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                                  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, 2005
                                -----------------

                                       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

                                LYNCH CORPORATION
                                -----------------
             (Exact name of Registrant as Specified in Its Charter)

                      INDIANA                       38-1799862
                      -------                       ----------
                  (State or other                     (I.R.S.
                   jurisdiction of                    Employer
                  Incorporation or                 Identification
                   Organization)                        No.)

                 140 GREENWICH AVE,
                      4TH FL,
                    GREENWICH,
                    CONNECTICUT                         06830
                    -----------                         -----
               (Address of Principal                 (Zip Code)
                 Executive Offices)

     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,                 American Stock Exchange
             $0.01 Par Value

        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 an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). Yes [ ]  No [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, 2005 of
$8.30 per share) was $8.3 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 21, 2006.

     DOCUMENTS  INCORPORATED BY REFERENCE:  Certain portions of the registrant's
definitive  Proxy Statement for the 2006 Annual Meeting of  Shareholders,  which
will be filed with the Securities and Exchange  Commission not later than May 1,
2006, are incorporated by reference in Part III of this Report.

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

ITEM 1.  BUSINESS

     Lynch  Corporation (the "Company"),  incorporated in 1928 under the laws of
the State of Indiana, is a diversified holding company with subsidiaries engaged
in manufacturing.  The Company's  executive offices are located at 140 Greenwich
Ave, 4th Floor,  Greenwich,  Connecticut  06830.  Its telephone  number is (203)
622-1150.

     The Company has three principal operating subsidiaries,  M-tron Industries,
Inc. ("Mtron"),  Piezo Technology,  Inc. ("PTI") and Lynch Systems, Inc. ("Lynch
Systems").  The combined  operations  of Mtron and PTI are referred to herein as
"Mtron/PTI."

     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.

Mtron/PTI

     OVERVIEW

     Mtron/PTI,  the  result  of  the  acquisition  of PTI  by  Mtron  effective
September 30, 2004, is a designer,  manufacturer and marketer of 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,  crystals, crystal oscillators or electronic filters,
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.

     Mtron/PTI'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.

     Mtron/PTI has more than 40 years of experience designing, manufacturing and
marketing crystal based frequency  control  products.  Its customers rely on the
skills of Mtron/PTI's  engineering  and design team to help them 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,   Mtron/PTI  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 12 "Segment  Information" to the Company's  Consolidated
Financial Statements.

     Mtron/PTI'S OBJECTIVES

     Mtron/PTI's  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.

     Mtron/PTI  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
Mtron/PTI's  frequency  control  devices being designed into their products more
regularly.

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

     Mtron/PTI 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.

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

     PRODUCTS

     Mtron/PTI'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  Mtron/PTI an entry to the timing  modules
market.  The  September  2004  acquisition  of PTI provided  Mtron/PTI  with its
families of very high  precision  oven-controlled  crystal  oscillators  and its
electronic filter products.

     Mtron/PTI  designs and produces a wide range of packaged  quartz  crystals,
quartz crystal based  oscillators  and electronic  filter  products.  There is a
variety of features  in its product  family.  The  Packaged  Crystal is a single
crystal in a  hermetically  sealed  package and is used by electronic  equipment
manufacturers,  along with their own electronic circuitry,  to build oscillators
for frequency control in their electronic  devices.  The Clock Oscillator is the
simplest of its oscillators.  It is a self-contained  package with a crystal and
electronic  circuitry  that is  used  as a  subsystem  by  electronic  equipment
manufacturers  to provide  frequency  control  for their  devices.  The  Voltage
Controlled Crystal  Oscillator (VCXO) is a variable  frequency  oscillator whose
frequency can be changed by varying the control voltage to the  oscillator.  The
Temperature  Compensated  Crystal  Oscillator  (TCXO)  is  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 Mtron/PTI's
product  family  offers the designers at electronic  equipment  manufacturers  a
range of options as they create the needed performance in their products.

     Currently,  Mtron/PTI'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.

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

     The  crystals,  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.  Mtron/PTI's  products are also

                                       2

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.

     Mtron/PTI'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

     Mtron/PTI has manufacturing  facilities in Yankton, South Dakota,  Orlando,
Florida  and Noida,  India.  It has  established  long-term  relationships  with
several  contract  manufacturers  in  Asia.  Approximately  14%  of  Mtron/PTI's
revenues in 2005 were attributable to one such contract  manufacturer located in
both Korea and China. While Mtron/PTI does not have written long-term agreements
with  this  contract  manufacturer,  Mtron/PTI  believes  that  it  occasionally
receives  preferential  treatment on production  scheduling  matters.  Mtron/PTI
maintains a rigorous  quality  control system and is an ISO 9001/2000  qualified
manufacturer.  Mtron/PTI's Hong Kong subsidiary (Mtron 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, 2005,  Mtron/PTI  employed 30  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
$2,408,000,  $1,089,000  and  $600,000  in 2005,  2004 and  2003,  respectively.
Mtron/PTI  expects to increase its spending on research and development by up to
15% during 2006.

     CUSTOMERS

     Mtron/PTI 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 2005,  an  electronics  manufacturing  services  company  accounted  for
approximately 14% of Mtron/PTI's revenues, compared to approximately 18% and 12%
for  Mtron/PTI's  largest  customer  in 2004 and  2003,  respectively.  No other
customer accounted for more than 10% of its 2005 revenues. Revenues from its ten
largest customers  accounted for approximately 63% of revenues in 2005, compared
to approximately 48% and 40% of revenues for 2004 and 2003, respectively.

     DOMESTIC REVENUES

     Mtron/PTI's domestic revenues were $19,078,000,  $12,096,000 and $7,282,000
for 2005, 2004 and 2003, respectively.

     INTERNATIONAL REVENUES

     Mtron/PTI's  international  revenues  were  $15,973,000,   $11,317,000  and
$7,901,000 for 2005, 2004 and 2003, representing  approximately 46%, 48% and 52%
of its revenues for 2005, 2004 and 2003,  respectively.  In 2005, these revenues
included  approximately 9% from customers in Canada, 24% from customers in Asia,
7% from customers in Western  Europe and 5% from customers in Mexico.  Mtron/PTI
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.

                                       3

     BACKLOG

     Mtron/PTI had backlog orders of $8,906,000 at December 31, 2005 compared to
$7,647,000  at December 31, 2004.  Mtron/PTI's  backlog may not be indicative of
future revenues, because of its customers' ability to cancel orders.

     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  Mtron/PTI'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).  Mtron/PTI  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. Mtron/PTI 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.

     INTELLECTUAL PROPERTY

     Mtron/PTI has no patents,  trademarks or licenses that are considered to be
important to Mtron/PTI's business or operations. Rather, Mtron/PTI 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 a broad range of
manufacturing   equipment  for  the   electronic   display  and  consumer  glass
industries.  Lynch Systems also produces  replacement parts for various types of
packaging  and glass  container-making  machines  that  Lynch  Systems  does not
manufacture.  Lynch Systems is concentrating its efforts on developing its glass
forming  machinery  business  segment.  While Lynch  Systems'  cathode-ray  tube
business segment remains an important  component of its business,  Lynch Systems
anticipates declining demand for products based on such technology.

     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 12 "Segment  Information" to the Company's  Consolidated
Financial Statements.

     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.  Lynch Systems is the only  independent  supplier in
the CRT  (cathode  ray  tube)  glass  forming  field  and it is  Lynch  Systems'
intention to use this strength to form closer partnerships with its customers in
their pursuit of innovative glass making machinery.  In addition,  Lynch Systems
will 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

                                       4

machinery  within its core  competence,  and also to seek new  markets,  such as
container  ware,  where its  experience  and proven  success  can be utilized to
develop new products and increase its growth.

     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 new low-cost feeder and shear; a new machine
designed  to produce  press and blow  glass  articles  with an  in-line  modular
concept; and gob weight controls and inspection systems.

     PRODUCTS AND MANUFACTURING

     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.  Lynch Systems also manufactures  glass-forming  presses and
electronic  controls to provide  high-speed  automated systems to form different
sizes of face panels and CRT display tubes for  television  screens and computer
monitors, including presses to build large screen televisions for the HDTV (high
definition  television)  market.  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,  Firepolishers  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 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

     Research  and  development  expense was  $97,000,  $104,000 and $180,000 in
2005,  2004 and 2003,  respectively.  Lynch  Systems  expects  to  increase  its
spending on research and development by up to 50% during 2006.

     CUSTOMERS

     Lynch  Systems  has  historically  had a small  number  of  customers.  One
customer  (though not the same one in each year)  accounted for 46%, 36% and 27%
of Lynch Systems' revenues for 2005, 2004 and 2003, respectively.

                                       5

     DOMESTIC REVENUES

     Lynch Systems' domestic revenues were $1,992,000, $1,114,000 and $3,677,000
for 2005, 2004 and 2003, respectively.

     INTERNATIONAL REVENUES

     Lynch  Systems'  international  revenues were  $9,140,000,  $9,307,000  and
$9,109,000 for 2005,  2004 and 2003,  respectively,  representing  approximately
82%, 89% and 71% of its revenues for those years.  International revenues in the
past three years mainly derived from customers in Indonesia, China, South Korea,
Lithuania and the Netherlands.  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  $4,954,000  at December  31, 2005,
compared to $9,927,000 at December 31, 2004.  Backlog  decreased due to shipment
of large CRT machines in 2005. Most of Lynch Systems'  $4,954,000  backlog as of
December 31, 2005 is scheduled to be delivered in 2006.  Lynch Systems  includes
as backlog  only 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,   Japan,  Korea  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  increased  due to high demand.  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.

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

EMPLOYEES

     As of December 31, 2005,  the Company  employed 355 people,  including 6 in
Hong Kong, 2 in Germany and 9 in India.  None of its employees is represented by
a labor union and the Company considers its employee relations to be good.

SPINNAKER INDUSTRIES, INC.

     Prior to September 30, 2001,  the Company owned 48% and 60%,  respectively,
of the equity and voting  power of  Spinnaker  Industries,  Inc.  ("Spinnaker").
Under accounting principles generally accepted in the United States, the Company
consolidated  the  results of  Spinnaker  and was  required to record all of the

                                       6

losses of  Spinnaker.  On  September  26,  2001,  the Company  made a charitable
disposition of 430,000 shares,  as a result of which:  (a) the Company's  equity
interest  and  voting  power in  Spinnaker  were  reduced  to 41.8%  and  49.5%,
respectively,  (b) the Company deconsolidated  Spinnaker for financial reporting
purposes, effective September 30, 2001, (c) the Company recorded a non-cash gain
of  $27,406,000  on  September  30,  2001,  (d) from  September  30,  2001 until
September 23, 2002, the Company  accounted for its ownership of Spinnaker  using
the  equity  method  of  accounting  and (e) the  Company  did  not  record  any
additional  losses from Spinnaker,  as it had no obligation to further fund such
losses.

     On September 23, 2002, the Company sold its remaining interest in Spinnaker
to  an  independent  party  for  nominal  consideration,   because  the  Company
determined  that the  Spinnaker  shares had no value as a result of  Spinnaker's
ongoing  reorganization  under Chapter 11 of the Bankruptcy Code. As a result of
this transfer, the Company recorded a $19,420,000 non-cash gain and consequently
an increase in shareholders' equity of $19,420,000 in the third quarter of 2002.
This action increased the Company's total shareholders' equity of the Company to
approximately  $11,644,000 at September 30, 2002 from a deficit of $7,615,000 on
June 30, 2002.

ENVIRONMENTAL

     The European Union recently issued its Restriction of Hazardous  Substances
Directive (the "RHSD").  Mtron/PTI has began to make appropriate  adjustments in
its materials and  manufacturing,  and expects to be fully compliant  within the
time  frame  provided.  As a  result  of the  RHSD,  Mtron/PTI  has  experienced
increased costs, mainly in the form of managing the transition.

     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.  The Company has not experienced  difficulties  relative to fuel or
energy shortages.

SEASONALITY

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

CUSTOMERS

     In 2005, the largest single  customer  accounted for 11.2% of  consolidated
revenues,  while the next  largest  customer  represented  11.0%.  In 2004,  the
largest single customer accounted for 12.2% of consolidated revenues,  while the
next largest  customer  represented  10.9%. In 2003, the largest single customer
accounted  for 12% of  consolidated  revenues,  while the next largest  customer
represented 10%.

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 2006 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.

                                       7

NAME                                               OFFICES AND POSITIONS HELD                                  AGE
----                                               --------------------------                                  ---

Marc Gabelli...............   Chairman  (September  2004 to present) and  Director  (May 2003 to  May 2004) of  38
                              Lynch  Corporation;  Managing  director (1996  to 2004) and President (2004  to
                              present) of Gabelli Group Capital Partners, Inc., the parent company of Gabelli
                              Asset  Management,  Inc.,  a private  corporation  which  makes investments for
                              its  own account;  President  of Gemini  Capital  Management  LLC; President of
                              Venator Merchant Fund, LP.

John C. Ferrara............   President  and  Chief  Executive  Officer  (October  2004 to  present) of Lynch   54
                              Corporation;  Private investor from March 2002 to present; President and Chief
                              Executive  Officer (2001 to March 2002) and Chief  Financial  Officer (1999 to
                              2001) of Space Holding Corporation,  a private multimedia company dedicated to
                              space,  science and  technology;  Executive Vice President and Chief Financial
                              Officer  (1998 to 1999) of Golden Books Family  Entertainment,  Inc., a NASDAQ
                              listed  publisher,  licenser  and  marketer of  entertainment  products;  Vice
                              President  and  Chief   Financial   Officer  (1989  to  1997)  of  Renaissance
                              Communications   Corp.,  a  NYSE  listed  owner  and  operator  of  television
                              stations;  Director of Gabelli  Asset  Management  Inc. and Lynch  Interactive
                              Corporation.

Eugene Hynes...............   Vice President of Finance  (September  2004 to present) of  Lynch  Corporation;   40
                              Vice President and Controller of Space Holding  Corporation (1999 to September
                              2004);  Manager  Financial  Planning  and  Analysis  of  Golden  Books  Family
                              Entertainment, Inc. (1998-1999).

     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.

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.

     WE HAVE INCURRED  OPERATING  LOSSES IN TWO OF THE PAST THREE YEARS AND FACE
UNCERTAINTY IN OUR ABILITY TO SUSTAIN OPERATING PROFITS IN THE FUTURE.

     We have  incurred  operating  losses  in two of the past  three  years.  We
suffered  operating  losses  of  $2,888,000  and  $832,000  in  2004  and  2003,
respectively.  While we achieved an operating  profit of  $1,178,000 in 2005, we
are  uncertain  whether  we will be able to  sustain  operating  profits  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.  Our failure to secure additional  financing could
have a material adverse effect on our continued development or growth.

                                       8

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

     We are a  holding  company  that  transacts  all of  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.

     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 41% OF OUR COMMON STOCK.

     Our principal shareholders currently own in the aggregate approximately 41%
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

                                       9

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.

     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 might 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 MAY BE EXPOSED TO LIABILITY AS A RESULT OF BEING NAMED AS A DEFENDANT IN
A LAWSUIT  BROUGHT UNDER THE SO-CALLED "QUI TAM" PROVISIONS OF THE FEDERAL FALSE
CLAIMS ACT.

     The Company, Lynch Interactive Corporation, which was formed via a tax-free
spin-off from Lynch  Corporation on September 1, 1999 ("Lynch  Interactive") and
various  other parties are  defendants in a lawsuit  brought under the so-called
"qui tam"  provisions  of the  federal  False  Claims Act in the  United  States
District Court for the District of Columbia.  The main allegation in the case is
that the defendants participated in the creation of "sham" bidding entities that
allegedly defrauded the U.S. Treasury Department by improperly  participating in
Federal   Communications   Commission  spectrum  auctions  restricted  to  small
businesses, and obtained bidding credits in other spectrum auctions allocated to
"small" and "very small" businesses. The lawsuit seeks to recover an unspecified
amount  of  damages,  which  amount  would be  automatically  tripled  under the
statute.  Although Lynch Interactive is contractually  bound to indemnify us for
any  losses  or  damages  we may  incur  as a  result  of  this  lawsuit,  Lynch
Interactive  may lack the capital  resources to do so. As a result,  we could be
held liable and forced to pay a significant amount of damages without recourse.

     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;

                                       10

          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  securities  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.

     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.

                                       11

     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 globalized 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.

     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.

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

     Mtron/PTI's   backlog   comprises  orders  that  are  subject  to  specific
production release orders under written contracts,  oral and written orders from
customers with which Mtron/PTI has had  long-standing  relationships and written
purchase  orders from sales  representatives.  Mtron/PTI'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 Mtron/PTI experienced in the most recent economic slowdown. As a
result,  Mtron/PTI's backlog as of any particular date may not be representative
of actual revenues for any succeeding period.

     Mtron/PTI 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 Mtron/PTI'S REVENUES.

     In 2005,  approximately  14% of  Mtron/PTI'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 Mtron/PTI's  revenues in 2006 and a material
portion of Mtron/PTI's  revenues for the next several years.  Mtron/PTI 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,  Mtron/PTI  would have to identify  and  qualify  acceptable
replacement  manufacturers  or  manufacture  the  products  internally.  Due  to
specific  product  knowledge and process  capability,  Mtron/PTI 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, Mtron/PTI's relationship with this manufacturer,  may adversely
affect Mtron/PTI's results of operations and our financial condition.

                                       12

     Mtron/PTI  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.

     Mtron/PTI'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.

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

     Virtually  all of  Mtron/PTI's  2005 and 2004  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 Mtron/PTI'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 Mtron/PTI's business and our financial condition.

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

     Mtron/PTI's  business  depends  heavily  upon capital  expenditures  by the
providers  of  communications  and network  services.  In 2005,  the majority of
Mtron/PTI's   revenues  was  to  manufacturers  of  communications  and  network
infrastructure  equipment,  including  indirect sales through  distributors  and
contract  manufacturers.  In 2006,  Mtron/PTI  expects a smaller but significant
portion of its revenues to be to  manufacturers  of  communications  and network
infrastructure   equipment.   Mtron/PTI   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  Mtron/PTI's  products.  A slowdown in the
manufacture and purchase of communications and network infrastructure  equipment
could  substantially  reduce  Mtron/PTI'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,
Mtron/PTI may be unable to sustain its growth. In addition,  Mtron/PTI'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  Mtron/PTI'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 Mtron/PTI'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,  Mtron/PTI'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 Mtron/PTI's  products,  the prices
that Mtron/PTI can charge for them may be subject to greater competition.

                                       13

     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  Mtron/PTI'S  ENVIRONMENTAL  LIABILITY  AND  COMPLIANCE
OBLIGATIONS MAY INCREASE COSTS AND DECREASE PROFITABILITY.

     Mtron/PTI'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 Mtron/PTI's  operations that any future
regulations  might require,  or the cost of compliance  that would be associated
with these regulations.

     THE  EUROPEAN  UNION HAS  RECENTLY  ISSUED  ITS  RESTRICTION  OF  HAZARDOUS
SUBSTANCES  DIRECTIVE ("THE RHSD"), WHICH RESTRICTS THE USE OF CERTAIN HAZARDOUS
SUBSTANCES USED IN THE CONSTRUCTION OF COMPONENT PARTS EFFECTIVE JULY 1, 2006.

     We may need to change our  manufacturing  processes,  redesign  some of our
products,  and change components to eliminate these hazardous  substances in our
products  in order to be able to  continue  to offer  them for sale  within  the
European Union.

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

     Our export  sales,  which are  primarily to Canada,  Asia,  Western  Europe
accounted  for 46% of revenues  during 2005 and 48% of revenues  during 2004. 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,  in  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'  REVENUE IS LARGELY  DEPENDENT ON DEMAND FOR ITS TELEVISIONS
AND COMPUTER MONITORS BASED ON CATHODE-RAY TUBE TECHNOLOGY. THIS TECHNOLOGY WILL
EVENTUALLY BE REPLACED BY PLASMA AND LIQUID CRYSTAL DISPLAYS.

     Lynch Systems generates a significant  portion of its revenue from sales to
glass producers that supply  television and computer  monitor  displays that are
based on cathode-ray tube technology. This market is being rapidly penetrated by
thinner,  lighter weight plasma displays and liquid crystal  displays.  Although
cathode-ray tube televisions and computer  monitors  currently retain advantages
in image quality and price, glass producers are investing billions of dollars to
improve the quality and lower the unit price of plasma, liquid crystal and other
display types.  We believe that market  penetration by plasma and liquid crystal
display producers will continue and eventually render obsolete  cathode-ray tube
technology and this Lynch Systems product line.

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

     Lynch   Systems'  sales  to  its  ten  largest   customers   accounted  for
approximately 79% and 80% of its revenues in 2005 and 2004, respectively.  Lynch
Systems' sales to its largest customer  accounted for  approximately 46% and 36%

                                       14

of its  revenues  in 2005 and  2004,  respectively.  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 MAY NOT BE REALIZED IN FULL.

     Lynch  Systems has a  significant  order for glass  manufacturing  machines
which may not be realized in full. 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.  There was no profit recorded
to date on this  contract.  In late 2005,  the first  machine was  completed and
shipped.  The  installation of the machine has been delayed several times due to
the customer  temporarily closing down its plant. The customer has now indicated
that the plant will open in mid 2006 and that the  machine can be  installed  at
that time.  The customer has stated that when the first machine is  operational,
it will pay for the first  machine  and accept  deliveries  on three  additional
machines  over the  next 12 to 18  months.  Management  fully  expects  that the
customer will honor its commitment;  however, the Company has provided a reserve
of $350,000  against the billed  receivable,  unbilled  receivable and inventory
balances at December 31, 2005.  If the customer  does not honor its  commitment,
additional  provisions may be required,  based upon the ultimate  disposition of
the machines.

     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  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.

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

                           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

                                       15

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.LYNCHCORP.COM.

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

ITEM 1B.   UNRESOLVED STAFF COMMENTS

         Not applicable.

ITEM 2.  PROPERTIES

     Lynch'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, 2005, all such properties are subject to
security deeds relating to loans.

     Mtron/PTI's  operations  are located in  Yankton,  South  Dakota,  Orlando,
Florida,  India and Hong Kong. Mtron/PTI has two separate facilities in Yankton,
these facilities contain approximately 51,000 square feet in the aggregate.  The
manufacturing  facility that is owned by Mtron/PTI contains approximately 35,000
square  feet,  is situated on  approximately  15 acres of land and is subject to
security  deeds  relating to loans.  The other  facility is leased and  contains
approximately  16,000 square feet. The lease expires on September 30, 2006, with
no options to extend the lease;  Mtron/PTI intends to renew the lease. Mtron/PTI
has one building,  approximately 76,000 square feet, on approximately 7 acres of
land in Orlando that was purchased in connection  with the  acquisition  of PTI.
Mtron/PTI has approximately  1,500 square feet of office space in Hong Kong; the
lease  expires  October 5, 2006 and does not  include  renewal  options  and the
Company leases approximately 7,500 square feet of office and manufacturing space
in Delhi, India.

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

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 in
which the  amounts  being  sought  may exceed  insurance  coverage  levels.  The
resolution of these matters is not expected to have a material adverse effect on
the Company's financial condition or operations. In addition, the Company and/or
one or more of its  subsidiaries  are parties to the following  additional legal
proceedings:

                                       16

IN RE: SPINNAKER COATING,  INC.,  DEBTOR/PACE LOCAL 1-1069 V. SPINNAKER COATING,
INC., AND LYNCH CORPORATION,  U.S. BANKRUPTCY COURT,  DISTRICT OF MAINE, CHAPTER
11, ADV. PRO. NO. 02-2007,  AND PACE LOCAL 1-1069 V. LYNCH CORPORATION 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.

     In 2002,  both PACE and the  Company  moved  for  summary  judgment  in the
action.  On July 28,  2003,  the Court  issued an order  denying  the  Company's
motion,  finding that there remained a disputed issue of material fact regarding
one of the  Company's  primary  defenses.  The  Court  granted  partial  summary
judgment  in favor of PACE to the extent  that the Court  found that the Company
was the Spinnaker Entities' "parent corporation" and, therefore, the Company was
an "employer" subject to potential liability under Maine's 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
Supreme  Court  issued its  decision,  the Company and PACE agreed to settle the
case.  The  settlement  includes  payment of a total of  $800,000 to resolve the
claims of 67 workers  who lost their jobs in 2001.  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 have been 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  complaint  was filed under seal in February
2001,  and the seal was lifted at the  initiative  of one of the  defendants  in
January 2002.  The Company was formally  served with the complaint in July 2002.
The  main  allegation  in the case is 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.  While the lawsuit seeks to recover an unspecified amount of
damages,  which would be subject to  mandatory  trebling  under the  statute,  a
report  prepared  for the  relator  (the  private  party who filed the action on
behalf of the United States) in February 2005 alleges  damages of  approximately
$91,000,000  in respect  of  "bidding  credits",  approximately  $70,000,000  in
respect of government  "financing" and approximately  $206,000,000 in respect of
subsequent resales of licenses, in each case prior to trebling. The liability is
alleged to be joint and several.  In September  2003,  the court  granted  Lynch
Interactive's  motion to  transfer  the action to the  Southern  District of New
York.

     In September 2004, the court issued a ruling denying  defendants' motion to
refer the issues in the action to the FCC.  In  December  2004,  the  defendants
filed a motion in the United States  District  Court in the District of Columbia
asking that court to compel the FCC to provide information subpoenaed by them to
enable them to conduct their  defense.  This motion was denied in May 2005,  and
the defendants appealed. In February 2006, the defendants and the FCC reached an

                                       17

agreement  granting   defendants   discovery  of  certain  documents  and  other
evidentiary  materials.  In November 2005, the court ruled that damages based on
profits from resales of licenses were not allowed under the False Claims Act.

     Initially,  in 2001, the  Department of Justice  notified the court that it
would not intervene in the case.  However,  in response to the judge's ruling in
November 2005 (described above), the DOJ recently, in March 2006, petitioned the
court to allow it to intervene. This petition is scheduled to be argued in April
2006.  The case had been  tentatively  scheduled  for trial in June 2006 but the
trial may be delayed due to the  government's  intervention  and related issues.
The  defendants  believe that the action is without merit and that the relator's
damage  computations  are  without  basis,  and  they  are  defending  the  suit
vigorously.  Under  the  separation  agreement  between  the  Company  and Lynch
Interactive  pursuant to which Lynch  Interactive  was spun-off to the Company's
shareholders  on  September  1, 1999,  Lynch  Interactive  would be obligated to
indemnify  the  Company  for any losses or damaged  incurred by the Company as a
result of this  action.  Lynch  Interactive  has agreed in writing to defend the
case on the Company's  behalf and to indemnify the Company for any losses it may
incur.  Nevertheless,  the Company  cannot  predict the ultimate  outcome of the
litigation,  nor can the  Company  predict  the effect  that the  lawsuit or its
outcome will have on the Company's business or plan of operation.

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

     Not applicable.

PART II

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, 2005 and December
31, 2004 are as follows:

                                                        QUARTER ENDED

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

  2004                         MARCH 31,         JUNE 30,        SEPTEMBER 30,      DECEMBER 31,
-------                     ----------------- ---------------- ------------------- ----------------
High....................          17.00             16.25            15.10               16.74
Low.....................           9.80             12.26            11.65               12.25

     At March 21, 2006, the Company had 1,565 shareholders of record.

DIVIDEND POLICY

     The Board of Directors has adopted a policy of not paying cash dividends, a
policy which is reviewed annually.  This policy takes into account the long term
growth   objectives  of  the  Company,   especially  its  acquisition   program,
shareholders'  desire for capital appreciation of their holdings and the current
tax law disincentives for corporate dividend distributions. Accordingly, no cash
dividends have been paid since January 30, 1989 and none are expected to be paid
in 2006.  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 the fourth fiscal
quarter of 2005.

                                       18

ITEM 6.  SELECTED FINANCIAL DATA

                       LYNCH CORPORATION 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)
                                                         ---------------------------------------------------------------
                                                              2005         2004        2003         2002*        2001*
                                                         ------------ ------------ ------------ ------------ -----------

Revenues..........................................          $ 46,183   $  33,834     $ 27,969     $ 26,386    $ 141,073
Operating profit (loss)
  (b).............................................             1,178      (2,888)        (832)      16,168      (19,240)

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.....             1,001      (3,226)         183       15,996      (26,597)

Benefit (provision) for income taxes..............               209        (100)         (73)       1,967         (358)

Minority interests................................                --         --           --            --        4,017
                                                            --------   ---------     --------     --------    ---------

Net income (loss).................................          $  1,210   $  (3,326)    $    110     $ 17,963    $ (22,938)

Per Common Share:(c)

   Net income (loss):

      Basic.......................................          $   0.73   $   (2.18)    $   0.07     $  11.99    $  (15.24)
      Diluted.....................................              0.73       (2.18)        0.07        11.99       (15.24)

                                                                               DECEMBER 31, (a)
                                                         ---------------------------------------------------------------
                                                              2005         2004        2003         2002*        2001*
                                                         ------------ ------------ ------------ ------------ -----------
Cash, securities and short-term
  Investments(e)..................................          $  8,250   $   6,189     $  6,292     $  6,847    $   4,247
Restricted cash(e)(f).............................               650       1,125        1,125        1,125        4,703
Total assets(d)(e)................................            32,664      33,883       23,019       23,430       31,615
Long-term debt, exclusive of current  portion(e)..             5,031       3,162          833        1,089        1,678
Shareholders' equity (deficiency) (d)(e)..........            14,688       9,993       11,033       10,934       (7,451)

NOTES:

*    Effective  September 30, 2001, the Company's  ownership and voting interest
     of Spinnaker Industries,  Inc. was reduced to 41.8% and 49.5% respectively,
     due to the  disposition  of shares  of  Spinnaker.  As a result,  effective

                                       19

     September 30, 2001, the Company  relinquished  control of Spinnaker and has
     deconsolidated  Spinnaker.  On September 23, 2002, the Company  disposed of
     its  remaining  interest  in  Spinnaker.  See  Note 1 to  the  Consolidated
     Financial Statements -- "Basis of Presentation".

(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)  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.

(f)  See  discussion of Restricted  Cash and Notes Payable and Long-Term Debt in
     Note 4 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

     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 Mtron/PTI 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.

     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.

     Mtron/PTI'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,

                                       20

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  Mtron/PTI  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,  Mtron/PTI 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.

    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.

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 carryforwards 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.

                                       21

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.

     Mtron/PTI 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.

     2004 COMPARED TO 2003

CONSOLIDATED REVENUES AND GROSS MARGIN

     Consolidated revenues increased $5,865,000,  or 21%, to $33,834,000 for the
year ended December 31, 2004 from $27,969,000 for the comparable period in 2003.
The  increase  came  from  Mtron/PTI,  including  the  contribution  of the  PTI
acquisition, and was partially offset by lower revenues at Lynch Systems.

     Revenues at Mtron/PTI  increased by $8,230,000,  or 54%, to $23,413,000 for
the year ended December 31, 2004 from  $15,183,000 for the comparable  period in
2003.  The increase was due to  improvements  in the  telecommunications  market
resulting from a stronger  general economy,  improvements in the  infrastructure
segment of the telecommunications  market, new customers and the PTI acquisition
which  contributed  approximately  $3,600,000  in revenue  since it was acquired
effective September 30, 2004.

     Revenues at Lynch Systems  declined by  $2,365,000,  or 18%, to $10,421,000
for the year ended December 31, 2004 from $12,786,000 for the comparable  period
in 2003.  This  decrease  was  primarily  due to less  revenue  for glass  press
machines.  However, order backlog of $9,927,000 at December 31, 2004 represented
a significant  improvement of approximately  $7,100,000 compared to December 31,
2003.  Most of Lynch  Systems'  $9,927,000  backlog as of  December  31, 2004 is
scheduled to be delivered in 2005 with the majority scheduled to be delivered in
the second quarter.

     The consolidated gross margin as a percentage of revenues in 2004 decreased
to 23.8%, compared to 27.4% in the prior year.  Improvements in the gross margin
at Mtron/PTI were more than offset by lower margins at Lynch Systems.

     Mtron/PTI's  gross  margin  as a  percentage  of  revenues  for year  ended
December  31,  2004,  increased  to  26.9%  from  23.1%  in  2003.  The  revenue
improvement  at Mtron and 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, 2004,  declined  over the  comparable  period in 2003 from 32.9% to
16.7%.  This decline was primarily due to 18% lower revenues,  lower high-margin
repair part business and a shift from higher margin CRT business to lower margin
tableware  products in 2004.  The Company  expects  that  revenues  from the CRT
business, as a percentage of total revenues, will continue to decline.

OPERATING LOSS

     The  operating  loss for the year ended  December 31, 2004 was  $2,888,000,
compared to $832,000 for the comparable  period in 2003,  primarily due to lower
margins at Lynch Systems and a $775,000 litigation provision.

                                       22

     For the year ended December 31, 2004,  Mtron/PTI had an operating profit of
$1,012,000, an improvement of $1,182,000 compared to the $170,000 operating loss
for 2003. The operating profit  improvements were due primarily to the 54% sales
increase and higher gross margin in 2004 compared to 2003.

     For the year ended  December 31, 2004,  Lynch Systems had an operating loss
of  $1,340,000,  compared to an operating  profit of $822,000 in the  comparable
period  in 2003.  Declining  sales  prices  and  lower  volume  resulted  in the
unfavorable operating results when comparing 2004 to 2003.

     The  Company's  corporate  headquarters  incurred  unallocated  expenses of
$2,560,000 for the year ended December 31, 2004, exceeding the comparable period
in 2003 by  $1,076,000,  primarily  due to a $775,000  provision  recorded for a
potential legal settlement and higher compensation costs,  professional fees and
public company expenses.

OTHER INCOME (EXPENSE), NET

     Investment  income  for the year  ended  December  31,  2004  was  $15,000,
$519,000 less than the $534,000  investment  income for the comparable period in
2003 primarily due to a $483,000 realized gain on sale of marketable  securities
in 2003 and lower average cash balances in 2004.

     Interest  expense of  $360,000  for the year ended  December  31,  2004 was
$78,000 more than the comparable period in 2003 primarily due to interest on new
loans relating to the acquisition of PTI.

     Other income for the year ended December 31, 2004 was $7,000, $756,000 less
than the $763,000 recorded for the comparable  period in 2003,  primarily due to
$728,000  that was  realized  in 2003  relating  to the  final  settlement  of a
customer-related contingency.

INCOME TAXES

     Income tax benefit  (expense)  includes federal,  state,  local and foreign
taxes.  The Company  recorded a $100,000 tax provision in 2004 for foreign taxes
at the Hong Kong tax rate on  Mtron/PTI's  foreign  subsidiaries'  earnings  and
other state tax expense items.

NET INCOME (LOSS)

     Net loss for the year ended December 31, 2004 was $3,326,000  compared to a
net  profit  of  $110,000  for the  comparable  period in 2003.  The  $3,436,000
unfavorable  variance was primarily due to lower operating  profits as described
above, including the $775,000 litigation provision,  higher interest expense and
lower other income in 2004,  compared to 2003.  As a result,  fully diluted loss
per share for the year  ended  December  31,  2004 was $2.18  compared  to $0.07
income per share for the comparable period of 2003.

LIQUIDITY AND CAPITAL RESOURCES

     The  Company's  cash,  cash   equivalents  and  investments  in  marketable
securities  at  December  31, 2005  totaled  $8,900,000  (including  $650,000 of
restricted  cash) compared to $7,314,000 at December 31, 2004. In addition,  the
Company had a $5,327,000 borrowing capacity under Lynch Systems' and Mtron/PTI's
revolving  line of credit at December 31,  2005,  as compared to  $2,751,000  at
December 31, 2004.

     At December 31, 2005, the Company's net working  capital was $11,925,000 as
compared to $4,042,000  at December 31, 2004. At December 31, 2005,  the Company
had current assets of $24,870,000  and current  liabilities of  $12,945,000.  At
December 31, 2004,  the Company had current  assets of  $24,770,000  and current
liabilities of $20,728,000.  The ratio of current assets to current  liabilities
was  1.92 to 1.00 at  December  31,  2005,  compared  to 1.20 to 1.00  ratio  at
December 31,  2004.  The increase in net working  capital was  primarily  due to
refinancing  of debt,  improved  operating  results,  gain on sale of marketable
securities and cash received from the rights offering (discussed below).

                                       23

     Cash provided by operating  activities was $2,283,000 in 2005,  compared to
cash  used in  operating  activities  of  $1,910,000  in 2004.  The year to year
favorable  change in operating  cash flow of $4,193,000 was primarily due to net
income of $1,360,000 for the year ended December 31, 2005 compared to a net loss
of $3,326,000 for the comparable  period in 2004 and net changes in receivables,
inventory and customer advances.  Capital expenditures were $343,000 in the year
ended December 31, 2005, compared to $440,000 for the comparable period in 2004.

     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.

     At December 31, 2005,  the Company had $2,838,000 in notes payable to banks
consisting of a revolving  credit loan at Mtron/PTI for $2,082,000 due May, 2006
and a working capital revolver at Lynch Systems for $756,000 due October,  2006.
The Company intends to renew these facilities with the existing banks,  however,
there can be no assurances the existing  facilities will be renewed. At December
31, 2005,  the Company also had  $1,215,000  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.

     At December 31, 2005, total debt of $9,084,000 was $3,477,000 less than the
total debt at  December  31, 2004 of  $12,561,000.  The debt  decreased  at both
Mtron/PTI and Lynch  Systems due to  repayments of revolving  debt and scheduled
payments  on long term debt.  Debt  outstanding  at December  31, 2005  included
$4,178,000 of fixed rate debt at a year-end  average  interest rate of 6.8%, and
$4,906,000 of variable rate debt at a year-end average rate of 7.4%.

     The Company is in compliance  with all financial  covenants at December 31,
2005.

     In connection with the completion of the acquisition of PTI, on October 14,
2004,  Mtron  and PTI,  each  wholly-owned  subsidiaries  of Lynch  Corporation,
entered  into a Loan  Agreement  with  First  National  Bank of Omaha.  The Loan
Agreement  provides for loans in the amounts of $2,000,000 (the "Term Loan") and
$3,000,000  (the "Bridge  Loan"),  together with a $5,500,000  Revolving Line of
Credit (the  "Revolving  Loan").  The Term Loan bears interest at the greater of
prime  rate  plus 50 basis  points,  or 4.5%,  and is to be  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.  The Bridge
Loan bears interest at the same rate as the Term Loan.  Accrued interest thereon
is payable  monthly and the  principal  amount  thereof,  together  with accrued
interest. The bridge loan was paid off with the proceeds from the RBC term loan.
The  Revolving  Loan bears  interest at the  greater of prime rate or 4.5%.  The
revolving  loan  was  renewed  extending  the  due  date to May  31,  2006.  All
outstanding  obligations under the Loan Agreement are collateralized by security
interests  in the  assets of Mtron and PTI,  as well as by a  mortgage  on PTI's
premises.  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.

     On October 14, 2004, in connection with the acquisition of PTI, the Company
provided $1,800,000 of subordinated  financing to Mtron/PTI and Mtron/PTI issued
a  subordinated  promissory  note to the Company in such amount  increasing  the
subordinated total to $2,500,000.

     The Company has  guaranteed a letter of credit issued to the First National
Bank of Omaha on behalf of its subsidiary, Mtron Industries, Inc. As of December
31, 2005,  the $650,000  letter of credit issued by Bank of America to The First
National Bank of Omaha was secured by a $650,000 deposit at Bank of America. The
Company's  outstanding  letter of credit was reduced from $1,000,000 to $650,000
during 2005.

    On June 30, 2005, Mtron/PTI renewed its credit agreement with First National
Bank of Omaha  extending  the due date to May 31, 2006.  Mtron/PTI's  short-term
credit facility totals $5,500,000,  of which $3,418,000 was available for future
borrowings.

                                       24

     On June 29, 2005,  Lynch Systems  entered into an extension  agreement with
SunTrust  Bank to extend the due date of it credit  agreement  until  August 31,
2005.  Lynch  Systems  $7,000,000  short-term  credit  facility  was  reduced to
$4,300,000 in accordance  with the extension  agreement,  of which  $200,000 was
available  for letters of credit.  The  extension  agreement  also calls for the
acceleration of the existing Lynch Systems term loan from August, 2013 to August
31, 2005. On August 29, 2005,  Lynch Systems  entered into a first  amendment to
the  extension  agreement,  dated August 25, 2005 to extend until  September 30,
2005 the due date of  indebtedness.  On October 6, 2005,  Lynch Systems  entered
into a first  amended  and  restated  extension  agreement  by and  among  Lynch
Systems,  Lynch  Corporation  and SunTrust  Bank  ("SunTrust"),  to extend until
December 31, 2005 the due date of all remaining indebtedness of Lynch Systems to
SunTrust.  On December 30, 2005, Lynch Systems entered into a first amendment to
first amended and restated extension agreement to extend until March 1, 2006 the
due date of all remaining  indebtedness of Lynch Systems to SunTrust.  This loan
was repaid in full in February 2006. At December 31, 2005, there were borrowings
under the term loan of $378,000.

     On May 12, 2005,  Venator  Merchant Fund, L.P.  ("Venator")  made a loan to
Lynch  Corporation  in the amount of $700,000 due  September  11, 2005 or within
seven days after demand by Venator. Venator is an investment limited partnership
controlled by Lynch's Chairman of the Board, Marc Gabelli. On September 8, 2005,
Lynch Corporation entered into a Letter Agreement extending the maturity date of
its Promissory Note in the principal amount of $700,000 to Venator. The maturity
date of the Promissory Note, which was to have been September 11, 2005 or within
seven days after  demand by Venator,  was changed to November 10, 2005 or within
seven days after demand by Venator. The loan was approved by the Audit Committee
of the Board of  Directors of Lynch.  This loan,  along with $30,000 of interest
due, was repaid in full on December 22, 2005.

     On September 30, 2005,  Mtron/PTI  entered into a Loan  Agreement  with RBC
Centura Bank ("RBC").  The Loan  Agreement  provides 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,  Mtron/PTI  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.

     Effective October 6, 2005, Lynch Systems entered into a loan agreement (the
"BB&T Loan Agreement") with Branch Banking and Trust Company ("BB&T").  The BB&T
Loan Agreement  provides for a line of credit in the maximum principal amount of
$3,500,000. This line of credit replaces the working capital revolving loan that
Lynch  Systems had with SunTrust  Bank,  which expired by its terms on September
30, 2005.  Borrowings  under the BB&T Loan  Agreement  bear  interest at the One
Month LIBOR Rate plus 2.75% and accrued  interest is payable on a monthly basis,
with the principal  balance due to be paid on the first  anniversary of the Loan
Agreement.  At December 31, 2005,  there were  outstanding  Letters of Credit of
$398,000 and borrowings on the line of credit of $756,000.

     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 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

                                       25

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 2006. (See Note 4 to the Consolidated  Financial  Statements - "Notes Payable
to Banks and Long-term Debts" - for restrictions on the company's assets).

OFF-BALANCE SHEET ARRANGEMENTS

     Aside  from the  Company's  stand-by  Letter  of  Credit  in the  amount of
$650,000, the Company does not have any off-balance sheet arrangements.

AGGREGATE CONTRACTUAL OBLIGATIONS

     Details of the Company's contractual  obligations at December 31, 2005, for
short-term  debt,  long-term  debt,  leases,   purchases  and  other  long  term
obligations  are as follows  (see Notes 4 and 11 to the  Consolidated  Financial
Statements):

                                  PAYMENTS DUE BY PERIOD - INCLUDING INTEREST
                                  -------------------------------------------
                                                 (IN THOUSANDS)

                                             LESS THAN 1                                    MORE THAN 5
CONTRACTUAL OBLIGATIONS            TOTAL        YEAR         1 - 3 YEARS    3 - 5 YEARS         YEARS
-------------------------       ----------   -----------     -----------    -----------     -----------
Short-term Debt                 $   3,042    $    3,042      $       --      $      --       $      --
Long-term Debt Obligations          7,591         1,615           3,062          2,914              --
Capital Lease Obligations              --            --              --             --              --
Operating Lease Obligations           264           141             120              3              --
Purchase Obligations                   --            --              --             --              --
Other Long-term Liabilities            --            --              --             --              --
                                ----------   -----------     ----------    ------------     ----------
         TOTAL                  $  10,897    $    4,798      $    3,182      $   2,917       $      --
                                ==========   ===========     ==========    ============     ==========

CRITICAL ACCOUNTING POLICIES

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

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

     ACCOUNTS RECEIVABLE

     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

                                       26

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.

     INVENTORY VALUATION

     Inventories  are stated at the lower of cost or market  value.  Inventories
valued using the last-in-first-out (LIFO) method comprised approximately 52% and
47% of consolidated inventories at December 31, 2005 and 2004, respectively. The
balance of  inventories  at  December  31,  2005 and 2004 are  valued  using the
first-in-first-out  (FIFO) method.  If actual market conditions are more or less
favorable than those projected by management, adjustments may be required.

     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, 2005 and
2004, unbilled accounts receivable were $902,000 and $2,507,000, 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.

                                       27

                                                                                                 (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
                                                                                                     =======
     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, 2005 and
December  31,  2004,  a  valuation   allowance  of  $2,212,000  and  $2,070,000,
respectively, was recorded.

     The carrying  value of the Company's net deferred tax asset at December 31,
2005 and 2004 of $111,000, 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.

     EARNINGS PER SHARE AND STOCK BASED COMPENSATION

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

     At December 31, 2005, the Company has a stock-based  employee  compensation
plan,  which is described in Note 9 to the Consolidated  Financial  Statements -
"Stock Options Plans".  The Company  accounts for the plan under the recognition
and  measurement  principles  of  Accounting  Principles  Board  Opinion No. 25,
"Accounting  for Stock Issued to  Employees,"  and related  Interpretations.  No
stock-based  employee  compensation  cost is  reflected  in net  income,  as all
options  granted  under those  plans had an  exercise  price equal to the market
value of the underlying  common stock on the date of grant. The Company provides
pro forma  disclosures of the  compensation  expense  determined  under the fair
value  provisions of Financial  Accounting  Standards  Board  Statement No. 123,
"Accounting for Stock-Based Compensation." See Notes 1 and 9 to the Consolidated
Financial Statements.

     RECENT ISSUED ACCOUNTING PRONOUNCEMENTS

     In December 2004, the FASB issued SFAS No. 123 (Revised 2004), "Share-Based
Payment"  ("SFAS  123-R"),   which  replaces  SFAS  No.  123,   "Accounting  for
Stock-Based  Compensation"  ("SFAS  123") and  supersedes  APB  Opinion  No. 25,
"Accounting  for Stock Issued to Employees."  SFAS 123-R  requires  companies to
measure  compensation  costs for  share-based  payments to employees,  including
stock  options,  at fair value and expense  such  compensation  over the service
period  beginning  with the first  interim or annual period after June 15, 2005.
The pro forma disclosures  previously permitted under SFAS 123 will no longer be
an alternative to financial  statement  recognition.  The Company is required to
adopt  SFAS  123-R in the  third  quarter  of fiscal  2005.  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. The transition methods include
prospective  and  retroactive  adoption  options.  Management is evaluating  the
requirements  of SFAS 123-R.  Since the Company  currently has no unvested stock
options  outstanding,  the impact of adopting  SFAS 123-R will have no effect on
the Company's financial results for 2005.

     In  November  2004,  the FASB issued SFAS No.  151,  "Inventory  Costs,  an
amendment of Accounting  Research  Bulletin No. 43,  Chapter 4". The  amendments
made by SFAS No. 151 clarify that  abnormal  amounts of idle  facility  expense,
freight  handling costs and waste materials  (spoilage)  should be recognized as
current period charges and require the allocation of fixed production  overheads
to inventory based on the normal capacity of the production facilities. SFAS No.
151 is the result of a broader  effort by the FASB to improve the  comparability
of cross-border financial reporting by working with the International Accounting
Standards Board toward  development of a single set of  high-quality  accounting
standards.  The guidance is effective for inventory costs incurred during fiscal
years  beginning  after  June 15,  2005.  The  adoption  of SFAS No.  151 is not
expected to have a material  effect on our  consolidated  financial  position or
results of operations.

                                       28

     In May 2005,  the FASB issued SFAS No. 154,  "Accounting  Changes and Error
Corrections - A Replacement  of APB Opinion No. 20 and FASB No. 3." SFAS No. 154
applies  to  all  voluntary  changes  in  accounting   principals  and  requires
retrospective  application to prior periods' financial  statements of changes in
accounting principles, unless it is impracticable,  SFAS No. 154 requires that a
change in  depreciation,  amortization,  or  depletion  method  for long  lived,
nonfinancial  assets be  accounted  for as a change of  estimate  affected  by a
change in  accounting  principles.  SFAS No. 154 also  carries  forward  without
change the guidance in APB Opinion No. 20 with respect to accounting for changes
in  accounting  estimates,  changes in the reporting  unit and  correction of an
error in previously issued financial  statements.  We are required to adopt SFAS
No. 154 for  accounting  changes and  corrections of errors made in fiscal years
beginning  after December 15, 2005. The adoption of SFAS No. 154 is not expected
to have a material effect on our consolidated  financial  position or 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
(approximately  $6,162,000 at December 31, 2005). The Company generally finances
the debt portion of the acquisition of long-term  assets with fixed and variable
rate, long-term debt. The Company does not use derivative financial  instruments
for trading or speculative purposes. Management does not foresee any significant
changes in the strategies  used to manage interest rate risk in the near future,
although the strategies may be reevaluated as market conditions  dictate.  There
has been no significant change in market risk since December 31, 2005.

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

     At December 31, 2005,  $4,906,000 of the Company's  debt bears  interest at
variable rates. Accordingly,  the Company's earnings and cash flows are affected
by changes in interest  rates.  In October 2005, in connection with the RBC Term
Loan,  Mtron/PTI 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,  effectively
reducing the variable rate debt to $4,906,000, from $7,936,000.

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

     There have been no changes in the 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.

                                       29

                                    PART III

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 2006 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 2006 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 2006  Annual  Meeting  of
Shareholders, which information is incorporated herein by reference.

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this Item 13 is included in the Company's Proxy
Statement for its 2006 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 2006 Annual  Meeting of  Shareholders,  which  information  is
incorporated herein by reference.

                                    PART IV

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, 2005 and 2004
               Consolidated  Statements of Operations -- Years ended December
               31, 2005, 2004 and 2003
               Consolidated  Statements  of Shareholders' Equity --
               Years ended December 31, 2005,  2004, and 2003
               Consolidated Statements of Cash Flows -- Years ended
               December  31,  2005,  2004,  and 2003
               Notes  to  Consolidated Financial Statements

       (2)  Financial  Statement  Schedules  as of December 31, 2005 and 2004
            and for the three years ended December 31, 2005:

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

                                       30

       (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.

                                  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)    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)  Lynch  Corporation  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)    Lynch  Corporation  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)    Amended and Restated Credit Agreement by and between Lynch Systems,  Inc.
       and SunTrust Bank dated as of June 10, 2002 (incorporated by reference to
       Exhibit 10(z) to the Company's  Form 10-K for the year ended December 31,
       2002).
(e)    Unlimited Continuing Guaranty Agreement by Guarantor,  Lynch Corporation,
       dated June 10, 2002  (incorporated  by reference to Exhibit 10(aa) to the
       Company's Form 10-K for the year ended December 31, 2002).
(f)    First  Amendment  and Waiver to Amended  and  Restated  Credit  Agreement
       between  Lynch  Systems,  Inc.  and  SunTrust  Bank  dated  May 30,  2003
       (incorporated  by reference to Exhibit  10(ee) to the Company's Form 10-Q
       for the period ending June 30, 2003).
(g)    Term Loan Promissory  Note between Lynch Systems,  Inc. and SunTrust Bank
       dated August 4, 2003  (incorporated by reference to Exhibit 10(ff) to the
       Company's Form 10-Q for the period ending June 30, 2003).
(h)    Second  Amendment  to Security  Deed and  Agreement  dated August 4, 2003
       between Lynch Systems,  Inc. and SunTrust Bank (incorporated by reference
       to Exhibit  10(gg) to the Company's  Form 10-Q for the period ending June
       30, 2003).
(i)    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).
(j)    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).
(k)    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).
(l)    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).
(m)    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).

                                       31

(n)    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).
(o)    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).
(p)    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).
(q)    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).
(r)    Form of  Indemnification  Agreement  dated as of February 28, 2005 by and
       between Lynch Corporation 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).
(s)    Promissory Note made by Lynch Corporation to Venator Merchant Fund, L.P.,
       dated May 12, 2005 (incorporated  herein by reference to Exhibit 10.1 the
       Company's  Current  Report on Form 8-K filed on May 16, 2005).
(t)    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).
(u)    Letter  Agreement,   dated  September  8,  2005,  by  and  between  Lynch
       Corporation and Venator Merchant Fund L.P. extending the maturity date of
       the promissory note in favor of Venator Merchant Fund L.P.  (incorporated
       herein by reference to Exhibit 10.1 to the  Company's  Current  Report on
       Form 8-K filed on September 9, 2005).
(v)    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).
(w)    Unconditional  Guaranty for Payment by and between Lynch  Corporation 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).
(x)    Loan Agreement, by and among Lynch Corporation,  Lynch Systems and Branch
       Bank and Trust Company,  dated September 29, 2005,  effective  October 6,
       2005  (incorporated  herein by reference to Exhibit 10.1 to the Company's
       Current Report on Form 8-K on October 11, 2005).
(y)    Guaranty  Agreement  for Payment  and  Performance  by and between  Lynch
       Corporation and Branch Bank and Trust Company,  dated September 29, 2005,
       effective  October 6, 2005  (incorporated  herein by reference to Exhibit
       10.2 to the  Company's  Current  Report on Form 8-K filed on October  11,
       2005).

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.

                                       32

     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. Lynch
Corporation  will furnish to each of its shareholders a copy of any such Exhibit
for a fee equal to Lynch Corporation's cost in furnishing such Exhibit. Requests
should be  addressed  to the Office of the  Secretary,  Lynch  Corporation,  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  Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                    LYNCH CORPORATION

March 28, 2006                       BY:  /S/  JOHN C. FERRARA
                                          --------------------------------------
                                          JOHN C. FERRARA
                                          CHIEF EXECUTIVE OFFICER
                                          (PRINCIPAL 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 Company
and in the capacities and on the dates indicated:

                    SIGNATURE                                         CAPACITY                             DATE

               /s/ JOHN C. FERRARA                         Principal Executive Officer and            March 28, 2006
--------------------------------------------------                   Director
                 JOHN C. FERRARA

                /s/ MARC GABELLI                         Chairman of the Board of Directors           March 28, 2006
--------------------------------------------------                  and Director
                  MARC GABELLI

               /s/ E. VAL CERUTTI                                     Director                        March 28, 2006
--------------------------------------------------
                 E. VAL CERUTTI

                 /s/ AVRUM GRAY                                       Director                        March 28, 2006
--------------------------------------------------
                   AVRUM GRAY

            /s/ ANTHONY R. PUSTORINO                                  Director                        March 28, 2006
--------------------------------------------------
              ANTHONY R. PUSTORINO

                /s/ EUGENE HYNES                     Principal Financial and Accounting Officer       March 28, 2006
--------------------------------------------------
                  EUGENE HYNES

                                       34

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors
Lynch Corporation

     We have  audited  the  accompanying  consolidated  balance  sheets of Lynch
Corporation  and  subsidiaries as of December 31, 2005 and 2004, and the related
consolidated statements of operations,  shareholders' equity, and cash flows for
each of the three years in the period ended  December 31, 2005.  Our audits also
included the financial  statement  schedules  listed in the index at Item 15(a).
These financial statements and schedules are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and schedules based on our audits.

     We  conducted  our audits in  accordance  with 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
audit 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.  An audit
also includes 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 consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
Lynch  Corporation  and  subsidiaries  at  December  31,  2005  and 2004 and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period  ended  December  31, 2005,  in  conformity  with U.S.
generally  accepted  accounting  principles.  Also, in our opinion,  the related
financial  statements  schedules,  when  considered  in  relation  to the  basic
financial  statements taken as a whole, present fairly in all material respects,
the information set forth therein.

                                                 /s/ ERNST & YOUNG LLP

Providence, Rhode Island
March 20, 2006

                                       35

                       LYNCH CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

                                                                                                   DECEMBER 31,

                                                                                                2005         2004

ASSETS

Current Assets:

   Cash and cash equivalents..........................................................       $     5,512  $     2,580
   Restricted cash (Note 1)...........................................................               650        1,125
   Investments - marketable securities (Note 1).......................................             2,738        3,609
   Accounts receivable, less allowances of $325 and $92, respectively (Note 1)........             7,451        6,360
   Unbilled accounts receivable (Note 1)..............................................               902        2,507
   Inventories (Note 3)...............................................................             7,045        7,852
   Deferred income taxes..............................................................               111          111
   Prepaid expense....................................................................               461          626
                                                                                             -----------  -----------
      Total Current Assets............................................................            24,870       24,770
Property, Plant and Equipment
   Land ..............................................................................               855          871
   Buildings and improvements.........................................................             5,767        5,811
   Machinery and equipment............................................................            14,606       14,443
                                                                                             -----------  -----------
                                                                                                  21,228       21,125
   Less: Accumulated depreciation.....................................................           (14,025)     (12,669)
                                                                                             -----------  -----------
                                                                                                   7,203        8,456
 Other assets.........................................................................               591          657
                                                                                             -----------  -----------
      Total Assets....................................................................       $    32,664  $    33,883
                                                                                             ===========  ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
   Notes payable to banks.............................................................       $     2,838  $     5,557
   Trade accounts payable.............................................................             2,900        2,667
   Accrued warranty expense...........................................................               357          466
   Accrued compensation expense.......................................................             1,372        1,101
   Accrued income taxes...............................................................               673          966
   Accrued professional fees..........................................................               574          534
   Margin liability on marketable securities..........................................               330        1,566
   Other accrued expenses.............................................................             1,312        1,139
   Commitments and contingencies (Note 11)............................................               859          775
   Customer advances..................................................................               515        2,115
   Current maturities of long-term debt...............................................             1,215        3,842
                                                                                             -----------  -----------
      Total Current Liabilities.......................................................            12,945       20,728
 Long-term debt.......................................................................             5,031        3,162
      Total Liabilities...............................................................            17,976       23,890
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           16
   Additional paid-in capital.........................................................            21,053       17,404
   Accumulated deficit................................................................            (6,576)      (7,786)
   Accumulated other comprehensive income (Note 9)....................................               835          849
   Treasury stock, at cost, of 33,808 and 17,708 shares, respectively.................              (646)        (490)
                                                                                             -----------  -----------
      Total Shareholders' Equity......................................................            14,688        9,993
                                                                                             -----------  -----------
      Total Liabilities and Shareholders' Equity......................................       $    32,664  $    33,883
                                                                                             ===========  ===========

                                SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                      36

                       LYNCH CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

                                                                                    YEARS ENDED DECEMBER 31,
                                                                            ----------------------------------------
                                                                                 2005         2004          2003
                                                                            ------------- ------------- ------------
REVENUES                                                                    $    46,183   $    33,834   $    27,969
Costs and expenses:

   Manufacturing cost of sales                                                   31,448        25,784        20,319
   Selling and administrative                                                    13,407        10,163         8,482
   Litigation provision (Note 11)                                                   150           775            --
                                                                            ------------- ------------- ------------
OPERATING PROFIT (LOSS)                                                           1,178        (2,888)         (832)
Other income (expense):
   Investment income                                                                608            15           534
   Interest expense                                                                (847)         (360)         (282)
   Other income                                                                      62             7           763
                                                                            ------------- ------------- ------------
                                                                                   (177)         (338)        1,015
                                                                            ------------- ------------- ------------
INCOME (LOSS) BEFORE INCOME TAXES                                                 1,001        (3,226)          183
Benefit (Provision) for income taxes                                                209          (100)          (73)
                                                                            ------------- ------------- ------------
NET INCOME (LOSS)                                                           $     1,210   $    (3,326)  $       110
                                                                            ============= ============= ============
Weighted average shares outstanding                                           1,647,577     1,524,863     1,497,900
                                                                            ------------- ------------- ------------
Basic and diluted income (loss) per share                                   $      0.73   $     (2.18)  $      0.07
                                                                            ============= ============= ============

                          SEE ACCOMPANYING NOTES TO CONSOLIDATING FINANCIAL STATEMENTS.

                                                      37

                                                               LYNCH CORPORATION 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
                                   ===============================================================================================

                                                        SEE ACCOMPANYING NOTES TO CONSOLIDATING FINANCIAL STATEMENTS.

                                                                                  38

                       LYNCH CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (IN THOUSANDS)

                                                                                YEARS ENDED DECEMBER 31,
                                                                           -------------------------------
                                                                              2005      2004       2003
                                                                           --------   --------   --------
OPERATING ACTIVITIES

Net income (loss)                                                          $ 1,210    $(3,326)   $   110
Adjustments to reconcile net income (loss) to net cash provided by (used
   in) operating activities:

Depreciation                                                                 1,398        980        982
Amortization of definite-lived intangible assets                               111        187        257
(Gain) loss on disposal of fixed assets                                        (69)        47         --
Gain realized on sale of marketable securities                                (567)        --       (483)
Lawsuit settlement provision                                                   150        775         --
Deferred taxes                                                                  --         (6)       150
Other                                                                           --         --        (22)
Changes in operating assets and liabilities:
   Receivables                                                                 514     (1,505)    (2,273)
   Inventories                                                                 807       (456)       503
   Accounts payable and accrued liabilities                                    249       (198)     1,617
   Other assets/liabilities                                                 (1,520)     1,592     (1,385)
                                                                           -------    -------    -------
Net cash provided by (used in) operating activities                          2,283     (1,910)      (544)

INVESTING ACTIVITIES

Capital expenditures                                                          (343)      (440)      (141)
Restricted cash                                                                475         --         --
Acquisition, net of cash acquired (See Note 2)                                  --     (7,348)        --
Proceeds from sale of  marketable securities                                 1,348         --      1,041
Proceeds from sale of fixed assets                                             307         --         --
Payment on margin liability on marketable securities                        (1,236)      (300)      (454)
Purchase of marketable securities                                               --       (754)    (1,565)
                                                                           -------    -------    -------
Net cash provided by (used in) investing activities                            551     (8,842)    (1,119)

FINANCING

Net (repayments) borrowings of notes payable                                (2,719)     3,581       (252)
Repayment of long--term debt                                                  (758)      (972)      (884)
Proceeds from long--term debt                                                   --      5,000        794
Issuance of common stock, net of fees                                        3,655      1,760         --
Purchase of treasury stock                                                    (156)       (32)        --
Other                                                                           76         14         --
                                                                           -------    -------    -------

Net cash provided by (used in) financing activities                             98      9,351       (342)
Increase (decrease) in cash and cash equivalents                             2,932     (1,401)    (2,005)
                                                                           -------    -------    -------
Cash and cash equivalents at beginning of year                               2,580      3,981      5,986
                                                                           -------    -------    -------
Cash and cash equivalents at end of year                                   $ 5,512    $ 2,580    $ 3,981
                                                                           =======    =======    =======

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

   Interest Paid                                                           $   772    $   343    $   282
                                                                           =======    =======    =======

                 SEE ACCOMPANYING NOTES TO CONSOLIDATING FINANCIAL STATEMENTS

                                       39

                       LYNCH CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 2005

1.  ACCOUNTING AND REPORTING POLICIES

     ORGANIZATION

     Lynch  Corporation  (the  "Company"  or "Lynch") is a  diversified  holding
company  with  subsidiaries  engaged in  manufacturing  primarily  in the United
States.  The  Company  has  three  principal   operating   subsidiaries   M-tron
Industries,  Inc. ("Mtron"), Piezo Technology,  Inc. ("PTI") (acquired effective
September  30,  2004) and Lynch  Systems,  Inc ("Lynch  Systems").  The combined
operations of Mtron and PTI are referred to herein as Mtron/PTI.  Information on
the Company's  operations by segment and geographic  area is included in Note 12
-- "Segment Information".

     As of December 31, 2005, the Subsidiaries of the Company are as follows:

                                                            OWNED BY
                                                              LYNCH
                                                            ---------
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  Lynch
Corporation  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.

     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,  2005  and  2004,   assets  of  $47,000  and   $145,000,
respectively, which are classified as cash and cash equivalents, are invested in
United States  Treasury  money market funds for which  affiliates of the Company
serve as investment managers to the respective funds.

                                       40

     RESTRICTED CASH

     At December 31, 2005 and 2004,  the Company had  $650,000  and  $1,125,000,
respectively,  of restricted  cash that secures a letter of credit issued to the
Bank of Omaha as collateral for Mtron's loans.  (See Note 4 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).  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.

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

                                             GROSS          GROSS
                                          UNREALIZED     UNREALIZED      ESTIMATED
 EQUITY SECURITIES            COST           GAINS         LOSSES       FAIR VALUE
------------------           ------          -----         ------       ----------
December 31, 2005            $1,991          $747             --           $2,738
December 31, 2004            $2,774          $835             --           $3,609

     The Company has a margin  liability  against these  investments of $330,000
and  $1,566,000  as of December  31, 2005 and 2004,  respectively,  that must be
settled  upon the  disposition  of the related  securities,  whose fair value is
based on quoted market prices.

     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.

     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.

                                       41

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.

     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, 2005 and
2004, unbilled accounts receivable were $902.000 and $2,507,000, 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,  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.

     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, 2004                                   $ 585
          Warranties issued during the year                            369
          Settlements made during the year                            (460)
          Changes in liabilities for pre-existing warranties
              during the year, including expirations                   (28)
                                                                     ------
          Balance, December 31, 2004                                   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
                                                                     ======

                                       42

     RESEARCH AND DEVELOPMENT COSTS

     Research and development costs are charged to operations as incurred.  Such
costs  were  $2,505,000,  $1,193,000  and  $745,000  in 2005,  2004,  and  2003,
respectively.

     ADVERTISING EXPENSE

     Advertising  costs are charged to operations  as incurred.  Such costs were
$181,000, $183,000 and $136,000, in 2005, 2004 and 2003, respectively.

     EARNINGS PER SHARE AND STOCK BASED COMPENSATION

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

     At December 31, 2005, the Company has a stock-based  employee  compensation
plan that is  described  in Note 6 to the  Consolidated  Financial  Statements -
"Stock Option Plans".  The Company  accounts for the plan under the  recognition
and  measurement  principles  of  Accounting  Principles  Board  Opinion No. 25,
"Accounting  for Stock Issued to  Employees,"  and related  Interpretations.  No
stock-based  employee  compensation  cost is  reflected  in net  income,  as all
options  granted  under those  plans had an  exercise  price equal to the market
value of the underlying  common stock on the date of grant. The Company provides
pro forma  disclosures of the  compensation  expense  determined  under the fair
value  provisions  of  Statement  of  Financial  Accounting  Standards  No. 123,
"Accounting for Stock-Based Compensation."

     For  purposes of pro forma  disclosures,  the  estimated  fair value of the
options is amortized to expense over the options' vesting period.  The Company's
pro forma information follows:

                                                                         (IN THOUSANDS EXCEPT
                                                                        PER SHARE INFORMATION)
                                                                --------------------------------------
                                                                             DECEMBER 31,
                                                                --------------------------------------
                                                                   2005          2004          2003
                                                                ----------   ------------   ----------
       Net (loss) income as reported                            $   1,210    $   (3,326)    $     110
       Deduct: Total stock-based employee compensation
           expense determined under fair value based method
           for all awards, net of related tax effect                   --           (52)         (154)
                                                                ----------    -----------   ----------
       Pro forma net (loss) income                              $   1,210    $   (3,378)    $     (44)
                                                                ==========   ===========    ==========

       Basic and diluted (loss) earnings per share:

       As reported                                              $    0.73    $    (2.18)    $    0.07
       Pro forma                                                $    0.73    $    (2.22)    $   (0.03)

     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.

     CONCENTRATION OF CREDIT RISK

     In 2005,  an  electronics  manufacturing  services  company  accounted  for
approximately  14% of Mtron/PTI's  revenues,  compared to approximately  18% for
Mtron/PTI's  largest customer in 2004. No other customer accounted for more than
10% of its 2005  revenues.  Sales to its ten  largest  customers  accounted  for
approximately 63% of revenues in 2005,  compared to approximately 48% and 40% of
revenues for 2004 and 2003, respectively.

     Lynch   Systems'  sales  to  its  ten  largest   customers   accounted  for
approximately 79% and 80% of its revenues in 2005 and 2004, respectively.  Lynch
Systems' sales to its largest customer  accounted for approximately 46%, 36% and

                                       43

27% of its  revenues  in 2005,  2004 and 2003,  respectively.  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 2005,  approximately  14% of  Mtron/PTI'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 Mtron/PTI's  revenues in 2006 and a material
portion of Mtron/PTI's  revenues for the next several years.  Mtron/PTI 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,  Mtron/PTI  would have to identify  and  qualify  acceptable
replacement  manufacturers  or  manufacture  the  products  internally.  Due  to
specific  product  knowledge and process  capability,  Mtron/PTI 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, Mtron/PTI's relationship with this manufacturer,  may adversely
affect Mtron/PTI'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 12 to
the Consolidated Financial Statements - "Segment Information" - for the detailed
presentation of 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.

     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

     The Company  presently  guarantees  (unsecured)  the SunTrust Bank and BB&T
loans of Lynch  Systems.  As of December 31, 2005,  there were no obligations to
SunTrust Bank or BB&T. The Company also presently guarantees (unsecured) the RBC
loan of Mtron/PTI. As of December 31, 2005, there were no obligations to the RBC

                                       44

Centura Bank.  The Company has  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 has  guaranteed  a Letter of Credit
issued to the First  National Bank of Omaha on behalf of its  subsidiary,  Mtron
(see Note 4 to the Consolidated  Financial  Statements - "Notes Payable to Banks
and  Long-term  Debt").  These  guarantees  are subject  only to the  disclosure
requirements of the Financial  Accounting  Standards Board Interpretation No. 45
"Guarantors  Accounting and Disclosure  Requirements  for Guarantors,  Including
Indirect  Guarantees of  Indebtedness  of Others".  As of December 31, 2005, the
$650,000  Letter of Credit issued by Bank of America to The First  National Bank
of Omaha was secured by a $650,000 deposit at Bank of America.  (See "Restricted
Cash" included in Note 1 to the Consolidated Financial Statements.)

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

     RECENT ISSUED ACCOUNTING PRONOUNCEMENTS

     In December 2004, the FASB issued SFAS No. 123 (Revised 2004), "Share-Based
Payment"  ("SFAS  123-R"),   which  replaces  SFAS  No.  123,   "Accounting  for
Stock-Based  Compensation"  ("SFAS  123") and  supersedes  APB  Opinion  No. 25,
"Accounting  for Stock Issued to Employees."  SFAS 123-R  requires  companies to
measure  compensation  costs for  share-based  payments to employees,  including
stock  options,  at fair value and expense  such  compensation  over the service
period  beginning  with the first  interim or annual period after June 15, 2005.
The pro forma disclosures  previously permitted under SFAS 123 will no longer be
an alternative to financial  statement  recognition.  The Company is required to
adopt SFAS 123-R  beginning  January 1, 2006.  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.  The  transition  methods  include
prospective and retroactive adoption options. Since the Company currently has no
unvested stock options outstanding,  the impact of adopting SFAS 123-R will have
no current effect on the Company's financial results.

     In  November  2004,  the FASB issued SFAS No.  151,  "Inventory  Costs,  an
amendment of Accounting  Research  Bulletin No. 43,  Chapter 4". The  amendments
made by SFAS No. 151 clarify that  abnormal  amounts of idle  facility  expense,
freight  handling costs and waste materials  (spoilage)  should be recognized as
current period charges and require the allocation of fixed production  overheads
to inventory based on the normal capacity of the production facilities. SFAS No.
151 is the result of a broader  effort by the FASB to improve the  comparability
of cross-border financial reporting by working with the International Accounting
Standards Board toward  development of a single set of  high-quality  accounting
standards.  The guidance is effective for inventory costs incurred during fiscal
years  beginning  after  June 15,  2005.  The  adoption  of SFAS No.  151 is not
expected to have a material  effect on our  consolidated  financial  position or
results of operations.

     In May 2005,  the FASB issued SFAS No. 154,  "Accounting  Changes and Error
Corrections - a Replacement  of APB Opinion No. 20 and FASB No. 3." SFAS No. 154
applies  to  all  voluntary  changes  in  accounting   principles  and  requires
retrospective  application to prior periods' financial  statements of changes in
accounting principles, unless it is impracticable.  SFAS No. 154 requires that a
change in  depreciation,  amortization,  or  depletion  method  for long  lived,
nonfinancial  assets be  accounted  for as a change of  estimate  affected  by a
change in  accounting  principles.  SFAS No. 154 also  carries  forward  without
change the guidance in APB Opinion No. 20 with respect to accounting for changes
in  accounting  estimates,  changes in the reporting  unit and  correction of an
error in previously issued financial  statements.  We are required to adopt SFAS
No. 154 for  accounting  changes and  corrections of errors made in fiscal years
beginning  after December 15, 2005. The adoption of SFAS No. 154 is not expected
to have a material effect on our consolidated  financial  position or results of
operations.

2.  ACQUISITIONS

     On October  15,  2004,  the  Company  acquired,  through  its  wholly-owned
subsidiary,  Mtron,  100% of the  common  stock  of  PTI.  The  acquisition  was
effective September 30, 2004. PTI manufactures and markets high-end oscillators,
crystals,  resonators and filters used in electronic and communications systems.
The purchase price was approximately $8,736,000 (before deducting cash acquired,
and before adding  acquisition  costs and transaction  fees). The Company funded
the purchase price by (a) new notes payable and long-term debt of $6,936,000 and

                                       45

(b)  proceeds  of  $1,800,000  received  from the sale of Lynch Stock to Venator
Merchant Fund ("Venator"),  which is controlled by the Company's Chairman,  Marc
Gabelli.

     The following is the allocation of the purchase price to the estimated fair
value of assets acquired and liabilities  assumed for the PTI  acquisition.  The
allocation is based on  management's  estimates,  including the valuation of the
fixed and intangible assets by independent third-party appraisers.

                                                                  (IN THOUSANDS)

ASSETS:

Cash............................................................  $       1,389
Accounts receivable.............................................          1,565
Inventories.....................................................          2,485
Prepaid expenses and other current assets.......................            853
Property and equipment..........................................          4,871
Intangible assets...............................................            688
Other assets....................................................             54
                                                                  -------------
Total assets acquired...........................................         11,905
                                                                  -------------
LIABILITIES:
-----------
Accounts payable................................................            556
Accrued expenses................................................          1,468
Debt assumed by the Company.....................................          1,145
                                                                  -------------
Total liabilities assumed.......................................          3,169
                                                                  -------------
Net assets acquired.............................................  $       8,736
                                                                  =============

     The  fair  market  value  of net  assets  acquired  in the PTI  acquisition
exceeded the purchase  price,  resulting in negative  goodwill of  approximately
$4,800,000.  In accordance with Statement of Financial  Accounting Standards No.
141 "Accounting for Business Combinations", this negative goodwill was allocated
back to PTI's non-current  assets,  resulting in a write-down in the fair market
value initially  assigned to property and equipment and intangible  assets.  The
adjusted intangible assets of $688,000 consist of customer relationships,  trade
name and funded  technologies,  and were  determined to have definite lives that
range from two to ten years.

3.  INVENTORIES

     Inventories  are stated at the lower of cost or market  value.  Inventories
valued using the last-in,  first-out (LIFO) method comprised  approximately  52%
and 47% of consolidated inventories at December 31, 2005 and 2004, respectively.
The balance of  inventories  at December  31, 2005 and 2004 are valued using the
first-in-first-out (FIFO) method.

                                                          DECEMBER 31,
                                                    ------------------------
                                                       2005            2004
                                                    ----------       --------
                                                           (IN THOUSANDS)

Raw materials and supplies.....................     $     2,817    $     2,308
Work in progress...............................           2,232          3,763
Finished goods.................................           1,996          1,781
                                                    -----------    -----------
   Total.......................................     $     7,045    $     7,852
                                                    ===========    ===========

     Current  cost  exceeded the LIFO value of  inventories  by  $1,075,000  and
$1,110,000 at December 31, 2005 and 2004, respectively.

                                       46

4.  NOTES PAYABLE TO BANKS AND LONG-TERM DEBT

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

                                                                                               DECEMBER 31,
                                                                                         ----------------------
                                                                                            2005         2004
                                                                                            ----         ----
Notes payable:                                                                                (IN THOUSANDS)
Mtron bank revolving loan (First National Bank of Omaha) at variable interest rates
   (greater of prime or 4.5%;   7.25% at December 31, 2005), due May 2006                $   2,082    $   3,557
Lynch Systems working capital revolving loan (BB&T) at variable interest rates,
   (One Month LIBOR + 2.75%), due October 2006                                                 756           --
Lynch Systems working capital revolving loan (SunTrust) at variable interest
   rates, (LIBOR + 2%)                                                                          --        2,000
                                                                                         ----------   ----------
                                                                                         $   2,838    $   5,557
                                                                                         ==========   ==========
Long-term debt:

Lynch Systems term loan (SunTrust) at a fixed interest rate of 6.5% at December
   31, 2005, due March 2006                                                              $     378    $     427
Mtron term loan (RBC) due October 2010.  The Company entered into a five-year
   interest rate swap to hedge the variable interest rate volatility.  Under the
   terms of the interest rate swap the variable interest Term Loan will be
   essentially converted to a 7.51% fixed rate loan.                                         3,030           --
Mtron term loan (First National Bank of Omaha) at variable interest rates
   (greater of prime plus 50 basis points or 4.5%; 7.75% at December 31, 2005),
   due October 2007                                                                          1,612        1,943
Mtron commercial bank term loan at variable interest rates (7.75% at December 31,
   2005), due April 2007                                                                       456          686
Yankton Area Progressive Growth loan, repaid in 2005                                             -           50
South Dakota Board of Economic Development at a fixed rate of 3%, due December
   2007                                                                                        262          273
Yankton Areawide Business Council loan at a fixed interest rate of 5.5%, due
   November 2007                                                                                74           83
Mtron bridge loan (First National Bank of Omaha), repaid in 2005                                 -        3,000
Rice University Promissory Note at a fixed interest rate of 4.5%, due August 2009              275          345
Smythe Estate Promissory Note at a fixed interest rate of 4.5% due August 2009                 159          197
                                                                                         ----------   ----------
                                                                                             6,246        7,004
Current maturities                                                                          (1,215)      (3,842)
                                                                                         ----------   ----------
                                                                                         $   5,031    $   3,162
                                                                                         ==========   ==========

     Lynch Systems and Mtron/PTI  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.  The Lynch
Systems  credit  facility  includes  an  unsecured  parent  Company   guarantee.
Mtron/PTI's  credit facility  includes an unsecured parent Company guarantee and
is  supported  by a  $650,000  Letter of Credit  that is  secured  by a $650,000
deposit at Bank of America.

     The Company is in compliance  with all financial  covenants at December 31,
2005.

     On June 30,  2005,  Mtron/PTI  renewed  its  credit  agreement  with  First
National  Bank of Omaha  extending the due date to May 31, 2006. At December 31,
2005,  Mtron/PTI's  short-term  credit  facility  totals  $5,500,000,  of  which
$3,418,000 was available under the line of credit.

                                       47

     Effective October 6, 2005, Lynch Systems entered into a loan agreement (the
"BB&T Loan Agreement") with Branch Banking and Trust Company ("BB&T").  The BB&T
Loan Agreement  provides for a line of credit in the maximum principal amount of
$3,500,000.  At December 31, 2005, there were  outstanding  Letters of Credit of
$398,000 and  $1,909,000  was available  under the line of credit.  This line of
credit replaces the working  capital  revolving loan that Lynch Systems had with
SunTrust Bank, which loan expired by its terms on September 30, 2005. Borrowings
under the BB&T Loan  Agreement  bear  interest  at the One Month LIBOR Rate plus
2.75% and accrued  interest is payable on a monthly  basis,  with the  principal
balance due to be paid on the first anniversary of the Loan Agreement.

     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.

     During 2005, the Company  executed  various  amendments and extensions with
one of  Lynch  Systems'  commercial  lenders,  SunTrust.  As a  result,  certain
required  repayments  were made on amounts  owed to  SunTrust,  and the expiring
working  capital  loan was not  renewed.  Additionally  it was  agreed  that the
Company's  remaining  obligation  to  SunTrust,  a  $378,000  term note would be
payable on March 1, 2006. This amount was repaid in full in February 2006.

     On September 30, 2005,  Mtron/PTI  entered into a Loan  Agreement  with RBC
Centura Bank ("RBC").  The Loan  Agreement  provides 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.
The RBC Term Loan is secured by a mortgage on PTI's premises. In connection with
this RBC Term Loan,  Mtron/PTI  entered into a five-year  interest  rate swap to
hedge the variable  interest  rate  volatility.  Under the terms of the interest
rate  swap,  the  variable  interest  rate RBC  Term  Loan  will be  essentially
converted to a 7.51% fixed rate loan. 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, 2005 is $1,563 which is included in other  accrued  liabilities  on
the balance sheet.  The charge is reflected within other  comprehensive  income,
net of tax.

     In connection with the completion of the acquisition of PTI, on October 14,
2004,  Mtron  and PTI,  each  wholly-owned  subsidiaries  of Lynch  Corporation,
entered  into a Loan  Agreement  with  First  National  Bank of Omaha.  The Loan
Agreement  provided for loans in the amounts of $2,000,000 (the "Term Loan") and
$3,000,000  (the "Bridge  Loan"),  together with a $5,500,000  Revolving Line of
Credit (the  "Revolving  Loan").  The Term Loan bears interest at the greater of
prime  rate  plus 50 basis  points,  or 4.5%,  and is to be  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.  The Bridge
Loan was  repaid in 2005 from  proceeds  received  from the RBC Term  Loan.  The
Revolving  Loan was renewed on June 30, 2005 as previously  discussed.  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.

     On May 12, 2005,  Venator  Merchant Fund, L.P.  ("Venator")  made a loan to
Lynch  Corporation  in the amount of $700,000 due  September  11, 2005 or within
seven days after demand by Venator. Venator is an investment limited partnership
controlled by Lynch's Chairman of the Board, Marc Gabelli. On September 8, 2005,
Lynch  Corporation  entered into a Letter Agreement  extending the maturity date

                                       48

this Note to November 10, 2005 or within seven days after demand by Venator. The
loan was  approved by the Audit  Committee  of the Board of  Directors of Lynch.
This loan was repaid in full in December, 2005, including interest of $30,000.

     The Company has  guaranteed a letter of credit issued to the First National
Bank of Omaha on behalf of its subsidiary, Mtron Industries, Inc. As of December
31, 2005,  the $650,000  letter of credit issued by Bank of America to The First
National Bank of Omaha was secured by a $650,000 deposit at Bank of America. The
Company's  outstanding  letter of credit was reduced from $1,000,000 to $650,000
during 2005.

     Both Mtron/PTI and Lynch Systems intend to renew the credit agreements that
expire  on May 31 and  October  1,  2006,  respectively,  with  their  incumbent
lenders.

     Aggregate principal  maturities of long-term debt for each of the next five
years are as follows:  2006 - $1,215,000;  2007 -  $1,932,000;  2008 - $198,000;
2009 - $167,000; and $2,735,000 in 2010.

5.  RELATED PARTY TRANSACTIONS

     TRANSACTIONS WITH CERTAIN AFFILIATED PERSONS

     On May 12, 2005,  Venator  Merchant Fund, L.P.  ("Venator")  made a loan to
Lynch  Corporation  in the amount of $700,000 due  September  11, 2005 or within
seven days after demand by Venator. Venator is an investment limited partnership
controlled by Lynch's Chairman of the Board, Marc Gabelli. On September 8, 2005,
Lynch Corporation entered into a Letter Agreement extending the maturity date of
this Note to November 10, 2005 or within seven days after demand by Venator. The
loan was  approved by the Audit  Committee  of the Board of  Directors of Lynch.
This loan was repaid in full in December, 2005, including interest of $30,000.

     Prior  to the  Company's  move to  Greenwich,  Connecticut,  the  principal
executive offices were located in Providence, Rhode Island and shared with Avtek
Inc.  ("Avtek") a private  holding  company which until  November 27, 2002,  was
co-owned by Mr.  Papitto,  the  Company's  former  Chairman and Chief  Executive
Officer, and Mr. Mario Gabelli,  the Company's former Vice Chairman.  During the
period  August,  2001 though  November  2004,  Avtek and the Company have shared
certain occupancy and salary expenses of individuals who performed  services for
both the Company  and Avtek.  The  Company's  paid share of such  occupancy  and
salary costs for 2004 was $433,625.

6.  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
vested in 2005, were  anti-dilutive and have lives of five years. As of December
31, 2005, options to purchase 300,000 shares are outstanding and fully vested.

     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  option  pricing  model with the  following
weighted-average assumptions: risk-free interest rate of 5.3%; dividend yield of
0.0%;  volatility  factors of the expected market price of the Company's  common
stock of .49 and  weighted-average  expected life of the option of 10 years. See
Note 1 to the Consolidated Financial Statements - "Basis of Presentation".

                                       49

7.  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 purchases in 2003.

     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.
Vested amounts are payable at the holder's  option in cash or equivalent  amount
of Mtron or Lynch Systems stock.  Expense  related to the SAR's was $18,000,  $0
and $70,000, in 2005, 2004 and 2003 respectively. 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, 2005 of $18,000.

8.  INCOME TAXES

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

     The Company has a $2,404,000 net operating loss ("NOL") carry-forward as of
December 31, 2005.  This NOL expires  through 2024 if not utilized prior to that
date.  The  Company  has  research  and  development  credit  carry-forwards  of
approximately  $357,000 at December  31, 2005 that can be used to reduce  future
income  tax  liabilities  and  expire  principally  between  2020 and  2024.  In
addition,  the Company has 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 2015.

     Deferred  income  taxes  for  2005  and  2004  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, 2005 and 2004 are as follows:

                                                       DECEMBER 31, 2005        DECEMBER 31, 2004
                                                     --------------------    ----------------------
                                                         DEFERRED TAX             DEFERRED TAX
                                                       ASSET     LIABILITY       ASSET    LIABILITY
                                                      --------  -----------    --------  -----------
                                                                    (IN THOUSANDS)

Inventory reserve................................      $  601    $    --          $  730   $    --
Fixed assets.....................................          --      1,448              --     1,729
Other reserves and accruals......................       2,163         --           1,509        --
Other............................................          --        547              --       253
Tax loss and other credit carry-forwards.........       1,554         --           1,924        --
                                                       -------    -------         -------  --------
Total deferred income taxes......................       4,318      1,995           4,163     1,982
                                                                                           ========
Valuation allowance..............................      (2,212)                    (2,070)
                                                       -------                   -------
                                                       $2,106                     $2,093
                                                       =======                   =======

                                       50

     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.  At December 31, 2004, the net
deferred  tax asset of $111,000  presented  in the  Company's  balance  sheet is
comprised  of  deferred  tax  assets  of  $2,093,000   offset  by  deferred  tax
liabilities of $1,982,000.  The carrying value of the Company's net deferred tax
asset at  December  31, 2005 and  December  31, 2004 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.

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

                                                            2005          2004         2003
                                                            ----          ----         ----
                                                                     (IN THOUSANDS)

     Current:

        Federal....................................        $ (484)        $  --       $(150)
        State and local............................            91            24          --
        Foreign....................................           184            82          73
                                                           -------        ------      ------
     Total Current.................................          (209)          106         (77)
                                                           -------        ------      ------
     Deferred:
        Federal....................................             --           --         150
        State and local............................             --           (6)         --
                                                           -------        ------      ------
     Total Deferred................................             --           (6)        150
                                                           -------        ------      ------
                                                           $ (209)        $ 100       $  73
                                                           =======        ======      ======

     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:

                                                            2005          2004         2003
                                                         --------      ----------   --------
                                                                     (IN THOUSANDS)

Tax (benefit) at statutory rate...................       $  340       $ (1,097)       $  62
Foreign tax rate differential.....................          (40)           (87)         (81)
State and local taxes, net of federal benefit.....           61              5           --
Foreign export sales benefit......................          (17)           (66)         (54)
Change in tax reserves............................         (484)            --           --
Valuation allowance...............................         (178)         1,245          139
Other.............................................          109            100            7
                                                         -------      ---------       ------
                                                         $ (209)      $    100        $  73
                                                         =======      =========       ======

     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.

     Profit before income taxes from foreign operations was $1,169,000, $499,000
and $452,000 in 2005,  2004, and 2003  respectively.  At December 31, 2005, U.S.
income taxes have been provided on  approximately  $2,430,000 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 $202,000,  $83,000 and
$261,000 for the years 2005, 2004 and 2003, respectively.  Income tax recoveries
were $532,000 in 2003 for tax loss carry-backs.

     The valuation  allowance increased from $2,070,000 in 2004 to $2,212,000 at
December 31, 2005.

                                       51

9.  ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

     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 PTI's foreign subsidiary.

     Total comprehensive income was $99,000 in the year ended December 31, 2003,
including  "other"  comprehensive  loss of  $11,000  for  unrealized  losses  on
available for sale securities.

     The components of accumulated other  comprehensive  income,  net of related
tax, at December 31, 2005, 2004, and 2003 are as follows:

                                                                          DECEMBER 31,
                                                               --------------------------------
                                                                  2005       2004        2003
                                                               ---------- -----------  --------
                                                                       (IN THOUSANDS)

Balance beginning of year.................................     $    849   $    291    $   302
Foreign currency translation..............................           75         14         --
Deferred loss on hedge contract...........................           (1)        --         --
Unrealized (loss ) gain on available for-sale securities..          (88)       544        (11)
                                                               ---------  ---------   --------
Accumulated other comprehensive income....................     $    835   $    849    $   291
                                                               =========  =========   ========

10.  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,
                                                               --------------------------------
                                                                  2005       2004        2003
                                                               --------- -----------  ---------
                                                                       (IN THOUSANDS)

Defined contribution total................................     $    187   $     90    $     48
                                                               ========   ========    ========

     Under the Lynch Systems and Mtron defined  contribution  plan,  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.

11.  COMMITMENTS AND CONTINGENCIES

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

IN RE: SPINNAKER COATING,  INC.,  DEBTOR/PACE LOCAL 1-1069 V. SPINNAKER COATING,
INC., AND LYNCH CORPORATION,  U.S. BANKRUPTCY COURT,  DISTRICT OF MAINE, CHAPTER

                                       52

11, ADV. PRO. NO. 02-2007,  AND PACE LOCAL 1-1069 V. LYNCH CORPORATION 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.

     In 2002,  both PACE and the  Company  moved  for  summary  judgment  in the
action.  On July 28,  2003,  the Court  issued an order  denying  the  Company's
motion,  finding that there remained a disputed issue of material fact regarding
one of the  Company's  primary  defenses.  The  Court  granted  partial  summary
judgment  in favor of PACE to the extent  that the Court  found that the Company
was the Spinnaker Entities "parent corporation" and, therefore,  the Company was
an "employer" subject to potential liability under Maine's Severance Pay Act.

     On November 3, 2004, the Superior  Court held that the Spinnaker  Entities'
bankruptcy  did not prevent the award of severance  pay under the  statute.  The
Superior  Court  granted  summary  judgment  to PACE on the second  count of its
complaint  based  on  its  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
Supreme  Court  issued its  decision,  the Company and PACE agreed to settle the
case.  The  settlement  includes  payment of a total of  $800,000 to resolve the
claims of 67 workers  who lost their jobs in 2001.  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 have been 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  complaint  was filed under seal in February
2001,  and the seal was lifted at the  initiative  of one of the  defendants  in
January 2002.  The Company was formally  served with the complaint in July 2002.
The  main  allegation  in the case is 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.  While the lawsuit seeks to recover an unspecified amount of
damages,  which would be subject to  mandatory  trebling  under the  statute,  a
report  prepared  for the  relator  (the  private  party who filed the action on
behalf of the United States) in February 2005 alleges  damages of  approximately
$91,000,000  in respect  of  "bidding  credits",  approximately  $70,000,000  in
respect of government  "financing" and approximately  $206,000,000 in respect of
subsequent resales of licenses, in each case prior to trebling. The liability is
alleged to be joint and several.  In September  2003,  the court  granted  Lynch
Interactive's  motion to  transfer  the action to the  Southern  District of New
York.

     In September 2004, the court issued a ruling denying  defendants' motion to
refer the issues in the action to the FCC.  In  December  2004,  the  defendants
filed a motion in the United States  District  Court in the District of Columbia
asking that court to compel the FCC to provide information subpoenaed by them to
enable them to conduct their  defense.  This motion was denied in May 2005,  and

                                       53

the defendants appealed. In February 2006, the defendants and the FCC reached an
agreement  granting   defendants   discovery  of  certain  documents  and  other
evidentiary  materials.  In November 2005, the court ruled that damages based on
profits from resales of licenses were not allowed under the False Claims Act.

     Initially,  in 2001, the  Department of Justice  notified the court that it
would not intervene in the case.  However,  in response to the judge's ruling in
November 2005 (described above), the DOJ recently, in March 2006, petitioned the
court to allow it to intervene. This petition is scheduled to be argued in April
2006.  The case had been  tentatively  scheduled  for trial in June 2006 but the
trial may be delayed due to the  government's  intervention  and related issues.
The  defendants  believe that the action is without merit and that the relator's
damage  computations  are  without  basis,  and  they  are  defending  the  suit
vigorously.  Under  the  separation  agreement  between  the  Company  and Lynch
Interactive  pursuant to which Lynch  Interactive  was spun-off to the Company's
shareholders  on  September  1, 1999,  Lynch  Interactive  would be obligated to
indemnify  the  Company  for any losses or damaged  incurred by the Company as a
result of this  action.  Lynch  Interactive  has agreed in writing to defend the
case on the Company's  behalf and to indemnify the Company for any losses it may
incur.  Nevertheless,  the Company  cannot  predict the ultimate  outcome of the
litigation,  nor can the  Company  predict  the effect  that the  lawsuit or its
outcome will have on the Company's business or plan of operation.

RENT EXPENSE

     Rent expense under operating leases was $291,000, $285,000 and $284,000 for
the years ended  December 31,  2005,  2004 and 2003,  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 and escalation provisions.

     Future minimum rental  payments under  long-term  non-cancelable  operating
leases subsequent to December 31, 2005 are as follows:

                                                    (in thousands)
           2006...................................        $141
           2007...................................          74
           2008...................................          29
           2009...................................          17
           2010 and thereafter....................           3

12.  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 Mtron/PTI. The Company's foreign operations in
Hong Kong and India exist under Mtron/PTI.

     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 $500,000 in 2005, $350,000 in 2004 and
$175,000 in 2003.  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.

                                       54

                                                             YEARS ENDED DECEMBER 31,
                                                    --------------------------------------
                                                           2005      2004         2003
                                                    ------------  -----------  -----------
                                                                (IN THOUSANDS)
REVENUES

Glass manufacturing equipment - USA                 $    1,992    $     1,114   $   3,677
Glass manufacturing equipment - Foreign                  9,140          9,307       9,109
                                                    ------------  ------------  -----------
Total glass manufacturing equipment                     11,132         10,421      12,786

Frequency control devices - USA                         19,078         12,096       7,282
Frequency control devices - Foreign                     15,973         11,317       7,901
                                                    ------------  ------------  -----------
Total frequency control devices                         35,051         23,413      15,183
                                                    ------------  ------------  -----------
Consolidated total revenues                         $   46,183    $    33,834   $  27,969
                                                    ============  ============  ===========

OPERATING PROFIT (LOSS)

Glass manufacturing equipment                       $      684    $    (1,340)  $     822
Frequency control devices                                2,306          1,012        (170)
                                                    ------------  ------------  -----------
Total manufacturing                                      2,990           (328)        652

Unallocated corporate expense                           (1,812)        (2,560)     (1,484)
                                                    ------------  ------------  -----------
Consolidated total operating profit (loss)          $    1,178    $    (2,888)  $    (832)

INCOME (LOSS) BEFORE INCOME TAXES

Investment income                                   $      608    $        15   $     534
Interest expense                                          (847)          (360)       (282)
Other income (expense)                                      62              7         763
                                                    ------------  ------------  -----------
Consolidated income (loss) before income taxes      $    1,001    $    (3,266)  $     183
                                                    ============  ============   ==========
CAPITAL EXPENDITURES

Glass manufacturing equipment                       $       32    $        97    $      74
Frequency control devices                                  310            326           67
General corporate                                            1             17           --
                                                    ------------  ------------   ----------
Consolidated total capital expenditures             $      343    $       440    $     141
                                                    ============  ============   ==========

TOTAL ASSETS

Glass manufacturing equipment                       $    8,096    $    10,832    $ 12,207
Frequency control devices                               17,589         17,417       7,860
General corporate                                        6,979          5,634       2,952
                                                    ------------  ------------   ----------
Consolidated total assets                           $   32,664    $    33,883    $ 23,019
                                                    ============  ============   ==========

13.  QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

     The following is a summary of the quarterly  results of operations  for the
years ended December 31, 2005 and December 31, 2004:

                                                                        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)

                                       55

                                                                       2004 THREE MONTHS ENDED
                                                            --------------------------------------------
                                                               MAR. 31    JUNE 30    SEP. 30    DEC. 31
                                                             ----------  --------- ---------- ----------
                                                              (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

 Revenues................................................   $   6,812   $  6,736   $  7,943   $ 12,343
 Gross profit............................................       1,512      1,986      1,526      3,026
 Operating profit (loss).................................        (763)      (467)      (915)      (743)
 Net income (loss).......................................        (808)      (560)      (965)      (993)
 Basic and diluted earnings (loss) per share.............   $   (0.54)  $  (0.37)  $  (0.65)  $  (0.62)

                SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF
                          REGISTRANT LYNCH CORPORATION

                             CONDENSED BALANCE SHEET
                                 (IN THOUSANDS)

                                                                            DECEMBER 31,
                                                                          2005        2004
                                                                        -------     -------
ASSETS
Current Assets
   Cash and cash equivalents ......................................     $ 3,542     $   415
   Restricted cash ................................................         650       1,125
   Investments - marketable securities ............................       2,738       3,609
   Deferred income taxes ..........................................          --          --
   Other current assets ...........................................          38         153
                                                                        -------     -------
                                                                          6,968       5,302
Net Property, Plant & Equipment ...................................      11          16

Other Assets (principally investment in and amounts due from wholly
   owned subsidiaries) ............................................      11,554       7,720
                                                                        -------     -------
Total Assets ......................................................     $18,533     $13,038
                                                                        =======     =======

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities ...............................................     $ 3,845     $ 3,045
Long Term Liabilities .............................................          --          --
Total Shareholders' Equity ........................................      14,688       9,993
                                                                        -------     -------
Total Liabilities And Shareholders' Equity ........................     $18,533     $13,038
                                                                        =======     =======

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       56

                                LYNCH CORPORATION

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

                                                                                        YEARS ENDED DECEMBER 31,
                                                                                   ---------------------------------
                                                                                      2005        2004        2003
                                                                                   ---------   ---------   ---------

Interest, dividends and gains on sale of marketable securities................     $    592    $     17    $    523
Dividend from subsidiary......................................................           32          22         486
Interest and other income from subsidiaries...................................          126          55          36
                                                                                   ---------   ---------   ---------
TOTAL INCOME..................................................................          750          94       1,045
Costs and Expenses:
Unallocated corporate administrative expense..................................        1,662       1,435       1,309
Commitments and contingencies.................................................          150         775          --
Interest expense..............................................................           86          47          18
                                                                                   ---------   ---------   ---------
TOTAL COST AND EXPENSE........................................................        1,898       2,257       1,327
                                                                                   ---------   ---------   ---------
LOSS BEFORE INCOME TAXES AND EQUITY IN NET INCOME (LOSS) OF SUBSIDIARIES......       (1,148)     (2,163)       (282)
Benefit for income taxes .....................................................          716           --         96
Equity in net income (loss) of subsidiaries...................................        1,642      (1,163)        296
                                                                                   ---------   ---------   ---------
NET INCOME (LOSS).............................................................     $  1,210    $ (3,326)   $    110
                                                                                   =========   =========   =========

                                       57

                                LYNCH CORPORATION

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

                                                                        YEAR ENDED DECEMBER 31,
                                                                    ----------------------------
                                                                       2005     2004      2003
                                                                    ---------  -------  -------

CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES...................  $   (483)  $  (430) $   193
                                                                    ---------  -------- --------
INVESTING ACTIVITIES:
Capital expenditures..............................................        (1)      (17)      --
Proceeds from sale of marketable securities.......................     1,348        --    1,041
Payment of margin liability.......................................    (1,236)     (300)    (454)
Purchase of available for-sale securities.........................        --      (754)  (1,565)
Dividend from subsidiaries........................................        --        22      464
                                                                    ---------  -------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES...............       111    (1,049)    (514)
                                                                    ---------  -------- --------
FINANCING ACTIVITIES:
Loan to Subsidiary................................................        --    (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...............     3,499       (32)      --
                                                                    ---------  -------- --------
TOTAL INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............     3,127    (1,551)    (321)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR....................       415     1,966    2,287
                                                                    ---------  -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR..........................  $  3,542   $   415  $ 1,966
                                                                    =========  ======== ========

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  $1,348,000  and
$1,041,000  for the  years  ended  December  31,  2005 and  2003,  respectively.
Purchases of marketable  securities  were $754,000 and  $1,565,000 for the years
ended December 31, 2004 and 2003,  respectively.  Payments on margin liabilities
were  $1,236,000,  $300,000 and $454,000 for the years ended  December 31, 2005,
2004 and 2003, respectively.

NOTE C -- DIVIDENDS FROM SUBSIDIARIES

     Dividends  paid  to  Lynch  Corporation  from  the  Company's  consolidated
subsidiaries were $0 in 2005, $22,000 in 2004 and $464,000 in 2003.

NOTE D -- LOANS TO SUBSIDIARIES

     In 2004, the Company lent its subsidiary,  Mtron, $1,800,000 to support its
banking relationship and to fund Mtron's acquisition of PTI.

                                       58

NOTE E -- INCOME TAX RECOVERY

     2003 cash provided by operations includes income tax recoveries of $532,000.

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

                                       59

                       LYNCH CORPORATION AND SUBSIDIARIES
                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

  COLUMN A                                  COLUMN B               COLUMN C             COLUMN D     COLUMN E
----------                                -------------   -----------------------  -------------- -------------
                                                                   ADDITIONS
                                                          ------------------------
                                           BALANCE AT     CHARGED TO   CHARGED TO
                                           BEGINNING      COSTS AND       OTHER                    BALANCE AT
               DEDUCTION                   OF PERIOD       EXPENSES     ACCOUNTS   DEDUCTIONS(A)  END OF PERIOD
               ---------                 --------------  -----------  ----------  -------------   -------------

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
Year ended December 31, 2003
   Allowances......................      $      91,000   $    10,000       --     $       10,000    $     91,000
                                         ==============  ===========  ==========  ==============    ============
----------
(A) Uncollectible accounts receivable written off are net of recoveries.

                                       60

                                  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)    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)  Lynch  Corporation  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)    Lynch  Corporation  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)    Amended and Restated Credit Agreement by and between Lynch Systems,  Inc.
       and SunTrust Bank dated as of June 10, 2002 (incorporated by reference to
       Exhibit 10(z) to the Company's  Form 10-K for the year ended December 31,
       2002).
(e)    Unlimited Continuing Guaranty Agreement by Guarantor,  Lynch Corporation,
       dated June 10, 2002  (incorporated  by reference to Exhibit 10(aa) to the
       Company's Form 10-K for the year ended December 31, 2002).
(f)    First  Amendment  and Waiver to Amended  and  Restated  Credit  Agreement
       between  Lynch  Systems,  Inc.  and  SunTrust  Bank  dated  May 30,  2003
       (incorporated  by reference to Exhibit  10(ee) to the Company's Form 10-Q
       for the period ending June 30, 2003).
(g)    Term Loan Promissory  Note between Lynch Systems,  Inc. and SunTrust Bank
       dated August 4, 2003  (incorporated by reference to Exhibit 10(ff) to the
       Company's Form 10-Q for the period ending June 30, 2003).
(h)    Second  Amendment  to Security  Deed and  Agreement  dated August 4, 2003
       between Lynch Systems,  Inc. and SunTrust Bank (incorporated by reference
       to Exhibit  10(gg) to the Company's  Form 10-Q for the period ending June
       30, 2003).
(i)    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).
(j)    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).
(k)    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).
(l)    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).
(m)    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).
(n)    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).
(o)    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).
(p)    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).

                                       61

(q)    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).
(r)    Form of  Indemnification  Agreement  dated as of February 28, 2005 by and
       between Lynch Corporation 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).
(s)    Promissory Note made by Lynch Corporation to Venator Merchant Fund, L.P.,
       dated May 12, 2005 (incorporated  herein by reference to Exhibit 10.1 the
       Company's  Current  Report on Form 8-K filed on May 16, 2005).
(t)    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).
(u)    Letter  Agreement,   dated  September  8,  2005,  by  and  between  Lynch
       Corporation and Venator Merchant Fund L.P. extending the maturity date of
       the promissory note in favor of Venator Merchant Fund L.P.  (incorporated
       herein by reference to Exhibit 10.1 to the  Company's  Current  Report on
       Form 8-K filed on September 9, 2005).
(v)    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).
(w)    Unconditional  Guaranty for Payment by and between Lynch  Corporation 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).
(x)    Loan Agreement, by and among Lynch Corporation,  Lynch Systems and Branch
       Bank and Trust Company,  dated September 29, 2005,  effective  October 6,
       2005  (incorporated  herein by reference to Exhibit 10.1 to the Company's
       Current Report on Form 8-K on October 11, 2005).
(y)    Guaranty  Agreement  for Payment  and  Performance  by and between  Lynch
       Corporation and Branch Bank and Trust Company,  dated September 29, 2005,
       effective  October 6, 2005  (incorporated  herein by reference to Exhibit
       10.2 to the  Company's  Current  Report on Form 8-K filed on October  11,
       2005).

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. Lynch
Corporation  will furnish to each of its shareholders a copy of any such Exhibit
for a fee equal to Lynch Corporation's cost in furnishing such Exhibit. Requests
should be  addressed  to the Office of the  Secretary,  Lynch  Corporation,  140
Greenwich Ave, 4th Floor, Greenwich, Connecticut 06830.

                                       62
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