’s and M-tron’s revolving line of credit. Therefore, gross cash and securities and availability under the LS and M-tron loans total $9.8 million and exceed the combined outstanding debt and margin liability on marketable securities of $4.8 million by $5.0 million.

      At December 31, 2003, the Company had current assets of $18.6 million and current liabilities of $11.2 million. Working capital was therefore $7.4 million as compared to $8.0 million at December 31, 2002. The ratio of current assets to current liabilities was 1.66 to 1.00 at December 31, 2003, unfavorable when compared to 1.79 to 1.00 ratio at December 31, 2002, by 0.13 to 1.00.

      An obligation to First National Bank of Omaha that matures September 30, 2004 is now included in its entirety in current liabilities. This $676,000 reclassification from long-term debt accounts for 0.10 to 1.00 of the 0.13 to 1.00 year-over-year unfavorable variance in the ratio of current assets to current liabilities. The Company expects to renew the expiring loan at terms that will allow it to classify the majority of the debt as a long-term obligation.

      Cash used in operating activities was approximately $0.5 million in 2003, compared to cash provided of approximately $3.6 million in 2002. The year over year unfavorable change in operating cash flow of $4.1 million was mainly the result of $0.9 million additional income being more than offset by $4.7 million of restricted cash that was “released” for use in operations in 2002.

      Capital expenditures, on a comparable basis, were $141,000 in 2003 and $223,000 in 2002. The Company anticipates that it will have sufficient cash flow from operations and borrowing availability under various credit facilities at the subsidiaries to fund 2004 capital expenditures that could approximate $0.7 million.

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      At December 31, 2003, total debt of $3.8 million was $0.3 million less than total debt at December 31, 2002 of $4.1 million. Debt outstanding at December 31, 2003 included $1.0 million of fixed rate debt at an 4.0% interest rate, and $2.8 million of variable rate debt (year-end 2003 average rate of 4.6%).

      On May 30, 2003, Lynch Systems renewed its loan agreement with its bank for a $7 million line of credit to be used for the issuance of standby letters of credit and/ or up to $2 million revolving credit. This line of credit is secured by accounts receivable and inventories. Amounts available under this line of credit will be used to fund letters of credit securing customer advances, certain warranty coverages and working capital. This loan includes an unsecured parent company guarantee. At December 31, 2003, there were outstanding Letters of Credit of $1.3 million and no borrowings under the working capital line. There were no parent company obligations to SunTrust Bank as of December 31, 2003. This $7 million line of credit with SunTrust Bank has a May 29, 2004 maturity date. The Company expects to renew this credit in its present form.

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

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

	(a) Effective May 20, 2003, the Company subordinates its October 3, 2002, $200,000 loan to M-tron to the bank, bringing the subordinated total to $700,000;
	(b) The bank reduces the minimum net worth and subordinated debt limit from $3.1 million to $2.9 million. In return, the Company has committed to fund any shortfall with an equity or subordinated debt cash infusion within 45 days of the quarter end. Since M-tron’s subordinated debt and equity total $3,020,000 at December 31, 2003, no additional cash infusion is currently required.

      The Company has guaranteed a Letter of Credit issued to the First National Bank of Omaha on behalf of its subsidiary, M-tron Industries, Inc. As of December 31, 2003, the $1,000,000 Letter of Credit issued by Fleet Bank to The First National Bank of Omaha was secured by a $1,125,000 deposit in a Fleet Bank Treasury Fixed Income Fund. The Company’s outstanding Letter of Credit in the amount of $1.0 million for the benefit of the bank can be reduced to $500,000 when M-tron is profitable for 5 of 6 consecutive months and the cumulative after tax profit equals or exceeds $500,000. The remaining $500,000 Letter of Credit will be released when the earning parameters are met for a second time. These thresholds were not met in 2003 and there is no assurance they will be met in 2004.

      Funding for the Champion transaction was provided by the South Dakota Board of Economic Development, Yankton Area Progressive Growth, Inc. and the Areawide Business Council in the amount of $296,000, $250,000, and $100,000 respectively. These loans, which total $646,000, are secured by M-tron’s real estate and have maturity dates of December 19, 2007; April 21, 2005; and November 10, 2007 respectively. $525,000 is outstanding on these three loans as of December 31, 2003. Principal payments under three loans will total $120,000 in 2004. The average interest rate in 2004 for these fixed rate loans will be 2.58%. (See Note 6 to the Consolidated Financial Statements — “Notes Payable to Bank and Long-term Debt”).

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

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

      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

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      At December 31, 2003, the Company’s total cash, cash equivalents and investments in marketable securities total $7.4 million (including $1.1 million of restricted cash). In addition, the Company had a $2.4 million borrowing capacity under LS’s and M-tron’s revolving line of credit. Therefore, gross cash and securities and availability under the LS and M-tron loans total $9.8 million and exceed the combined outstanding debt and margin liability on marketable securities of $4.8 million by $5.0 million.

      The Board of Directors has adopted a policy of not paying cash dividends, a policy which is reviewed annually. This policy takes into account the long-term growth objectives of the Company, especially in its acquisition program, shareholders’ desire for capital appreciation of their holdings and the current tax law disincentives for corporate dividend distributions. Accordingly, no cash dividends have been paid since January 30, 1989 and none are expected to be paid in 2004. (See Note 6 to the Consolidated Financial Statements — “Notes Payable to Banks and Long-term Debts” — for restrictions on the companies assets).

Off-Balance Sheet Arrangements

      Aside from the Company’s stand-by letter of credit, the Company does not have any off-balance sheet arrangements.

Aggregate Contractual Obligations

      Details of the Company’s contractual obligations for short-term debt, long-term debt, leases, purchases and other long term obligations are as follows (see Notes 6 and 14 to the Consolidated Financial Statements):

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 $5.0 million at December 31, 2003). The Company generally finances the debt portion of the acquisition of long-term assets with fixed rate, long-term debt. The Company does not use derivative financial instruments for trading or speculative purposes. Management does not foresee any significant changes in the strategies used to manage interest rate risk in the near future, although the strategies may be reevaluated as market conditions dictate. There has been no significant change in market risk since December 31, 2003.

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

      At December 31, 2003, approximately $2.8 million of the Company’s debt bears interest at variable rates. Accordingly, the Company’s earnings and cash flows are slightly affected by changes in interest rates. Assuming the current level of borrowings for variable rate debt, and assuming a two percentage point increase in the 2003 average interest rate under these borrowings, it is estimated that the Company’s interest expense

24

Concentrations of Credit Risk

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

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

Risk Factors

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

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

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

      See Item 15(a).

      Not applicable.

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

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

25

PART III

      The information required by this Item 10 is included under the caption “Executive Officers of the Registrant” in Item 1 hereof and included under the captions “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in Registrant’s Proxy Statement for its Annual Meeting of Shareholders for 2004, which information is incorporated herein by reference.

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

      The Registrant has adopted a code of ethics, within the meaning of Item 406(b) of Regulation S-K, which applies to its Chief Executive Officer and Chief Financial Officer, as well as the Company’s President, subsidiary Presidents, and subsidiary Financial Officers. In addition, Registrant has amended and restated its Business Conduct Policy which applies to all employees and which is filed herewith as Exhibit 99.1. Certain employees are required to certify their compliance and understanding with this policy on a regular basis.

      The information required by this Item 11 is included under the captions “Compensation of Directors,” “Executive Compensation,” “Executive Compensation and Benefits Committee Report on Executive Compensation” and “Performance Graph” in Registrant’s Proxy Statement for its Annual Meeting of Shareholders for 2004, which information is incorporated herein by reference.

      The information required by this Item 12 is included under the caption “Security Ownership of Certain Beneficial Owners and Management,” in the Registrant’s Proxy Statement for its Annual Meeting of Shareholders for 2004, which information is included herein by reference.

      The information required by this Item 13 is included under the caption “Executive Compensation”, and “Transactions with Certain Affiliated Persons” in the Registrant’s Proxy Statement for its Annual Meeting of Shareholders for 2004, which information is included herein by reference.

      The information required by this Item 14 is included under the caption “Fees Billed to the Company by Ernst and Young, LLP”, in the Registrant’s Proxy Statement for its Annual Meeting of Shareholders for 2004, which information is included herein by reference.

PART IV

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

	(1) Financial Statements:

	The Report of Independent Auditors and the following Consolidated Financial Statements of the Company are included herein:
	Consolidated Balance Sheets at December 31, 2003 and 2002
	Consolidated Statements of Operations — Years ended December 31, 2003, 2002 and 2001

26

	Consolidated Statements of Shareholders’ Equity — Years ended December 31, 2003, 2002, and 2001
	Consolidated Statements of Cash Flows — Years ended December 31, 2003, 2002, and 2001
	Notes to Consolidated Financial Statements

	(2)	Financial Statement Schedules as of December 31, 2003 and 2002 and for the three years ended December 31, 2003:

	Schedule I — Condensed Financial Information of Registrant
	Schedule II — Valuation and Qualifying Accounts

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

      See Page 2 above re Forward Looking Information.

	(b)	Reports on Form 8-K: A report on Form 8-K was filed on November 11 2003 as a press release announcing Lynch’s results of operations for the third quarter period ending September 30, 2003.
	(c)	The following Exhibits listed in the Exhibit Index are filed with this Form 10-K Annual Report:

	10(hh)  —	Mortgage dated October 21, 2002 by Mortgagor, M-tron Industries, Inc., to Mortgagee, Yankton Area Progressive Growth, Inc.
	10(ii)   —	Promissory Note between M-tron Industries, Inc. and Yankton Area Progressive Growth, Inc. dated October 21, 2002.
	10(jj)   —	Standard Loan Agreement by and between M-tron Industries, Inc. and Areawide Business Council, Inc. dated October 10, 2002 and Exhibits thereto.
	10(kk)  —	Loan Agreement by and between M-tron Industries, Inc. and South Dakota Board of Economic Development dated December 19, 2002.
	10(ll)   —	Promissory Note between M-tron Industries, Inc. and South Dakota Board of Economic Development dated December 19, 2002.
	10(mm) —	Employment Agreement by and between M-tron Industries, Inc. and South Dakota Board of Economic Development dated December 19, 2002.

	21       — Subsidiaries of the Registrant.
	23       — Consent of Ernst & Young LLP.
	24       — Powers of Attorney.

	31       —	Certifications of Registrant’s principal executive and principal chief financial officers required by Exchange Act Rule 13a-14(a).
	32       —	Section 1350 Certifications of Registrant’s principal executive and principal executive financial officers required by Exchange Act Rule 13a-14(b).

	99.1     — Amended and Restated Business Conduct Policy.

      (d) Financial Statement Schedules:

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

27

REPORT OF INDEPENDENT AUDITORS

Shareholders and Board of Directors

      We have audited the accompanying consolidated balance sheets of Lynch Corporation and subsidiaries (“Lynch Corporation” or the “Company”) as of December 31, 2003 and 2002, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedules listed in the index at Item 15(a). These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

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

      In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lynch Corporation and subsidiaries at December 31, 2003 and 2002 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statements schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects, the information set forth therein.

	/s/ ERNST & YOUNG LLP

Providence, Rhode Island

28

LYNCH CORPORATION AND SUBSIDIARIES

*

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

29

LYNCH CORPORATION AND SUBSIDIARIES

*

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

      See accompanying notes

30

LYNCH CORPORATION AND SUBSIDIARIES