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                        SECURITIES & EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
                                    ---------

(Mark One)
|X|     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
        EXCHANGE ACT OF 1934

        For the quarterly period ended September 30, 2005

                                       or

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

For the transition period from ____________ to ____________

Commission File No. 1-106

                                LYNCH CORPORATION
--------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)

          Indiana                                      38-1799862
--------------------------------------------------------------------------------
(State or other jurisdiction of                        I.R.S. Employer
incorporation or organization)                         Identification No.)

140 Greenwich Avenue, 4th Floor, Greenwich, CT         06830
--------------------------------------------------------------------------------
(Address of principal executive offices)               (Zip Code)

                                 (203) 622-1150
--------------------------------------------------------------------------------
               Registrant's telephone number, including area code

--------------------------------------------------------------------------------
                   (Former address, changed since last report)

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  whether  the  registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes [ ]   No |X|

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

          Class                               Outstanding at September 30, 2005
-----------------------------                 ----------------------------------
Common Stock, $0.01 par value                              1,616,026

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                                       1

                                      INDEX

                       LYNCH CORPORATION AND SUBSIDIARIES

PART I.      FINANCIAL INFORMATION..............................................
Item 1. Financial Statements (Unaudited)........................................
        Consolidated Balance Sheets:............................................
        -         September 30, 2005............................................
        -         December 31, 2004.............................................
        Consolidated Statements of Operations:..................................
        -         Three months ended September 30, 2005 and 2004................
        -         Nine months ended September 30, 2005 and 2004.................
        Consolidated Statements of Cash Flows:..................................
        -         Nine months ended September 30, 2005 and 2004.................
        Notes to Condensed Consolidated Financial Statements:...................
Item 2.    Management's Discussion and Analysis of Financial Condition and......
           Results of Operations................................................
Item 3.    Quantitative and Qualitative Disclosure About Market Risk............
Item 4.    Controls and Procedures..............................................
PART II.     OTHER INFORMATION..................................................
Item 1.    Legal Proceedings....................................................
Item 2.    Issuer Purchase of Its Equity Securities.............................
Item 4.    Submission of Matters to a Vote of Security Holders..................
Item 6.    Exhibits and Reports on Form 8-K.....................................

                                       2

PART 1 -- FINANCIAL INFORMATION

ITEM 1 -- FINANCIAL STATEMENTS

                                       LYNCH CORPORATION AND SUBSIDIARIES
                                       ----------------------------------
                                    CONSOLIDATED BALANCE SHEETS -- UNAUDITED
                                    ----------------------------------------
                                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
                                                                                  September 30,    December 31,
                                                                                      2005           2004 (A)
                                                                                  -------------    ------------
ASSETS
Current Assets
    Cash and cash equivalents ..................................................   $  2,824          $  2,580
    Restricted cash (Note E) ...................................................        650             1,125
    Investments - marketable securities (Note F) ...............................      3,119             3,609
    Accounts receivable, less allowance for doubtful accounts of $85 and $92,
     respectively ..............................................................      6,653             6,360
    Unbilled accounts receivable (Note I) ......................................      1,480             2,507
    Inventories (Note G) .......................................................      6,358             7,852
    Deferred income taxes ......................................................        413               111
    Prepaid expenses ...........................................................        612               626
                                                                                   --------          --------
        Total Current Assets ...................................................     22,109            24,770
Property, Plant and Equipment
    Land .......................................................................        855               871
    Buildings and improvements .................................................      5,768             5,811
    Machinery and equipment ....................................................     14,521            14,443
                                                                                   --------          --------
                                                                                     21,144            21,125
    Less: accumulated depreciation .............................................    (13,685)          (12,669)
                                                                                   --------          --------
                                                                                      7,459             8,456
    Other assets ...............................................................        619               657
                                                                                   --------          --------
       Total Assets ............................................................   $ 30,187          $ 33,883
                                                                                   ========          ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
    Notes payable (Note H) .....................................................   $  3,095          $  5,557
    Trade accounts payable .....................................................      2,671             2,667
    Accrued warranty expense (Note I) ..........................................        459               466
    Accrued compensation expense ...............................................      1,271             1,101
    Accrued income taxes .......................................................      1,021               966
    Accrued professional fees ..................................................        422               534
    Margin liability on marketable securities ..................................        325             1,566
    Other accrued expenses .....................................................      1,064             1,139
    Commitments and contingencies (Note M) .....................................        961               775
    Customer advances ..........................................................        293             2,115
    Current maturities of long-term debt (Note H) ..............................      1,212             3,842
                                                                                   --------          --------
       Total Current Liabilities ...............................................     12,794            20,728
Long-term debt (Note H) ........................................................      5,204             3,162
                                                                                   --------          --------
       Total Liabilities .......................................................     17,998            23,890
Shareholders' Equity
    Common stock, $0.01 par value - 10,000,000 shares authorized; 1,649,834
     shares issued; 1,616,026 shares outstanding ...............................         16                16
    Additional paid-in capital .................................................     17,404            17,404
    Accumulated deficit ........................................................     (5,689)           (7,786)
    Accumulated other comprehensive income (Note K) ............................      1,104               849
    Treasury stock, at cost, of 33,808 and 17,708 shares, respectively .........       (646)             (490)
                                                                                   --------          --------
       Total Shareholders' Equity ..............................................     12,189             9,993
                                                                                   --------          --------
       Total Liabilities and Shareholders' Equity ..............................   $ 30,187          $ 33,883
                                                                                   ========          ========

                                                       3

(A) The Balance  Sheet at December  31, 2004 has been  derived  from the audited
financial  statements at that date, but does not include all of the  information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements.

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                       4

PART I -- FINANCIAL INFORMATION

ITEM 1 -- FINANCIAL STATEMENTS

                                                 LYNCH CORPORATION AND SUBSIDIARIES
                                                 ----------------------------------
                                         CONSOLIDATED STATEMENTS OF OPERATIONS -- UNAUDITED
                                         --------------------------------------------------
                                                (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

                                                                     Three Months Ended                   Nine Months Ended
                                                                        September 30,                       September 30,
                                                              ---------------------------------    ---------------------------------
                                                                   2005               2004             2005               2004
                                                              --------------     --------------    --------------     --------------

SALES AND REVENUES .....................................       $    10,745        $     8,257        $    36,253        $    21,805
Cost and expenses:
  Manufacturing cost of sales ..........................             7,784              6,332             24,503             16,382
  Selling and administrative ...........................             3,277              2,341              9,838              6,644
  Lawsuit settlement provision (Note M) ................               200                100                200                525
                                                               -----------        -----------        -----------        -----------
OPERATING PROFIT (LOSS) ................................              (516)              (516)             1,712             (1,746)
Other income (expense):
  Investment income ....................................               583                  6                600                 14
  Interest expense .....................................              (217)               (63)              (610)              (176)
  Other income .........................................               (12)                23                 68                 45
                                                               -----------        -----------        -----------        -----------
                                                                       354                (34)                58               (117)
                                                               -----------        -----------        -----------        -----------
(LOSS) INCOME BEFORE INCOME TAXES ......................              (162)              (550)             1,770             (1,863)
Benefit (provision) for income taxes ...................               858                (16)               327                (71)
                                                               -----------        -----------        -----------        -----------
NET INCOME (LOSS) ......................................       $       696            $(566)$        $     2,097             (1,934)
                                                               ===========        ===========        ===========        ===========
Weighted average shares outstanding ....................         1,617,934          1,495,500          1,626,801          1,496,000
                                                               -----------        -----------        -----------        -----------
BASIC AND DILUTED INCOME (LOSS) PER SHARE: .............       $      0.43        $     (0.38)       $      1.29        $     (1.29)
                                                               ===========        ===========        ===========        ===========

o   Effective  September 30, 2004, the Company acquired,  through its subsidiary
    M-tron Industries,  Inc., 100% of the common stock of Piezo Technology, Inc.
    (See Note D to the Condensed  Consolidated  Financial Statements.) The three
    month and nine month results for the period ended  September 30, 2004 do not
    include Piezo Technology, Inc.

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                        5

PART I -- FINANCIAL INFORMATION

ITEM 1 -- FINANCIAL STATEMENTS

                       LYNCH CORPORATION AND SUBSIDIARIES
                       ----------------------------------
                CONSOLIDATED STATEMENT OF CASH FLOWS -- UNAUDITED
                -------------------------------------------------
                                 (IN THOUSANDS)

                                                                                           Nine Months Ended
                                                                                             September 30,
                                                                                         2005             2004
                                                                                      -----------      -----------

OPERATING ACTIVITIES
Net income (loss) ................................................................     $ 2,097           $(1,934)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
  operating activities:
Depreciation .....................................................................       1,050               650
Amortization of definite-lived intangible assets .................................          85               164
Gain on sale of fixed assets .....................................................         (69)             --
Gain realized on sale of marketable securities ...................................        (567)             --

Lawsuit settlement provision (Note M) ............................................         200               525
Changes in operating assets and liabilities:
  Receivables ....................................................................         734               631
  Inventories ....................................................................       1,494            (2,031)
  Accounts payable and accrued liabilities .......................................          21               816
  Other assets/liabilities .......................................................      (2,161)             (352)
                                                                                       -------           -------
Net cash provided by (used in) operating activities ..............................       2,884            (1,531)
                                                                                       -------           -------

INVESTING ACTIVITIES
Capital expenditures .............................................................        (287)             (266)
Restricted cash ..................................................................         475              --
Purchase of marketable securities ................................................        --                (754)
Proceeds from sale of fixed assets ...............................................         307              --

Proceeds from sale of marketable securities ......................................       1,348              --
Net repayment of margin liability on marketable securities .......................      (1,241)             (300)
                                                                                       -------           -------
Cash provided by (used in) investing activities ..................................         602            (1,320)
                                                                                       -------           -------

FINANCING ACTIVITIES
Net (repayments) borrowings of notes payable .....................................      (2,462)              297
Repayment of long-term debt ......................................................        (588)             (137)
Purchase of treasury stock .......................................................        (156)              (32)
Other ............................................................................         (36)             --
                                                                                       -------           -------
Net cash (used in) provided by financing activities ..............................      (3,242)              128
                                                                                       -------           -------
Increase (decrease) in cash and cash equivalents .................................         244            (2,723)
Cash and cash equivalents at beginning of period .................................       2,580             3,981
                                                                                       -------           -------
Cash and cash equivalents at end of period .......................................     $ 2,824           $ 1,258
                                                                                       =======           =======

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                       6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A.  SUBSIDIARIES OF THE REGISTRANT

As of September 30, 2005, the Subsidiaries of the Registrant 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%

B.  BASIS OF PRESENTATION

    The accompanying  unaudited condensed consolidated financial statements have
been prepared in accordance with generally  accepted  accounting  principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation  S-X.  Accordingly,  they do not include all of the information
and footnotes required by generally accepted accounting  principles for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been included. Operating results for the three month and nine month period ended
September  30, 2005 are not  necessarily  indicative  of the results that may be
expected for the year ending December 31, 2005.

    The balance  sheet at December  31, 2004 has been  derived  from the audited
financial  statements  at that date but does not include all of the  information
and footnotes required by generally accepted accounting  principles for complete
financial statements.

    For further information,  refer to the consolidated financial statements and
footnotes  thereto included in the Registrant  Company and  Subsidiaries  Annual
Report on Form 10-K for the year ended December 31, 2004.

C.  ADOPTION OF ACCOUNTING PRONOUNCEMENTS

    On December 14, 2004,  the Financial  Accounting  Standards  Board  ("FASB")
issued  Statement of Financial  Accounting  Standards  ("SFAS") No. 123 (revised
2004), "Share Based Payment" ("SFAS 123R"), which is a revision of SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123R supersedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees",  and amends SFAS No.
95 "Statement of Cash Flows". Generally, the approach in SFAS 123R is similar to
the approach described in SFAS 123. However,  SFAS 123R requires all share-based
payments  to  employees,  including  grants to  employee  stock  options,  to be
recognized  in the  income  statement  based on  their  fair  values.  Pro-forma
disclosure is no longer an alternative.

    On April 14, 2005, the Securities and Exchange Commission  announced that it
would  provide for a phased-in  implementation  process for SFAS No. 123R.  This
ruling  effectively  delayed the  Company's  adoption of the standard  until the
first quarter of 2006.  The Company will continue to evaluate the  provisions of
SFAS No. 123R to determine its impact on its financial  condition and results of
operations. See (Note J) for current pro-forma disclosure.

    In  November  2004,  the FASB issued  SFAS No.  151,  "INVENTORY  COSTS - AN
AMENDMENT OF ARB NO. 43". SFAS No. 151 is effective for inventory costs incurred
during fiscal years  beginning  after June 15, 2005.  This Statement  amends the
guidance  in ARB  No.  43,  Chapter  4,  "INVENTORY  PRICING",  to  clarify  the
accounting  for abnormal  amounts of idle facility  expense,  freight,  handling
costs, and wasted material (spoilage).  This Statement requires that those items
be  recognized  as  current-period  charges  regardless of whether they meet the
criterion of "so abnormal". In addition, this Statement requires that allocation
of fixed production  overheads to the costs of conversion be based on the normal
capacity of the  production  facilities.  The  adoption of this  standard is not
expected to have a material impact on the Company's overall  financial  position
or results of operations.

                                       7

D.  ACQUISITION

    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
(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 final 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 ......................................         $11,904
                                                                     =======
Liabilities:
-----------
Accounts payable ...........................................         $   556
Accrued expenses ...........................................           1,468
Debt assumed by the Company ................................            1145
                                                                     -------
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  $4.8
million. 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.

E.  RESTRICTED CASH

    At September  30, 2005 and  December 31, 2004,  the Company had $650,000 and
$1,125,000,  respectively,  of  Restricted  Cash that secures a Letter of Credit
issued by Bank of America to the First  National Bank of Omaha as collateral for
its M-tron subsidiary's loans.

F.  INVESTMENTS

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

                                                 Gross       Gross     Estimated
                                               Unrealized  Unrealized    Fair
Equity Securities                      Cost      Gains       Losses      Value
--------------------------------      ------   ----------  ----------  ---------

September 30, 2005 .............      $1,991     $1,128        --       $3,119
December 31, 2004 ..............      $2,774     $  835        --       $3,609

                                       8

    The Company has a margin  liability  against this  investment of $325,000 at
September  30, 2005 and of $1,566,000 at December 31, 2004 which must be settled
upon the  disposition  of the  related  securities  whose fair value is based on
quoted market prices.  The Company has designated these investments as available
for sale  pursuant to  Statement  of  Financial  Accounting  Standards  No. 115,
"Accounting for Certain Investments in Debt and Equity Securities".

FAIR VALUE OF FINANCIAL INSTRUMENTS - INTEREST RATE SWAP HEDGING

    The Company  has an  interest  rate swap  agreement  to reduce the  interest
exposure  on the $3.0  million RBC Term Loan that is  described  in Note H. This
agreement  eliminates the variability of cash flows in the interest payments for
100% of the total  variable-rate  term loan  effectively  changing the Company's
exposure from a variable interest rate to a fixed interest rate.

    The Company has designated the agreement as a cash flow hedge.  The critical
terms of the swap and the term loan  coincide  (notional  amount,  interest rate
reset  dates,  maturity/expiration  date  and  underlying  index)  the  hedge is
expected to exactly offset changes in expected cash flows due to fluctuations in
the LIBOR Base Rate over the term of the loan. Accordingly,  this swap qualifies
for the  short-cut  method and  therefore  changes in the fair value of the swap
will recorded directly in the other comprehensive  income and no ineffectiveness
will be recorded directly in other  comprehensive  income and no ineffectiveness
will be recorded in interest expense.  At September 30, 2005 there was no change
in fair value and no entry was recorded relating to the interest rate swap.

G.  INVENTORIES

    Inventories  are stated at the lower of cost or market  value.  At September
30, 2005, inventories were valued by two methods: last-in, first-out (LIFO) 50%,
and  first-in,  first-out  (FIFO) 50%. At December  31, 2004,  inventories  were
valued by the same two methods: LIFO - 47%, and FIFO - 53%.

                                                 September 30,      December 31,
                                                     2005               2004
                                                 -------------      ------------
                                                         (in thousands)
Raw materials ..............................        $2,339            $2,308
Work in process ............................         2,511             3,763
Finished goods .............................         1,509             1,781
                                                    ------            ------
  Total Inventories ........................        $6,358            $7,852
                                                    ======            ======

    Current costs exceed LIFO value of  inventories by $1,135,000 and $1,110,000
at September 30, 2005 and December 31, 2004, respectively

H.  INDEBTEDNESS

    Lynch  Systems and MtronPTI  maintain  their own  short-term  line of credit
facilities. In general, the credit facilities are secured by property, plant and
equipment,  inventory,  receivables and common stock of certain subsidiaries and
contain certain covenants  restricting  distributions to the Company.  The Lynch
Systems  credit  facility  includes  an  unsecured  parent  Company   guarantee.
MtronPTI'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 (see Note E - "Restricted Cash").

    On June 30, 2005,  MtronPTI renewed its credit agreement with First National
Bank of Omaha  extending  the due date to May 31,  2006.  MtronPTI's  short-term
credit  facility  totals $5.5  million,  of which $3.9 million was available for
future borrowings.

    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 $7.0 million  short-term credit facility was reduced to $4.3
million 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. At September 30, 2005, there were outstanding

                                       9

Letters of Credit of  $282,000  and  borrowings  of  $756,000  under the working
capital line and $390,000 under the term loan.  Lynch Systems has entered into a
new loan  agreement  with Branch  Banking and Trust  ("BB&T"),  see  "SUBSEQUENT
EVENTS". These loans include an unsecured parent company guarantee.

    On  May  12,  2005,  Venator  Merchant  Fund,  L.P.  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 Merchant Fund
L.P  ("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.

    On September  30, 2005,  MtronPTI  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,  MtronPTI  entered  into a  five-year
interest  rate swap from which it will  receive  periodic  payments at the LIBOR
Base Rate and make  periodic  payments  at a fixed  rate of 7.51%  with  monthly
settlement and rate reset dates.
                                                                                        September 30,  December 31,
                                                                                        -------------  ------------
                                                                                            2005           2004
                                                                                            ----           ----
Notes payable consists of:                                                                     (in thousands)

Mtron bank  revolving  loan at variable  interest rates (greater of prime or 4.5%;
   6.75% at September 30, 2005), due May, 2006                                              $1,639         $3,557
Lynch Systems working capital revolving loan at variable interest rates,  (LIBOR
   + 2%; 6.69% at September 30, 2005), due September, 2005                                     756          2,000
Venator  promissory note at a fixed interest rate of 8% at September 30, 2005,
   due November 10, 2005                                                                       700           --
                                                                                            ------         ------
                                                                                            $3,095         $5,557
                                                                                            ======         ======

Long-term debt consists of:
                                                                                        September 30,  December 31,
                                                                                        -------------  ------------
                                                                                            2005           2004
                                                                                            ----           ----
Long-term debt:                                                                                (in thousands)
Mtron  commercial  bank term loan at variable  interest  rates (7.00% at September
   30, 2005), due April, 2007                                                              $   514        $   686
Yankton Area Progressive Growth loan at 0% interest                                           --               50
South Dakota Board of Economic  Development  at a fixed rate of 3%, due
  December, 2007                                                                               265            273
Yankton  Areawide  Business  Council loan at a fixed  interest  rate of 5.5%,  due
   November, 2007                                                                               76             83
Lynch Systems term loan at a fixed interest rate of 5.5%, due December, 2005                   390            427
Mtron bridge loan at variable interest rates (greater of prime or 4.5%)                       --            3,000
Mtron term loan at variable  interest rates (greater of prime plus 50 basis points
   or 4.5%; 7.25% at September 30, 2005), due October, 2007                                  1,694          1,943
MtronPTI  RBC term  loan at  variable  interest  rates  (LIBOR  + 2.75%;  6.59% at
   September 30, 2005), due October, 2010                                                    3,040           --
Rice University Promissory Note at a fixed interest rate of 4.5%, due August, 2009             277            345
Smythe Estate Promissory Note at a fixed interest rate of 4.5% due August, 2009                160            197
                                                                                            ------         ------
                                                                                             6,416          7,004
Current maturities                                                                          (1,212)        (3,842)
                                                                                            ------         ------
                                                                                           $ 5,204        $ 3,162
                                                                                            ======         ======

                                       10

I.  LONG-TERM CONTRACTS AND WARRANTY EXPENSE

    Lynch Systems, a 100% wholly-owned  subsidiary of the Company, is engaged in
the  manufacture  and  marketing  of  glass-forming   machines  and  specialized
manufacturing  machines.  Certain  sales  contracts  require an advance  payment
(usually  30% of the  contract  price)  which  is  accounted  for as a  customer
advance.  The contractual  sales prices are paid either (i) as the manufacturing
process  reaches  specified  levels of  completion or (ii) based on the shipment
date or (iii)  negotiated  terms of sale.  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 September 30,
2005 and December 31, 2004,  unbilled  accounts  receivable  were $1,480,000 and
$2,507,000, respectively.

    Lynch Systems  provides a full warranty to world-wide  customers who acquire
machines.  The warranty covers both parts and labor and normally covers a period
of one year or thirteen months.  Based upon experience,  the warranty accrual is
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, December 31, 2004 .................................................    $ 466
    Warranties issued during the period ........................................      230
    Settlements made during the period .........................................     (237)
    Changes in liabilities for pre-existing warranties during the period,
      including expirations ....................................................     --
                                                                                    -----
    Balance, September 30, 2005 ................................................    $ 459
                                                                                    =====

J.  EARNINGS PER SHARE AND STOCKHOLDERS' EQUITY

    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
anti-dilutive  and have  lives of up to ten years.  As of  September  30,  2005,
options to purchase 300,000 shares are outstanding and fully vested.

    The  Company   accounts  for  the  2001  Equity  Incentive  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 or above 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" as follows:

                                                                                         Three Months Ended    Nine Months Ended
                                                                                           September 30,         September 30,
                                                                                     -----------------------------------------------
                                                                                          2005         2004      2005      2004
                                                                                     -----------------------------------------------
                                                                                           (in thousands, except share amounts)
                                                                                           ------------------------------------

Net income (loss) as reported .......................................................   $     696   $  (566)   $ 2,097    $  (1,934)
Deduct: Total stock based employee compensation
  expense determined under fair value based method for
  all awards, net of related tax effect .............................................        --         (39)      (222)        (116)
                                                                                        ---------   -------    -------    ---------
Pro-forma net income (loss) .........................................................   $     696   $  (605)   $ 1,875    $  (2,050)
                                                                                        =========   =======    =======    =========
Basic & diluted income (loss) per share:
As reported .........................................................................   $    0.43   $ (0.38)   $  1.29    $   (1.29)
Pro forma ...........................................................................   $    0.43   $ (0.40)   $  1.15    $   (1.37)

                                       11

    The net  income  (loss) as  reported  in each  period  did not  include  any
stock-based compensation.

K.  ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

    Total comprehensive  income was $684,000 in the three months ended September
30, 2005, compared to a total comprehensive loss of $897,000 in the three months
ended  September 30, 2004.  Included in total  comprehensive  income (loss) were
unrealized  gains on available  for sale  securities  of $59,000 and  unrealized
losses of  $331,000  in the three  months  ended  September  30,  2005 and 2004,
respectively.

    Total comprehensive income was $2,352,000 in the nine months ended September
30,  2005,  compared to a total  comprehensive  loss of  $1,954,000  in the nine
months ended September 30, 2004. Included in total  comprehensive  income (loss)
were  unrealized  gains  on  available  for  sale  securities  of  $292,000  and
unrealized  losses of $20,000 in the nine months  ended  September  30, 2005 and
2004, respectively.

                                                                     Three Months Ended            Nine Months Ended
                                                                       September 30,                 September 30,
                                                                  ------------------------      ------------------------
                                                                    2005           2004           2005           2004
                                                                  ---------      ---------      ---------      ---------

Net income (loss) as reported ..............................       $   696        $  (566)       $ 2,097        $(1,934)
Foreign currency translation ...............................           (71)          --              (37)          --
Unrealized (loss) gain on available for sale securities ....            59           (331)           292            (20)
                                                                   -------        -------        -------        -------
Total comprehensive income (loss) ..........................       $   684        $  (897)       $ 2,352        $(1,954)
                                                                   =======        =======        =======        =======

    The components of accumulated  other  comprehensive  income,  net of related
tax, at September 30, 2005 and December 31, 2004,  and September 30, 2004 are as
follows:

                                                                September 30,   December 31,   September 30,
                                                                    2005            2004           2004
                                                                -------------   ------------   -------------

Balance beginning of period ................................       $   849        $   291        $   291
Foreign currency translation ...............................           (37)            14           --
Unrealized gain on available for-sale securities ...........           292            544            (20)
                                                                   -------        -------        -------
Accumulated other comprehensive income .....................       $ 1,104        $   849        $   271
                                                                   =======        =======        =======

L.  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)  which represents
products manufactured and sold by MtronPTI.  The Company's foreign operations in
Hong Kong and India are under the control of MtronPTI.

    Operating  profit  (loss)  is equal to  revenues  less  operating  expenses,
excluding  investment  income,  interest expense,  and income taxes. The Company
allocates  a  negligible  portion  of  its  general  corporate  expenses  to its
operating segments. Such allocation was $125,000 and $87,500 in the three months
ending  September 30, 2005 and 2004,  respectively  and $375,000 and $262,500 in
the nine months ending September 30, 2005 and 2004,  respectively.  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.

                                       12

                                                            Three Months Ended                Nine Months Ended
                                                              September 30,                     September 30,
                                                        --------------------------        --------------------------
                                                          2005             2004             2005             2004
                                                        --------         --------         --------         --------
REVENUES
Glass manufacturing equipment - USA                     $    394         $    132         $  1,460         $    465
Glass manufacturing equipment - Foreign                    1,358            3,079            8,567            6,196
                                                        --------         --------         --------         --------
Total Glass manufacturing equipment                        1,752            3,211           10,027            6,661

Frequency control devices - USA                            5,303            2,026           14,994            6,215
Frequency control devices - Foreign                        3,690            3,020           11,232            8,929
                                                        --------         --------         --------         --------
Total Frequency control devices                            8,993            5,046           26,226           15,144
                                                        --------         --------         --------         --------
Consolidated total revenues                             $ 10,745         $  8,257         $ 36,253         $ 21,805

OPERATING PROFIT (LOSS)
Glass manufacturing equipment                           $   (518)        $     17         $  1,330         $   (505)
Frequency control devices                                    540              114            1,757              583
                                                        --------         --------         --------         --------
Total manufacturing                                           22              131            3,087               78

Unallocated Corporate expense                               (538)            (647)          (1,375)          (1,824)
                                                        --------         --------         --------         --------
Consolidated total operating profit (loss)              $   (516)        $   (516)        $  1,712         $ (1,746)

OTHER PROFIT (LOSS)
Investment income                                       $    583         $      6         $    600         $     14
Interest expense                                            (217)             (63)            (610)            (176)
Other income (expense)                                       (12)              23               68               45
                                                        --------         --------         --------         --------
Consolidated total profit (loss) before taxes           $   (162)        $   (550)        $  1,770         $ (1,863)
                                                        ========         ========         ========         ========

CAPITAL EXPENDITURES
Glass manufacturing equipment                           $   --           $     61         $     16         $     74
Frequency control devices                                    100               21              270              192
General Corporate                                           --               --                  1             --
                                                        --------         --------         --------         --------
Consolidated total capital expenditures                 $    100         $     82         $    287         $    266
                                                        ========         ========         ========         ========

TOTAL ASSETS
Glass manufacturing equipment                                                             $  9,176         $ 10,939
Frequency control devices                                                                   16,688           18,810
General Corporate                                                                            4,323            3,671
                                                                                          --------         --------
Consolidated total assets                                                                 $ 30,187         $ 33,420
                                                                                          ========         ========

M.  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.  In addition,  the Company and/or one or more
of its subsidiaries are parties to the following additional legal proceedings:

                                       13

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,  PACE LOCAL 1-1069 V. LYNCH  CORPORATION  AND LYNCH
SYSTEMS, INC. CUMBERLAND COUNTY SUPERIOR COURT, CV-2001-00352; AND MAINE SUPREME
JUDICIAL COURT, LAW DOCKET NO. CUM-04-682

    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 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 Court held that the Spinnaker Entities'  bankruptcy
did not prevent the award of severance pay under the statute.  The 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 Court rejected PACE's claim for pre-judgment  interest, but granted
its request for attorney fees.

    Both PACE and the Company have appealed to the Maine Supreme Judicial Court.
The  Company  filed its brief on April 4, 2005.  PACE filed its brief on May 18,
2005.  Lynch filed its Reply Brief on June 9, 2005. On September  13, 2005,  the
Maine  Supreme  Court  heard  oral  argument.  The Court has not yet  issued its
decision. Management does not believe that the resolution of this case will have
a material adverse effect on the Company's  consolidated financial condition and
operations.

QUI TAM LAWSUIT

    The Company, Lynch Interactive and numerous other parties have been named as
defendants in a lawsuit  brought under the so-called "qui tam" provisions of the
federal False Claims Act in the United States District Court for the District of
Columbia.  The complaint was filed under seal with the court in February,  2001,
and the seal was lifted 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  (a  private
individual  who filed the action on behalf of the United States) in 2005 alleges
damages  of   approximately   $91   million  in  respect  of  bidding   credits,
approximately $70 million in respect of government loans and approximately  $206
million in  respect of  subsequent  resales of  licenses,  in each case prior to
trebling.

    In September, 2003, the Court granted Lynch Interactive's motion to transfer
the action to the  Southern  District of New York and 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 for the District of Columbia to compel the FCC to
provide information  subpoenaed by them in order to conduct their defense.  This
motion  was  denied  in May,  2005 and the  defendants  have both  appealed  the
decision and  requested a final agency  action in order to seek review under the
Administrative Procedures Act. In the mean-time, fact discovery is substantially
complete  and both the  plaintiff  and the  defendants  have  moved for  summary
judgment on a variety of grounds.  In November  2005,  with  respect to one such

                                       14

motion for partial summary  judgment on the issue of damages based on resales of
licenses, the court ruled that such damages were not permissible.

    The U. S.  Department  of Justice has notified the Court that it declined to
intervene  in the case.  The  Defendants  strongly  believe  that the  action is
completely  without merit and that the relator's  damage  computation is without
basis, and are vigorously  defending it. 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.  Lynch  Interactive  has retained  legal counsel to
defend the claim on behalf of the Company and Lynch Interactive,  at the expense
of Lynch  Interactive and certain other  defendants.  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.

N.  INCOME TAXES

    The Company files consolidated  federal income tax returns.  The Company has
approximately   $2,600,000  net  operating  loss  ("NOL")  carry-forward  as  of
September 30, 2005. This NOL expires in 2026 if not utilized prior to that date.

O.  GUARANTEES

    The Company presently guarantees  (unsecured) the SunTrust Bank loans of its
subsidiary,  Lynch Systems.  The Company  presently  guarantees  (unsecured) the
First  National  Bank  of  Omaha  loans  of its  subsidiary,  MtronPTI,  and has
guaranteed  a Letter of Credit  issued  to the First  National  Bank of Omaha on
behalf of its  subsidiary,  MtronPTI (see Note H - "Indebtedness  Debt").  As of
September 30, 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 Note E - "Restricted Cash", also see "Subsequent Events".)

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

P.  SUBSEQUENT EVENTS

    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  loan  expired  by its terms on
September 30, 2005. Borrowings under the 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.

    On October 6, 2005, Lynch Systems entered into an 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

                                       15

Systems to SunTrust.  After giving effect to the  refinancing  described  above,
such  indebtedness  aggregated  $389,406,  which represents the unpaid principal
balance under the term loan.

    On October 26, 2005, Lynch Corporation  announced that is has set Wednesday,
November  9,  2005,  as the  record  date for its  previously  announced  rights
offering.  The  offering  will  grant  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.  The  subscription  price
represents a discount of 37% from $11.51,  the average of the closing  prices of
our common  shares over the 30 trading day period  ended  October 25, 2005 and a
discount of 28% from $10.00,  the closing  price of our common shares on October
25, 2005.

    Under the terms of the offering,  holders of the Company's common stock will
be  entitled  to one  transferable  subscription  right for each share of common
stock held on the record  date,  November 9, 2005.  Every three such rights will
entitle the  shareholder  to subscribe  for one common  share at a  subscription
price of $7.25 per share. The basic subscription rights will be transferable. If
any holders of  subscription  rights do not  exercise  their basic  subscription
rights in full, the Company will permit  stockholders  on the record date who do
exercise their basic subscription rights in full to subscribe for up to an equal
number of additional  shares at the same  subscription  price per share.  In the
event of  oversubscription,  the additional common shares will be allocated on a
pro rata basis.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS.

CRITICAL ACCOUNTING POLICIES

    The Company has  identified  the  accounting  policies  listed below that we
believe are most critical to our financial  condition and results of operations,
and that require  management's most difficult,  subjective and complex judgments
in estimating the effect of inherent uncertainties.  This section should be read
in conjunction with Note 1 to the Consolidated Financial Statements, included in
the Company's  Annual Report on Form 10-K for the year ended  December 31, 2004,
which includes other significant accounting policies.

ACCOUNTS RECEIVABLE

    Accounts receivable on a consolidated basis consists  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  subsidiaries and
business  segments have credit sales to industries  that are subject to cyclical
economic changes.  The Company maintains an allowance for doubtful accounts at a
level that management believes is sufficient to cover potential credit losses.

    We maintain  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  was  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  50%
and 50% of consolidated inventories at September 30, 2005 and December 31, 2004,
respectively. The balance of inventories are valued using the first-in-first-out
(FIFO) method. If actual market conditions are more or less favorable than those
projected  by  management,  including  the demand for our  products,  changes in
technology, internal labor costs and the costs of materials,  adjustments may be
required.

REVENUE RECOGNITION AND ACCOUNTING FOR LONG-TERM CONTRACTS

                                       16

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

    Lynch  Systems,  a 100% owned  subsidiary of the Company,  is engaged in the
manufacture   and   marketing  of   glass-forming   machines   and   specialized
manufacturing  machines.  Certain  sales  contracts  require an advance  payment
(usually  30% of the  contract  price)  which  is  accounted  for as a  customer
advance.  The contractual  sales prices are paid either (i) as the manufacturing
process reaches  specified  levels of completion;  or (ii) based on the shipment
date; or (iii) negotiated  terms of sale.  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 September 30,
2005, and December 31, 2004,  unbilled  accounts  receivable were $1,480,000 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.
These  estimates  include  current  customer  contract  specifications,  related
engineering  requirements and the achievement of project  milestones.  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.
Favorable  changes in estimates result in additional profit  recognition,  while
unfavorable changes in estimates result in the reversal of previously recognized
earnings to the extent of the error of the estimate.  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 world-wide  customers who acquire
machines.  The warranty covers both parts and labor and normally covers a period
of one year or thirteen months.  Based upon experience,  the warranty accrual is
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, December 31, 2004 ..............................................     $ 466
    Warranties issued during the period .....................................       230
    Settlements made during the period ......................................      (237)
    Changes in liabilities for pre-existing warranties during the period,
      including expirations .................................................      --
                                                                                  -----
    Balance, September 30, 2005 .............................................     $ 459
                                                                                  =====

RESULTS OF OPERATIONS
THIRD QUARTER
THREE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO SEPTEMBER 30, 2004

CONSOLIDATED REVENUES AND GROSS MARGIN

    Consolidated  revenues for the third quarter 2005 increased $2.4 million, or
29%, to $10.7 million from $8.3 million for the  comparable  period in 2004. The
increase came from MtronPTI,  including the contribution of the PTI acquisition,
which was partially offset by a decline at Lynch Systems.

    Revenues at MtronPTI increased by $4.0 million,  or 80%, to $9.0 million for
the third quarter 2005 from $5.0 million for the comparable  period in 2004. The
increase  was due to the  contribution  of PTI,  which  was  acquired  effective
September 30, 2004.

                                       17

    Revenues at Lynch Systems decreased by $1.4 million, or 44%, to $1.8 million
for the third quarter 2005 from $3.2 million for the comparable  period in 2004.
The decrease was primarily due to lower  revenues for glass press machines which
was partially offset by higher revenues for CRT machines.  At September 30, 2005
the $4.9 million  backlog is comprised of glass press  machine  orders and parts
and does not contain any CRT machine orders.

    The  consolidated  gross  margin as a  percentage  of revenues for the third
quarter increased to 27.6%, compared to 23.3% for the comparable period in 2004.
Both MtronPTI and Lynch Systems experienced higher margins as compared to 2004.

    MtronPTI's  gross margin as a percentage of revenues for the third  quarter,
increased  to  29.2%  from  23.1%  for  the  comparable   period  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 third
quarter,  increased to 24.7% from 23.6% for the  comparable  period in 2004. The
margin  improvement  was primarily due to higher margin sales of CRT machines in
the third quarter of 2005.

OPERATING PROFIT (LOSS)

    The  operating  loss of $516,000 for the third quarter 2005 was equal to the
operating loss for the comparable period in 2004.

     The  operating  profit at MtronPTI  increased  $426,000 to $540,000 for the
third  quarter  2005  from  $114,000  for the  comparable  period  in 2004.  The
operating profit improvement was primarily due to the significant sales 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.

    The operating loss at Lynch Systems increased  $435,000 to an operating loss
of $418,000 for the third  quarter 2005 from an operating  profit of $17,000 for
the  comparable  period in 2004. The operating loss resulted from lower revenues
for the third quarter and higher engineering expenses.

    Corporate expenses decreased $109,000 to $538,000 for the third quarter 2005
from $647,000 for the  comparable  period in 2004. The decline was primarily due
to lower other operating  expenses and lower  compensation  costs due to a bonus
expense of $130,000 for prior management  recorded in the third quarter of 2004.
This decline was partially  offset by a $200,000  lawsuit  settlement  provision
recorded in the third quarter of 2005 compared to a $100,000 lawsuit  settlement
provision recorded in the third quarter of 2004.

OTHER INCOME (EXPENSE), NET

    Investment income increased  $577,000 to $583,000 for the third quarter 2005
from $6,000 for the comparable  period in 2004 due to a $567,000 gain on sale of
marketable securities.

    Interest expense  increased  $154,000 to $217,000 for the third quarter 2005
from $63,000 for the comparable period in 2004,  primarily due to an increase in
debt  outstanding  resulting  from the  acquisition  of PTI,  the Venator  loan,
borrowings at Lynch Systems and higher interest rates.

    Other  expense  was  $12,000 for the third  quarter  2005  compared to other
income of $23,000 for the comparable period in 2004.

INCOME TAXES

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

    The income tax benefit for the third quarter 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

                                       18

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.

NET INCOME (LOSS)

    Net income for the third quarter 2005 was $696,000 compared to a net loss of
$566,000 in the comparable period in 2004. As a result, fully diluted income per
share for the third quarter 2005 was $0.43 compared to a loss of $0.38 per share
for the comparable period in 2004.

NINE MONTHS ENDED SEPTEMBER 30, 2005 COMPARED TO SEPTEMBER 30, 2004

CONSOLIDATED REVENUES AND GROSS MARGIN

    Consolidated  revenues for the nine month period  ending  September 30, 2005
increased  $14.5  million,  or 67%, to $36.3  million from $21.8 million for the
comparable  period in 2004.  The  significant  increase came from both MtronPTI,
including the contribution of the PTI acquisition, and Lynch Systems.

    Revenues at MtronPTI  increased by $11.1  million,  or 74%, to $26.2 million
for the nine month period  ending  September 30, 2005 from $15.1 million for the
comparable period in 2004. The increase was primarily due to the contribution of
PTI, which was acquired effective September 30, 2004.

    Revenues  at Lynch  Systems  increased  by $3.3  million,  or 49%,  to $10.0
million for the nine month period  ending  September  30, 2005 from $6.7 million
for the  comparable  period in 2004.  The increase was primarily due to sales of
large CRT machines in 2005.  At September  30, 2005 the $4.9 million  backlog is
comprised of glass press  machine  orders and parts and does not contain any CRT
machine orders.

    The consolidated gross margin as a percentage of revenues for the nine month
period ending  September 30, 2005 increased to 32.4%,  compared to 22.2% for the
comparable  period in 2004. Both MtronPTI and Lynch Systems  experienced  higher
margins as compared to 2004.

    MtronPTI's  gross  margin as a  percentage  of  revenues  for the nine month
period  ending  September  30,  2005  increased  to  29.4%  from  24.4%  for the
comparable  period 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 nine month
period  ending  September  30,  2005  increased  to  40.4%  from  26.0%  for the
comparable  period in 2004. The increase was primarily due to sales of large CRT
machines, which carry higher gross margins, in 2005.

OPERATING PROFIT (LOSS)

    The operating  profit  increased $3.4 million,  to $1.7 million for the nine
month period ended September 30, 2005 from an operating loss of $1.7 million for
the comparable period in 2004.

    The operating profit at MtronPTI  increased $1.2 million to $1.8 million for
the nine month period ended  September 30, 2005 from $583,000 for the comparable
period in 2004.  The  operating  profit  improvement  was  primarily  due to the
significant sales 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.

    The operating profit at Lynch Systems increased $1.8 million to $1.3 million
for the nine month period  ended  September  30, 2005 from a $505,000  operating
loss  for the  comparable  period  in 2004.  The  operating  profit  improvement
resulted from higher gross margins.

    Corporate  expenses  decreased  $0.4  million,  to $1.4 million for the nine
month period  ending  September  30, 2005 from $1.8  million for the  comparable
period in 2004. The decline was primarily due to lower compensation  expense and
a lawsuit settlement provision in 2005 of $200,000 compared to $525,000 in 2004.

                                       19

OTHER INCOME (EXPENSE), NET

    Investment  income increased  $586,000 to $600,000 for the nine month period
ended September 30, 2005 from $14,000 for the comparable period in 2004 due to a
$567,000 gain on sale of marketable securities in the third quarter 2005.

    Interest  expense  increased  $434,000 to $610,000 for the nine month period
ended  September  30,  2005  from  $176,000  for the  comparable  period in 2004
primarily due to an increase in debt outstanding  resulting from the acquisition
of PTI, borrowings at Lynch Systems and higher interest rates.

    Other  income  increased  $23,000 to $68,000 for the nine month period ended
September 30, 2005 from $45,000 for the comparable  period in 2004 primarily due
to a $69,000  gain on the sale of a warehouse  in Orlando 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 nine month  period ended  September  30, 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.

NET INCOME (LOSS)

    Net income for the nine months  ended  September  30, 2005 was $2.1  million
compared to a net loss of $1.9 million in the  comparable  period in 2004.  As a
result, fully diluted income per share for the nine month period ended September
30,  2005 was $1.29  compared  to a loss of $1.29  per share for the  comparable
period in 2004.

BACKLOG/NEW ORDERS

    Total  backlog of  manufactured  products  at  September  30, 2005 was $13.1
million,  a $4.5 million  decline  compared to the backlog at December 31, 2004,
and $0.2 million increase from the backlog at June 30, 2005.

    MtronPTI had backlog  orders of $8.2 million at September  30, 2005 compared
to $7.7 million at December 31, 2004 and $7.6 million at June 30, 2005.  Backlog
increased  $0.5 million from December 31, 2004 and  increased  $0.6 million from
June 30, 2005.

    Lynch  Systems  had backlog  orders of $4.9  million at  September  30, 2005
compared to $9.9 million at December 31, 2004 and $5.3 million at June 30, 2005.
Backlog  decreased  $5.0  million from  December  2004 due to sales of large CRT
machines in 2005 and decreased $0.4 million from June 30, 2005.

FINANCIAL CONDITION

    At September 30, 2005,  the Company had current  assets of $22.1 million and
current liabilities of $12.8 million. At September 30, 2005, working capital was
$9.3 million,  compared to $4.0 million at December 31, 2004 and $2.4 million at
September 30, 2004. The ratio of current assets to current  liabilities was 1.73
to 1.00 at September  30, 2005;  1.19 to 1.00 at December 31, 2004;  and 1.11 to
1.00 ratio at September 30, 2004.

    Cash provided by operating  activities was approximately $2.9 million in the
nine  months  ended  September  30,  2005,  compared  to cash used in  operating
activities of approximately  $1.5 million in the nine months ended September 30,
2004. The year to year  favorable  change in operating cash flow of $4.4 million
was  primarily  due to net  income of $2.1  million  for the nine  months  ended
September  30, 2005  compared to a net loss of $2.0  million for the  comparable
period  in  2004  and  changes  in  inventory  and  other  liabilities.  Capital
expenditures were $287,000 in the nine months ended September 30, 2005, compared
to $266,000 in the nine months ended September 30, 2004.

                                       20

    At September  30, 2005,  the  Company's  total cash,  cash  equivalents  and
investments in marketable  securities (before margin liability) was $6.6 million
(including  $650,000 of  restricted  cash)  compared to $7.3 million  (including
$1,125,000 of restricted cash) at December 31, 2004.

    Total debt of $9.5 million at September  30, 2005 was $3.1 million less than
the amount  outstanding at December 31, 2004 and $4.4 million more than the debt
at September  30, 2004.  Debt  outstanding  at September  30, 2005 included $1.9
million of fixed rate debt at an average interest rate of 5.8%, and $7.6 million
of variable rate debt at an average interest rate of 7.2%.

    Pursuant to an  Unconditional  Guaranty  for Payment  and  Performance,  the
Company  has  guaranteed  to  First  National  Bank of  Omaha  the  payment  and
performance  of its  subsidiaries'  obligations  under  the Loan  Agreement  and
ancillary  agreements  and  instruments.  The Company has guaranteed a Letter of
Credit issued to the First  National Bank of Omaha on behalf of its  subsidiary,
MtronPTI. As of September 30, 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   outstanding   obligations   under  the  various  loan  agreements  are
collateralized   by  security   interests   in  the  assets  of  the   operating
subsidiaries.  The loan agreements contain a variety of affirmative and negative
covenants of types  customary in an  asset-based  lending  facilities.  The loan
agreements also contain 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 June 30, 2005,  MtronPTI  renewed its Revolving  Loan with First National
Bank of Omaha extending the due date to May 31, 2006. At September 30, 2005, the
Company had $3.9 million  available  for future  borrowings  under the Revolving
Loan.  The Revolving  Loan bears  interest at the greater of prime rate or 4.5%.
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.  On September 30, 2005 the $3,000,000  Bridge
loan was paid off from the proceeds of the RBC Term Loan.

    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 $7.0 million  short-term credit facility was reduced to $4.3
million 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. At September 30, 2005, there were outstanding
Letters of Credit of  $282,000  and  borrowings  of  $756,000  under the working
capital line and $390,000 under the term loan.  Lynch Systems entered into a new
loan agreement with Branch Banking and Trust  ("BB&T"),  please see  "SUBSEQUENT
EVENTS".  These loans include an unsecured parent company  guarantee.  Under the
terms of extension agreement Lynch Systems cannot make any cash distributions to
the parent company.

    On  May  12,  2005,  Venator  Merchant  Fund,  L.P.  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 Merchant Fund
L.P  ("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. The
Company does not have any  revolving  credit  facilities  at the parent  company
level.

    On September  30, 2005,  MtronPTI  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,  MtronPTI  entered  into a  five-year

                                       21

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.

RIGHTS OFFERING

    On July 1, 2005, Lynch Corporation  filed a Registration  Statement with the
Securities and Exchange Commission in connection with a proposed rights offering
to its existing shareholders.

    The proposed rights offering consists of transferable rights to subscribe to
Lynch common stock.  Lynch would issue one subscription  right for each share of
common stock held on the record  date.  Every three such rights will entitle the
shareholder  to  subscribe  for one common  share.  The rights  also  contain an
oversubscription  priviledge to subscribe for addional common shares, subject to
certain terms and conditions, that are not purchased by other holders of rights.

      The rights will not be  exercisable  until the  registration  statement is
declared effective.  Subscription rights in the proposed offering will be issued
only to shareholders on the record date. See "SUBSEQUENT EVENTS" for information
regarding  the record date and exercise  price  determined by the Lynch Board of
Directors.

     After the SEC declares effective the Registration Statement, a subscription
certificate,  together  with a  prospectus  containing  details  of  the  rights
offering,  will be  mailed  to  shareholders.  It is  expected  that the  rights
offering  will remain open for 30 days,  subject to extension for up to 15 days.
No  fractional  shares  will be issued,  and Lynch will round up to the  nearest
whole number the number of shares its shareholders may purchase.

     The purpose of this offering is to provide for our ongoing operating needs.
The proceeds will be used for working capital,  general  corporate  purposes and
acquisitions,  although the Company has not identified any specific acquisitions
at this time.

ADOPTION OF ACCOUNTING PRONOUNCEMENTS

    On December 14, 2004,  the Financial  Accounting  Standards  Board  ("FASB")
issued  Statement of Financial  Accounting  Standards  ("SFAS") No. 123 (revised
2004), "State Based Payment" ("SFAS 123R"), which is a revision of SFAS No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123R supersedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees",  and amends SFAS No.
95 "Statement of Cash Flows". Generally, the approach in SFAS 123R is similar to
the approach described in SFAS 123. However,  SFAS 123R requires all share-based
payments  to  employees,  including  grants to  employee  stock  options,  to be
recognized  in the  income  statement  based on  their  fair  values.  Pro-forma
disclosure is no longer an alternative.

    On April 14, 2005, the Securities and Exchange Commission  announced that it
would  provide for a phased-in  implementation  process for SFAS No. 123R.  This
ruling  effectively  delayed the  Company's  adoption of the standard  until the
first quarter of 2006.  The Company will continue to evaluate the  provisions of
SFAS No. 123R to determine its impact on its financial  condition and results of
operations.

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.

SUBSEQUENT EVENTS

    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  loan  expired  by its terms on
September 30, 2005. Borrowings under the Loan Agreement bear interest at the One
Month LIBOR Rate plus 2.75% and accrued  interest is payable on a monthly basis,

                                       22

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.

    On October 6, 2005, Lynch Systems entered into an 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.  After giving effect to the  refinancing  described  above,
such  indebtedness  aggregated  $389,406,  which represents the unpaid principal
balance under the term loan.

    On October 26, 2005, Lynch Corporation  announced that is has set Wednesday,
November  9,  2005,  as the  record  date for its  previously  announced  rights
offering.  The  offering  will  grant  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.  The  subscription  price
represents a discount of 37% from $11.51,  the average of the closing  prices of
our common  shares over the 30 trading day period  ended  October 25, 2005 and a
discount of 28% from $10.00,  the closing  price of our common shares on October
25, 2005.

    Under the terms of the offering,  holders of the Company's common stock will
be  entitled  to one  transferable  subscription  right for each share of common
stock held on the record  date,  November 9, 2005.  Every three such rights will
entitle the  shareholder  to subscribe  for one common  share at a  subscription
price of $7.25 per share. The basic subscription rights will be transferable. If
any holders of  subscription  rights do not  exercise  their basic  subscription
rights in full, the Company will permit  stockholders  on the record date who do
exercise their basic subscription rights in full to subscribe for up to an equal
number of additional  shares at the same  subscription  price per share.  In the
event of  oversubscription,  the additional common shares will be allocated on a
pro rata basis.

RISK FACTORS

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

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

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

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

                                       23

The  Company  maintains  an  allowance  for  doubtful  accounts  at a level that
management believes is sufficient to cover potential credit losses.

    For a complete list of risk factors, see the Company's Annual Report on Form
10-K for the year ended December 31, 2004.

FORWARD LOOKING INFORMATION

    Included in this Management  Discussion and Analysis of Financial  Condition
and  Results of  Operations  are certain  forward  looking  financial  and other
information, including without limitation matters relating to "Risks". It should
be recognized  that such  information  are  projections,  estimates or forecasts
based  on  various  assumptions,   including  without  limitation,  meeting  its
assumptions   regarding  expected   operating   performance  and  other  matters
specifically set forth, as well as the expected performance of the economy as it
impacts  the  Company's  businesses,   government  and  regulatory  actions  and
approvals, and tax consequences,  and the risk factors and cautionary statements
set forth in reports  filed by the  Company  with the  Securities  and  Exchange
Commission. As a result, such information is subject to uncertainties, risks and
inaccuracies, which could be material.

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

    The Registrant also makes this information  available on its website,  whose
internet address is WWW.LYNCHCORP.COM.

ITEM 3.  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  equivalents  and short-term  investments
(approximately  $3.5  million at  September  30,  2005).  The Company  generally
finances the debt portion of the  acquisition of long-term  assets with variable
and fixed rate,  long-term debt. In connection with the $3,040,000 RBC Term Loan
the Company has entered into a cash flow hedge, this position locks the interest
rate for all of the  $3,040,000  at 7.51% (the 6.59%  fixed pay rate of the swap
plus  the  0.92%  differential  between  the  variable  rate of the loan and the
variable rate of the swap).  There has been no significant change in market risk
since December 31, 2004.

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

    At September 30, 2005,  approximately  $7.6 million ($4.6 million  excluding
the RBC Term Loan) 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.

ITEM 4.  CONTROLS AND PROCEDURES

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

                                       24

PART II. OTHER INFORMATION

ITEM 1.  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
11, ADV.  PRO. NO.  02-2007,  PACE LOCAL 1-1069 V. LYNCH  CORPORATION  AND LYNCH
SYSTEMS, INC. CUMBERLAND COUNTY SUPERIOR COURT, CV-2001-00352; AND MAINE SUPREME
JUDICIAL COURT, LAW DOCKET NO. CUM-04-682

    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 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 Court held that the Spinnaker Entities'  bankruptcy
did not prevent the award of severance pay under the statute.  The 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 Court rejected PACE's claim for pre-judgment  interest, but granted
its request for attorney fees.

    Both PACE and the Company have appealed to the Maine Supreme Judicial Court.
The  Company  filed its brief on April 4, 2005.  PACE filed its brief on May 18,
2005.  Lynch filed its Reply Brief on June 9, 2005. On September  13, 2005,  the
Maine  Supreme  Court  heard  oral  argument.  The Court has not yet  issued its
decision. Management does not believe that the resolution of this case will have
a material adverse effect on the Company's  consolidated financial condition and
operations.

QUI TAM LAWSUIT

    The Company, Lynch Interactive and numerous other parties have been named as
defendants in a lawsuit  brought under the so-called "qui tam" provisions of the
federal False Claims Act in the United States District Court for the District of
Columbia.  The complaint was filed under seal with the court in February,  2001,
and the seal was lifted 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  (a  private
individual  who filed the action on behalf of the United States) in 2005 alleges
damages  of   approximately   $91   million  in  respect  of  bidding   credits,
approximately $70 million in respect of government loans and approximately  $206
million in  respect of  subsequent  resales of  licenses,  in each case prior to
trebling.

    In September, 2003, the Court granted Lynch Interactive's motion to transfer
the action to the  Southern  District of New York and 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 for the District of Columbia to compel the FCC to

                                       25

provide information  subpoenaed by them in order to conduct their defense.  This
motion  was  denied  in May,  2005 and the  defendants  have both  appealed  the
decision and  requested a final agency  action in order to seek review under the
Administrative Procedures Act. In the mean-time, fact discovery is substantially
complete  and both the  plaintiff  and the  defendants  have  moved for  summary
judgment on a variety of grounds.  In November  2005,  with  respect to one such
motion for partial summary  judgment on the issue of damages based on resales of
licenses, the court ruled that such damages were not permissible.

    The U. S.  Department  of Justice has notified the Court that it declined to
intervene  in the case.  The  Defendants  strongly  believe  that the  action is
completely  without merit and that the relator's  damage  computation is without
basis, and are vigorously  defending it. 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.  Lynch  Interactive  has retained  legal counsel to
defend the claim on behalf of the Company and Lynch Interactive,  at the expense
of Lynch  Interactive and certain other  defendants.  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 2.  ISSUER PURCHASE OF ITS EQUITY SECURITIES

                                                                                                Maximum Number (or
                                                                          Total Number of       Approximate Dollar
                                                                        Shares Purchased as      Value) of Shares
                                                                         Part of Publicly         that May Yet Be
                                Total Number of    Average Price Paid   Announced Plans or      Purchased Under the
          Period               Shares Purchased         per Share            Programs            Plans or Programs
----------------------------  ------------------  --------------------  -------------------   -----------------------

July 1, 2005 -
July 31, 2005..............         7,400             $  10.4961               7,400              33,000 Shares
August 1, 2005 -
August 31, 2005............         1,500             $  10.0633               1,500              31,500 Shares
September 1, 2005 -
September 30, 2005.........          --                  --                    --                 31,500 Shares
                             ----------------------------------------------------------------------------------------
           Total                    8,900             $  10.4231               8,900              31,500 Shares
                             ========================================================================================

    On February 4, 2004,  Lynch announced that on January 23, 2004, the Board of
Directors  authorized  the  repurchase  of up to 50,000  shares of the Company's
outstanding  common  stock.  The timing of the  buy-back and the exact number of
shares purchased will depend on market conditions; this program does not have an
expiration  date.  The  Company  will buy back  shares  through  both public and
private  channels at prices  believed to be appropriate and in the best interest
of shareholders.

    As of September 30, 2005, the Company has  repurchased  18,500 shares in the
amount of $187,761,  at an average price of $10.1492 per share and 31,500 shares
remain available for purchase under this program.

                                       26

ITEM 6.  EXHIBITS

    Exhibits filed herewith:

        31.1  Certification  of  Principal  Executive  Officer  pursuant to Rule
              13a-14(a) or 15d-14(a) of the Securities  Exchange Act of 1934, as
              amended,  as adopted pursuant to Section 302 of the Sarbanes-Oxley
              Act of 2002.

        31.2  Certificate  of  Principal  Financial  Officer  pursuant  to  Rule
              13a-14(a) or 15d-14(a) of the Securities  Exchange Act of 1934, as
              amended,  as adopted pursuant to Section 302 of the Sarbanes-Oxley
              Act of 2002.

        32    Certification  of  Principal   Executive   Officer  and  Principal
              Financial  Officer  pursuant to Rule 13a-14(b) or 15d-14(b) of the
              Securities Act of 1934, as amended, as adopted pursuant to Section
              906 of the Sarbanes-Oxley Act of 2002.

                                       27

                                   SIGNATURES

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

                                                 LYNCH CORPORATION
                                                 (Registrant)

November  10, 2005                               By: /s/ EUGENE HYNES
                                                     ---------------------------
                                                     Eugene Hynes
                                                     Principal Financial Officer

                                  EXHIBIT INDEX

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

31.1   Certification of Principal  Executive  Officer pursuant to Rule 13a-14(a)
       or  15d-14(a) of the  Securities  Exchange  Act of 1934,  as amended,  as
       adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2   Certificate of Principal  Financial Officer pursuant to Rule 13a-14(a) or
       15d-14(a) of the Securities  Exchange Act of 1934, as amended, as adopted
       pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

    The Exhibits listed above have been filed separately with the Securities and
Exchange  Commission in conjunction  with this Quarterly  Report on Form 10-Q or
have been  incorporated  by reference into this  Quarterly  Report on Form 10-Q.
Upon request,  Lynch Corporation will furnish to each of its shareholders a copy
of  any  such  Exhibit.  Requests  should  be  addressed  to the  Office  of the
Secretary,  Lynch  Corporation,  140 Greenwich Avenue,  4th Floor,  Greenwich CT
06830.

                                       28
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