`UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    ---------

                                    FORM 10-K

                                  ANNUAL REPORT
                     PURSUANT TO SECTIONS 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

|x|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
      ACT OF 1934

      FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2006

                                       OR

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
      EXCHANGE ACT OF 1934

      For the transition period from _________________ to ______________________

      COMMISSION FILE NUMBER: 1-106

                               THE LGL GROUP, INC.
             (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.)

 140 Greenwich Ave, 4th Fl, Greenwich, Connecticut            06830
 -------------------------------------------------            -----
    (Address of Principal Executive Offices)               (Zip Code)

      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 622-1150

      SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

                                                       NAME OF EACH EXCHANGE ON
       TITLE OF EACH CLASS                                  WHICH REGISTERED
       -------------------                                  ----------------
  Common Stock, $0.01 Par Value                         American Stock Exchange


        SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE

      Indicate by check mark if the Registrant is a well-known  seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes |_| No |X|

      Indicate by check mark if the  Registrant  is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes |_| No |X|

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

      Indicate by check mark 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. |X|



      Indicate  by check mark  whether  the  Registrant  is a large  accelerated
filer,  an accelerated  filer,  or a  non-accelerated  filer.  See definition of
"accelerated  filer and large  accelerated  filer" in Rule 12b-2 of the Exchange
Act.  (Check  one):  Large   accelerated   filer |_|  Accelerated   filer |_|
Non-accelerated filer |X|

      Indicate  by check mark  whether  the  Registrant  is a shell  company (as
defined in Rule 12b-2 of the Act). Yes |_| No |X|

      The aggregate market value of voting and non-voting  common equity 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, 2006 of
$8.18 per share) was $12.4 million.  In determining this figure,  the Registrant
has assumed that all of the Registrant's  directors and officers are affiliates.
This  assumption  should not be deemed a  determination  or an  admission by the
Registrant that such individuals are, in fact, affiliates of the Registrant.

      The number of  outstanding  shares of the  registrant's  common  stock was
2,154,702 as of March 29, 2007.

      DOCUMENTS INCORPORATED BY REFERENCE:  Certain portions of the Registrant's
definitive  Proxy Statement for the 2007 Annual Meeting of  Shareholders,  which
will be filed with the Securities and Exchange  Commission are  incorporated  by
reference in Part III of this Report.

================================================================================



ITEM 1. BUSINESS

      The  LGL  Group,  Inc.  (the  "Company"),   formerly  Lynch   Corporation,
incorporated in 1928 under the laws of the State of Indiana, is a multi-industry
holding  company with  subsidiaries  engaged in  manufacturing  a broad range of
capital  equipment  and  custom-designed  electronic  components.  The Company's
executive  offices  are  located at 140  Greenwich  Ave,  4th Floor,  Greenwich,
Connecticut 06830. The telephone number is (203) 622-1150.

      The  Company  has  two  principal  operating  manufacturing  subsidiaries,
MtronPTI, with operations in Orlando, Florida, Yankton, South Dakota, and Noida,
India and Lynch Systems, Inc. ("Lynch Systems"),  with operations in Bainbridge,
Georgia.

      The  Company's  business  development  strategy is to expand its  existing
operations through internal growth and merger and acquisition opportunities.  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
Company includes subsidiary corporations.

MTRONPTI

      OVERVIEW

      MtronPTI  manufactures and markets custom designed  electronic  components
that are used  primarily  to  control  the  frequency  or timing of  signals  in
electronic  circuits.  Its devices,  which are commonly called frequency control
devices,   are   used   extensively   in   infrastructure   equipment   for  the
telecommunications  and network equipment industries.  Its devices are also used
in electronic  systems for military  applications,  avionics,  medical  devices,
instrumentation, industrial devices and global positioning systems.

      MtronPTI's  frequency control devices consist of packaged quartz crystals,
crystal oscillators and electronic  filters.  Our products produce an electrical
signal that has the following attributes:

            o     accuracy  -- the  frequency  of the  signal  does  not  change
                  significantly over a period of time;

            o     stability  --  the  frequency  of the  signal  does  not  vary
                  significantly  when our  product  is  subjected  to a range of
                  operating environments; and

            o     low  electronic  noise -- the signal does not add  interfering
                  signals  that  can  degrade  the   performance  of  electronic
                  systems.

      MtronPTI has more than 40 years of experience designing, manufacturing and
marketing crystal based frequency  control  products.  Its customers rely on the
skills of MtronPTI's engineering and design team to help solve frequency control
problems  during all phases of their  products' life cycles,  including  product
design, prototyping, manufacturing, and subsequent product improvements.

      SELECTED FINANCIAL INFORMATION

      For  financial  reporting  purposes,   MtronPTI  comprises  the  Company's
"frequency  control  devices"  segment.  For  information  about this  segment's
revenues,  profit or loss,  and total  assets for each of the last three  fiscal
years, please see Note 11 to the Company's  Consolidated  Financial  Statements,
"Segment Information".

      At December 31, 2006, MtronPTI net working capital was $5,218,000 compared
to  $5,515,000  at December  31, 2005.  At December  31,  2006,  the Company had
current assets of $14,426,000 and current  liabilities of $9,208,000.  The ratio
of current assets to current  liabilities was 1.57 to 1.0. At December 31, 2005,
the  Company had  current  assets of  $13,698,000  and  current  liabilities  of
$8,183,000, and a current ratio of 1.67 to 1.00. The increase in working capital
is  primarily  due to the building up of  inventory  levels.  The company is not
obligated  to  carry  significant  inventory  balances  to meet  rapid  delivery
requirements. MtronPTI typically receives estimated order details from its major
customers and tries to stock accordingly.



      MTRONPTI'S OBJECTIVES

      MtronPTI  intends  to  build on the  strength  of its  core  expertise  in
packaged  quartz  crystal   oscillator   technologies   and  electronic   filter
technologies   to  become  the   supplier  of  choice  to   original   equipment
manufacturers that supply equipment with high-performance timing needs. MtronPTI
intends  to grow by strong  penetration  of the  timing  and  timing  management
portion of the electronics industry. It plans to grow beyond a component company
to a company  offering  timing  system  design  services and  engineered  timing
management products.

      MtronPTI  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
manufacturer  customers in the early stages of their design process will lead to
MtronPTI's  frequency  control  devices being  designed into their products more
regularly.

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

      MtronPTI intends to design, manufacture and sell devices that offer higher
frequencies  or greater  precision than its current  products.  It also plans to
expand its  offering  of  integrated  timing  systems to offer  complete  timing
subsystems to its customers. It intends to achieve this through a combination of
focused  research  and  development  and  strategic  acquisitions,  if they  are
appropriate.

      MtronPTI  believes  that  it  can   significantly   enhance  its  business
opportunities  by  acquiring   technology,   product   portfolios,   new  design
capabilities,  and/or access to a portfolio of targeted customers. 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.

      PRODUCTS

      MtronPTI's  products  are high  quality,  reliable,  technically  advanced
frequency  control  devices,  including  packaged quartz  crystals,  oscillators
incorporating  those crystals and electronic  filter products.  The October 2002
acquisition  of  "Champion"  provided  MtronPTI  an entry to the timing  modules
market.  The  September  2004  acquisition  of PTI  provided  MtronPTI  with its
families of very high  precision  oven-controlled  crystal  oscillators  and its
electronic filter products.

      MtronPTI  designs and produces a wide range of packaged  quartz  crystals,
quartz crystal based  oscillators and electronic  filter products.  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  a  stable  oscillator  designed  for  use  over  a  range  of  temperatures.
Oven-Controlled  Crystal Oscillators are designed to produce a much higher level
of  stability  over a wide  range of  operating  conditions  with very low phase
noise.  The  Electronic   Filters  use  either  crystal  technology  or  precise
manufacturing of inductive/capacitive circuits to provide filters with carefully
defined  capabilities to filter out unwanted  portions of a timing signal.  This
variety of  features  in  MtronPTI's  product  family  offers the  designers  at
electronic equipment  manufacturers a range of options as they create the needed
performance in their products.

      Currently,  MtronPTI's  oscillator products operate at frequencies ranging
from 2 kilohertz to over 2.5 gigahertz,  which constitute most of the oscillator
frequencies  that are now in use in its target  markets.  It offers  crystal and
inductive/capacitive  filters with central  frequencies from a Direct Current to
15 gigahertz.  However,  many of its products,  through  amplification  or other
means,  are  ultimately  incorporated  into  products  that  operate  at  higher
frequencies.


                                       2


      MtronPTI'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, communications satellites,
and base station  controllers.  Its products are incorporated  into end products
that serve all elements of the communications industry.

      The  crystals,  oscillators  and filters  intended for  non-communications
applications  are  found  in  military   applications  for   communications  and
armaments.  Avionics  applications  include ground and flight  control  systems.
Industrial  applications are in security systems,  metering systems,  electronic
test instruments and industrial  control systems.  MtronPTI's  products are also
used in medical  instrumentation  applications,  as well as in various  computer
peripheral equipment such as storage devices,  printers, modems, monitors, video
cards and sound cards.

      MtronPTI'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.

      MANUFACTURING

      MtronPTI's  operations  are located in  Yankton,  South  Dakota,  Orlando,
Florida,  India,  and Hong Kong.  MtronPTI has two  facilities  in Yankton which
contain  approximately  51,000 square feet in the  aggregate.  MtronPTI owns one
building,  approximately 76,000 square feet, on approximately 7 acres of land in
Orlando,  which was purchased in  connection  with the  acquisition  of PTI. The
Company leases approximately 7,500 square feet of office and manufacturing space
in Delhi,  India and  approximately  1,500  square feet of office  space in Hong
Kong.

      Mtron  has  established  long-term  relationships  with  several  contract
manufacturers in Asia.  Approximately  15.9% of MtronPTI's revenues in 2006 were
attributable to one such contract  manufacturer located in both Korea and China.
While  MtronPTI does not have written  long-term  agreements  with this contract
manufacturer,  MtronPTI  believes  that it  occasionally  receives  preferential
treatment  on  production  scheduling  matters.  MtronPTI  maintains  a rigorous
quality  control  system  and  is  an  ISO  9001/2000  qualified   manufacturer.
MtronPTI's  Hong  Kong  subsidiary   (M-tron   Industries,   Limited)  does  not
manufacture, but acts as a buying agent, regional warehouse, quality control and
sales representative for its parent company.

      RESEARCH AND DEVELOPMENT

      At December  31, 2006,  MtronPTI  employed 32  engineers  and  technicians
primarily  in South Dakota and Florida who devote most of their time to research
and  development.   Its  research  and  development  expense  was  approximately
$2,470,000,  $2,408,000, and $1,089,000 in 2006, 2005, and 2004 respectively. As
has been the case in the past,  MtronPTI  expects to  increase  its  spending on
research and development by about 30% in 2007.

      CUSTOMERS

      MtronPTI markets and sells its frequency control devices primarily to:

            o     original    equipment    manufacturers   of    communications,
                  networking,  military,  avionics,  instrumentation and medical
                  equipment;

            o     contract  manufacturers for original equipment  manufacturers;
                  and;

            o     distributors who sell to original equipment  manufacturers and
                  contract manufacturers.

      In 2006, an electronics  manufacturing company accounted for approximately
10.6% of  Mtron/PTI's  total  revenues  compared  to 14% and 18% for  MtronPTI's
largest customer in 2005 and 2004, respectively. No other customer accounted for
more than 10% of its 2006  revenues.  Revenues  from its ten  largest  customers
accounted for approximately 58.6% of revenues in 2006, compared to approximately
63% and 48% of revenues for 2005 and 2004, respectively.


                                       3


      SEASONALITY

      No portion of Mtron's business is regarded as seasonal.

      DOMESTIC REVENUES

      MtronPTI's  domestic  revenues  were  $20,501,000  in 2006 or 49% of total
revenues compared with $19,078,000 and $12,096,000,  or 54% and 52%, in 2005 and
2004, respectively.

      INTERNATIONAL REVENUES

      MtronPTI's  international  revenues were $21,048,000 in 2006, 51% of total
sales compared to $15,973,000,  46% of total sales and $11,317,000, 48% of total
sales, for 2005 and 2004, respectively.  In 2006, as was the case in 2005, these
revenues were derived mainly from customers in China and Canada.  In 2006, Mtron
also had significant sales to Thailand and Malaysia.  MtronPTI has increased its
international   sales  efforts  by  adding   distributors   and   manufacturers'
representatives in Western Europe and Asia. The Company avoids currency exchange
risk by transacting  substantially all  international  revenues in United States
dollars.

      RISKS ATTENDANT TO FOREIGN OPERATIONS

      The company has a sales office in China which does  significant  amount of
business as a  representative  of the company  selling its  products and locally
purchased  products.  The  Company  has a  production  location  in India  which
performs basic assembly work on consigned materials received from MtronPTI.

      Risks  associated  with  doing  business  outside  of  the  United  States
especially China and India are: normal business risks, social instability,  slow
conforming  legal  systems,  environmental  catastrophes,  poor  infrastructure,
information  security  technology  issues,  lack of  distribution  of power with
business entities leads to embezzlement, kickbacks, and other forms of fraud and
corruption.  Other  risks  include  sourcing  risks:  such as  supply-chain  and
business interruption issues; protection of intellectual property;  recruitment,
development, and retention of talented employees; trends and concerns in mergers
and acquisitions; and the potential pitfalls of the Chinese insurance market.

      BACKLOG

      MtronPTI had backlog orders of $8,065,000 at December 31, 2006 compared to
$8,906,000  at December 31, 2005.  MtronPTI's  backlog may not be  indicative of
future revenues,  because of its customers'  ability to cancel orders.  MtronPTI
expects to fill all of its 2006 backlog in 2007.

      RAW MATERIALS

      Most  raw  materials  used in the  production  of  MtronPTI  products  are
available in adequate  supply from a number of sources.  The prices of these raw
materials are relatively stable.  However,  some raw materials including printed
circuit boards,  quartz, and certain metals including steel,  aluminum,  silver,
gold,  tantalum and palladium,  are subject to greater supply  fluctuations  and
price volatility.

      COMPETITION

      Frequency control devices are sold in a highly competitive industry. There
are  numerous  domestic  and  international  manufacturers  who are  capable  of
providing  custom designed quartz crystals,  oscillators and electronic  filters
comparable  in quality  and  performance  to  MtronPTI's  products.  Competitors
include  Vectron   International   (a  division  of  Dover   Corporation),   CTS
Corporation,  K& L (a division of Dover  Corporation)  and Saronix (a division of
Pericom  Semiconductor  Corporation).  MtronPTI  does  not  operate  in the same
markets as high volume manufacturers of standard products;  rather it focuses on
manufacturing  lower volumes of more precise,  custom designed frequency control
devices.  Many of its competitors and potential  competitors have  substantially
greater financial,  engineering,  manufacturing and marketing  resources than it
does. MtronPTI 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.


                                       4


      INTELLECTUAL PROPERTY

      MtronPTI has no patents,  trademarks or licenses that are considered to be
important to MtronPTI's business or operations.  Rather,  MtronPTI 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.

LYNCH SYSTEMS

      OVERVIEW

      Lynch Systems  designs,  develops,  manufactures and markets glass forming
machinery for the consumer glass industries. Lynch Systems produces and installs
equipment that cuts and forms  tableware such as glass tumblers,  plates,  cups,
saucers and pitchers as well as glass  block,  industrial  lighting,  commercial
optical glass and  automobile  lenses.  Lynch Systems also produces  replacement
parts for various  types of packaging and glass  container-making  machines that
Lynch Systems does not manufacture.

      SELECTED FINANCIAL INFORMATION

      For financial  reporting  purposes,  Lynch Systems comprises the Company's
"Glass  Manufacturing  Equipment" segment.  For information about this segment's
revenues,  profit or loss,  and total  assets for each of the last three  fiscal
years, please see Note 11 to the Company's  Consolidated  Financial  Statements,
"Segment Information".

      At December 31, 2006,  Lynch  Systems net working  capital was  $1,574,000
compared to $3,174,000  at December 31, 2005. At December 31, 2006,  the Company
had current  assets of $3,715,000 and current  liabilities  of  $2,141,000.  The
ratio of current assets to current  liabilities  was 1.74 to 1.0 at December 31,
2006. At December 31, 2005,  the Company had current  assets of  $6,737,000  and
current  liabilities  of  $3,563,000,  and a current ratio of 1.89 to 1.00.  The
decrease  in net working  capital is  primarily  due to  negative  cash flow and
increases in bank debt.

      LYNCH SYSTEMS OBJECTIVES

      Lynch  Systems  expects to continue to build on its name  recognition  and
reputation  as  one  of the  world's  leading  manufacturers  of  glass  forming
machinery.  Lynch Systems is the oldest  glass-forming  supplier to the consumer
(daily use) glass industry.  It is Lynch Systems' intention to use this strength
to form closer partnerships with its customers to foster innovation in its glass
making  machinery.  Lynch  Systems  intends to also use its expertise to provide
technical assistance to other glass product manufacturers.

      Lynch Systems' 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. Lynch Systems
anticipates  that it will  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 used to develop
new products and increase its growth.

      Within the  consumer  glass  industry,  Lynch has  defined the market into
three  distinct  groups  having  potential  for our  equipment  as  follows:  1)
customers with growth  potential  (sales  driven),  2) customers in a "stagnant"
market (cost driven) and 3) new customer base (i.e. container market).

      Lynch Systems is currently  developing and marketing products to appeal to
these three groups,  which include a fully electronic press and blow high volume
machine and a new machine designed to produce press and blow glass articles with
an in-line modular concept. Long term planning indicates further development and
application of gob weight controls and inspection  systems may play an important
role among consumer ware producers.


                                       5


      The Company has been  approached  by an  investment  group  interested  in
purchasing Lynch Systems.  In this regard, the Company has hired a middle market
investment   bank  to   investigate   the  offer  and  other   value   enhancing
opportunities.  The  hiring of the  investment  bank  continues  the  process of
growing the business.

      PRODUCTS AND MANUFACTURING

      Lynch  Systems'  manufacturing  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.

      Lynch Systems  manufactures  and installs  forming  equipment  that sizes,
cuts,  and  forms  tableware  such as glass  tumblers,  plates,  cups,  saucers,
pitchers,  architectural glass block,  industrial  lighting,  commercial optical
glass and  automobile  lenses.  Additionally,  Lynch  Systems  manufactures  and
installs  electronic  controls and retrofit systems for CRT display and consumer
glass presses.

      Lynch Systems' 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,  fire polishers for high quality tableware and spinning
machines for high speed,  high quality  dishware.  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 energy cost of
bringing the machine and  materials up to  temperature,  a machine for producing
glassware must be capable of running continuously.

      To further  expand Lynch  Systems'  Tableware  product  lines,  additional
product  lines have been  acquired  through  royalty  partnerships  with leading
industry  concerns.  In 1999,  Lynch  Systems  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 Lynch Systems as the LH-28
with numerous Electronic Control  improvements.  In accordance with the terms of
the  agreement,  Lynch  Systems is  obligated  to pay Emhart a royalty of 13% on
parts sales up to  $2,000,000  a year,  a 5% royalty  rate on all parts sales in
excess of  $2,000,000,  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 Lynch
Systems.  In  accordance  with the  terms of the  agreement,  Lynch  Systems  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.
Lynch Systems has no contractual obligations to Merkad.

      RESEARCH AND DEVELOPMENT

      Lynch  Systems'  research  and  development  expense  was  $79,000 in 2006
compared to $97,000 and $104,000 in 2005, and 2004, respectively.  Lynch Systems
expects to increase its spending on research and development by about 50% during
2007.

      CUSTOMERS

      Due to the nature of its products,  Lynch Systems has  historically  had a
small  number of  customers.  Its largest  customer,  which varies year to year,
accounted for 39% of revenue in 2006,  compared with 46% and 36% of revenues for
2005 and 2004,  respectively.  Lynch Systems' sales to its ten largest customers
accounted for approximately 84% of its revenues in 2006 compared with 79% of its
revenues in 2005, and 80% in 2004.


                                       6


      SEASONALITY

      No portion of Lynch System's business is regarded as seasonal.

      DOMESTIC REVENUES

      Lynch  Systems'  domestic  revenues  were  $1,422,000 in 2006, or 18.3% of
their total revenues,  compared with $1,992,000  (17.9%) and $1,114,000  (10.7%)
for 2005 and 2004, respectively.

      INTERNATIONAL REVENUES

      Lynch  Systems'  international  revenues were  $6,329,000 in 2006 compared
with $9,140,000 and $9,307,000 for 2005 and 2004, respectively.  This represents
approximately 82% of revenues in 2006, the same as in 2005, compared with 89% of
total revenues in 2004.  International revenues in 2006 were derived mainly from
Brazil and China. The  profitability of international  revenues is approximately
equivalent to that of domestic revenues.  As many  international  orders require
partial advance deposits,  with the balance often secured by irrevocable letters
of credit from banks in the foreign  country,  the Company believes that most of
the credit  risks  commonly  associated  with doing  business  in  international
markets are minimized.  The Company avoids currency exchange risk by transacting
substantially all international sales in United States dollars.

      BACKLOG

      Lynch  Systems had an order  backlog of  $1,853,000  at December 31, 2006,
compared to $4,954,000 at December 31, 2005. The $3,100,000  decrease in backlog
is due to much lower  bookings in 2006 due to absence of CRT business and higher
energy costs.  Most of Lynch Systems'  December 31, 2006 backlog is scheduled to
be delivered in 2007.  Lynch  Systems  includes as backlog those orders that are
subject to written contract or written purchase orders.

      COMPETITION

      Lynch Systems  believes that in the worldwide  press ware market it is one
of the largest  suppliers of consumer ware forming  machines to glass  companies
that do not manufacture  their own press ware machines.  Competition is based on
service,  performance and technology.  Competitors  include various companies in
Italy,  Turkey,  China  and  Germany.   Several  of  the  largest  domestic  and
international   producers  of  glass  press  ware  frequently  build  their  own
glass-forming machines and produce spare parts in-house.

      RAW MATERIALS

      Raw materials are generally  available to Lynch Systems in adequate supply
from a number  of  suppliers.  The price of steel,  a major  component  of glass
forming machinery, has remained steady in 2006 after increasing severely in 2004
and 2005.  Lynch  Systems  has been  required  to absorb a portion of that price
increase with little ability to pass price increases along to our customers.

      INTELLECTUAL PROPERTY

      Lynch Systems owns patents and proprietary  know-how that 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.

                       -----------------------------------


                                       7


EMPLOYEES

      As of December 31, 2006, the Company  employed 386 people:  3 at Corporate
headquarters,  335 at Mtron,  including 8 in Hong Kong and 9 in India, and 48 at
Lynch Systems, including 2 in Germany. None of its employees is represented by a
labor union and the Company considers its employee relations to be good.

ENVIRONMENTAL

      The Company's manufacturing operations, products, and/or product packaging
are subject to  environmental  laws and  regulations  governing  air  emissions,
wastewater discharges,  and the handling,  disposal and remediation of hazardous
substances,   wastes  and  other   chemicals.   In  addition,   more   stringent
environmental  regulations may be enacted in the future, and we cannot presently
determine the modifications, if any, in the Company's operations that any future
regulations  might require,  or the cost of compliance  that would be associated
with these regulations.

      The capital expenditures, earnings and competitive position of the Company
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,  the Company cannot predict the effect of future laws and
regulations.

CUSTOMERS

      In  2006,  the  Company's  two  largest  single  customers  accounted  for
$4,400,000  and  $3,493,000  in  revenues,  representing  8.9% and 7.1% of total
consolidated  revenues  of  $49,300,000.  In  2005,  the two  largest  customers
accounted for 11.2% and 11.0% of total consolidated  revenues,  and in 2004, the
two largest  customer s accounted for 12.2% and 10.9% of consolidated  revenues,
respectively.

LONG-LIVED ASSETS

      Long-lived  assets,  including  intangible assets subject to amortization,
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount thereof may not be recoverable. Management assesses the
recoverability  of the  cost  of the  assets  based  on a  review  of  projected
undiscounted  cash flows. In the event an impairment  loss is identified,  it is
recognized based on the amount by which the carrying value exceeds the estimated
fair value of the  long-lived  asset.  If an asset is held for sale,  management
reviews its  estimated  fair value less cost to sell.  Fair value is  determined
using pertinent market information,  including appraisals or broker's estimates,
and/or projected discounted cash flows.

EXECUTIVE OFFICERS OF THE COMPANY

      Pursuant to General  Instruction G (3) of Form 10-K, the following list of
executive officers of the Company is included in Part I of this Annual Report on
Form 10-K in lieu of being  included in the Proxy  Statement for the 2007 Annual
Meeting  of  Shareholders.  Such  list  sets  forth  the  names  and ages of all
executive  officers of the Company indicating all positions and offices with the
Company held by each such person and each such person's principal occupations or
employment during the past five years.

Name                                                     Officers and Positions Held                                          Age
----                                                     ---------------------------                                          ---

Jeremiah M. Healy.......   President and Chief Executive  Officer,  The LGL Group, Inc. (December 31, 2006 to present)        64
                           and Chief  Financial  Officer,  The LGL Group,  Inc.  (September  2006 to March 20,  2007);
                           Chairman of the Audit  Committee,  Infocrossing  Inc., an outsourcer of computer  software;
                           Vice President and Chief Financial  Officer,  Ge-Ray Holdings Company Inc.  (1989-2005),  a
                           private manufacturer of knitted textiles.


                                       8


Steve Pegg..............   Chief Financial Officer,  The LGL Group, Inc. (March 20, 2007 to present);  Chief Financial        48
                           Officer and Treasurer,  Ultraviolet Devices,  Inc. ("UVDI") (October 2004 to December 2006)
                           and President,  Sparks Technology,  a UVDI division,  (June 2006-December  2006), UVDI is a
                           manufacturer  and  supplier  of ultra  violet  and  filtration  products  for air and water
                           treatment;  Operations and Financial Consultant,  Camil Farr (2001-2004), a manufacturer of
                           air filtration devices; Chief Financial Officer,  Treasurer,  Farr Company (1998-2001),  an
                           air filtration device manufacturer.

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

      The LGL Group,  Inc.  has always  held  itself  and its  employees  to the
highest  standards  of  business  conduct  and  ethical  behavior  in all of its
business  dealings.  The LGL Group's Code of Ethics is available on its website,
www.lglgroup.com.

ITEM 1A. RISK FACTORS

      YOU SHOULD  CAREFULLY  CONSIDER THE RISKS DESCRIBED BELOW BEFORE INVESTING
IN OUR PUBLICLY TRADED SECURITY. THE RISKS DESCRIBED BELOW ARE NOT THE ONLY ONES
FACING  US.  ADDITIONAL  RISKS NOT  CURRENTLY  KNOWN TO US OR THAT WE  CURRENTLY
BELIEVE  ARE  IMMATERIAL  ALSO  MAY  IMPAIR  OUR  BUSINESS  OPERATIONS  AND  OUR
LIQUIDITY.

      WHILE WE HAVE HAD NET INCOME IN THE PAST TWO YEARS, WE FACE UNCERTAINTY IN
OUR ABILITY TO SUSTAIN NET INCOME IN THE FUTURE.

      While we had net income of $865,000 in 2006 and $1,210,000 in 2005, we had
suffered a net loss of $3,326,000  in 2004. We are uncertain  whether we will be
able to sustain net income in the future.

      IF WE ARE UNABLE TO SECURE NECESSARY FINANCING, WE MAY NOT BE ABLE TO FUND
OUR OPERATIONS OR STRATEGIC GROWTH.

      In order to achieve our strategic business objectives,  we may be required
to seek  additional  financing.  We may be unable to renew our  existing  credit
facilities or obtain new financing on acceptable terms, or at all. Under certain
of our  existing  credit  facilities,  we are  required  to obtain the  lenders'
consent for most additional  debt financing and to comply with other  covenants,
including specific financial ratios. For example, we may require further capital
to continue to develop our technology and infrastructure and for working capital
purposes.  In addition,  future  acquisitions  would likely  require  additional
equity  and/or  debt  financing.  While  we do have  substantial  cash  and cash
equivalents on hand,  our failure to secure  additional  financing  could have a
material adverse effect on our continued development or growth.

      AS A HOLDING  COMPANY,  WE DEPEND ON THE OPERATIONS OF OUR SUBSIDIARIES TO
MEET OUR OBLIGATIONS.

      We are a holding  company that  transacts our business  through  operating
subsidiaries.  Our primary assets are the shares of our operating  subsidiaries.
Our  ability  to meet our  operating  requirements  and to make  other  payments
depends on the surplus and earnings of our subsidiaries and their ability to pay
dividends or to advance or repay funds.  Payments of dividends  and advances and
repayments  of  inter-company  debt by our  subsidiaries  are  restricted by our
credit agreements.


                                       9


      WE MAY MAKE  ACQUISITIONS  THAT  ARE NOT  SUCCESSFUL  OR FAIL TO  PROPERLY
INTEGRATE ACQUIRED BUSINESSES INTO OUR OPERATIONS.

      We intend to explore opportunities to buy other businesses or technologies
that could  complement,  enhance or expand our current business or product lines
or that might  otherwise offer us growth  opportunities.  We may have difficulty
finding such opportunities or, if we do identify such opportunities,  we may not
be able to complete such  transactions for reasons including a failure to secure
necessary financing.

      Any  transactions  that we are able to identify and complete may involve a
number of risks, including:

            o     the diversion of our management's  attention from our existing
                  business to  integrate  the  operations  and  personnel of the
                  acquired or combined business or joint venture;

            o     possible  adverse effects on our operating  results during the
                  integration process;

            o     substantial  acquisition related expenses,  which would reduce
                  our net income in future years;

            o     the loss of key employees and customers as a result of changes
                  in management; and

            o     our possible  inability to achieve the intended  objectives of
                  the transaction.

      In addition,  we may not be able to successfully or profitably  integrate,
operate,  maintain and manage our newly acquired operations or employees. We may
not be able to maintain uniform  standards,  controls,  procedures and policies,
and this may lead to operational inefficiencies.

      YOUR ABILITY TO INFLUENCE  CORPORATE  DECISIONS MAY BE LIMITED BECAUSE OUR
PRINCIPAL SHAREHOLDERS OWN IN THE AGGREGATE 45% OF OUR COMMON STOCK.

            Our   principal   shareholders   currently   own  in  the  aggregate
approximately  45% of our outstanding  common stock.  These  shareholders may be
able to determine  who will be elected to our board of directors  and to control
substantially  all matters  requiring  approval by our  shareholders,  including
mergers,   sales  of  assets  and  approval  of  other   significant   corporate
transactions,  in a manner  with  which  you may not agree or that may not be in
your best interest.  This  concentration of stock ownership may adversely affect
the  trading  price  for our  common  stock  because  investors  often  perceive
disadvantages in owning stock in companies with controlling shareholders.

      PROVISIONS  IN OUR CHARTER  DOCUMENTS AND UNDER INDIANA LAW MAY PREVENT OR
DELAY A CHANGE OF CONTROL  OF US AND COULD  ALSO  LIMIT THE MARKET  PRICE OF OUR
COMMON SHARES.

      Provisions of our  certificate  of  incorporation  and bylaws,  as well as
provisions of Indiana corporate law, may discourage,  delay or prevent a merger,
acquisition or other change in control of our company,  even if such a change in
control would be  beneficial  to our  shareholders.  These  provisions  may also
prevent  or  frustrate  attempts  by our  shareholders  to replace or remove our
management. These provisions include those:

            o     prohibiting  our  shareholders  from  fixing the number of our
                  directors;

            o     requiring   advance  notice  for  shareholder   proposals  and
                  nominations; and

            o     prohibiting  shareholders  from  acting  by  written  consent,
                  unless unanimous.

      We are subject to certain  provisions of the Indiana Business  Corporation
Law, or IBCL, that limit business combination transactions with 10% shareholders
during the first five years of their ownership,  absent approval of our board of
directors.  The IBCL also contains  control share  acquisition  provisions  that
limit the ability of certain  shareholders  to vote their  shares  unless  their
control  share  acquisition  was  approved  in  advance by  shareholders.  These
provisions and other similar  provisions make it more difficult for shareholders
or  potential  acquirers to acquire us without  negotiation  and could limit the
price that investors are willing to pay in the future for our common shares.


                                       10


      COMPLIANCE  WITH CHANGING  REGULATION OF CORPORATE  GOVERNANCE  AND PUBLIC
DISCLOSURE WILL EITHER REQUIRE US TO INCUR ADDITIONAL  EXPENSES OR CEASE TO BE A
REPORTING COMPANY.

      Keeping abreast of, and in compliance with, changing laws, regulations and
standards relating to corporate governance and public disclosure,  including the
Sarbanes-Oxley  Act of 2002,  new SEC  regulations  and American  Stock Exchange
rules,  will require an increased  amount of  management  attention and external
resources.  We would be required to invest  additional  resources to comply with
evolving  standards,  which would result in increased general and administrative
expenses   and   a   diversion   of   management   time   and   attention   from
revenue-generating activities to compliance activities.

      Our Board of Directors may determine  that it is in the best  interests of
shareholders  to  eliminate  or reduce such expense by ceasing to be a reporting
company for purposes of the  Securities  Exchange Act of 1934,  as amended.  One
commonly used method,  subject to shareholder  approval,  is to effect a reverse
share split to reduce the number of shareholders  to fewer than 300,  permitting
termination of registration.  Under this method,  shareholders who own less than
one  whole  common  share   following  the  reverse  split  would  cease  to  be
shareholders and would receive a cash payment for their fractional shares. After
a reverse  split,  there may be no  established  trading  market  for our common
shares,  although  we expect  that our  common  shares may then be quoted on the
"pink sheets."

      WE DO NOT  ANTICIPATE  PAYING CASH  DIVIDENDS ON OUR COMMON  SHARES IN THE
FORESEEABLE FUTURE.

      We  anticipate  that  all  of  our  earnings  will  be  retained  for  the
development of our business.  The Board of Directors has adopted a policy of not
paying cash  dividends on our common shares.  The Company also has  restrictions
under our debt  agreements  which limit our ability to pay dividends.  We do not
anticipate paying cash dividends on our common shares in the foreseeable future.

      THERE IS A LIMITED MARKET FOR OUR COMMON SHARES. OUR SHARE PRICE IS LIKELY
TO BE HIGHLY VOLATILE AND COULD DROP UNEXPECTEDLY.

      There is a limited  public  market  for our common  shares,  and we cannot
assure  you that an  active  trading  market  will  develop.  As a result of low
trading volume in our common shares,  the purchase or sale of a relatively small
number of shares could result in significant share price fluctuations. Our share
price may fluctuate significantly in response to a number of factors,  including
the following, several of which are beyond our control:

            o     changes in financial  estimates or investment  recommendations
                  by securities analysts relating to our shares;

            o     loss of a major customer;

            o     announcements   by  us  or  our   competitors  of  significant
                  contracts,   acquisitions,   strategic   partnerships,   joint
                  ventures or capital commitments; and

            o     changes in key personnel.

      In the past,  securities  class action  litigation  has often been brought
against a company  following  periods of  volatility  in the market price of its
securities.  We  could  be the  target  of  similar  litigation  in the  future.
Securities  litigation,  regardless of merit or ultimate  outcome,  would likely
cause  us  to  incur  substantial  costs,  divert  management's   attention  and
resources,  harm our reputation in the industry and the  securities  markets and
reduce our profitability.

      SECURITIES  ANALYSTS MAY NOT INITIATE COVERAGE OF OUR COMMON SHARES OR MAY
ISSUE NEGATIVE REPORTS,  AND THIS MAY HAVE A NEGATIVE IMPACT ON THE MARKET PRICE
OF OUR COMMON SHARES.

      We cannot  assure you that security  analysts  will initiate  coverage and
publish  research  reports on us. It is  difficult  for  companies  with smaller
market  capitalizations,  such as us, to attract independent  financial analysts
who will cover our common  shares.  If securities  analysts do not, this lack of
research coverage may adversely affect the market price of our common shares.


                                       11


      IF WE ARE UNABLE TO INTRODUCE INNOVATIVE PRODUCTS, DEMAND FOR OUR PRODUCTS
MAY DECREASE.

      Our future  operating  results are dependent on our ability to continually
develop,  introduce and market innovative products, to modify existing products,
to respond to technological change and to customize some of our products to meet
customer  requirements.  There are  numerous  risks  inherent  in this  process,
including  the risks  that we will be  unable to  anticipate  the  direction  of
technological  change  or that we will be  unable  to  develop  and  market  new
products  and  applications  in a timely or  cost-effective  manner  to  satisfy
customer demand.

      OUR  OPERATING  RESULTS  AND  FINANCIAL   CONDITION  COULD  BE  MATERIALLY
ADVERSELY AFFECTED BY ECONOMIC,  POLITICAL, HEALTH, REGULATORY AND OTHER FACTORS
EXISTING IN FOREIGN COUNTRIES IN WHICH WE OPERATE.

      As we have significant international operations, our operating results and
financial  condition  could  be  materially   adversely  affected  by  economic,
political, health, regulatory and other factors existing in foreign countries in
which we operate.  Our  international  operations are subject to inherent risks,
which may materially adversely affect us, including:

            o     political and economic  instability  in countries in which our
                  products are manufactured and sold;

            o     expropriation or the imposition of government controls;

            o     sanctions  or  restrictions  on trade  imposed  by the  United
                  States government;

            o     export license requirements;

            o     trade restrictions;

            o     currency controls or fluctuations in exchange rates;

            o     high levels of inflation or deflation;

            o     greater  difficulty in collecting our accounts  receivable and
                  longer payment cycles;

            o     changes in labor  conditions and  difficulties in staffing and
                  managing our international operations; and

            o     limitations on insurance coverage against  geopolitical risks,
                  natural disasters and business operations.

      In  addition,  these  same  factors  may also  place  us at a  competitive
disadvantage  when compared to some of our foreign  competitors.  In response to
competitive  pressures  and  customer   requirements,   we  may  further  expand
internationally at lower cost locations.  If we expand into these locations,  we
will be required to incur additional capital expenditures.

      OUR  BUSINESSES  ARE  CYCLICAL.  A DECLINE  IN  DEMAND  IN THE  ELECTRONIC
COMPONENT AND GLASS COMPONENT  INDUSTRIES MAY RESULT IN ORDER  CANCELLATIONS AND
DEFERRALS AND LOWER AVERAGE SELLING PRICES FOR OUR PRODUCTS.

      Our subsidiaries  sell to industries that are subject to cyclical economic
changes. The electronic component and glass component industries in general, and
specifically  the Company,  could  experience  a decline in product  demand on a
global basis,  resulting in order  cancellations and deferrals and lower average
selling  prices.  A slowing  of  growth in the  demand  for  components  used by
telecommunications   infrastructure   manufacturers   and   newer   technologies
introduced in the glass display industry could lead to a decline.  If a slowdown
occurs, it may continue and may become more pronounced.

      OUR MARKETS ARE HIGHLY COMPETITIVE, AND WE MAY LOSE BUSINESS TO LARGER AND
BETTER-FINANCED COMPETITORS.

      Our  markets are highly  competitive  worldwide,  with low  transportation
costs and few import  barriers.  We compete  principally on the basis of product
quality  and  reliability,   availability,   customer   service,   technological
innovation, timely delivery and price. All of the industries in which we compete
have become  increasingly  concentrated  and global in recent  years.  Our major
competitors,  some of which are larger than us, and potential  competitors  have
substantially  greater  financial  resources  and  more  extensive  engineering,
manufacturing, marketing and customer support capabilities than we have.


                                       12


      OUR  SUCCESS  DEPENDS  ON OUR  ABILITY TO RETAIN  OUR KEY  MANAGEMENT  AND
TECHNICAL  PERSONNEL  AND  ATTRACTING,  RETAINING,  AND TRAINING  NEW  TECHNICAL
PERSONNEL.

      Our future  growth and success  will depend in large part upon our ability
to retain our existing  management  and technical team and to recruit and retain
highly skilled technical personnel,  including  engineers.  The labor markets in
which we  operate  are highly  competitive  and most of our  operations  are not
located in highly populated areas. As a result, we may not be able to retain and
recruit key  personnel.  Our  failure to hire,  retain or  adequately  train key
personnel could have a negative impact on our performance.

      MTRONPTI'S  BACKLOG  MAY NOT BE  INDICATIVE  OF  FUTURE  REVENUES  AND MAY
ADVERSELY AFFECT OUR BUSINESS.

      MtronPTI's   backlog   comprises  orders  that  are  subject  to  specific
production release orders under written contracts,  oral and written orders from
customers with which MtronPTI has had  long-standing  relationships  and written
purchase  orders  from sales  representatives.  MtronPTI's  customers  may order
components  from  multiple  sources to ensure  timely  delivery  when backlog is
particularly  long and may cancel or defer orders without  significant  penalty.
They often cancel orders when business is weak and inventories are excessive,  a
phenomenon that MtronPTI experienced in the most recent economic slowdown.  As a
result,  MtronPTI's  backlog as of any particular date may not be representative
of actual revenues for any succeeding period.

      MTRONPTI RELIES UPON ONE CONTRACT  MANUFACTURER FOR A SIGNIFICANT  PORTION
OF ITS FINISHED  PRODUCTS,  AND A DISRUPTION  IN ITS  RELATIONSHIP  COULD HAVE A
NEGATIVE IMPACT ON MTRONPTI'S REVENUES.

      In 2006,  approximately  15.9% of MtronPTI's  revenue was  attributable to
finished products that were manufactured by an independent contract manufacturer
located in both Korea and China (10.2% in 2005). We expect this  manufacturer to
account for a smaller but substantial portion of MtronPTI's revenues in 2007 and
a material portion of MtronPTI's  revenues for the next several years.  MtronPTI
does not have a written,  long-term supply contract with this  manufacturer.  If
this manufacturer  becomes unable to provide products in the quantities  needed,
or at acceptable prices,  MtronPTI would have to identify and qualify acceptable
replacement  manufacturers  or  manufacture  the  products  internally.  Due  to
specific  product  knowledge and process  capability,  MtronPTI could  encounter
difficulties  in  locating,  qualifying  and  entering  into  arrangements  with
replacement manufacturers. As a result, a reduction in the production capability
or financial viability of this manufacturer, or a termination of, or significant
interruption in, MtronPTI's  relationship with this manufacturer,  may adversely
affect MtronPTI's results of operations and our financial condition.

      MTRONPTI  PURCHASES  CERTAIN KEY COMPONENTS FROM SINGLE OR LIMITED SOURCES
AND COULD LOSE SALES IF THESE SOURCES FAIL TO FULFILL OUR NEEDS.

      If single source  components  were to become  unavailable on  satisfactory
terms, and could not obtain comparable replacement components from other sources
in a timely manner, our business,  results of operations and financial condition
could be harmed. On occasion, one or more of the components used in our products
have become unavailable,  resulting in unanticipated redesign and related delays
in  shipments.  We cannot  assure you that similar  delays will not occur in the
future. Our suppliers may be impacted by compliance to environmental regulations
including RoHS &  WEEE,  which could affect our continued supply of components or
cause additional costs for us to implement new components into our manufacturing
process.

      MTRONPTI'S  PRODUCTS ARE COMPLEX AND MAY CONTAIN  ERRORS OR DESIGN  FLAWS,
WHICH COULD BE COSTLY TO CORRECT.

      When we release new products,  or new versions of existing products,  they
may contain undetected or unresolved errors or defects.  Despite testing, errors
or defects may be found in new products or upgrades  after the  commencement  of
commercial  shipments.  Undetected  errors and design flaws have occurred in the
past and could occur in the future. These errors could result in delays, loss of
market acceptance and sales, diversion of development  resources,  damage to our
reputation,  legal action by our customers, failure to attract new customers and
increased service costs.


                                       13


      CONTINUED  MARKET  ACCEPTANCE  OF  MTRONPTI'S  PACKAGED  QUARTZ  CRYSTALS,
OSCILLATOR  MODULES AND ELECTRONIC  FILTERS IS CRITICAL TO OUR SUCCESS,  BECAUSE
FREQUENCY CONTROL DEVICES ACCOUNT FOR NEARLY ALL OF MTRONPTI'S REVENUES.

      As was  the  case in 2005  and  2004,  virtually  all of  MtronPTI's  2006
revenues came from sales of frequency control devices, which consist of packaged
quartz crystals,  oscillator modules and electronic filters. We expect that this
product  line will  continue  to account  for  substantially  all of  MtronPTI's
revenues for the foreseeable future. Any decline in demand for this product line
or failure to achieve  continued market  acceptance of existing and new versions
of this product line may harm MtronPTI's business and our financial condition.

      MTRONPTI'S  FUTURE RATE OF GROWTH IS HIGHLY  DEPENDENT ON THE  DEVELOPMENT
AND GROWTH OF THE MARKET FOR COMMUNICATIONS AND NETWORK EQUIPMENT.

      In 2006,  the  majority of  MtronPTI's  revenues was to  manufacturers  of
communications and network  infrastructure  equipment,  including indirect sales
through  distributors and contract  manufacturers.  In 2007,  MtronPTI expects a
smaller  but  significant  portion of its  revenues  to be to  manufacturers  of
communications  and  network  infrastructure  equipment.   MtronPTI  intends  to
increase  its  sales to  communications  and  network  infrastructure  equipment
manufacturers in the future.  Communications  and network service providers have
experienced  periods of capacity  shortage  and periods of excess  capacity.  In
periods of excess  capacity,  communications  systems and network  operators cut
purchases of capital equipment, including equipment that incorporates MtronPTI's
products.  A slowdown in the  manufacture  and  purchase of  communications  and
network infrastructure equipment could substantially reduce MtronPTI's net sales
and operating results and adversely affect our financial condition. Moreover, if
the market for communications or network infrastructure  equipment fails to grow
as  expected,  MtronPTI  may be unable  to  sustain  its  growth.  In  addition,
MtronPTI's  growth depends upon the acceptance of its products by communications
and network infrastructure  equipment  manufacturers.  If, for any reason, these
manufacturers  do not find MtronPTI's  products to be appropriate for their use,
our future growth will be adversely affected.

      COMMUNICATIONS   AND  NETWORK   INFRASTRUCTURE   EQUIPMENT   MANUFACTURERS
INCREASINGLY RELY UPON CONTRACT  MANUFACTURERS,  THEREBY DIMINISHING  MTRONPTI'S
ABILITY TO SELL ITS PRODUCTS DIRECTLY TO THOSE EQUIPMENT MANUFACTURERS.

      There is a growing trend among  communications and network  infrastructure
equipment  manufacturers  to outsource the  manufacturing  of their equipment or
components. As a result, MtronPTI's ability to persuade these original equipment
manufacturers  to specify our products has been reduced and, in the absence of a
manufacturer's  specification of MtronPTI's  products,  the prices that MtronPTI
can charge for them may be subject to greater competition.

      MTRONPTI'S  CUSTOMERS ARE SIGNIFICANTLY  LARGER THAN IT AND THEY MAY EXERT
LEVERAGE THAT WILL NOT BE IN THE BEST INTEREST OF MTRONPTI.

      The majority of MtronPTI's  sales are to companies that are many times its
size.  This  size  differential  may  put  MtronPTI  in  a  disadvantage   while
negotiating  contractual  terms and may result in terms that are not in the best
interest of MtronPTI.  These items may include  price,  payment  terms,  product
warranties and product consignment obligations.

      FUTURE  CHANGES  IN  MTRONPTI'S  ENVIRONMENTAL  LIABILITY  AND  COMPLIANCE
OBLIGATIONS MAY INCREASE COSTS AND DECREASE PROFITABILITY.

      MtronPTI's manufacturing  operations,  products,  and/or product packaging
are subject to  environmental  laws and  regulations  governing  air  emissions,
wastewater discharges,  and the handling,  disposal and remediation of hazardous
substances,   wastes  and  other   chemicals.   In  addition,   more   stringent
environmental  regulations may be enacted in the future, and we cannot presently
determine the  modifications,  if any, in MtronPTI's  operations that any future
regulations  might require,  or the cost of compliance  that would be associated
with these regulations.


                                       14


      SALES OF A SIGNIFICANT PORTION OF OUR PRODUCTS TO CUSTOMERS OUTSIDE OF THE
UNITED STATES SUBJECTS US TO BUSINESS, ECONOMIC AND POLITICAL RISKS.

      Our 2006 export sales (primarily to China,  Canada,  and Brazil) accounted
for 55.5% of 2006 consolidated revenues,  compared to 46% in 2005. We anticipate
that sales to customers  located outside of the United Sates will continue to be
a  significant  part  of  our  revenues  for  the  foreseeable  future.  Because
significant portions of our sales are to customers outside of the United States,
we are subject to risks including foreign currency fluctuations,  longer payment
cycles, reduced or limited protection of intellectual property rights, political
and economic  instability,  and export  restrictions.  To date,  very few of our
international  revenue and cost  obligations  have been  denominated  in foreign
currencies.  As a result,  an increase in the value of the US dollar relative to
foreign  currencies  could  make our  products  more  expensive  and thus,  less
competitive in foreign  markets.  We do not currently engage in foreign currency
hedging  activities,  but  may  do so in the  future  to the  extent  that  such
obligations become more significant.

      LYNCH SYSTEMS'  DEPENDENCE ON A FEW  SIGNIFICANT  CUSTOMERS  EXPOSES IT TO
OPERATING RISKS.

      Lynch  Systems'  sales  to  its  ten  largest   customers   accounted  for
approximately  84% of its revenues in 2006 compared with and 79% of its revenues
in 2005.  Lynch  Systems'  sales to its single  largest  customer  accounted for
approximately  39% of its 2006  revenues,  compared  with 46% of its revenues in
2005. If a significant  customer  reduces,  delays or cancels its orders for any
reason,  the  business  and  results of  operations  of Lynch  Systems  would be
negatively affected.

      A MULTIPLE  MACHINE  ORDER WITH A  SIGNIFICANT  CUSTOMER IN THE  TABLEWARE
MARKET HAS ADVERSELY AFFECTED LYNCH SYSTEM'S FINANCIAL PERFORMANCE.

      In 2004, Lynch Systems signed a contract to sell five machines for a total
purchase  price  of  $2,350,000.  The  contract  was  accounted  for  under  the
percentage of completion  method.  Throughout 2004 and 2005,  revenues  totaling
approximately  $1,983,000 were recorded relating to the five machines based upon
the  percentage  completed.  In late 2005,  the first  machine was completed and
shipped.  The  installation of the machine had been delayed several times due to
the  customer  temporarily  closing down its plant.  The first  machine has been
installed,  however the customer  has not paid.  In 2006,  the Company  provided
additional reserves of $375,000,  against the trade receivables outstanding from
this customer on the initial  machine that was shipped in 2004,  and at December
31, 2006, such  receivables  are fully  reserved.  With regard to the four other
machines,  two were substantially  complete and the Company continues to try and
identify  buyers  for these  units.  Despite  their  efforts,  to date no formal
purchase  commitments  have been received and the company has provided a reserve
of $145,000 against the value of these machines ($723,000) at December 31, 2006.
The  other two  machines,  which  were much  earlier  in  production,  have been
disassembled  and  have  been  substantially  used in the  production  of  other
finished goods.

      THE RESULTS OF LYNCH SYSTEMS'  OPERATIONS ARE SUBJECT TO  FLUCTUATIONS  IN
THE AVAILABILITY AND COST OF STEEL USED TO MANUFACTURE GLASS FORMING EQUIPMENT.

      Lynch Systems uses large amounts of steel to manufacture its glass forming
equipment.  The  price of steel has risen  substantially  over the past  several
years and  demand for steel is very high.  Lynch  Systems  has only been able to
pass some of the increased costs to its customers.  As a result,  Lynch Systems'
profit margins on glass forming  equipment have  decreased.  If the price of and
demand  for steel  continues  to rise,  our  profit  margins  will  continue  to
decrease.

      LYNCH SYSTEMS MAY BE UNABLE TO PROTECT ITS INTELLECTUAL PROPERTY.

      The success of Lynch Systems' business depends,  in part, upon its ability
to protect  trade  secrets,  designs,  drawings and  patents,  obtain or license
patents and operate without  infringing on the  intellectual  property rights of
others.  Lynch  Systems  relies  on a  combination  of trade  secrets,  designs,
drawings,  patents,  nondisclosure  agreements and technical measures to protect
its proprietary rights in its products and technology.  The steps taken by Lynch
Systems in this regard may not be adequate  to prevent  misappropriation  of its
technology.  In  addition,  the laws of some  foreign  countries  in which Lynch
Systems operates do not protect its proprietary  rights to the same extent as do
the laws of the United States.  Although Lynch Systems continues to evaluate and
implement protective  measures,  we cannot assure you that these efforts will be
successful. Lynch Systems' inability to protect its intellectual property rights
could diminish or eliminate the competitive  advantages that it derives from its
technology, cause Lynch Systems to lose sales or otherwise harm its business.

                        --------------------------------


                                       15


                           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   Company's   current   plans  and   expectations   and  involve  risks  and
uncertainties,  over which the Company 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  Company   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  Company  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
Company,  in this document,  as well as the Company's  periodic reports on Forms
10-K, 10-Q and 8-K, filed with the Securities and Exchange Commission ("SEC").

      The Company  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  Company  also  makes  this  information   available  on  its  website
WWW.LGLGROUP.COM.

                        --------------------------------

ITEM 1B. UNRESOLVED STAFF COMMENTS

      Not applicable.

ITEM 2. PROPERTIES

      LGL  Group's  principal   executive  offices  are  located  in  Greenwich,
Connecticut, under a monthly lease for approximately 1,100 square feet of office
space.

      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.  At December 31, 2006, all such properties are subject to
security deeds relating to loans.

      MtronPTI's  operations  are located in  Yankton,  South  Dakota,  Orlando,
Florida,  India, and Hong Kong.  MtronPTI has two separate facilities in Yankton
which contain approximately 51,000 square feet in the aggregate. One of these is
owned,  the other leased.  The Yankton  manufacturing  facility that is owned by
MtronPTI contains  approximately 35,000 square feet is situated on approximately
15 acres of land and is subject to security deeds relating to loans. The Yankton
leased  facility  contains  approximately  16,000 square feet. The lease expires
annually  on  September  30  and  is  renewable.  MtronPTI  owns  one  building,
approximately  76,000 square feet, on  approximately 7 acres of land in Orlando,
which was  purchased  in  connection  with the  acquisition  of PTI. The Company
leases  approximately  7,500  square feet of office and  manufacturing  space in
Delhi,  India and approximately  1,500 square feet of office space in Hong Kong.
It is the Company's  opinion that the  facilities  referred to above are in good
operating condition and suitable and adequate for present uses.


                                       16


ITEM 3. LEGAL PROCEEDINGS

      In  the  normal  course  of  business,  subsidiaries  of the  Company  are
defendants in certain product liability, worker claims and other litigation. The
Company has no litigation pending at this time.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      Not applicable.

ITEM 5. MARKET FOR THE REGISTRANT'S  COMMON EQUITY,  RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES

      The Common Stock of the Company 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 fiscal years ended December 31, 2006 and December
31, 2005 are as follows:

                                                                   Quarter Ended
                                     --------------------------------------------------------------------------
2006                                 March 31,            June 30,           September 30,         December 31,
----                                 ---------            --------           -------------         ------------
High........................          $10.30                $9.10                $8.25                 $8.73
Low.........................            6.79                 7.21                 7.06                  7.00

2005                                 March 31,            June 30,           September 30,         December 31,
----                                 ---------            --------           -------------         ------------
High........................          $14.97                $9.50               $13.70                $11.95
Low.........................            9.00                 7.75                 8.35                  7.50

      At December 31, 2006,  the Company's  stock price was $7.00.  At March 20,
2007, the Company had 1,475 shareholders of record.

PERFORMANCE GRAPH

      The graph below compares the cumulative  total  shareholder  return on the
Common Stock of the  Corporation  for the last five fiscal years ended  December
31, 2006, with the cumulative total return over the same period (i) on the broad
market, as measured by the AMEX Market Value Index, and (ii) on a peer group, as
measured by a composite  index based on the total returns earned on the stock of
the publicly traded companies  included in the Media General Financial  Services
database  under the two Standard  Industrial  Classification  (sic) codes within
which the  Corporation  conducts the bulk of its business  operations:  SIC Code
355,  Special  Industry  Machinery;  and SIC  Code  367,  Electronic  Components
Accessories.  The data  presented in the graph assumes that $100 was invested in
the  Corporation's  Common Stock and in each of the indexes on December 31, 2001
and that all dividends were reinvested.


                                       17


                                                           Fiscal Year Ending December 31,
                                        2001         2002         2003          2004          2005          2006
THE LGL GROUP, INC.                    100.00       43.06         58.06         80.56         45.83         38.89
AMEX MARKET INDEX                      100.00       96.01        130.68        149.65        165.03        184.77
PEER GROUP (355, 367)                  100.00       54.15         99.08         77.65         84.48        102.01

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 is expected to be
paid in 2007. Substantially all of the subsidiaries' assets are restricted under
the Company's current credit agreements,  which limit the subsidiaries'  ability
to pay dividends.

ISSUER REPURCHASE OF ITS EQUITY SECURITIES

      There were no repurchases made by the Company during 2006.

SALE OF UNREGISTERED SECURITIES

      There were no sales of unregistered securities as defined under Securities
Exchange Act of 1934, during 2006.


                                       18


ITEM 6. SELECTED FINANCIAL DATA

                      THE LGL GROUP, INC. AND SUBSIDIARIES

                      CONSOLIDATED SELECTED FINANCIAL DATA
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

      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.

                                                                           Year ended December 31, (a)
                                                           -------------------------------------------------------------
                                                               2006         2005        2004          2003*         2002*
                                                           --------     --------    --------      --------      --------
Revenues ..............................................    $ 49,300     $ 46,183    $ 33,834      $ 27,969      $ 26,386
Operating profit (loss) (b) ...........................        (548)       1,178      (2,888)         (832)       16,168
Gain (loss) on sale of subsidiary stock and  other
    operating assets ..................................          --           --          --            35           (92)
Gain on release of customer related  contingency ......          --           --          --           728            --
Income (loss) from continuing operations  before income
    taxes and minority interests ......................         639        1,001      (3,226)          183        15,996
Benefit (provision) for income taxes ..................         226          209        (100)          (73)        1,967
Minority interests ....................................          --           --          --            --            --
                                                           --------     --------    --------      --------      --------
Net income (loss) .....................................    $    865     $  1,210    $ (3,326)     $    110      $ 17,963
                                                           ========     ========    ========      ========      ========
Per Common Share:(c)
    Net income (loss):
       Basic ..........................................    $    .40     $   0.73    $  (2.18)     $   0.07      $  11.99
       Diluted ........................................         .40         0.73       (2.18)         0.07         11.99

                                                                                December 31, (a)
                                                           -------------------------------------------------------------
                                                             2006         2005        2004          2003*         2002*
                                                           --------     --------    --------      --------      --------
Cash, securities and short-term  Investments ..........    $  7,039     $  8,250    $  6,189      $  6,292      $  6,847

Restricted cash(e) ....................................          96          650       1,125         1,125         1,125

Total assets(d) .......................................      30,957       32,664      33,883        23,019        23,430

Long-term debt, exclusive of current  portion .........       3,100        5,031       3,162           833         1,089

Shareholders' equity (d) ..............................      16,707       14,688       9,993        11,033        10,934

NOTES:

*  Excludes  Spinnaker  Industries  as  a  result  of  the  September  30,  2001
deconsolidation of Spinnaker resulting from the Company's  disposition of shares
of  Spinnaker  that  reduced its  ownership  and voting  interest  of  Spinnaker
Industries,  Inc. to 41.8% and 49.5% respectively,  and the Company's subsequent
disposition of its remaining interest in Spinnaker on September 23, 2002.


                                       19


(a)   The data  presented  includes  results of the business  acquired from PTI,
      from  September  30, 2004,  the  effective  date of its  acquisition,  and
      Champion  Technologies,  Inc.  from  October  18,  2002,  the  date of its
      acquisition.

(b)   Operating  profit  (loss)  is  revenues  less  operating  expenses,  which
      excludes  investment  income,   interest  expense,   extraordinary  items,
      minority   interests  and  taxes.   Included  are  asset   impairment  and
      restructuring charges and the gain on deconsolidation.

(c)   Based on weighted average number of common shares outstanding.

(d)   No cash dividends have been declared over the period.

(e)   See discussion of Restricted Cash in "Notes Payable and Long-Term Debt" in
      Note 3 to the Consolidated Financial Statements.

ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

      The  following  discussion  and analysis  should be read together with the
Selected  Financial  Data  and our  Consolidated  Financial  Statements  and the
related notes included elsewhere in this Annual Report.

RESULTS OF OPERATIONS

      2006 COMPARED TO 2005

CONSOLIDATED REVENUES AND GROSS MARGIN

      In year ended  December  31,  2006,  consolidated  revenues  increased  by
$3,117,000, or 6.7%, to $49,300,000,  from $46,183,000 in 2005, due to increased
sales at  MtronPTI.  Revenues at MtronPTI  increased in 2006 by  $6,498,000,  or
18.5%, to $41,549,000  from $35,051,000 for 2005. The increase was primarily due
to improvements in the telecommunications market and the addition of several new
customers.  The  products  most  responsible  for the volume  improvements  were
filters,  oscillators,  and resonators.  Revenues at Lynch Systems  decreased in
2006 by $3,381,000,  or 30.4%,  to $7,751,000  from  $11,132,000  in 2005.  This
decrease was  primarily  due to a  $5,138,000  decrease in sales of CRT machines
somewhat offset by an increase in sales of glassware manufacturing machines.

      The  consolidated  gross margin  decreased  $1,182,000  for the year ended
December 31, 2006 to $13,553,000 from $14,735,000 in 2005. Over the same period,
the  consolidated  gross margin as a percentage  of revenues  decreased to 27.5%
from 31.9% due primarily to declining gross margins at Lynch Systems. MtronPTI's
gross  margin as a percentage  of revenues for the year ended  December 31, 2006
decreased  slightly  to 29.5% from 30.2% in 2005,  due to a slight  decrease  in
manufacturing  yields which  increased cost of goods sold.  Lynch Systems' gross
margin  as a  percentage  of  revenues  for the year  ended  December  31,  2006
decreased by 20.4% to 16.9% from 37.3% in 2005.  The decrease was  primarily due
to the loss of sales of large CRT machines  which carry  higher  gross  margins.
Lynch  Systems has  undergone a shift in its business  away from high margin CRT
machines to lower margin  tableware  products and repair parts  business.  Lynch
systems also reserved $145,000 against two of its finished machines built for an
Indonesian  customer  but  never  shipped  due to  non-payment  for the  initial
delivered machine.

OPERATING PROFIT (LOSS)

      The  consolidated  operating loss for the year ended December 31, 2006 was
$548,000  compared to a $1,178,000  profit for 2005. This decrease of $1,726,000
is primarily due to decreased sales at Lynch Systems.


                                       20


      For the year ended  December 31, 2006,  MtronPTI had  operating  profit of
$3,072,000,  an improvement of $766,000 over the operating  profit of $2,306,000
in 2005. The operating  profit  improvement was primarily due to increased sales
of filters,  oscillators,  and resonators. For the year ended December 31, 2006,
Lynch  Systems had  operating  loss of  $1,898,000  compared  with its operating
profit of $684,000 in 2005.  The $2,582,000  decline in Lynch Systems  operating
profit  resulted  primarily from the 30.4% decline in sales and 20.4% decline in
margin discussed in sales and gross margin section.  Lynch also charged $375,000
to administrative  expense in 2006 as a further allowance for bad debts to cover
its remaining receivable exposure with an Indonesian customer.

      Unallocated  corporate  expenses  were  $1,722,000  during  the year ended
December 31, 2006, a reduction of $60,000 from $1,662,000 incurred in 2005.

OTHER INCOME (EXPENSE), NET

      Investment  income for the year ended  December  31,  2006 was  $1,750,000
compared  to  $608,000  for year  ended  December  31,  2005.  The  increase  of
$1,142,000 was due to the  realization of more gains on more sales of marketable
securities.

      Net  interest  expense  declined by  $277,000  to $570,000  for year ended
December 31, 2006,  compared with $847,000 for the year ended December 31, 2005,
primarily due to a reduction in the level of debt outstanding during the year.

      Other Income for the year ended December 31, 2006 was $7,000 compared with
other income for the comparable  period in 2005 which was $62,000  primarily due
to a gain on the sale of a  warehouse  in Orlando,  FL in the second  quarter of
2005.

INCOME TAXES

      The Company files consolidated federal income tax returns,  which includes
all subsidiaries.

      The income tax benefit  for the year ended  December  31, 2006  included a
reduction to an income tax reserve of $492,000  offset by provisions for foreign
taxes of $266,000.  The income tax benefit for the year ended  December 31, 2005
included a reduction to an income tax reserve of $484,000  offset by  provisions
for foreign taxes of $184,000.

NET INCOME (LOSS)

      Net income for the year ended December 31, 2006 was $865,000 compared with
net income for the year ended December 31, 2005 of  $1,210,000.  Basic and fully
diluted income per share for the year ended December 31, 2006 was $0.40 compared
with $0.73 for year ended December 31, 2005.

BACKLOG/NEW ORDERS

      Total  backlog  of   manufactured   products  at  December  31,  2006  was
$9,918,000,  a $3,942,000  decrease from the $13,860,000 backlog at December 31,
2005.  MtronPTI had backlog  orders of  $8,065,000 at December 31, 2006 compared
with  $8,906,000  at December  31,  2005.  Lynch  Systems had backlog  orders of
$1,853,000 at December 31, 2006 compared with $4,954,000 at December 31, 2005.

      2005 COMPARED TO 2004

CONSOLIDATED REVENUES AND GROSS MARGIN

      Consolidated  revenues increased  $12,349,000,  or 36%, to $46,183,000 for
the year ended December 31, 2005 from  $33,834,000 for the comparable  period in
2004.

      Revenues at MtronPTI increased by $11,638,000,  or 50%, to $35,051,000 for
the year ended December 31, 2005 from  $23,413,000 in 2004. The increase was due
to  improvements  in  the   telecommunications   market,   improvements  in  the
infrastructure segment of the telecommunications  market and the contribution of
PTI, which was acquired effective September 30, 2004.


                                       21


      Revenues at Lynch Systems increased by $711,000, or 7%, to $11,132,000 for
the year ended  December 31, 2005 from  $10,421,000  in 2004.  This increase was
primarily due to sales of large CRT machines in 2005, which was partially offset
by lower revenue for glass press machines.

      The  consolidated  gross  margin  as a  percentage  of  revenues  in  2005
increased to 31.9%, compared to 23.8% in the prior year.

      MtronPTI's  gross  margin as a  percentage  of revenues for the year ended
December 31, 2005 increased to 30.2% from 26.9% in 2004. The  contribution  from
PTI,  combined with  selective  price  increases and  operational  efficiencies,
resulted in the improved gross margin rates.

      Lynch Systems' gross margin as a percentage of revenues for the year ended
December  31,  2005  increased  to 37.3% from 16.7% in 2004.  The  increase  was
primarily due to sales of large CRT machines,  which carry higher gross margins,
in 2005.  Although  the 2005  revenues  for Lynch  Systems'  include a large CRT
machine  order,  Lynch  Systems has  undergone a shift in its business away from
higher margin CRT machines to lower margin  tableware  products and repair parts
business.

OPERATING PROFIT (LOSS)

      The operating  profit for the year ended December 31, 2005 was $1,178,000,
compared to an operating loss of $2,888,000  for the comparable  period in 2004,
primarily  due to  higher  margins  at both  MtronPTI  and Lynch  Systems  and a
$775,000 litigation  provision recorded in 2004 compared to a $150,000 provision
in 2005.

      For the year ended  December 31, 2005,  MtronPTI had  operating  profit of
$2,306,000,  an  improvement  of $1,294,000  compared to $1,012,000 in 2004. The
operating  profit  improvement  was  primarily  due to the  significant  revenue
increase and improvements in gross margin,  which was partially offset by higher
operating  expenses  resulting  from the  addition  of PTI,  which was  acquired
effective September 30, 2004.

      For the year ended December 31, 2005,  Lynch Systems had operating  profit
of $684,000,  compared to an operating loss of $1,340,000 in 2004. The operating
profit resulted from resulted from higher gross margins in 2005 directly related
to the composition of revenues by product in 2005.

      Unallocated  corporate expenses decreased $748,000,  to $1,662,000 for the
year ended December 31, 2005 from $2,560,000 for the comparable  period in 2004.
The decline  was  primarily  due to a lawsuit  settlement  provision  in 2005 of
$150,000 compared to $775,000 in 2004.

OTHER INCOME (EXPENSE), NET

      Investment  income  for the year ended  December  31,  2005 was  $608,000,
$593,000 more than the $15,000  investment  income for the comparable  period in
2004, primarily due to a $567,000 realized gain on sale of marketable securities
in 2005.

      Interest  expense of  $847,000  for the year ended  December  31, 2005 was
$487,000 more than the comparable  period in 2004,  primarily due to an increase
in the level of debt outstanding  during the year resulting from the acquisition
of PTI, borrowings at Lynch Systems, as well as higher interest rates.

      Other income for the year ended  December  31, 2005 was  $62,000,  $55,000
more than the $7,000 recorded for the comparable  period in 2004,  primarily due
to a gain on the sale of a warehouse in Orlando, FL in the second quarter 2005.


                                       22


INCOME TAXES

      The Company files consolidated federal income tax returns,  which includes
all subsidiaries.

      The income  tax  benefit  for the year  period  ended  December  31,  2005
included  federal,  as well  as  state,  local,  and  foreign  taxes  offset  by
provisions  made for certain net operating loss  carry-forwards  that may not be
fully realized.  The income tax benefit also includes a non-recurring  reduction
to an income tax  reserve  of  $716,000  in the third  quarter  2005,  which was
originally provided for during 2001. The tax reserve was increased in the fourth
quarter of 2005 by a net $232,000  provision  for federal and state tax reserves
identified in that period.

NET INCOME (LOSS)

      Net income for the year ended December 31, 2005 was  $1,210,000,  compared
to a net loss of  $3,326,000  for the  comparable  period in 2004.  As a result,
fully  diluted  income per share for the year ended  December 31, 2005 was $0.73
compared to a $2.18 loss per share for the comparable period of 2004.

BACKLOG/NEW ORDERS

      Total  backlog  of   manufactured   products  at  December  31,  2005  was
$13,860,000,  a $3,714,000 decline compared to the backlog at December 31, 2004,
and $790,000 increase from the backlog at September 30, 2005.

      MtronPTI had backlog orders of $8,906,000 at December 31, 2005 compared to
$7,647,000 at December 31, 2004 and  $8,218,000  at September 30, 2005.  Backlog
increased  $1,259,000  from  December  31,  2004  and  increased  $688,000  from
September  30,  2005.  The  increase  in  backlog  is due to  improved  business
conditions.

      Lynch  Systems  had backlog  orders of  $4,954,000  at  December  31, 2005
compared to  $9,927,000  at December 31, 2004 and  $4,852,000  at September  30,
2005.  Backlog decreased  $4,973,000 from December 2004 due to shipment of large
CRT machines in 2005 and increased $102,000 from September 30, 2005. At December
31, 2005 the backlog of  $4,954,000  comprised  glass press  machine  orders and
parts and did not contain any CRT machine orders.

INFLATION RISK

      In the  three  most  recent  years,  the  Company  as a whole has not been
significantly  exposed to the impact of  inflationary  risk.  Our  principle raw
materials have been relatively  stable.  The Company  generally has been able to
include cost  increases in its pricing and  therefore  revenues and margins have
not been significantly impacted.

      Most  raw  materials  used in the  production  of  MtronPTI  products  are
available in adequate  supply from a number of sources.  The prices of these raw
materials are relatively stable.  However,  some raw materials including printed
circuit boards,  quartz, and certain metals including steel,  aluminum,  silver,
gold,  tantalum and palladium,  are subject to greater supply  fluctuations  and
price volatility.

      Lynch Systems is in the industrial machinery market. The price of steel, a
major component of glass forming  machinery,  has remained  relatively stable in
2006 after rising severely in 2004 and 2005.  Lynch Systems has been required to
absorb a portion  of that  price  increase  with  little  ability  to pass price
increases  along.  The  dramatic  increase  in energy  prices  have  roiled  the
tableware market and have reduced demand.

LIQUIDITY AND CAPITAL RESOURCES

      The  Company's  cash,  cash  equivalents  and  investments  in  marketable
securities  at  December  31,  2006  totaled  $7,135,000  (including  $96,000 of
restricted  cash), a decrease of $1,765,000 over the prior year. At December 31,
2005, the Company had $8,900,000 in cash (including $650,000 of restricted cash)
cash  equivalents,  and investments.  The unrestricted cash and cash equivalents
component  decreased  by  $1,083,000,  from  $5,512,000  at December 31, 2005 to
$4,429,000 at December 31, 2006.


                                       23


      Cash used in operating  activities  was  $1,855,000  in 2006,  compared to
$2,283,000  of cash provided by operating  activities in 2005.  The year to year
change in operating  cash flow of $4,138,000 was primarily due to an increase in
inventory of $1,861,000 and a decrease of $1,726,000 in operating income.

      Investing  activities provided $2,377,000 in cash to the Company primarily
comprised of $2,976,000 of proceeds from the sales of marketable securities.

      Cash of $1,605,000 was used in financing  activities mainly as a result of
$1,119,000 of long-term debt repayments and $582,000 of note repayments.

      At December 31, 2006,  the Company's net working  capital was  $12,463,000
compared to  $11,925,000 at December 31, 2005. At December 31, 2006, the Company
had current assets of $23,613,000 and current  liabilities of  $11,150,000.  The
ratio of current assets to current  liabilities was 2.12 to 1.0. At December 31,
2005, the Company had current assets of $24,870,000  and current  liabilities of
$12,945,000,  and a current  ratio of 1.92 to 1.00.  The increase in net working
capital is primarily due to the building up of inventory levels.

      The Company had a  $6,744,000  of unused  borrowing  capacity  under Lynch
Systems' and MtronPTI's revolving lines of credit at December 31, 2006, compared
to $5,327,000 at December 31, 2005. The Company  believes that existing cash and
cash equivalents,  cash generated from operations and available borrowings under
its  subsidiaries'  lines of credit,  including the proposed  renewals,  will be
sufficient  to  meet  its  ongoing  working  capital  and  capital   expenditure
requirements for the foreseeable future.

      Lynch Systems and MtronPTI  maintain their own  short-term  line of credit
facilities. 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. At December
31,  2005,  MtronPTI's  credit  facility  included an unsecured  parent  Company
guarantee which was supported by a $650,000 Letter of Credit that was secured by
a $650,000  deposit at Bank of  America.  As of October 7, 2006,  the Company no
longer  guarantees  the Letter of Credit and the  $650,000  deposit is no longer
restricted.  The Lynch  credit  facility  includes an unsecured  parent  Company
guarantee at December 31, 2005 and 2006.

      At December  31,  2006,  the Company had  $2,256,000  in notes  payable to
banks.  At December 31, 2006,  Mtron's  short-term  credit  facility  with First
National Bank of Omaha ("FNBO") is $5,500,000,  under which there is a revolving
credit loan for $1,356,000.  The Revolving Loan bears interest at the greater of
prime rate or 4.5%.  On May 31, 2006,  Mtron renewed its credit  agreement  with
FNBO extending the due date of its revolving loan to May 31, 2007.

      The Company also had a working capital  revolver at Lynch Systems that had
been  entered  into in  October  2005 with  Branch  Banking  and  Trust  Company
("BB& T").  The revolving loan had a $3,500,000  borrowing capacity,  due January
29, 2007 and bore  interest at the One Month LIBOR Rate plus 2.75%.  At December
31, 2006, Lynch's  borrowings on the line of credit were $900,000.  The revolver
expired by its own terms in January 29, 2007. The line of credit borrowings plus
accrued interest, of $905,000, was repaid on February 13, 2007.

      In 2007,  the  Company has  established  a new line of credit with Bank of
America which allows for $1,100,000 of borrowings.  Borrowings on this new Lynch
Systems line bear interest at a rate of LIBOR plus 1.75%.  The entire  borrowing
capacity is collateralized by a $1,100,000 of restricted cash on deposit.  There
are no covenants associated with this credit line.

      On September 30, 2005,  MtronPTI  entered into a Loan  Agreement  with RBC
Centura Bank  ("RBC").  The RBC Term Loan  Agreement  provided for a loan in the
amount of $3,040,000  (the "RBC Term Loan"),  the proceeds of which were used to
pay off the  $3,000,000  bridge loan with First National Bank of Omaha which had
been due October 2005.  The RBC Term Loan bears interest at LIBOR Base Rate plus
2.75%  and is to be  repaid  in  monthly  installments  based on a  twenty  year
amortization,  with the then remaining principal balance to be paid on the fifth
anniversary  of the RBC Term Loan. The RBC Term Loan is secured by a mortgage on
PTI's premises.  In connection with this RBC Term Loan,  MtronPTI entered into a
five-year interest rate swap from which it will receive periodic payments at the
LIBOR Base Rate and make periodic payments at a fixed rate of 7.51% with monthly
settlement and rate reset dates.  The Company has designated this swap as a cash
flow hedge in accordance with FASB 133  "Accounting  for Derivative  Instruments
and Hedging  Activities".  The fair value of the interest  rate swap at December
31, 2006 is $22,000,  $14,000 net of tax, and at December 31, 2005 was ($1,000).
The charge is reflected within other comprehensive income, net of tax.


                                       24


      All  outstanding  obligations  under  the  RBC  Term  Loan  Agreement  are
collateralized  by  security  interests  in the  assets  of  MtronPTI.  The Loan
Agreement  contains a variety of  affirmative  and  negative  covenants of types
customary in an asset-based  lending facility.  The Loan Agreement also contains
financial  covenants  relating to maintenance of levels of minimal  tangible net
worth and working  capital,  and  current,  leverage  and fixed  charge  ratios,
restricting  the amount of capital  expenditures.  At  December  31,  2006,  the
Company was in compliance with these covenants.

      On October 14, 2004,  MtronPTI  entered into a Loan  Agreement  with First
National  Bank of  Omaha.  The FNBO  Loan  Agreement  provides  for loans in the
amounts of  $2,000,000  (the "Term Loan") in addition to the  $3,000,000  Bridge
Loan  referred  to above.  The Term Loan bears  interest at the greater of prime
rate plus 50 basis points,  or 4.5%,  and is repaid in monthly  installments  of
$37,514,  with the then remaining  principal balance plus accrued interest to be
paid on the third  anniversary  of the Loan  Agreement,  October  2007.  Accrued
interest thereon was payable monthly and the principal amount thereof,  together
with accrued interest.

      In 2004, in connection with the  acquisition of PTI, the Company  provided
$1,800,000  of  subordinated   financing  to  MtronPTI  and  MtronPTI  issued  a
subordinated  promissory  note to the  Company  in such  amount  increasing  the
subordinated  total to  $2,500,000.  In October 2006, an additional  $75,000 was
lent  to  Mtron  to  enable  it to  make  an  investment  in  marketable  equity
securities.

      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 2007. (See Note 3 to the Consolidated  Financial  Statements - "Notes
Payable to Banks and Long-term Debt" for restrictions on the company's assets).

      At December 31, 2006,  total debt of $7,383,000 was  $1,701,000  less than
the total debt of  $9,084,000 at December 31, 2005.  The debt  decreased at both
MtronPTI and Lynch  Systems due to  repayments  of revolving  debt and scheduled
payments on long-term  debt.  Debt  outstanding  at December  31, 2006  included
$3,601,000  of fixed  rate debt at  year-end  average  interest  rate of 5%, and
variable rate debt of $3,782,000 at a year end average rate of 8.45% as a result
of the swap agreement  which  effectively  converts the interest on the RBC loan
into a fixed  payment.  At December  31,  2006,  the Company had  $2,027,000  in
current maturities of long-term debt.

OFF-BALANCE SHEET ARRANGEMENTS

      In December 2006, the Company entered into a cashless  collar  transaction
to  protect  itself  against  the  volatility   associated  with  the  Company's
investment in marketable  securities  which are designated as available for sale
and  accordingly,  are marked to market.  Under the terms of the  collar,  which
began on  December  27, 2006 and had a March 27,  2007  expiration,  the Company
hedged all of its  marketable  securities  and received  protection  from market
fluctuations  within a defined market price range. The fair value of this collar
at December 31, 2006 was de-minimis.  On March 27, 2007, the Company allowed the
call to expire and exercised the put,  thereby selling the stock at the option's
strike price.

AGGREGATE CONTRACTUAL OBLIGATIONS

      Details of the Company's contractual obligations at December 31, 2006, for
short-term  debt,  long-term  debt,  leases,   purchases  and  other  long  term
obligations  are as follows  (see Notes 3 and 10 to the  Consolidated  Financial
Statements):


                                       25


                                                Payments Due by Period - Including Interest
                                 -----------------------------------------------------------------------------
                                                              (in thousands)

Contractual Obligations            Total      Less Than 1 Year  1 - 3 Years     3 - 5 Years  More Than 5 Years
---------------------------      ----------   ----------------  -----------     -----------  -----------------
Short-term Debt                  $    2,256      $    2,256      $       --      $       --      $       --
Long-term Debt Obligations            5,127           2,027           3,101              --              --
Capital Lease Obligations                --              --              --              --              --
Operating Lease Obligations      $      135             109              26              --              --
Purchase Obligations                     --              --              --              --              --
Other Long-term Liabilities              --              --              --              --              --
                                 ----------      ----------      ----------      ----------      ----------
           TOTAL                 $    7,519      $    4,392      $    3,127      $       --      $       --
                                 ==========      ==========      ==========      ==========      ==========

CRITICAL ACCOUNTING POLICIES

      The Company's  significant  accounting policies are described in Note 1 to
the Consolidated Financial Statements.  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

      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 where collateral  generally consists of letters
of credit on large machine and  international  purchases.  In relation to export
sales, the Company requires letters of credit  supporting a significant  portion
of the sales price prior to production to limit exposure to credit risk. Certain
subsidiaries  and business  segments  have credit sales to  industries  that are
subject to cyclical  economic  changes.  The Company  maintains an allowance for
doubtful  accounts at a level that  management  believes is  sufficient to cover
potential credit losses.

      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.


                                       26


      INVENTORY VALUATION

      Inventories  are stated at the lower of cost or market value. At MtronPTI,
inventories are valued using the  first-in-first-out  (FIFO) method for 69.3% of
the inventory,  and 30.7% is valued using  last-in-first-out  (LIFO).  At Lynch,
100% of the inventory is valued at  last-in-first-out  (LIFO), with no inventory
valued  using FIFO.  Total  consolidated  gross  inventories  valued  using LIFO
represent 49.2% of  consolidated  inventories at December 31, 2006 compared with
52% of  consolidated  inventories  valued using LIFO at December 31, 2005.  (The
balance of consolidated inventory at December 31, 2006 and 2005 are valued using
FIFO.)  If  actual  market  conditions  are more or less  favorable  than  those
projected by management, adjustments may be required.

      REVENUE RECOGNITION AND ACCOUNTING FOR LONG-TERM CONTRACTS

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

      Lynch Systems 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, 2006 and
2005, unbilled accounts receivable were $227,000 and $902,000, 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.

      WARRANTY EXPENSE

      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 historical  experience,  the Company
provides for  estimated  warranty  costs based upon three to five percent of the
selling price of the machine. The Company periodically  assesses the adequacy of
the reserve and adjusts the amounts as necessary.

                                                                                                 (in thousands)
Balance, January 1, 2006                                                                             $  357
Warranties issued during the year                                                                       169
Settlements made during the year                                                                       (193)
Changes in liabilities for pre-existing warranties during the year, including expirations              (152)
                                                                                                      -----
Balance, December 31, 2006                                                                            $ 181
                                                                                                      =====

      INCOME TAXES

      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, 2006 a
valuation  allowance  of  $2,047,000  was  recorded  compared  with a  valuation
allowance of $2,212,000 recorded at December 31, 2005.


                                       27


      The carrying value of the Company's net deferred tax asset at December 31,
2006 is $111,000.  At December 31, 2005 the carrying  value of the Company's net
deferred tax asset was  $111,000.  This is equal to the amount of the  Company's
carry-forward alternative minimum tax ("AMT") at that date.

      The calculation of tax liabilities  involves dealing with uncertainties in
the   application  of  complex  tax   regulations   in  several   different  tax
jurisdictions.  The Company  evaluates the exposure  associated with the various
filing positions and records estimated reserves for probable exposures. Based on
the  Company's  evaluation  of current tax  positions,  it believes  that it has
appropriately accrued for probable exposures.

      STOCK BASED COMPENSATION

      The Company  adopted the  provisions of Statement of Financial  Accounting
Standards No. 123R,  "Share-Based  Payments ("SFAS No. 123-R") beginning January
1, 2006, using the modified  prospective  transition method. SFAS 123-R requires
the Company to measure the cost of employee services in exchange for an award of
equity  instruments  based on the  grant-date  fair  value of the  award  and to
recognize cost over the requisite service period. Under the modified prospective
transition  method,  financial  statements  for  periods  prior  to the  date of
adoption  are  not  adjusted  for  the  change  in  accounting.   However,   the
compensation expense is recognized for (a) all share-based payment granted after
the effective date under SFAS 123R, and (b) all awards granted under SFAS 123 to
employees  prior to the  effective  date that remain  unvested on the  effective
date. The Company recognizes  compensation expense on fixed awards with pro rata
vesting on a straight-line basis over the vesting period.

      Prior to January 1, 2006,  the Company used the intrinsic  value method to
account for stock-based employee  compensation under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees."

      RECENT ISSUED ACCOUNTING PRONOUNCEMENTS

      In July  2006,  the FASB  issued  Interpretation  No. 48  "Accounting  for
Uncertainty in Income Taxes - An interpretation of FASB Statement No. 109" ("FIN
48").  This  Interpretation  provides a  comprehensive  model for the  financial
statement recognition, measurement, presentation and disclosure of uncertain tax
positions taken or expected to be taken in income tax returns. This statement is
effective for fiscal years  beginning  after December 15, 2006. The Company will
adopt this  Interpretation in the first quarter of 2007. The cumulative effects,
if any,  of  applying  FIN 48 will be  recorded  as an  adjustment  to  retained
earnings.  The Company is currently  assessing the impact of this Interpretation
on its financial position and results of operations.

      In September 2006, the FASB issued SFAS No. 157 "Fair Value Measurements".
This  Statement  replaces  multiple  existing  definitions  of fair value with a
single definition,  establishes a consistent framework for measuring fair value,
and expands financial statement  disclosures  regarding fair value measurements.
This Statement applies only to fair value measurements that are already required
or permitted  by other  accounting  standards  and does not require any new fair
value measurements.  SFAS 157 is effective for fiscal years beginning subsequent
to November 15, 2007. The Company will adopt this Statement in the first quarter
of 2008, and is currently  evaluating  the impact on its financial  position and
results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

      The Company is exposed to market  risk  relating to changes in the general
level of U.S.  interest  rates.  Changes in interest rates affect the amounts of
interest  earned on the Company's cash and cash  equivalents and restricted cash
($4,525,000  at  December  31,  2006) and the  amount  the  Company  pays on its
variable rate debt.  The Company's  earnings and cash flows are also affected by
changes in interest rates as a result of making variable  interest rate payments
on its debt. In order to minimize its interest rate risk, on September 30, 2005,
in connection  with its  $3,040,000  five-year,  LIBOR plus 2.75% RBC Term Loan,
MtronPTI  entered into a five-year  interest rate swap with the notional  amount
equal to the loan amount  from which it will  receive  periodic  payments at the
LIBOR Base Rate and will make periodic payments at a fixed rate. At December 31,
2006,  the fixed  rate is 7.51%  comprised  of the fixed pay rate of the swap of
6.59% plus the .92%  differential  between the variable rate of the loan,  LIBOR
plus 2.75%,  and the prime rate, the variable rate of the swap.  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.


                                       28


      In December 2006, the Company entered into a cashless  collar  transaction
to  protect  itself  against  the  volatility   associated  with  the  Company's
marketable   securities   which  are   designated  as  available  for  sale  and
accordingly, are marked to market. Under the terms of the collar, which began on
December  27, 2006 and expired  March 27,  2007,  the Company  hedged all of its
marketable  securities and received protection from market fluctuations within a
defined  market price range.  The fair value of this collar at December 31, 2006
was de-minimis.

      There has been no  significant  change in market risk since  December  31,
2006.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      See Item 15(a).

ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE

      Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

      The Principal Executive  Officer/Principal Financial Officer has 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, Rule 13a-15 under the Securities  Exchange
Act of 1934.

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

ITEM 9B. OTHER INFORMATION

      Not applicable.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The  information  required by this Item 10 is either included in Item 1 of
this Form 10-K or  included in  Company's  Proxy  Statement  for its 2007 Annual
Meeting of Shareholders, which information is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

      The  information  required by this Item 11 is  included  in the  Company's
Proxy Statement for its 2007 Annual Meeting of Shareholders,  which  information
is incorporated herein by reference.

ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

      The  information  required by this Item 12 is either provided in Item 5 or
included  in the  Company's  Proxy  Statement  for its 2007  Annual  Meeting  of
Shareholders, which information is incorporated herein by reference.


                                       29


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The  information  required by this Item 13 is  included  in the  Company's
Proxy Statement for its 2007 Annual Meeting of Shareholders,  which  information
is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      The  information  required by this Item 14 is  included  in the  Company's
Proxy Statement for its 2007 Annual Meeting of Shareholders,  which  information
is incorporated herein by reference.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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

            (1)   Financial Statements:

                     The Report of Independent Registered Public Accounting Firm
                     and the following  Consolidated Financial Statements of the
                     Company are included herein:
                     Consolidated Balance Sheets at December 31, 2006 and 2005
                     Consolidated Statements of Operations -- Years ended
                     December 31, 2006, 2005, and 2004
                     Consolidated Statements of Shareholders' Equity -- Years
                     ended December 31, 2006, 2005, and 2004
                     Consolidated Statements of Cash Flows -- Years ended
                     December 31, 2006, 2005, and 2004
                     Notes to Consolidated Financial Statements

            (2)   Financial Statement Schedules as of December 31, 2006 and 2005
                  and for the three years ended December 31, 2006:

                     Schedule I -- Condensed Financial Information of Company
                     Schedule II -- Valuation and Qualifying Accounts

            (3)   Exhibits

      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.


                                       30


                                  EXHIBIT INDEX

Exhibit
   No.            Description
-------           -----------

  3 (a)           Restated    Articles   of   Incorporation   of   the   Company
                  (incorporated  by reference  to Exhibit 3(a) to the  Company's
                  Form 10-K for the year ended December 31, 2004).

    (b)           Articles of Amendment of the Articles of  Incorporation of the
                  Company  (incorporated  by  reference  to Exhibit  3(b) to the
                  Company's Form 10-K for the year ended December 31, 2004).

    (c)*          Articles of Amendment of the Articles of  Incorporation of the
                  Company.

    (d)           By-laws of the Company  (incorporated  by reference to Exhibit
                  3.1 to the Company's Current Report on Form 8-K dated December
                  22, 2004).

10  (a)           The LGL Group,  Inc.  401(k)  Savings  Plan  (incorporated  by
                  reference to Exhibit 10(b) to the  Company's  Annual Report on
                  Form 10-K for the period ended December 31, 1995).

    (b)           Directors  Stock Plan  (incorporated  by  reference to Exhibit
                  10(o) to the Company's  Form 10-K for the year ended  December
                  31, 1997).

    (c)           The  LGL  Group,  Inc.  2001  Equity  Incentive  Plan  adopted
                  December 10, 2001  (incorporated  by reference to Exhibit 4 to
                  the Company's Form 8-K filed on December 29, 2005.

    (d)           Mortgage   dated   October  21,  2002  by   Mortgagor,   Mtron
                  Industries,  Inc.,  to  Mortgagee,  Yankton  Area  Progressive
                  Growth,  Inc.  (incorporated by reference to Exhibit 10(hh) to
                  the  Company's  Annual  Report on Form 10-K for the year ended
                  December 31, 2003).

    (e)           Promissory  Note between  Mtron  Industries,  Inc. and Yankton
                  Area  Progressive   Growth,   Inc.,  dated  October  21,  2002
                  (incorporated  by reference to Exhibit 10(ii) to the Company's
                  Annual  Report on Form 10-K for the year  ended  December  31,
                  2003).

    (f)           Standard Loan Agreement by and between Mtron Industries,  Inc.
                  and Areawide  Business  Council,  Inc., dated October 10, 2002
                  and  Exhibits  thereto  (incorporated  by reference to Exhibit
                  10(jj)  to the  Company's  Annual  Report on Form 10-K for the
                  year ended December 31, 2003).

    (g)           Loan Agreement by and between Mtron Industries, Inc. and South
                  Dakota Board of Economic Development,  dated December 19, 2002
                  (incorporated  by reference to Exhibit 10(kk) to the Company's
                  Annual  Report on Form 10-K for the year  ended  December  31,
                  2003).

    (h)           Promissory  Note  between  Mtron  Industries,  Inc.  and South
                  Dakota Board of Economic Development,  dated December 19, 2002
                  (incorporated  by reference to Exhibit 10(ll) to the Company's
                  Annual  Report on Form 10-K for the year  ended  December  31,
                  2003).

    (i)           Employment Agreement by and between Mtron Industries, Inc. and
                  South Dakota Board of Economic Development, dated December 19,
                  2002  (incorporated  by  reference  to  Exhibit  10(mm) to the
                  Company's  Annual  Report  on Form  10-K  for the  year  ended
                  December 31, 2003).

    (j)           Loan  Agreement  by and among Mtron  Industries,  Inc.,  Piezo
                  Technology,   Inc.   and   First   National   Bank  of   Omaha
                  (incorporated  by reference  to Exhibit 10.1 to the  Company's
                  Current Report on Form 8-K dated October 20, 2004).


                                       31


    (k)           Unconditional  Guaranty for Payment and Performance with First
                  National Bank of Omaha  (incorporated  by reference to Exhibit
                  10.2 to the Company's Current Report on Form 8-K dated October
                  20, 2004).

    (l)           Registration  Rights  Agreement by and between the Company and
                  Venator   Merchant   Fund,   L.P.   dated   October  15,  2004
                  (incorporated  by reference  to Exhibit 10.4 to the  Company's
                  Current Report on Form 8-K dated October 20, 2004).

    (m)           Form of  Indemnification  Agreement  dated as of February  28,
                  2005 by and  between  The LGL Group,  Inc.  and its  executive
                  officers  (incorporated herein by reference to Exhibit 10.1 to
                  the Company's  Quarterly  Report on Form 10-Q filed on May 16,
                  2005).

    (n)           Registration  Rights  Agreement by and between the Company and
                  Venator   Merchant   Fund,   L.P.   dated   October  15,  2004
                  (incorporated  by reference  to Exhibit 10.4 to the  Company's
                  Current Report on Form 8-K dated October 20, 2004).

    (o)           First  Amendment  to the Loan  Agreement  by and among  M-Tron
                  Industries,  Inc., Piezo  Technology,  Inc. and First National
                  Bank of Omaha,  dated  May 31,  2005  (incorporated  herein by
                  reference to Exhibit 10.2 to the Company's  Current  Report of
                  on Form 8-K filed on July 6, 2005).

    (p)           Loan Agreement,  by and among M-Tron  Industries,  Inc., Piezo
                  Technology,  Inc. and RBC Centura  Bank,  dated  September 30,
                  2005 (incorporated  herein by reference to Exhibit 10.1 to the
                  Company's  Current  Report  on Form 8-K  filed on  October  4,
                  2005).

    (q)           Unconditional  Guaranty  for  Payment by and  between  The LGL
                  Group,  Inc. and RBC Centura  Bank,  dated  September 30, 2005
                  (incorporated  herein  by  reference  to  Exhibit  10.2 to the
                  Company's  Current  Report  on Form 8-K  filed on  October  4,
                  2005).

    (r)           Second  Amendment to the Loan Agreement,  dated June 30, 2006,
                  by and among M-tron Industries,  Inc., Piezo Technology,  Inc.
                  and  First  National  Bank  of  Omaha,  and  acknowledged  and
                  guaranteed  by The LGL  Group,  Inc.  (incorporated  herein by
                  reference to Exhibit 10.1 to the Company's  Current  Report on
                  Form 8-K filed on July 7, 2006).

    (s)           Employment Agreement,  dated September 5, 2006, by and between
                  The LGL Group, Inc. and Jeremiah M. Healy (incorporated herein
                  by reference to Exhibit 10.1 to the Company's  Current  Report
                  on Form 8-K filed on September 7, 2006).

    (t)           Third Amendment to the Loan Agreement,  dated October 3, 2006,
                  by and among M-tron Industries,  Inc., Piezo Technology,  Inc.
                  and  First  National  Bank  of  Omaha,  and  acknowledged  and
                  guaranteed  by  LGL  Group,  Inc.   (incorporated   herein  by
                  reference to Exhibit 10.1 to the Company's  Current  Report on
                  Form 8-K filed on October 4, 2006).


                                       32


    (u)           Employment Agreement, dated March 20, 2007, by and between The
                  LGL  Group,  Inc.  and  Steve  Pegg  (incorporated  herein  by
                  reference to Exhibit 10.1 to the Company's  Current  Report on
                  Form 8-K filed on March 20, 2007).

    14            Amended and Restated Business Conduct Policy  (incorporated by
                  reference  to  Exhibit 14 to the  Company's  Form 10-K for the
                  year ended December 31, 2004).

    21            Subsidiaries  of the Company  (incorporated  by  reference  to
                  Exhibit  21 to the  Company's  Form  10-K for the  year  ended
                  December 31, 2004).

    23*           Consent of Independent  Registered  Public  Accounting  Firm -
                  Ernst &  Young LLP.

    31(a)*        Certification  by  Principal  Executive  Officer  pursuant  to
                  Section 302 of the Sarbanes-Oxley Act of 2002.

    31(b)*        Certification  by  Principal  Financial  Officer  pursuant  to
                  Section 302 of the Sarbanes-Oxley Act of 2002.

    32(a)*        Certification  by  Principal  Executive  Officer  pursuant  to
                  Section 906 of the Sarbanes-Oxley Act of 2002.

    32(b)*        Certification  by  Principal  Financial  Officer  pursuant  to
                  Section 906 of the Sarbanes-Oxley Act of 2002.

----------
*     Filed herewith.

      The Exhibits  listed above have been filed  separately with the Securities
and Exchange  Commission in conjunction  with this Annual Report on Form 10-K or
have been  incorporated  by reference  into this Annual Report on Form 10-K. The
LGL Group,  Inc.  will  furnish to each of its  shareholders  a copy of any such
Exhibit  for a fee  equal  to The LGL  Group,  Inc.'s  cost in  furnishing  such
Exhibit.  Requests  should be addressed to the Office of the Secretary,  The LGL
Group, Inc., 140 Greenwich Ave, 4th Floor, Greenwich, Connecticut 06830.


                                       33


      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                          THE LGL GROUP, INC.


March 30, 2007                            BY: /s/ Jeremiah M. Healy
                                              ----------------------------------
                                              Jeremiah M. Healy
                                              PRESIDENT, CHIEF EXECUTIVE OFFICER

      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated:

             SIGNATURE                                     CAPACITY                                   DATE
-----------------------------------    -------------------------------------------------         --------------
                                                 Principal Executive Officer,
                                       Principal Financial Officer, Principal Accounting
                                                                                                 March 30, 2007
/s/ Jeremiah M. Healy                                      Officer
-----------------------------------
         JEREMIAH M. HEALY

/s/ Marc J. Gabelli                           Chairman of the Board of Directors                 March 30, 2007
-----------------------------------
          MARC J. GABELLI

/s/ E. Val Cerutti                                         Director                              March 30, 2007
-----------------------------------
           E. VAL CERUTTI

/s/ Peter J. Dapuzzo                                       Director                              March 30, 2007
-----------------------------------
          PETER J. DAPUZZO

/s/ Avrum Gray                                             Director                              March 30, 2007
-----------------------------------
             AVRUM GRAY

/s/ Patrick J. Guarino                                     Director                              March 30, 2007
-----------------------------------
         PATRICK J. GUARINO

/s/ Anthony Pustorino                                      Director                              March 30, 2007
-----------------------------------
         ANTHONY PUSTORINO


                                       34


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders
The LGL Group, Inc.

We have audited the accompanying  consolidated  balance sheets of The LGL Group,
Inc.  (the  "Company")  as of  December  31,  2006  and  2005,  and the  related
consolidated statements of operations,  shareholders' equity, and cash flows for
each of the three years in the period ended  December 31, 2006.  Our audits also
included  the  financial  statement  schedules  listed in Item  15(a)(2).  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 the standards of the Public  Company
Accounting Oversight Board (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.  We were not engaged to perform an
audit of the Company's  internal  control over financial  reporting.  Our audits
included  consideration of internal control over financial  reporting as a basis
for designing audit  procedures that are appropriate in the  circumstances,  but
not for the  purpose  of  expressing  an  opinion  on the  effectiveness  of the
Company's internal control over financial reporting.  Accordingly, we express no
such  opinion.  An audit also  includes  examining,  on a test  basis,  evidence
supporting the amounts and  disclosures in the financial  statements,  assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial  position of The LGL Group,
Inc.  at  December  31,  2006 and  2005,  and the  consolidated  results  of its
operations  and its cash flows for each of the three  years in the period  ended
December  31,  2006,  in  conformity  with U.S.  generally  accepted  accounting
principles.  Also, in our opinion,  the related financial  statement  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.

As discussed in Note 1 to the  consolidated  financial  statements,  the Company
adopted the provisions of Statement of Financial Accounting Standards No. 123(R)
(revised 2004), Share-Based Payment, effective January 1, 2006.

/s/ ERNST &  YOUNG LLP

Providence, Rhode Island
March 29, 2007


                                       35



                      THE LGL GROUP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

                                                                                                            December 31,
                                                                                                    ---------------------------
                                                                                                       2006             2005
                                                                                                    ----------       ----------
ASSETS
Current Assets:
    Cash and cash equivalents ................................................................      $    4,429       $    5,512
    Restricted cash (Note 1) .................................................................              96              650
    Investments - marketable securities (Note 1) .............................................           2,610            2,738
    Accounts receivable, net of allowances of $808 and $325, respectively (Note 1) ...........           6,976            7,451
    Unbilled accounts receivable (Note 1) ....................................................             227              902
    Inventories (Note 2) .....................................................................           8,906            7,045
    Prepaid expense ..........................................................................             369              461
                                                                                                    ----------       ----------
       Total Current Assets ..................................................................          23,613           24,759
Property, Plant and Equipment
    Land .....................................................................................             855              855
    Buildings and improvements ...............................................................           5,770            5,767
    Machinery and equipment ..................................................................          15,358           14,606
                                                                                                    ----------       ----------
    Total Property, Plant and Equipment ......................................................          21,983           21,228
    Less: Accumulated depreciation ...........................................................         (15,218)         (14,025)
                                                                                                    ----------       ----------
    Net Property, Plant, and Equipment .......................................................           6,765            7,203
Deferred Income Taxes ........................................................................             111              111
 Other assets ................................................................................             468              591
                                                                                                    ----------       ----------
       Total Assets ..........................................................................      $   30,957       $   32,664
                                                                                                    ==========       ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
    Notes payable to banks ...................................................................      $    2,256       $    2,838
    Trade accounts payable ...................................................................           2,796            2,900
    Accrued warranty expense .................................................................             181              357
    Accrued compensation expense .............................................................           1,492            1,372
    Accrued income taxes .....................................................................              23              673
    Accrued professional fees ................................................................             562              574
    Margin liability on marketable securities ................................................              --              330
    Other accrued expenses ...................................................................           1,352            1,312
    Commitments and contingencies (Note 10) ..................................................              --              859
    Customer advances ........................................................................             461              515
    Current maturities of long-term debt .....................................................           2,027            1,215
                                                                                                    ----------       ----------
       Total Current Liabilities .............................................................          11,150           12,945
 Long-term debt ..............................................................................           3,100            5,031
       Total Liabilities .....................................................................          14,250           17,976
Shareholders' Equity
 Common stock, $0.01 par value -- 10,000,000 shares authorized; 2,188,510 and 1,649,834 shares
    issued; 2,154,702 and 1,632,126 shares outstanding, respectively .........................              22               22
    Additional paid-in capital ...............................................................          21,081           21,053
    Accumulated deficit ......................................................................          (5,711)          (6,576)
    Accumulated other comprehensive income (Note 8) ..........................................           1,961              835
    Treasury stock, at cost, of  33,808 shares ...............................................            (646)            (646)
                                                                                                    ----------       ----------
       Total Shareholders' Equity ............................................................          16,707           14,688
                                                                                                    ----------       ----------
       Total Liabilities and Shareholders' Equity ............................................      $   30,957       $   32,664
                                                                                                    ==========       ==========

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       36


                      THE LGL GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

                                                                                            Years Ended December 31,
                                                                                  -------------------------------------------
                                                                                      2006            2005            2004
                                                                                  -----------     -----------     -----------
REVENUES                                                                          $    49,300     $    46,183     $    33,834
Costs and expenses:
    Manufacturing cost of sales                                                        35,747          31,448          25,784
    Selling and administrative                                                         14,101          13,407          10,163
    Litigation provision (Note 10)                                                         --             150             775
                                                                                  -----------     -----------     -----------
OPERATING PROFIT (LOSS)                                                                  (548)          1,178          (2,888)
Other income (expense):
    Investment income                                                                   1,750             608              15
    Interest expense                                                                     (570)           (847)           (360)
    Other income (expense)                                                                  7              62               7
                                                                                  -----------     -----------     -----------
    Total other income (expense)                                                        1,187            (177)           (338)
                                                                                  -----------     -----------     -----------
INCOME (LOSS) BEFORE INCOME TAXES                                                         639           1,001          (3,226)
Benefit (Provision) for income taxes                                                      226             209            (100)
                                                                                  -----------     -----------     -----------
NET INCOME (LOSS)                                                                 $       865     $     1,210     $    (3,326)
                                                                                  ===========     ===========     ===========
Weighted average number of shares used in basic, fully diluted EPS calculation      2,154,702       1,647,577       1,524,863
                                                                                  -----------     -----------     -----------
Basic, fully diluted income (loss) per share                                      $      0.40     $      0.73     $     (2.18)
                                                                                  ===========     ===========     ===========

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       37


                      THE LGL GROUP, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                                                                                            Accumulated
                                  Shares of                   Additional                      Other
                                Common Stock     Common         Paid-In     Accumulated   Comprehensive    Treasury
                                 Outstanding      Stock         Capital       Deficit     Income (loss)      Stock         Total
                                 ----------     ----------    ----------    ----------    -------------   ----------     ----------
Balance at December 31, 2002      1,497,883     $       15    $   15,645    $   (4,570)    $      302     $     (458)    $   10,934
Comprehensive Income (Loss):
   Net income for year                   --             --            --           110             --             --            110
   Other comprehensive loss              --             --            --            --            (11)            --            (11)
                                                                                                                         ----------
     Comprehensive Income                                                                                                        99
                                 ----------     ----------    ----------    ----------     ----------     ----------     ----------
Balance at December 31, 2003      1,497,883             15        15,645        (4,460)           291           (458)        11,033
Comprehensive Income (Loss):
   Net loss for year                     --             --            --        (3,326)            --             --         (3,326)
   Other comprehensive income            --             --            --            --            558             --            558
                                                                                                                         ----------
     Comprehensive Loss                                                                                                      (2,768)
   Issuance of Common Stock to
   fund acquisition, net of
   fees of $40,000                  136,643              1         1,759            --             --             --          1,760
   Purchase of Treasury Stock        (2,400)            --            --            --             --            (32)           (32)
                                 ----------     ----------    ----------    ----------     ----------     ----------     ----------
 Balance at December 31, 2004     1,632,126             16        17,404        (7,786)           849           (490)         9,993
 Comprehensive Income (Loss):
   Net income for year                   --             --            --         1,210             --             --          1,210
   Other comprehensive loss              --             --            --            --            (14)            --            (14)
                                                                                                                         ----------
     Comprehensive Income                                                                                                     1,196
   Issuance of Common Stock
   rights offering, net of
   fees of $250,000                 538,676              6         3,649            --             --             --          3,655
   Purchase of Treasury Stock       (16,100)            --            --            --             --           (156)          (156)
 Balance at December 31, 2005     2,154,702     $       22    $   21,053    $   (6,576)    $      835     $     (646)    $   14,688
 Comprehensive Income (Loss):
   Net income for year                   --             --            --           865             --             --            865
   Other comprehensive income            --             --            --            --          1,126             --          1,126
                                                                                                                         ----------
   Comprehensive Income                                                                                                       1,991
    Stock Based Compensation             --             --            28            --             --             --             28
                                 ----------     ----------    ----------    ----------     ----------     ----------     ----------
 Balance at December 31, 2006     2,154,702     $       22    $   21,081    $   (5,711)    $    1,961     $     (646)    $   16,707
                                 ==========     ==========    ==========    ==========     ==========     ==========     ==========



           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       38


                      THE LGL GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

                                                                                        Years Ended December 31,
                                                                              --------------------------------------------
                                                                                 2006             2005             2004
                                                                              ----------       ----------       ----------
OPERATING ACTIVITIES
Net income (loss)                                                             $      865       $    1,210       $   (3,326)
Adjustments to reconcile net income (loss) to net cash provided by (used
    in) operating activities:
Depreciation                                                                       1,193            1,398              980
Amortization of definite-lived intangible assets                                      96              111              187
(Gain) loss on disposal of fixed assets                                               --              (69)              47
Gain realized on sale of marketable securities                                    (1,750)            (567)              --
Lawsuit settlement provision                                                          --              150              775
Stock based compensation                                                              28               --               --
Deferred income taxes                                                                 --               --               (6)
Changes in operating assets and liabilities:
    Net Receivables                                                                1,150              514           (1,505)
    Inventories                                                                   (1,861)             807             (456)
    Accounts payable and accrued liabilities                                        (836)             249             (198)
    Other assets/liabilities                                                        (740)          (1,520)           1,592
                                                                              ----------       ----------       ----------
Net cash provided by (used in) operating activities                               (1,855)           2,283           (1,910)

INVESTING ACTIVITIES
Capital expenditures                                                                (755)            (343)            (440)
Restricted cash                                                                      554              475               --
Acquisition, net of cash acquired                                                     --               --           (7,348)
Proceeds from sale of  marketable securities                                       2,976            1,348               --
Proceeds from sale of fixed assets                                                    --              307               --
Payment on margin liability on marketable securities                                (330)          (1,236)            (300)
Purchase of marketable securities                                                    (68)              --             (754)
                                                                              ----------       ----------       ----------
Net cash provided by (used in) investing activities                                2,377              551           (8,842)

FINANCING
Net (repayments) borrowings of notes payable                                        (582)          (2,719)           3,581
Repayment of long--term debt                                                      (1,119)            (758)            (972)
Proceeds from long--term debt                                                         --               --            5,000
Issuance of common stock, net of fees                                                 --            3,655            1,760
Purchase of treasury stock                                                            --             (156)             (32)
Other                                                                                 96               76               14
                                                                              ----------       ----------       ----------
Net cash provided by (used in) financing activities                               (1,605)              98            9,351
Increase (decrease) in cash and cash equivalents                                  (1,083)           2,932           (1,401)
                                                                              ----------       ----------       ----------
Cash and cash equivalents at beginning of year                                     5,512            2,580            3,981
                                                                              ----------       ----------       ----------
Cash and cash equivalents at end of year                                      $    4,429       $    5,512       $    2,580
                                                                              ==========       ==========       ==========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    Interest Paid                                                             $      626       $      772       $      343
                                                                              ==========       ==========       ==========

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       39


                      THE LGL GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2006

1. ACCOUNTING AND REPORTING POLICIES

      ORGANIZATION

      The LGL Group, Inc. (the "Company") is a diversified  holding company with
subsidiaries  engaged  in  manufacturing  primarily  in the United  States.  The
Company has two principal  operating  subsidiaries  Mtron/PTI and Lynch Systems,
Inc ("Lynch  Systems").  Information on the Company's  operations by segment and
geographic area is included in Note 12 -- "Segment Information".

      As of December 31, 2006, the Subsidiaries of the Company are as follows:

                                                                   Owned By LGL,
                                                                    Group, Inc.
                                                                   -------------
Lynch Systems, Inc...........................................         100.0%
M-tron Industries, Inc.......................................         100.0%
      M-tron Industries, Ltd.................................         100.0%
      Piezo Technology, Inc..................................         100.0%
              Piezo Technology India Private Ltd.............          99.9%

      PRINCIPLES OF CONSOLIDATION

      The  consolidated  financial  statements  include the  accounts of The LGL
Group,  Inc.  and  entities  in which Lynch had  majority  voting  control.  All
intercompany transactions and accounts have been eliminated in consolidation.

      USES OF ESTIMATES

      The  preparation of consolidated  financial  statements in conformity with
U.S.  generally  accepted  accounting  principles  requires  management  to make
estimates  and  assumptions  that affect the amounts  reported in the  financial
statements  and  accompanying  notes.  Actual  results  could  differ from those
estimates.

      RECLASSIFICATIONS

      Certain  prior year  amounts in the  accompanying  consolidated  financial
statements  have been  reclassified  to conform to  current  year  presentation.
During  2006,  the Company  began  disclosing  foreign  segment  information  by
country. For consistency, the 2005 and 2004 related amounts are also provided in
Note 11 to the Consolidated Financial Statements "Segment Information".

      CASH AND CASH EQUIVALENTS

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

      At  December  31,  2006,  the  Company  had  $4,429,000  of cash  and cash
equivalents, not including restricted cash, compared with $5,512,000 at December
31, 2005. At December 31, 2006,  $2,040,000 of this amount is invested in United
States Treasury money market funds for which  affiliates of the Company serve as
investment  managers to the respective funds.  Interest earned on these funds is
at market rates.  At December 31, 2005,  $47,000 was invested with the affiliate
money manager.


                                       40


      RESTRICTED CASH

      The  Company's  cash and cash  equivalents  at December  31, 2006  totaled
$4,525,000,  including  $96,000 of restricted cash. This restricted cash is held
against a Stand-by  Letter of Credit  that was  issued to a  customer  against a
partially completed machine. At December 31, 2005, the Company had $6,162,000 in
cash and cash equivalents, including $650,000 of restricted cash. The restricted
cash had secured a Stand-By  Letter of Credit that had been issued as collateral
for MtronPTI's loan with the Bank of Omaha. As of October 16, 2006, the stand-by
letter of credit was no longer in place and at October 19, 2006 the  restriction
on the $650,000 on deposit was lifted. (See Note 3 to the Consolidated Financial
Statements - "Notes Payable to Banks and Long-term Debt").

      INVESTMENTS

      Investments  in marketable  equity  securities are classified as available
for sale and are recorded at fair value as a component of other assets, pursuant
to Statement of Financial  Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Unrealized gains and losses on these
securities,  net of income  taxes,  are  included in  shareholders'  equity as a
component of accumulated other comprehensive  income (loss).  First in first out
method is used in  determining  cost basis for the  calculation  of gain/loss of
securities sold.  Investments in non-marketable  equity securities are accounted
for  under  either  the  cost  or  equity  method  of  accounting.  The  Company
periodically reviews investment securities for impairment based on criteria that
include the duration of the market value decline. If a decline in the fair value
of an investment  security is judged to be other than temporary,  the cost basis
is written down to fair value with a charge to earnings.

      In December 2006, the Company entered into a cashless  collar  transaction
to  protect  itself  against  the  volatility   associated  with  the  Company's
investment in marketable  securities  which are designated as available for sale
and  accordingly,  are marked to market.  Under the terms of the  collar,  which
began on December 27, 2006 and had an  expiration  date of March 27,  2007,  the
Company hedged all of its marketable  securities  and received  protection  from
market  fluctuations within a defined market price range. The fair value of this
collar at  December  31, 2006 was  de-minimis.  On March 27,  2007,  the Company
allowed the call to expire and exercised the put,  thereby  selling the stock at
the option's strike price.

      The following is a summary of marketable securities  (investments) held by
the Company (in thousands) December 31, 2006:

                                       Gross         Gross
                                    Unrealized     Unrealized     Estimated Fair
      December 31,       Cost          Gains         Losses            Value
      ------------      ------      ----------     ----------     --------------
          2006          $  833        $1,777           --              $2,610
          2005          $1,991        $  747           --              $2,738

      The Company had a margin liability  against this investment of $330,000 at
December  31, 2005 which was settled in February  2006 upon  disposition  of the
related  securities.  At December 31, 2006, the Company has no margin  liability
against its investments.

      ACCOUNTS RECEIVABLE

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


                                       41


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

      PROPERTY, PLANT AND EQUIPMENT, NET

      Property,  plant and  equipment  are  recorded  at cost  less  accumulated
depreciation  and include  expenditures  for additions  and major  improvements.
Maintenance  and repairs are charged to operations as incurred.  Depreciation is
computed for financial  reporting  purposes using the straight-line  method over
the estimated  useful lives of the assets,  which range from 5 years to 35 years
for  buildings and  improvements,  and for 3 to 10 years for other fixed assets.
Property,  plant,  and equipment  are  periodically  reviewed for  indicators of
impairment.  If any such  indicators  were noted,  the Company  would assess the
appropriateness  of the assets' carrying value and record any impairment at that
time.

      INTANGIBLE ASSETS

      Intangible  assets are included in "other assets" and are recorded at cost
less accumulated amortization.  Amortization is computed for financial reporting
purposes using the  straight-line  method over the estimated useful lives of the
assets,  which range from 2 years to 10 years. The intangible  assets of consist
of customer relationships, trade name and funded technologies.

      REVENUE RECOGNITION

      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.

      ACCOUNTING FOR LONG-TERM CONTRACTS

      Lynch Systems 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  generally  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,  2006,
unbilled  accounts  receivable  was $227,000  compared  with  unbilled  accounts
receivable of $902,000 at December 31, 2005.

      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,  the  Company  has
occasionally  been  required to commit  unanticipated  additional  resources  to
complete projects, which has resulted in lower than anticipated profitability or
losses on those contracts.  The Company 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.


                                       42


      WARRANTY EXPENSE

      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 historical  experience,  the Company
provides for  estimated  warranty  costs based upon three to five percent of the
selling price of the machine. The Company periodically  assesses the adequacy of
the  reserve  and adjusts the  amounts as  necessary.  The  warranty  expense at
December 31, 2006 is comprised of the following:

                                                                 (in thousands)
                                                                 --------------
     Balance, January 1, 2005                                         $466
     Warranties issued during the year                                 186
     Settlements made during the year                                 (282)
     Changes in liabilities for pre-existing warranties
         during the year, including expirations                        (13)
                                                                 --------------
     Balance, December 31, 2005                                       $357
     Warranties issued during the year                                $169
     Settlements made during the year                                ($193)
     Changes in liabilities for pre-existing warranties
         during the year, including expirations                       (152)
                                                                 --------------
     Balance, December 31, 2006                                       $181
                                                                 ===============

      RESEARCH AND DEVELOPMENT COSTS

      Research and development costs are charged to operations as incurred. Such
costs were  $2,549,000 in 2006 compared with  $2,505,000  and $1,193,000 in 2005
and 2004, respectively.

      ADVERTISING EXPENSE

      Advertising  costs are charged to operations as incurred.  Such costs were
$177,000  in  2006  compared  with  $181,000  and  $183,000  in 2005  and  2004,
respectively.

      STOCK BASED COMPENSATION AND EARNINGS PER SHARE

      The Company  adopted the  provisions of Statement of Financial  Accounting
Standards 123R, "Share-Based Payment" ("SFAS 123R"),  beginning January 1, 2006,
using the modified prospective transition method. SFAS 123R requires the Company
to measure  the cost of employee  services  in  exchange  for an award of equity
instruments  based on the  grant-date  fair value of the award and to  recognize
cost  over  the  requisite  service  period.   Under  the  modified  prospective
transition  method,  financial  statements  for  periods  prior  to the  date of
adoption are not adjusted for the change in  accounting.  However,  compensation
expense  is  recognized  for (a) all  share-based  payments  granted  after  the
effective  date under SFAS 123R,  and (b) all awards  granted  under SFAS 123 to
employees  prior to the  effective  date that remain  unvested on the  effective
date. The Company recognizes  compensation expense on fixed awards with pro rata
vesting on a straight-line basis over the vesting period.

      Prior to January 1, 2006,  the Company used the intrinsic  value method to
account for stock-based employee  compensation under Accounting Principles Board
Opinion No. 25,  "Accounting  for Stock Issued to Employees,"  and therefore the
Company did not  recognize  compensation  expense in  association  with  options
granted at or above the market price of the  Company's  common stock at the date
of grant.

      On May 2005,  the Company  granted  options to purchase  120,000 shares of
common  stock to certain  employees  and  directors of the Company at $13.17 per
share.  The vesting of these shares was accelerated to reduce the effects of the
adoption  of SFAS  123R,  which  requires  companies  to  recognize  stock-based
compensation  associated with stock options based on the fair value method.  Had
the Company not taken this action, $300,000 of stock-based  compensation charges
would have been  recorded in the  statement of  operations  through  fiscal 2010
(approximately  $68,000 in fiscal years 2006,  2007,  2008, 2009 and $28,000 for
the five months in fiscal 2010.)


                                       43


      The adoption of SFAS 123R did not have a material  impact on the Company's
results  of  operations,  cash flows and  earnings  per share for the year ended
December 31, 2006 due to the fact that all of the  Company's  outstanding  stock
options were fully vested at December 31, 2005.

      In September 2006, the Company issued  restricted  stock to two executives
which are being  accounted  for under SFAS No. 123 R. Total  stock  compensation
expense  recognized  by the  Company  for  the  year  ended  December  31,  2006
associated with this restricted  stock was $28,000.  The remaining  unrecognized
compensation  expense of $137,000 will be  recognized  rateably over the next 20
months.

      The  following  table  presents a  reconciliation  of reported  net income
(loss) and per share information to pro forma net loss and per share information
that would have been  reported if the fair value method had been used to account
for stock-based employee compensation in 2005 and 2004.

                                                                      2005          2004
Net income (loss)-as reported                                      $ 1,210       ($3,326)
Deduct: Total stock-based employee compensation expense
determined under fair value based methods for all awards, net
of related tax effects                                                (340)          (52)
                                                                   ---------------------
   Net income (loss) pro forma                                     $   870       ($3,378)
                                                                   =====================
   Earnings (loss) per share:
Basic and diluted earnings (loss) - as reported                    $  0.73       ($ 2.18)
Basic and diluted (loss) earnings  - pro forma                     $  0.52       ($ 2.22)

      The fair value of each option is  estimated on the date of the grant using
the  Black-Scholes-Merton  option-pricing  model  with  the  following  weighted
average assumptions:

                                                                       2005           2004
Dividend Yield                                                           0.0%           0.0%
Expected volatility                                                     49.0%          48.5%
Risk-free interest rate                                                  3.0%           5.2%
Expected lives (years)                                                   5.0           10.0
Weighted average fair value of options granted during the year      $   2.83       $   9.74

      Historical  Company  information  was the primary  basis for the  expected
volatility  assumption.  Prior year  grants  were  calculated  using  historical
volatility as the Company believes that the historical  volatility over the life
of the option is more  indicative  of the  options  expected  volatility  in the
future. Based on past history of actual performance,  a zero forfeiture rate has
been assumed.

      The Company  computes  earnings per share in accordance with SFAS No. 128,
EARNINGS PER SHARE.  Basic earnings per share is computed by dividing net income
by the weighted average number of common shares  outstanding  during the period.
Diluted  earnings per share adjusts basic  earnings per share for the effects of
stock options, restricted common stock, and other potentially dilutive financial
instruments, only in the periods in which the effects are dilutive.

      The following securities have been excluded from the dilutive earnings per
share  computation  because the impact of the assumed  exercise of stock options
and vesting of restricted stock would have been anti-dilutive:


                                       44


                                                 2006         2005         2004
                                               ---------------------------------

Options to purchase common stock               275,000      300,000      180,000
Unvested restricted stock                       20,000            0            0
                                               -------      -------      -------
Total                                          295,000      300,000      180,000

      CONCENTRATION OF CREDIT RISK

      In 2006, an electronics  manufacturing company accounted for approximately
$4,400,000  of total  revenue  of  $41,549,000,  or 10.6%  of  MtronPTI's  total
revenues,  compared to approximately 14% and 18% for MtronPTI's largest customer
in 2005 and 2004,  respectively.  (No other customer accounted for more than 10%
of its  2006  revenues.)  Sales  to its  ten  largest  customers  accounted  for
approximately  58.6% of revenues in 2006,  compared to approximately 63% and 48%
of revenues for 2005 and 2004, respectively.

      Lynch  Systems'  sales  to  its  ten  largest   customers   accounted  for
approximately  84% of its revenues in 2006  compared with 79% of its revenues in
2005 and 80% in  2004.  Lynch  Systems'  sales to its  single  largest  customer
accounted for approximately  39% of its 2006 revenues,  compared with 46% of its
revenues in 2005 and 36% in 2004. If a significant customer reduces,  delays, or
cancels its orders for any reason,  the  business and results of  operations  of
Lynch Systems would be negatively affected.

      In 2006,  approximately  15.9% of MtronPTI's  revenue was  attributable to
finished products that were manufactured by an independent contract manufacturer
located in both Korea and China.  We expect this  manufacturer  to account for a
smaller but  substantial  portion of MtronPTI's  revenues in 2006 and a material
portion of  MtronPTI's  revenues for the next several  years.  MtronPTI does not
have a  written,  long-term  supply  contract  with this  manufacturer.  If this
manufacturer  becomes unable to provide products in the quantities needed, or at
acceptable  prices,  MtronPTI  would have to  identify  and  qualify  acceptable
replacement  manufacturers  or  manufacture  the  products  internally.  Due  to
specific  product  knowledge and process  capability,  MtronPTI could  encounter
difficulties  in  locating,  qualifying  and  entering  into  arrangements  with
replacement manufacturers. As a result, a reduction in the production capability
or financial viability of this manufacturer, or a termination of, or significant
interruption in, MtronPTI's  relationship with this manufacturer,  may adversely
affect MtronPTI's results of operations and our financial condition.

      SEGMENT INFORMATION

      The Company  reports  segment  information in accordance with Statement of
Financial  Accounting  Standards  No.  131,  "Disclosures  about  Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires companies to
report financial and descriptive information for each operating segment based on
management's internal organizational  decision-making  structure. See Note 11 to
the Consolidated Financial Statements - "Segment Information" - for the detailed
presentation of the Company's business segments.

      IMPAIRMENTS OF LONG-LIVED ASSETS

      Long-lived  assets,  including  intangible assets subject to amortization,
are reviewed for impairment whenever events or changes in circumstances indicate
that  the  carrying  amount  of the  asset  may not be  recoverable.  Management
assesses  the  recoverability  of the cost of the  assets  based on a review  of
projected   undiscounted  cash  flows.  In  the  event  an  impairment  loss  is
identified,  it is  recognized  based on the amount by which the carrying  value
exceeds the estimated  fair value of the long-lived  asset.  If an asset is held
for sale,  management  reviews its estimated fair value less cost to sell.  Fair
value is determined using pertinent market information,  including appraisals or
broker's estimates, and/or projected discounted cash flows.


                                       45


      FINANCIAL INSTRUMENTS

      Cash  and  cash  equivalents,   trade  accounts   receivable,   short-term
borrowings,  trade accounts payable and accrued  liabilities are carried at cost
which  approximates  fair  value  due  to  the  short-term   maturity  of  these
instruments. The carrying amount of the Company's borrowings under its revolving
lines of credit  approximates  fair value, as the obligations bear interest at a
floating rate. The fair value of other long-term  obligations  approximates cost
based on borrowing rates for similar instruments.

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

      GUARANTEES

      At December 31, 2006, the Company guaranteed (unsecured) the BB& T loans of
Lynch  Systems.  The loan was paid off in February,  2007. The BB& T revolver was
replaced with a revolving loan with Bank of America. The Company guarantees this
loan  which  is  secured  by  cash  on  deposit.  The  Company  also  guarantees
(unsecured)  the RBC loan of MtronPTI.  As of December  31,  2006,  there are no
obligations to the RBC Centura Bank.

      The Company had guaranteed to First National Bank of Omaha the payment and
performance  of  Mtron's  obligations  under the Loan  Agreement  and  ancillary
agreements and  instruments  and had guaranteed a Letter of Credit issued to the
First  National  Bank  of  Omaha  on  behalf  of  MtronPTI  (see  Note  3 to the
Consolidated Financial Statements - "Notes Payable to Banks and Long-term Debt.)
As of October 2006, the Letter of Credit is no longer in place.

      There  is  no  other  financial,   performance,   indirect  guarantees  or
indemnification agreement.

      RECENT ISSUED ACCOUNTING PRONOUNCEMENTS

      On January 1, 2006 the Company  adopted  revised  Statement  of  Financial
Accounting  Standards No. 123 ("SFAS No. 123-R"),  "Share-Based  Payments." SFAS
123-R requires companies to measure  compensation costs for share-based payments
to employees,  including  stock options and restricted  stock, at fair value and
expense such compensation over the service period.  Under SFAS 123-R,  companies
must  determine  the  appropriate  fair  value  model  to be  used  for  valuing
share-based  payments,  the amortization  method for  compensation  cost and the
transition method to be used at date of adoption.

      In July  2006,  the FASB  issued  Interpretation  No. 48  "Accounting  for
Uncertainty in Income Taxes - An interpretation of FASB Statement No. 109" ("FIN
48").  This  Interpretation  provides a  comprehensive  model for the  financial
statement recognition, measurement, presentation and disclosure of uncertain tax
positions taken or expected to be taken in income tax returns. This statement is
effective for fiscal years  beginning  after December 15, 2006. The Company will
adopt this  Interpretation in the first quarter of 2007. The cumulative effects,
if any,  of  applying  FIN 48 will be  recorded  as an  adjustment  to  retained
earnings.  The Company is currently  assessing the impact of this Interpretation
on its financial position and results of operations.

      In September 2006, the FASB issued SFAS No. 157 "Fair Value Measurements".
This  Statement  replaces  multiple  existing  definitions  of fair value with a
single definition,  establishes a consistent framework for measuring fair value,
and expands financial statement  disclosures  regarding fair value measurements.
This Statement applies only to fair value measurements that are already required
or permitted  by other  accounting  standards  and does not require any new fair
value measurements.  SFAS 157 is effective for fiscal years beginning subsequent
to November 15, 2007. The Company will adopt this Statement in the first quarter
of 2008, and is currently  evaluating  the impact on its financial  position and
results of operations.


                                       46


2. INVENTORIES

      Inventories  are stated at the lower of cost or market value. At MtronPTI,
inventories are valued using the  first-in-first-out  (FIFO) method for 69.3% of
the inventory and the remaining 30.7% is valued using last-in-first-out  (LIFO).
At Lynch Systems,  100% of the inventory is valued at last-in-first-out  (LIFO),
with no inventory valued using FIFO. Total consolidated inventories valued using
LIFO represent 49.2% of  consolidated  inventories at December 31, 2006 compared
with 50.8% of consolidated  inventories  valued using LIFO at December 31, 2005.
(The balance of consolidated  inventory at December 31, 2006 and 2005 are valued
using FIFO.) If actual market  conditions  are more or less favorable than those
projected by management, adjustments may be required.

                                                           December 31,
                                                      --------------------
                                                       2006          2005
                                                      ------        ------
                                                          (in thousands)
      Raw materials and supplies .............        $3,016        $2,817
      Work in progress .......................         2,394         2,232
      Finished goods .........................         3,496         1,996
                                                      ------        ------
          Total ..............................        $8,906        $7,045
                                                      ======        ======

      Current cost  exceeded the LIFO value of  inventories  by  $1,038,000  and
$1,075,000 at December 31, 2006 and 2005, respectively.


                                       47


3. NOTES PAYABLE TO BANKS AND LONG-TERM DEBT

      Notes payable to banks and long-term debt is comprised of:

                                                                                                   December 31,
                                                                                                   ------------
                                                                                                  2006       2005
                                                                                                  ----       ----
NOTES PAYABLE:                                                                                     (in thousands)
Mtron revolving loan (First National Bank of Omaha) at greater of prime or 4.5%
    (which is  8.25% at December 31, 2006), due May 2007                                        $ 1,356     $ 2,082
Lynch Systems working capital revolving loan (BB& T) at One Month LIBOR + 2.75%,
    (which is 8.07% at December 31, 2006), due January 29, 2007                                     900         756
                                                                                                -------     -------
                                                                                                $ 2,256     $ 2,838
                                                                                                =======     =======
LONG-TERM DEBT:
Lynch Systems term loan (SunTrust) at a fixed interest rate of 6.5%  was repaid
    in February 2006                                                                                 --     $   378
Mtron term loan (RBC) due October 2010.  The note bears interest at LIBOR Base Rate plus
    2.75%.  Interest rate swap converts loan to a fixed rate, at 7.51% at December 31, 2006       2,964       3,030
Mtron term loan (First National Bank of Omaha) at greater of: prime plus 50 basis points or
    4.5%; 8.75% at December 31, 2006, due October 2007                                            1,287       1,612
Mtron commercial bank term loan at variable interest rates (8.75% at December 31, 2006), due
    April 2007                                                                                      239         456
South Dakota Board of Economic Development at a fixed rate of 3%, due December 2007                 250         262
Yankton Areawide Business Council loan at a fixed interest rate of 5.5%, due November 2007           65          74
Rice University Promissory Note at a fixed interest rate of 4.5%, due August 2009                   203         275
Smythe Estate Promissory Note at a fixed interest rate of 4.5% due August 2009                      119         159
                                                                                                -------     -------
                                                                                                  5,127       6,246
Current maturities                                                                               (2,027)     (1,215)
                                                                                                -------     -------
Long Term Debt                                                                                  $ 3,100     $ 5,031
                                                                                                =======     =======

      Lynch Systems and MtronPTI  maintain their own  short-term  line of credit
facilities. 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. At December
31,  2005,  MtronPTI's  credit  facility  included an unsecured  parent  Company
guarantee which was supported by a $650,000 Letter of Credit that was secured by
a $650,000  deposit at Bank of  America.  As of October 7, 2006,  the Company no
longer  guarantees  the Letter of Credit and the  $650,000  deposit is no longer
restricted.  The Lynch  credit  facility  includes an unsecured  parent  Company
guarantee at December 31, 2005 and 2006.

      At December  31,  2006,  the Company had  $2,256,000  in notes  payable to
banks.  At December 31, 2006,  Mtron's  short-term  credit  facility  with First
National Bank of Omaha ("FNBO") is $5,500,000,  under which there is a revolving
credit loan for $1,356,000.  The Revolving Loan bears interest at the greater of
prime rate or 4.5%.  On May 31, 2006,  Mtron renewed its credit  agreement  with
FNBO extending the due date of its revolving loan to May 31, 2007.

      The Company also had a working capital  revolver at Lynch Systems that had
been  entered  into in  October  2005 with  Branch  Banking  and  Trust  Company
("BB& T").  The revolving loan had a $3,500,000  borrowing capacity,  due January
29, 2007 and bore  interest at the One Month LIBOR Rate plus 2.75%.  At December
31, 2006, Lynch's  borrowings on the line of credit were $900,000.  The revolver
expired by its own terms in January 29,  2007.  The line of credit,  borrowings,
plus accrued  interest of $905,000  was repaid on February  13, 2007,  and a new
line of credit has been  established  which allows for $1,100,000 of borrowings.
Borrowings  on this new Lynch Systems line bear interest at a rate of LIBOR plus
1.75%.  The entire  borrowing  capacity is  collateralized  by a  $1,100,000  of
restricted cash on deposit.


                                       48


      The BB& T Loan  Agreement  contains a variety of  affirmative  and negative
covenants of types customary in an asset-based lending facility, including those
relating to  reporting  requirements,  maintenance  of records,  properties  and
corporate existence,  compliance with laws, incurrence of other indebtedness and
liens,  restrictions  on certain  payments and  transactions  and  extraordinary
corporate  events.  The BB& T Loan  Agreement also contains  financial  covenants
relating to maintenance of levels of minimal tangible net worth, a debt to worth
ratio, and restricting the amount of capital expenditures. In addition, the BB& T
Loan  Agreement  provides that the following will  constitute  events of default
thereunder, subject to certain grace periods: (i) payment defaults; (ii) failure
to meet reporting requirements; (iii) breach of other obligations under the BB& T
Loan Agreement;  (iv) default with respect to other material  indebtedness;  (v)
final  judgment  for a  material  amount  not  discharged  or  stayed;  and (vi)
bankruptcy or insolvency.  The Company was in compliance with these covenants at
December  31,  2006 except for the  tangible  net worth  covenant  for which the
Company received a waiver from BB& T.

      The Company had a  $6,744,000  of unused  borrowing  capacity  under Lynch
Systems' and MtronPTI's revolving lines of credit at December 31, 2006, compared
to $5,327,000 at December 31, 2005.

      At December 31, 2006, the Company had $2,027,000 in current  maturities of
long-term  debt. The Company  believes that existing cash and cash  equivalents,
cash generated from operations and available  borrowings under its subsidiaries'
lines of credit, including the proposed renewals, will be sufficient to meet its
ongoing working capital and capital expenditure requirements for the foreseeable
future.

      On September 30, 2005,  MtronPTI  entered into a Loan  Agreement  with RBC
Centura Bank  ("RBC").  The RBC Term Loan  Agreement  provided for a loan in the
amount of $3,040,000  (the "RBC Term Loan"),  the proceeds of which were used to
pay off the  $3,000,000  bridge loan with First National Bank of Omaha which had
been due October 2005.  The RBC Term Loan bears interest at LIBOR Base Rate plus
2.75%  and is to be  repaid  in  monthly  installments  based on a  twenty  year
amortization,  with the then remaining principal balance to be paid on the fifth
anniversary  of the RBC Term Loan. The RBC Term Loan is secured by a mortgage on
PTI's premises.  In connection with this RBC Term Loan,  MtronPTI entered into a
five-year interest rate swap from which it will receive periodic payments at the
LIBOR Base Rate and make periodic payments at a fixed rate of 7.51% with monthly
settlement and rate reset dates.  The Company has designated this swap as a cash
flow hedge in accordance with FASB 133  "Accounting  for Derivative  Instruments
and Hedging  Activities".  The fair value of the interest  rate swap at December
31, 2006 is $22,000,  $14,000 net of tax,  and is included in "other  assets" on
the balance  sheet and at  December  31,  2005 was  ($1,000)  net of tax and was
included in "other  liabilities" on the balance sheet. The value is reflected in
within other comprehensive income, net of tax.

      All  outstanding  obligations  under  the  RBC  Term  Loan  Agreement  are
collateralized  by  security  interests  in the  assets  of  MtronPTI.  The Loan
Agreement  contains a variety of  affirmative  and  negative  covenants of types
customary in an asset-based  lending facility.  The Loan Agreement also contains
financial  covenants  relating to maintenance of levels of minimal  tangible net
worth and working  capital,  and  current,  leverage  and fixed  charge  ratios,
restricting  the amount of capital  expenditures.  At  December  31,  2006,  the
Company was in compliance with these covenants.

      On October 14, 2004,  MtronPTI,  entered into a Loan  Agreement with First
National  Bank of  Omaha.  The FNBO  Loan  Agreement  provides  for loans in the
amounts of  $2,000,000  (the "Term Loan") in addition to the  $3,000,000  Bridge
Loan  referred  to above.  The Term Loan bears  interest at the greater of prime
rate plus 50 basis points,  or 4.5%,  and is repaid in monthly  installments  of
$37,514,  with the then remaining  principal balance plus accrued interest to be
paid on the third  anniversary  of the Loan  Agreement,  October  2007.  Accrued
interest thereon was payable monthly and the principal amount thereof,  together
with accrued interest.

      On October 14,  2004,  in  connection  with the  acquisition  of PTI,  the
Company provided  $1,800,000 of subordinated  financing to MtronPTI and MtronPTI
issued a subordinated  promissory note to the Company in such amount  increasing
the subordinated total to $2,500,000. In October 2006, an additional $75,000 was
lent  to  Mtron  to  enable  it to  make  an  investment  in  marketable  equity
securities.


                                       49


      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 2007. (See Note 3 to the Consolidated  Financial  Statements - "Notes
Payable  to Banks  and  Long-term  Debts" - for  restrictions  on the  company's
assets).

      The debt decreased at both MtronPTI and Lynch Systems due to repayments of
revolving debt and scheduled  payments on long-term  debt.  Debt  outstanding at
December 31, 2006  included  $3,601,000  of fixed rate debt at year-end  average
interest rate of 5% (after considering the effect of the interest rate swap) and
variable rate debt of $3,782,000 at a year end average rate of 8.45%.

            Aggregate  principal  maturities  of long-term  debt for each of the
next five years are as follows:

2007 - $2,027,000; 2008 - $204,000; 2009 - $170,000; and 2010 - $2,726,000.

4. RELATED PARTY TRANSACTIONS

      At  December  31,  2006,  the  Company  had  $4,429,000  of cash  and cash
equivalents, not including restricted cash, compared with $5,512,000 at December
31, 2005. Of this amount, $2,040,000 is invested in United States Treasury money
market funds for which affiliates of the Company serve as investment managers to
the  respective  funds.  At December  31, 2005,  $47,000 was  invested  with the
affiliate money manager.

5. STOCK OPTION PLANS

      On May 26, 2005,  the Company's  shareholders  approved  amendments to the
2001  Equity  Incentive  Plan to  increase  the  total  number  of shares of the
Company's Common Stock available for issuance from 300,000 to 600,000 shares and
to add  provisions  that require  terms and  conditions of awards to comply with
section 409A of the Internal  Revenue  Code of 1986.  Also on May 26, 2005,  the
Company  granted  options to purchase  120,000 shares of Company common stock to
certain  employees  and  directors  of the  Company at $13.17  per share.  These
options were fully vested in 2005, are anti-dilutive,  and expire at the earlier
of May  25,  2010  or 90  days  following  the  termination  or  resignation  of
employment.  Of these  120,000  options,  at December  31, 2006,  95,000  remain
outstanding.  Also outstanding at December 31, 2006, are 180,000 options granted
in 2001 to a former Chief Executive  Officer at $17.50 per share.  These options
are  also  anti-dilutive;   they  expire  on  October  1,  2009.  Total  options
outstanding  at December 31, 2006,  is 275,000 as  summarized  in the  following
table:

--------------------------------------------------------------------------------
                                        Weighted-Average
                                        Remaining
Exercise Price    Number Outstanding    Contractual Life      Number Exercisable
--------------------------------------------------------------------------------
$17.50                 180,000                         2.6         180,000
--------------------------------------------------------------------------------
$13.17                  95,000                         3.4          95,000
--------------------------------------------------------------------------------
Total                  275,000                                     275,000
--------------------------------------------------------------------------------


                                       50


      The following table summarizes information about stock options outstanding
and exercisable at December 31, 2006:


                                           Number of
                                             Stock          Weighted Average    Weighted Average
                                            Options          Exercise price      Years Remaining
------------------------------------------------------------------------------------------------
Oustanding at December 31, 2005               300,000                  15.77                 3.9
------------------------------------------------------------------------------------------------
Granted during 2006                                 -                      -                   -
------------------------------------------------------------------------------------------------
Exercised during 2006                               -                      -                   -
------------------------------------------------------------------------------------------------
Forfeited during 2006                         (25,000)                 13.17                   -
------------------------------------------------------------------------------------------------
Oustanding at December 31, 2006               275,000                  16.01                 2.9
------------------------------------------------------------------------------------------------
Exercisable at December 31, 2006              275,000                  16.01                 2.9
------------------------------------------------------------------------------------------------
Vested                                        275,000                  16.01                 2.9
------------------------------------------------------------------------------------------------

      Pro forma  information  regarding  net  income and  earnings  per share is
required by SFAS 123,  which  requires that the  information be determined as if
the Company has  accounted  for its employee  stock options under the fair value
method of that Statement.  The fair value for these options was estimated at the
date of grant using a  Black-Scholes-Merton  option pricing model. See Note 1 to
the  Consolidated  Financial  Statements - "Accounting and Reporting  Policies -
Stock Based Compensation and Earnings Per Share".

      In connection with the separation of the Company CEO on December 29, 2006,
his 75,000 options were forfeited 90 days thereafter, on March 29, 2007.

6. SHAREHOLDERS' EQUITY

      In December 2005,  the Company  completed its rights  offering.  The fully
subscribed rights offering resulted in the issuance of 538,676 additional shares
of common stock for proceeds to the Company of approximately $3,655,000,  net of
$250,000 in fees.  The offering  granted  holders of the Company's  common stock
transferable  subscription  rights to purchase  shares of the  Company's  common
stock at a subscription price of $7.25 per share.

      Under the terms of the  offering,  holders of the  Company's  common stock
were entitled to one  transferable  subscription  right for each share of common
stock  held on the  record  date,  November  9, 2005.  Every  three such  rights
entitled the  shareholder  to subscribe  for one common share at a  subscription
price of $7.25  per  share.  The  rights  were  transferable  and  contained  an
oversubscription privilege.

      The Board of Directors previously  authorized the purchase of up to 50,000
shares of Common  Stock.  During 2005 the  Company  purchased  16,100  shares of
Common  Stock at an average  price of $9.67 per share.  (During 2004 the Company
purchased 2,400 shares of Common Stock at an average price of $13.38 per share.)
There were no stock purchases in 2006.

      Both  Mtron and Lynch  Systems  have plans that  provided  certain  former
shareholders  with Stock  Appreciation  Rights  (SAR's).  These  SAR's are fully
vested and expire at the  earlier of certain  defined  events,  or 2008 to 2010.
These SAR's provide the participants a certain percentage, ranging from 1-5%, of
the  increase in the  defined  value of Mtron and Lynch  Systems,  respectively.
Expense  related to the SAR's was  $27,400 in 2006,  $18,000 in 2005,  and $0 in
2004 (during the year ended  December 31, 2004,  the Company paid out the entire
SAR  liability  that  had been  accrued  at  December  31,  2003).  There is SAR
liability at December 31, 2006 of $45,000  compared with $18,000 at December 31,
2005.

      During the third quarter of 2006, the Company issued  restricted  stock to
two executives  which are being  accounted for under SFAS No. 123 R. Total stock
compensation  expense  recognized by the Company for the year ended December 31,
2006 associated with this restricted stock was $28,000,  causing additional paid
in capital to increase by this amount.


                                       51


7. INCOME TAXES

      The Company files consolidated federal income tax returns,  which includes
all subsidiaries.

The Company has a net operating loss ("NOL")  carry-forward of $ 2,836,000 as of
December 31, 2006 compared with its net operating loss ("NOL")  carry-forward of
$2,404,000  as of  December  31,  2005.  This NOL  expires  through  2026 if not
utilized  prior to that date.  The Company has research and  development  credit
carry-forwards  of  approximately  $561,000 at December 31, 2006  (compared with
$357,000  at December  31,  2005) that can be used to reduce  future  income tax
liabilities  and expire  principally  between 2020 and 2026.  In  addition,  the
Company has  foreign  tax credit  carry-forwards  of  approximately  $210,000 at
December  31,  2006   compared  with  foreign  tax  credit   carry-forwards   of
approximately $169,000 at December 31, 2005, that are available to reduce future
U.S. income tax liabilities  subject to certain  limitations.  These foreign tax
credit carry-forwards expire at various times through 2016.

      Deferred  income  taxes  for  2006  and 2005  provided  for the  temporary
differences  between  the  financial  reporting  basis  and the tax basis of the
Company's  assets  and  liabilities.   Cumulative   temporary   differences  and
carry-forwards at December 31, 2006 and 2005 are as follows:

                                                                      December 31, 2006           December 31, 2005
                                                                 -----------------------       ----------------------
                                                                        Deferred Tax                Deferred Tax
                                                                   Asset       Liability        Asset        Liability
                                                                 --------      ---------       -------       ---------
                                                                                 (in thousands)

Inventory reserve.........................................            661                      $   601         $    --
Fixed assets..............................................                        1,084             --           1,448
Other reserves and accruals...............................          1,781                        2,163              --
Other.....................................................                        1,163             --             547
Tax loss and other credit carry-forwards..................          1,963                        1,554              --
                                                                 --------       -------        -------         -------
Total deferred income taxes...............................          4,405         2,247          4,318           1,995
                                                                                =======                        =======
Valuation allowance.......................................         (2,047)                      (2,212)
                                                                 --------                      -------
 Cumulative temporary differences                                  $2,358                      $ 2,106
                                                                 ========                      =======

      At December 31, 2006 the net  deferred tax asset of $111,000  presented in
the  Company's  balance  sheet is comprised of deferred tax assets of $2,358,000
offset by deferred tax  liabilities of $2,247,000.  At December 31, 2005 the net
deferred  tax asset of $111,000  presented  in the  Company's  balance  sheet is
comprised  of  deferred  tax  assets  of  $2,106,000   offset  by  deferred  tax
liabilities of $1,995,000.  The carrying value of the Company's net deferred tax
asset at December  31, 2006 of $111,000 is equal to the amount of the  Company's
carry-forward alternative minimum tax ("AMT") at that date. These AMT credits do
not expire.


                                       52


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

                                 2006           2005           2004
                              --------       --------       --------
                                          (in thousands)
      Current:
         Federal .......      $   (492)      $   (484)      $     --
         State and local            --             91             24
         Foreign .......           266            184             82
                              --------       --------       --------
      Total Current ....          (226)          (209)           106
                              --------       --------       --------
      Deferred:
         Federal .......            --             --             --
         State and local            --             --             (6)
                              --------       --------       --------
      Total Deferred ...            --             --             (6)
                              --------       --------       --------
                              $   (226)      $   (209)      $    100
                              ========       ========       ========

      A  reconciliation  of  the  provision  (benefit)  for  income  taxes  from
continuing  operations and the amount computed by applying the statutory federal
income  tax  rate  to  income  before  income  taxes,   minority   interest  and
extraordinary item:

                                                           2006          2005          2004
                                                         -------       -------       -------
                                                                   (in thousands)

      Tax (benefit) at statutory rate .............      $   217       $   340       $(1,097)
      Permanent Differences .......................           91            98             6
      Foreign tax rate differential ...............          (73)          (40)          (87)
      State and local taxes, net of federal benefit           12            61             5
      Foreign export sales benefit ................          (12)          (17)          (66)
      Change in tax reserves ......................         (492)         (484)           --
      Valuation allowance .........................            6          (178)        1,245
      Other .......................................           25            11            94
                                                         -------       -------       -------
                                                         $  (226)      $  (209)      $   100
                                                         =======       =======       =======

      The income tax benefit for the period  ended  December  31, 2006  included
federal,  as well as state,  local,  and foreign taxes offset by provisions made
for certain net operating loss  carry-forwards  that may not be fully  realized.
The income tax benefit also includes a non-recurring  reduction to an income tax
reserve of $492,000 in the third quarter 2006, which was originally provided for
during 2005.

      The income tax benefit for the period  ended  December  31, 2005  included
federal,  as well as state,  local,  and foreign taxes offset by provisions made
for certain net operating loss  carry-forwards  that may not be fully  realized.
The income tax benefit also includes a non-recurring  reduction to an income tax
reserve of $716,000 in the third quarter 2005, which was originally provided for
during 2001.  The tax reserve was  increased in the fourth  quarter of 2005 by a
net provision for federal and state tax reserves identified in that period.

      Profit  before  income  taxes  from  foreign  operations  was  $2,096,000,
$1,169,000,  and $499,000 in 2006, 2005, and 2004 respectively.  At December 31,
2006,  U.S.  income  taxes have been  provided on  approximately  $3,424,000  of
earnings of the Company's  foreign  subsidiaries  because these earnings are not
considered to be indefinitely reinvested.

      Federal, State and Foreign income tax payments were $335,000, $202,000 and
$83,000, for the years 2006, 2005 and 2004, respectively.

      The valuation  allowance  decreased from $2,212,000 in 2005 to $ 2,047,000
at December 31, 2006.


                                       53


8. OTHER COMPREHENSIVE INCOME (LOSS)

      Other  comprehensive  income (loss)  includes the changes in fair value of
investments  classified  as  available  for sale,  the changes in fair values of
derivatives designated as cash flow hedges, and translation adjustments.

      For the year ended  December  31,  2006,  total  comprehensive  income was
$1,991,000,  comprised of Other  Comprehensive  Income of  $1,126,000,  plus net
income of $865,000,  for the year ended December 31, 2006.  Other  Comprehensive
Income  included   $1,030,000  from  unrealized  gains  on  available  for  sale
securities,  $82,000 of currency  translation  gain  associated  with MtronPTI's
foreign subsidiary,  and $14,000,  the fair value of the interest rate swap, net
of tax.

      Total  comprehensive  income was $1,196,000 in the year ended December 31,
2005,  including  other  comprehensive  loss of  $88,000 on  available  for sale
securities,  $75,000 of currency translation  associated with MtronPTI's foreign
subsidiary,  and $1,000,  the fair value of the interest rate swap,  net of tax,
and net income of $1, 210,000.

      Total  comprehensive  loss was  $2,768,000 in the year ended  December 31,
2004, including "other" comprehensive income of $544,000 for unrealized gains on
available for sale  securities  and $14,000 of currency  translation  associated
with MtronPTI's foreign subsidiary.

      The components of accumulated other  comprehensive  income, net of related
tax, at December 31, 2006, 2005, and 2004 are as follows:

                                                                              December 31,
                                                                    -------------------------------
                                                                      2006        2005         2004
                                                                    ------      ------       ------
                                                                           (in thousands)

      Balance beginning of year ..............................      $  835      $  849       $  291
      Foreign currency translation ...........................          82          75           14
      Deferred gain/(loss) on hedge contract .................          14          (1)          --
      Unrealized (loss ) gain on available for-sale securities       1,030         (88)         544

                                                                    ------      ------       ------
      Accumulated other comprehensive income .................      $1,961      $  835       $  849
                                                                    ======      ======       ======

9.  EMPLOYEE BENEFIT PLANS

      The  Company,  through its  operating  subsidiaries,  has several  defined
contribution  plans for eligible  employees.  The following table sets forth the
consolidated expenses for these plans:

                                             December 31,
                                      ------------------------
                                      2006      2005      2004
                                      ----      ----      ----
                                           (in thousands)

      Defined contribution total      $175      $187      $ 90
                                      ====      ====      ====

      Under the Lynch  Systems and  MtronPTI  defined  contribution  plans,  the
Company   contributes  up  to  a  maximum  of  62.5  percent  of   participants'
contributions  that do not exceed  $800 per  participant  in the plan year.  The
Company  contribution  occurs at the end of the plan year and the participant is
immediately  vested  in the  employers'  contribution.  Under  the  PTI  defined
contribution  plan,  the  Company  contributes  50  percent  of the  first 6% of
eligible compensation contributed by participants. The Company is in the process
of merging its two 401K plans.


                                       54


10. COMMITMENTS AND CONTINGENCIES

      In  the  normal  course  of  business,  subsidiaries  of the  Company  are
defendants in certain product liability, worker claims and other litigation. The
following matters have been resolved;  the Company has no litigation  pending at
this time.

IN RE: SPINNAKER COATING,  INC.,  DEBTOR/PACE LOCAL 1-1069 V. SPINNAKER COATING,
INC., AND THE LGL GROUP, INC., U.S. BANKRUPTCY COURT, DISTRICT OF MAINE, CHAPTER
11, ADV.  PRO. NO.  02-2007,  AND PACE LOCAL  1-1069 V. THE LGL GROUP,  INC. AND
LYNCH SYSTEMS, 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 the Company. The complaint alleged that under Maine's Severance Pay Act both
the  Spinnaker  Entities  and the Company  would be liable to pay  approximately
$1,166,000  severance pay under Maine's Severance Pay Act in connection with the
plant  closure.  Subsequently,  the  Spinnaker  Entities  filed for relief under
Chapter 11 of the Bankruptcy Code and the action  proceeded  against the Company
on the issue of whether the Company has  liability to PACE's  members  under the
Maine Severance Pay Act.

      On November 3, 2004, the Superior Court granted  summary  judgment to PACE
on the second count of its complaint,  based on the Courts'  earlier ruling that
the Company was the parent corporation of the Spinnaker Entities. The Court also
issued a separate  order that  related to the  calculation  of damages,  largely
agreeing with the Company on the appropriate  method of calculating  damages and
awarded PACE  $653,018  (subsequently  modified to  $656,020) in severance  pay,
which is  approximately  one-half the amount claimed by PACE. The Superior Court
rejected  PACE's claim for  pre-judgment  interest,  but granted its request for
attorney fees.

      Both PACE and the Company  appealed to the Maine Supreme  Judicial  Court.
The  parties  filed  written  briefs  during  April  and May 2005 and made  oral
arguments  to the Supreme  Court on  September  13,  2005.  On January 13, 2006,
before the Superior  Court issued its  decision,  the Company and PACE agreed to
settle the case.  The  settlement  included  payment of a total of  $800,000  to
resolve  the claims of 67  workers  who lost  their  jobs in 2001.  This  amount
included $677,000 in severance and $123,000 in interest. The settlement was paid
in full in March 2006.  The  parties  also  withdrew  their  respective  appeals
pending in the Supreme Court and, therefore,  no decision was ever issued by the
Court.

QUI TAM LAWSUIT

      The Company,  Lynch  Interactive  and numerous other parties were named as
defendants  in a  lawsuit  originally  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 main  allegation  in the case was that the
defendants  participated  in  the  creation  of  "sham"  bidding  entities  that
allegedly  defrauded the United States Treasury by improperly  participating  in
Federal Communications  Commission ("FCC") spectrum auctions restricted to small
businesses,  as well as obtaining  "bidding  credits" in other spectrum auctions
allocated  to "small"  and "very  small"  businesses.  In May 2006,  a tentative
settlement  was  reached  pursuant  to which  the  defendants  agreed to pay the
government $130 million, plus approximately $8.7 million to relator's counsel as
legal fees and expenses. In July 2006, the definitive settlement agreements with
the  government  and the relator were signed and  approved by the federal  judge
hearing the case,  and the case was dismissed  with prejudice in August 2006. In
entering into the settlement  agreements,  the Company admitted no liability and
the  conduct  giving rise to the case is  expressly  excluded as a basis for any
future administrative proceedings by the FCC.

      For a historical  chronology  of the case,  please refer to the  Company's
prior SEC filings.


                                       55


RENT EXPENSE

      Rent expense under operating leases was $197,000,  $291,000,  and $285,000
for the years ended December 31, 2006, 2005, and 2004, respectively. The Company
leases certain  property and  equipment,  including  warehousing,  and sales and
distribution  equipment,  under  operating  leases  that extend from one to five
years. Certain of these leases have renewal options.

      Future minimum rental payments under long-term  non-cancellable  operating
leases subsequent to December 31, 2006 are as follows:

                                         (in thousands)
                          2007 ..............      63
                          2008 ..............      19
                          2009 ..............       4
                          2010 and thereafter       3

11. SEGMENT INFORMATION

      The Company has two reportable  business segments:  1) glass manufacturing
equipment  business,  which  represents the operations of Lynch Systems,  and 2)
frequency  control devices  (quartz  crystals and  oscillators)  that represents
products manufactured and sold by MtronPTI.  The Company's foreign operations in
Hong Kong and India exist under MtronPTI.

      Operating  profit  (loss) is equal to revenues  less  operating  expenses,
excluding  investment  income,  interest expense,  and income taxes. The Company
allocates  a  negligible  portion  of  its  general  corporate  expenses  to its
operating segments.  Such allocation was $300,000 in 2006, $500,000 in 2005, and
$350,000 in 2004.  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.


                                       56


                                                           Years Ended December 31,
                                                    --------------------------------------
                                                      2006           2005           2004
                                                    --------       --------       --------
                                                                (in thousands)
REVENUES
Glass manufacturing equipment - USA                 $  1,422       $  1,992       $  1,114
Glass manufacturing equipment - Foreign                6,329          9,140          9,307
                                                    --------       --------       --------
Total glass manufacturing equipment                    7,751         11,132         10,421

Frequency control devices - USA                       20,501         19,078         12,096
Frequency control devices - Foreign                   21,048         15,973         11,317
                                                    --------       --------       --------
Total frequency control devices                       41,549         35,051         23,413
                                                    --------       --------       --------
Consolidated total revenues                         $ 49,300       $ 46,183       $ 33,834
                                                    ========       ========       ========
OPERATING PROFIT (LOSS)
Glass manufacturing equipment                       $ (1,898)      $    684       $ (1,340)
Frequency control devices                              3,072          2,306          1,012
                                                    --------       --------       --------
Total manufacturing                                    1,174          2,990           (328)

Unallocated corporate expense                         (1,722)        (1,812)        (2,560)
                                                    --------       --------       --------
Consolidated total operating profit (loss)              (548)      $  1,178       $ (2,888)
                                                    ========       ========       ========
INCOME (LOSS) BEFORE INCOME TAXES
Investment income                                   $  1,750       $    608       $     15
Interest expense                                        (570)          (847)          (360)
Other income (expense)                                     7             62              7
                                                    --------       --------       --------
Consolidated income (loss) before income taxes      $  1,187       $  1,001       $ (3,266)
                                                    ========       ========       ========

CAPITAL EXPENDITURES
Glass manufacturing equipment                       $     18       $     32       $     97
Frequency control devices                                737            310            326
General corporate                                         --              1             17
                                                    --------       --------       --------
Consolidated total capital expenditures             $    755       $    343       $    440
                                                    ========       ========       ========
TOTAL ASSETS
Glass manufacturing equipment                       $  6,050       $  8,096       $ 10,832
Frequency control devices                             21,699         17,589         17,417
General corporate                                      3,208          6,979          5,634
                                                    --------       --------       --------
Consolidated total assets                           $ 30,957       $ 32,664       $ 33,883
                                                    ========       ========       ========


                                       57


      For years ended  December 31, 2006,  2005, and 2004,  significant  foreign
revenues (10% or more of foreign sales) were as follows:

                                                                           Years Ended - December 31,

                                                                 2006                  2005                  2004
GLASS MANUFACTURING EQUIPMENT -
SIGNIFICANT FOREIGN REVENUES
Brazil                                                       $  3,080              $    260              $     27
China                                                             827                    42                 2,618
Indonesia                                                         --                  1,110                 3,811

All other foreign countries                                     2,422                 2,462                 2,851
                                                            -----------------------------------------------------
     Total foreign revenues                                  $  6,329              $  9,140              $  9,307

                                                                           Years Ended - December 31,

                                                                 2006                  2005                  2004
FREQUENCY CONTROL DEVICES - SIGNIFICANT
FOREIGN REVENUES
China                                                        $  4,250              $  3,203              $  1,783
Canada                                                          3,683                 3,218                 2,901
Malaysia                                                        2,262                   686                   463
Thailand                                                        2,114                 1,084                    34
Mexico                                                          1,543                 2,216                 1,415
All other foreign countries                                     7,196                 5,566                 4,721
                                                            -----------------------------------------------------
     Total foreign revenues                                  $ 21,048              $ 15,973              $ 11,317

      "All  other  foreign   countries"  include  countries  which  individually
comprise less than 10% of total foreign revenues for each segment.  If a country
had significant  foreign revenues in any one of the three years  presented,  the
sales to that  country  are shown for the other  years  presented  even if it is
under the 10% threshold.

12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

      The following is a summary of the quarterly  results of operations for the
years ended December 31, 2006 and December 31, 2005:

                                                                                    2006 Three Months Ended
                                                                       --------------------------------------------------
                                                                       Mar. 31       June 30       Sep. 30       Dec. 31
                                                                       -------       -------       -------       -------
                                                                            (in thousands, except per share amounts)
 Revenues........................................................     $ 12,091      $ 13,146      $ 13,038      $ 11,025
 Gross profit....................................................        3,547         4,114         3,463         2,430
 Operating profit (loss).........................................          386           458           (29)       (1,363)
 Net income (loss)...............................................          366           499           903          (903)
 Basic and diluted earnings (loss) per share.....................     $   0.17      $   0.23      $   0.42      $ (0.42)


                                       58


                                                                                    2005 Three Months Ended
                                                                       --------------------------------------------------
                                                                       Mar. 31       June 30       Sep. 30        Dec. 31
                                                                       -------       -------       -------        -------
                                                                            (in thousands, except per share amounts)
 Revenues........................................................     $ 10,595      $  14,913     $  10,745     $   9,930
 Gross profit....................................................        3,277          5,512         2,961         2,985
 Operating profit (loss).........................................          227          2,001          (516)         (534)
 Net income (loss)...............................................           50          1,351           696          (887)
 Basic and diluted earnings (loss) per share.....................     $   0.03      $    0.83     $    0.43     $   (0.56)


                                       59


SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF

                         REGISTRANT THE LGL GROUP, INC.

                             CONDENSED BALANCE SHEET
                                 (IN THOUSANDS)

                                                                                      December 31,
                                                                                  2006            2005
                                                                               ----------      ----------
ASSETS
Current Assets
    Cash and cash equivalents ...........................................      $    3,906      $    3,542
    Restricted cash .....................................................              --             650
    Investments - marketable securities .................................           2,550           2,738
    Deferred income taxes ...............................................              --              --
    Other current assets ................................................              70              38
                                                                               ----------      ----------
                                                                                    6,526           6,968

Net Property, Plant &  Equipment .........................................               5              11

Other Assets (principally investment in and amounts due from wholly owned
    subsidiaries) .......................................................          10,804          11,554
                                                                               ----------      ----------
Total Assets ............................................................      $   17,335          18,533
                                                                               ----------      ----------

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities .....................................................      $      628      $    3,845
Long Term Liabilities ...................................................              --              --
Total Shareholders' Equity ..............................................          16,707          14,688
                                                                               ----------      ----------
Total Liabilities And Shareholders' Equity ..............................      $   17,335      $   18,533
                                                                               ==========      ==========

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       60


                               THE LGL GROUP, INC.

                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                        CONDENSED STATEMENT OF OPERATIONS
                                 (IN THOUSANDS)

                                                                                        Years Ended December 31,
                                                                              --------------------------------------------
                                                                                  2006             2005             2004
                                                                              ----------       ----------       ----------

Interest, dividends and gains on sale of marketable securities .........      $    1,878       $      592       $       17
Dividend from subsidiary ...............................................             (32)              32               22
Interest and other income from subsidiaries ............................             126              126               55
                                                                              ----------       ----------       ----------
TOTAL INCOME ...........................................................           1,972              750               94
Costs and Expenses:
Unallocated corporate administrative expense ...........................           1,673            1,662            1,435
Commitments and contingencies ..........................................              --              150              775
Interest expense .......................................................              --               86               47
                                                                              ----------       ----------       ----------
TOTAL COST AND EXPENSE .................................................           1,673            1,898            2,257
                                                                              ----------       ----------       ----------
LOSS BEFORE INCOME TAXES AND EQUITY IN NET INCOME (LOSS) OF SUBSIDIARIES             299           (1,148)          (2,163)
Benefit for income taxes ...............................................             233              716               --
Equity in net income (loss) of subsidiaries ............................             332            1,642           (1,163)
                                                                              ----------       ----------       ----------
NET INCOME (LOSS) ......................................................      $      865       $    1,210       $   (3,326)
                                                                              ==========       ==========       ==========


                                       61


                               THE LGL GROUP, INC.

                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                        CONDENSED STATEMENTS OF CASH FLOW
                                 (IN THOUSANDS)

                                                                      Year Ended December 31,
                                                            --------------------------------------------
                                                               2006             2005             2004
                                                            ----------       ----------       ----------

CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES ......      $   (2,207)      $     (483)      $     (430)
                                                            ----------       ----------       ----------
INVESTING ACTIVITIES:
Capital expenditures .................................              --               (1)             (17)
Proceeds from sale of marketable securities ..........           2,976            1,348               --
Payment of margin liability ..........................            (330)          (1,236)            (300)
Purchase of available for-sale securities ............              --               --             (754)
Dividend from subsidiaries ...........................              --               --               22
                                                            ----------       ----------       ----------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ..      $    2,646              111           (1,049)
                                                            ----------       ----------       ----------
FINANCING ACTIVITIES:
Loan to Subsidiary ...................................             (75)              --           (1,800)
Issuance of Common Stock, net of fees ................              --            3,655            1,760
Purchase of Treasury Stock ...........................              --             (156)             (32)
                                                            ----------       ----------       ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ..             (75)           3,499              (32)
                                                            ----------       ----------       ----------
TOTAL INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS             364            3,127           (1,551)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .......           3,542              415            1,966
                                                            ----------       ----------       ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR .............      $    3,906       $    3,542       $      415
                                                            ==========       ==========       ==========


                                       62


NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE A -- BASIS OF PRESENTATION

      In the parent company's financial statements,  the Company's investment in
subsidiaries  is stated at cost plus  equity in  undistributed  earnings  of the
subsidiaries.

NOTE B -- PURCHASE OF AVAILABLE FOR SALE SECURITIES

      Proceeds from the sale of marketable  securities  totaled  $2,976,000  and
$1,348,000  for the  years  ended  December  31,  2006 and  2005,  respectively.
Purchases of marketable  securities were $68,000 for the year ended December 31,
2006,  there were no purchases in 2005,  and purchases of marketable  securities
were  $754,000  for the  year  ended  December  31,  2004.  Payments  on  margin
liabilities were $330,000,  $1,236,000 and $300,000 for the years ended December
31, 2006, 2005 and 2004. There were no margin liabilities at December 31, 2006.

NOTE C -- DIVIDENDS FROM SUBSIDIARIES

      The  Company's  consolidated  subsidiaries  paid no dividends in 2006,  or
2005, and paid $22,000 in 2004 to the parent company, LGL Group, Inc.

NOTE D -- LOANS TO SUBSIDIARIES

      In 2004, the Company lent its subsidiary, Mtron, $1,800,000 to support its
banking  relationships  and to fund  Mtron's  acquisition  of PTI. In 2006,  the
Company lent Mtron $75,000 to make investments in marketable equity securities.

NOTE  E --  SEE  NOTES  TO  CONSOLIDATED  FINANCIAL  STATEMENTS  FOR  ADDITIONAL
INFORMATION.


                                       63


                      THE LGL GROUP, INC. AND SUBSIDIARIES

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004

Column A                           Column B                 Column C               Column D       Column E
--------                          ----------     -----------------------------   -------------  --------------
                                                           Additions
                                                 -----------------------------
                                  Balance at       Charged
                                   Beginning       to Costs       Charged to                    Balance at End
           Deduction               Of Period     and Expenses   Other Accounts   Deductions(A)     of Period
----------------------------      ----------     ------------   --------------   -------------  --------------

Year ended December 31, 2006
    Allowances .............      $  325,000      $  573,000              --      $   77,000      $  808,000
                                  ==========      ==========      ==========      ==========      ==========
Year ended December 31, 2005
    Allowances .............      $   92,000      $  259,000              --      $   26,000      $  325,000
                                  ==========      ==========      ==========      ==========      ==========
Year ended December 31, 2004
    Allowances .............      $   91,000      $   14,000              --      $   13,000      $   92,000
                                  ==========      ==========      ==========      ==========      ==========

----------
(A)   Uncollectible accounts receivable written off are net of recoveries.


                                       64



                                  EXHIBIT INDEX

Exhibit
   No.            Description
-------           -----------

  3 (a)           Restated    Articles   of   Incorporation   of   the   Company
                  (incorporated  by reference  to Exhibit 3(a) to the  Company's
                  Form 10-K for the year ended December 31, 2004).

    (b)           Articles of Amendment of the Articles of  Incorporation of the
                  Company  (incorporated  by  reference  to Exhibit  3(b) to the
                  Company's Form 10-K for the year ended December 31, 2004).

    (c)*          Articles of Amendment of the Articles of  Incorporation of the
                  Company.

    (d)           By-laws of the Company  (incorporated  by reference to Exhibit
                  3.1 to the Company's Current Report on Form 8-K dated December
                  22, 2004).

10  (a)           The LGL Group,  Inc.  401(k)  Savings  Plan  (incorporated  by
                  reference to Exhibit 10(b) to the  Company's  Annual Report on
                  Form 10-K for the period ended December 31, 1995).

    (b)           Directors  Stock Plan  (incorporated  by  reference to Exhibit
                  10(o) to the Company's  Form 10-K for the year ended  December
                  31, 1997).

    (c)           The  LGL  Group,  Inc.  2001  Equity  Incentive  Plan  adopted
                  December 10, 2001  (incorporated  by reference to Exhibit 4 to
                  the Company's Form 8-K filed on December 29, 2005.

    (d)           Mortgage   dated   October  21,  2002  by   Mortgagor,   Mtron
                  Industries,  Inc.,  to  Mortgagee,  Yankton  Area  Progressive
                  Growth,  Inc.  (incorporated by reference to Exhibit 10(hh) to
                  the  Company's  Annual  Report on Form 10-K for the year ended
                  December 31, 2003).

    (e)           Promissory  Note between  Mtron  Industries,  Inc. and Yankton
                  Area  Progressive   Growth,   Inc.,  dated  October  21,  2002
                  (incorporated  by reference to Exhibit 10(ii) to the Company's
                  Annual  Report on Form 10-K for the year  ended  December  31,
                  2003).

    (f)           Standard Loan Agreement by and between Mtron Industries,  Inc.
                  and Areawide  Business  Council,  Inc., dated October 10, 2002
                  and  Exhibits  thereto  (incorporated  by reference to Exhibit
                  10(jj)  to the  Company's  Annual  Report on Form 10-K for the
                  year ended December 31, 2003).

    (g)           Loan Agreement by and between Mtron Industries, Inc. and South
                  Dakota Board of Economic Development,  dated December 19, 2002
                  (incorporated  by reference to Exhibit 10(kk) to the Company's
                  Annual  Report on Form 10-K for the year  ended  December  31,
                  2003).

    (h)           Promissory  Note  between  Mtron  Industries,  Inc.  and South
                  Dakota Board of Economic Development,  dated December 19, 2002
                  (incorporated  by reference to Exhibit 10(ll) to the Company's
                  Annual  Report on Form 10-K for the year  ended  December  31,
                  2003).

    (i)           Employment Agreement by and between Mtron Industries, Inc. and
                  South Dakota Board of Economic Development, dated December 19,
                  2002  (incorporated  by  reference  to  Exhibit  10(mm) to the
                  Company's  Annual  Report  on Form  10-K  for the  year  ended
                  December 31, 2003).

    (j)           Loan  Agreement  by and among Mtron  Industries,  Inc.,  Piezo
                  Technology,   Inc.   and   First   National   Bank  of   Omaha
                  (incorporated  by reference  to Exhibit 10.1 to the  Company's
                  Current Report on Form 8-K dated October 20, 2004).


                                       65


    (k)           Unconditional  Guaranty for Payment and Performance with First
                  National Bank of Omaha  (incorporated  by reference to Exhibit
                  10.2 to the Company's Current Report on Form 8-K dated October
                  20, 2004).

    (l)           Registration  Rights  Agreement by and between the Company and
                  Venator   Merchant   Fund,   L.P.   dated   October  15,  2004
                  (incorporated  by reference  to Exhibit 10.4 to the  Company's
                  Current Report on Form 8-K dated October 20, 2004).

    (m)           Form of  Indemnification  Agreement  dated as of February  28,
                  2005 by and  between  The LGL Group,  Inc.  and its  executive
                  officers  (incorporated herein by reference to Exhibit 10.1 to
                  the Company's  Quarterly  Report on Form 10-Q filed on May 16,
                  2005).

    (n)           Registration  Rights  Agreement by and between the Company and
                  Venator   Merchant   Fund,   L.P.   dated   October  15,  2004
                  (incorporated  by reference  to Exhibit 10.4 to the  Company's
                  Current Report on Form 8-K dated October 20, 2004).

    (o)           First  Amendment  to the Loan  Agreement  by and among  M-Tron
                  Industries,  Inc., Piezo  Technology,  Inc. and First National
                  Bank of Omaha,  dated  May 31,  2005  (incorporated  herein by
                  reference to Exhibit 10.2 to the Company's  Current  Report of
                  on Form 8-K filed on July 6, 2005).

    (p)           Loan Agreement,  by and among M-Tron  Industries,  Inc., Piezo
                  Technology,  Inc. and RBC Centura  Bank,  dated  September 30,
                  2005 (incorporated  herein by reference to Exhibit 10.1 to the
                  Company's  Current  Report  on Form 8-K  filed on  October  4,
                  2005).

    (q)           Unconditional  Guaranty  for  Payment by and  between  The LGL
                  Group,  Inc. and RBC Centura  Bank,  dated  September 30, 2005
                  (incorporated  herein  by  reference  to  Exhibit  10.2 to the
                  Company's  Current  Report  on Form 8-K  filed on  October  4,
                  2005).

    (r)           Second  Amendment to the Loan Agreement,  dated June 30, 2006,
                  by and among M-tron Industries,  Inc., Piezo Technology,  Inc.
                  and  First  National  Bank  of  Omaha,  and  acknowledged  and
                  guaranteed  by The LGL  Group,  Inc.  (incorporated  herein by
                  reference to Exhibit 10.1 to the Company's  Current  Report on
                  Form 8-K filed on July 7, 2006).

    (s)           Employment Agreement,  dated September 5, 2006, by and between
                  The LGL Group, Inc. and Jeremiah M. Healy (incorporated herein
                  by reference to Exhibit 10.1 to the Company's  Current  Report
                  on Form 8-K filed on September 7, 2006).

    (t)           Third Amendment to the Loan Agreement,  dated October 3, 2006,
                  by and among M-tron Industries,  Inc., Piezo Technology,  Inc.
                  and  First  National  Bank  of  Omaha,  and  acknowledged  and
                  guaranteed  by  LGL  Group,  Inc.   (incorporated   herein  by
                  reference to Exhibit 10.1 to the Company's  Current  Report on
                  Form 8-K filed on October 4, 2006).


                                       66


    (u)          Employment Agreement, dated March 20, 2007, by and between The
                  LGL  Group,  Inc.  and  Steve  Pegg  (incorporated  herein  by
                  reference to Exhibit 10.1 to the Company's  Current  Report on
                  Form 8-K filed on March 20, 2007).

    14            Amended and Restated Business Conduct Policy  (incorporated by
                  reference  to  Exhibit 14 to the  Company's  Form 10-K for the
                  year ended December 31, 2004).

    21            Subsidiaries  of the Company  (incorporated  by  reference  to
                  Exhibit  21 to the  Company's  Form  10-K for the  year  ended
                  December 31, 2004).

    23*           Consent of Independent  Registered  Public  Accounting  Firm -
                  Ernst &  Young LLP.

    31(a)*        Certification  by  Principal  Executive  Officer  pursuant  to
                  Section 302 of the Sarbanes-Oxley Act of 2002.

    31(b)*        Certification  by  Principal  Financial  Officer  pursuant  to
                  Section 302 of the Sarbanes-Oxley Act of 2002.

    32(a)*        Certification  by  Principal  Executive  Officer  pursuant  to
                  Section 906 of the Sarbanes-Oxley Act of 2002.

    32(b)*        Certification  by  Principal  Financial  Officer  pursuant  to
                  Section 906 of the Sarbanes-Oxley Act of 2002.

----------
*     Filed herewith.

      The Exhibits  listed above have been filed  separately with the Securities
and Exchange  Commission in conjunction  with this Annual Report on Form 10-K or
have been  incorporated  by reference  into this Annual Report on Form 10-K. The
LGL Group,  Inc.  will  furnish to each of its  shareholders  a copy of any such
Exhibit  for a fee  equal  to The LGL  Group,  Inc.'s  cost in  furnishing  such
Exhibit.  Requests  should be addressed to the Office of the Secretary,  The LGL
Group, Inc., 140 Greenwich Ave, 4th Floor, Greenwich, Connecticut 06830.


                                       67`