UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    ---------

                                    FORM 10-K

                       FOR ANNUAL AND TRANSITIONAL REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

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

      FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2004

                                       OR

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

      For the transition period from __________________ to __________________

      COMMISSION FILE NUMBER: 1-106

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

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

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

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

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

    TITLE OF EACH CLASS                NAME OF EACH EXCHANGE ON WHICH REGISTERED
    -------------------                -----------------------------------------

Common Stock, $0.01 Par Value                   American Stock Exchange

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

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

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

      Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes |_| No |X|

      The aggregate market value of voting and non-voting common equity held by
non-affiliates of the Registrant (based upon the closing price of the
Registrant's Common Stock on the American Stock Exchange on June 30, 2004 of
$13.75 per share) was $13.9 million. (In determining this figure, the Registrant
has assumed that all of the Registrant's directors and officers are affiliates.
This assumption should not be deemed a determination or an admission by the
Registrant that such individuals are, in fact, affiliates of the Registrant.

      The number of outstanding shares of the registrant's common stock was
1,649,834 as of March 25, 2005.

      DOCUMENTS INCORPORATED BY REFERENCE: Certain portions of registrant's
definitive Proxy Statement for the 2005 Annual Meeting of Shareholders, which
will be filed with the Securities and Exchange Commission not later than May 2,
2005, are incorporated by reference in Part III of this Report.

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



ITEM 1. BUSINESS

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

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

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

MTRONPTI

      OVERVIEW

      MtronPTI, the result of the acquisition of PTI by Mtron effective
September 30, 2004, is a designer, manufacturer and marketer of custom designed
electronic components that are used primarily to control the frequency or timing
of signals in electronic circuits. Its devices, which are commonly called
frequency control devices, crystals, crystal oscillators or electronic filters,
are used extensively in infrastructure equipment for the telecommunications and
network equipment industries. Its devices are also used in electronic systems
for military applications, avionics, medical devices, instrumentation,
industrial devices and global positioning systems.

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

      o     accuracy -- the frequency of the signal does not change
            significantly over a period of time;
      o     stability -- the frequency of the signal does not vary significantly
            when our product is subjected to a range of operating environments;
            and
      o     low electronic noise -- the signal does not add interfering signals
            that can degrade the performance of electronic systems.

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

      SELECTED FINANCIAL INFORMATION

      For financial reporting purposes, MtronPTI comprises the Company's
"frequency control devices" segment. For information about this segment's net
sales, profit or loss, and total assets for each of the last three fiscal years,
please see Note 12 "Segment Information" to the Company's Consolidated Financial
Statements.

      MTRONPTI'S OBJECTIVES

      MtronPTI's intends to build on the strength of its core expertise in
packaged quartz crystal, oscillator technologies and electronic filter
technologies to become the supplier of choice to original equipment
manufacturers that supply equipment with high-performance timing needs.



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

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

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

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

      Effective September 30, 2004, Mtron acquired PTI for approximately $8.7
million in cash. PTI designs and manufactures precision oscillators, resonators
and filters, which are components in a broad range of commercial and military
electronic and communications systems. This acquisition broadened Mtron's
product line, provided both Mtron and PTI with the opportunity to cross-sell to
the other's customers and placed MtronPTI in a stronger position in the growing
military market.

      PRODUCTS

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

      MtronPTI designs and produces a wide range of packaged quartz crystals,
quartz crystal based oscillators and electronic filter products. There are a
variety of features in its product family. The Packaged Crystal is a single
crystal in a hermetically sealed package and is used by electronic equipment
manufacturers, along with their own electronic circuitry, to build oscillators
for frequency control in their electronic devices. The Clock Oscillator is the
simplest of its oscillators. It is a self-contained package with a crystal and
electronic circuitry that is used as a subsystem by electronic equipment
manufacturers to provide frequency control for their devices. The Voltage
Controlled Crystal Oscillator (VCXO) is a variable frequency oscillator whose
frequency can be changed by varying the control voltage to the oscillator. The
Temperature Compensated Crystal Oscillator (TCXO) is a stable oscillator
designed for use over a range of temperatures. Oven-Controlled Crystal
Oscillators are designed to produce a much higher level of stability over a wide
range of operating conditions with very low phase noise. The Electronic Filters
use either crystal technology or precise manufacturing of inductive/capacitive
circuits to provide filters with carefully defined capabilities to filter out
unwanted portions of a timing signal. This variety of features in MtronPTI's
product family offers the designers at electronic equipment manufacturers a
range of options as they create the needed performance in their products.

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

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


                                       2


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

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

      MANUFACTURING

      MtronPTI has manufacturing facilities in Yankton, South Dakota, Orlando,
Florida and Noida, India. It has established long-term relationships with
several contract manufacturers in Asia. Approximately 12% of MtronPTI's net
sales in 2004 were attributable to one such contract manufacturer located in
both Korea and China. While MtronPTI does not have written long-term agreements
with this contract manufacturer, MtronPTI believes that it occasionally receives
preferential treatment on production scheduling matters. MtronPTI maintains a
rigorous quality control system and is an ISO 9001/2000 qualified manufacturer.
MtronPTI's Hong Kong subsidiary (Mtron Industries, Limited) does not
manufacture, but acts as a buying agent, regional warehouse, quality control and
sales representative for its parent company.

      RESEARCH AND DEVELOPMENT

      At December 31, 2004, MtronPTI employed 30 engineers and technicians
primarily in South Dakota and Florida who devoted most of their time to research
and development. Its research and development expense was approximately $1.1
million, $0.6 million and $0.7 million in 2004, 2003 and 2002, respectively.
MtronPTI expects to increase its spending on research and development by up to
10% during 2005.

      CUSTOMERS

      MtronPTI markets and sells its frequency control devices primarily to:

            o     original equipment manufacturers of communications,
                  networking, military, avionics, instrumentation and medical
                  equipment;
            o     contract manufacturers for original equipment manufacturers;
                  and
            o     distributors who sell to original equipment manufacturers and
                  contract manufacturers.

      In 2004, a communications original equipment manufacturer ("OEM")
accounted for approximately 18% of MtronPTI's net sales, compared to less than
12% in 2003. No other customer accounted for more than 10% of its 2004 revenues.
Sales to its ten largest customers accounted for approximately 48% of net sales
in 2004, compared to approximately 40% and 60% of net sales for 2003 and 2002,
respectively.

      INTERNATIONAL SALES

      MtronPTI's revenues from international sales were $11.3 million, $7.9
million and $5.9 for 2004, 2003 and 2002, representing approximately 48%, 52%
and 51% of its net sales for 2004, 2003 and 2002, respectively. In 2004, these
revenues included approximately 8% from customers in Canada, 19% from customers
in Asia, 7% from customers in Western Europe and 2% from customers in Mexico.
MtronPTI has increased its international sales efforts by adding distributors
and manufacturers' representatives in Western Europe and Asia. The Company
avoids currency exchange risk by transacting substantially all international
sales in United States dollars.


                                       3


      BACKLOG

      MtronPTI had backlog orders of approximately $7.7 million at December 31,
2004 (including backlog attributable to PTI of $4.7 million), compared to $2.8
million at December 31, 2003. The $4.9 million improvement is mainly the result
of the acquisition of PTI. MtronPTI's backlog may not be indicative of future
sales because of its customers' ability to cancel orders.

      COMPETITION

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

      INTELLECTUAL PROPERTY

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

LYNCH SYSTEMS

      OVERVIEW

      Lynch Systems designs, develops, manufactures and markets a broad range of
manufacturing equipment for the electronic display and consumer glass
industries. Lynch Systems also produces replacement parts for various types of
packaging and glass container-making machines, which Lynch Systems does not
manufacture. Lynch Systems is concentrating its efforts on developing its glass
forming machinery business segment. While Lynch Systems' cathode-ray tube
business segment remains an important component of its business, Lynch Systems
anticipates declining demand for products based on such technology.

      SELECTED FINANCIAL INFORMATION

      For financial reporting purposes, Lynch Systems comprises the Company's
"glass manufacturing equipment" segment. For information about this segment's
net sales, profit or loss, and total assets for each of the last three fiscal
years, please see Note 15 "Segment Information" to the Company's Consolidated
Financial Statements.

      LYNCH SYSTEMS OBJECTIVES

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

      Lynch Systems' long term intentions are to monitor the market direction
and to be at the forefront of technology in order to respond to market demand
for new and innovative types of machinery needed to produce glass. Lynch Systems
anticipates that it will continue to research and develop state-of-the-art


                                       4


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

      Lynch Systems intends to continue to expand on its expertise in the feeder
and shear markets, and to reduce the cost of its raw materials by continuing to
search for cheaper suppliers of materials, especially from foreign markets. In
addition, Lynch Systems will continue its own in-house cost cutting programs by
eliminating redundant or superfluous operations, improving its factory quality
and yield rates and better utilization of its current personnel. By increasing
its efficiency and shortening its delivery rate, Lynch Systems hopes to increase
the number of turns giving a positive effect to its financial performance.

      PRODUCTS AND MANUFACTURING

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

      Lynch Systems' worldwide customers require capital equipment that produces
a wide variety of Tableware products to remain competitive. In support of this
market demand, Lynch Systems has invested in Research & Development (R&D)
programs to manufacture new lines of capital equipment such as Stretch Machines
for one-piece Stemware, Firepolishers for high quality Tableware and Spinning
Machines for high speed, high quality Dishware. The production of glassware
entails the use of machines, which heat glass and, using great pressure, form an
item by pressing it into a desired shape. Because of the high cost of bringing
the machine and materials up to temperature, a machine for producing glassware
must be capable of running continuously.

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

      RESEARCH AND DEVELOPMENT

      Research and development expense was $104,000 in 2004, $180,000 in 2003
and $220,000 in 2002. 2004 R&D expense was for television related activities
while prior year R&D was mainly for stemware.

      CUSTOMERS

      Lynch Systems has historically had a small number of customers. One
customer accounted for 36% of Lynch Systems' 2004 revenue, and two customers
accounted for 53% of 2004 sales.


                                       5


      DOMESTIC SALES

      Lynch Systems' revenues from domestic sales were $1.1 million, $3.7
million and $1.8 million for 2004, 2003 and 2002, respectively.

      INTERNATIONAL SALES

      Lynch Systems' revenues from international sales were $9.3 million, $9.1
million and $13.2 million for 2004, 2003 and 2002, respectively, representing
approximately 89%, 71% and 88% of Lynch Systems' net sales for those years.
International sales in the past three years were mainly to customers in
Indonesia, China, South Korea, Lithuania and the Netherlands. The profitability
of international sales is approximately equivalent to that of domestic sales. As
many international orders require partial advance deposits, with the balance
often secured by irrevocable letters of credit from banks in the foreign
country, the Company believes that most of the credit risks commonly associated
with doing business in international markets are minimized. The Company avoids
currency exchange risk by transacting substantially all international sales in
United States dollars.

      BACKLOG

      Lynch Systems had an order backlog of approximately $9.9 million at
December 31, 2004, compared to $2.8 million at December 31, 2003. Backlog
increased due to new orders from television and tableware manufacturers. Most of
Lynch Systems' $9.9 million backlog as of December 31, 2004 is scheduled to be
delivered in 2005, with the majority scheduled to be delivered in the second
quarter. Lynch Systems includes as backlog only those orders that are subject to
written contract or written purchase orders.

      COMPETITION

      Lynch Systems believes that in the worldwide pressware market it is the
largest supplier of CRT products to glass companies that do not manufacture
their own pressware machines. Competition is based on service, performance and
technology. Competitors include various companies in Italy, Japan, Korea,
Germany and elsewhere. Several of the largest domestic and international
producers of glass pressware frequently build their own glass-forming machines
and produce spare parts in-house.

      RAW MATERIALS

      Raw materials are generally available to Lynch Systems in adequate supply
from a number of suppliers. The price of steel, a major component of glass
forming machinery, has increased due to high demand. Lynch Systems has been
required to absorb a portion of that price increase.

      INTELLECTUAL PROPERTY

      Lynch Systems owns patents and proprietary know-how that are important to
its business and the maintenance of its competitive position. Its most important
patent is for a rotary glass-molding press with cushioned trunnion mounted
hydraulic drive, expiring October, 2012.

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

EMPLOYEES

      As of December 31, 2004, the Company employed 355 people, including 7 in
Hong Kong, 2 in Germany and 8 in India. None of its employees is represented by
a labor union and the Company considers its employee relations to be good.

SPINNAKER INDUSTRIES, INC.

      Prior to September 30, 2001, the Company owned 48% and 60%, respectively,
of the equity and voting power of Spinnaker Industries, Inc. ("Spinnaker").
Under accounting principles generally accepted in the United States, the Company
consolidated the results of Spinnaker and was required to record all of the
losses of Spinnaker. On September 26, 2001, the Company made a charitable
disposition of 430,000 shares, as a result of which: (a) the Company's equity
interest and voting power in Spinnaker were reduced to 41.8% and 49.5%,


                                       6


respectively, (b) the Company deconsolidated Spinnaker for financial reporting
purposes, effective September 30, 2001, (c) the Company recorded a non-cash gain
of $27,406,000 on September 30, 2001, (d) from September 30, 2001 until
September 23, 2002, the Company accounted for its ownership of Spinnaker using
the equity method of accounting and (e) the Company did not record any
additional losses from Spinnaker, as it had no obligation to further fund such
losses.

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

ENVIRONMENTAL

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

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

SEASONALITY

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

CUSTOMERS

      In 2004, the largest single customer accounted for 12.2% of consolidated
sales, while the next largest customer represented 10.9% of revenue. In 2003,
the largest single customer accounted for 12% of consolidated sales, while the
next largest customer represented 10% of revenue. In 2002, a single customer,
who represented 42% of Lynch Systems' sales, accounted for 24% of consolidated
net sales, while the next largest customer represented less than 8% of
consolidated revenue.

LONG-LIVED ASSETS

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

                                  RISK FACTORS

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


                                       7


      WE HAVE INCURRED OPERATING LOSSES FOR THE PAST THREE YEARS AND FACE
UNCERTAINTY IN OUR ABILITY TO ACHIEVE OPERATING PROFITS IN THE FUTURE.

      We have incurred substantial operating losses for the past three years.
Without giving effect to gains realized from the deconsolidation in 2002 of one
of our holdings, we suffered operating losses of $2.9 million, $832,000 and $3.3
million in 2004, 2003 and 2002, respectively. We are uncertain whether we will
be able to achieve or sustain operating profits in the future.

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

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

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

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

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

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

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

      o     the diversion of our management's attention from our existing
            business to integrate the operations and personnel of the acquired
            or combined business or joint venture;
      o     possible adverse effects on our operating results during the
            integration process;
      o     substantial acquisition related expenses, which would reduce our net
            income in future years;
      o     the loss of key employees and customers as a result of changes in
            management; and
      o     our possible inability to achieve the intended objectives of the
            transaction.

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

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

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


                                       8


      o     prohibiting our shareholders from fixing the number of our
            directors;
      o     requiring advance notice for shareholder proposals and nominations;
            and
      o     prohibiting shareholders from acting by written consent, unless
            unanimous.

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

      COMPLIANCE WITH CHANGING REGULATION OF CORPORATE GOVERNANCE AND PUBLIC
DISCLOSURE WILL RESULT IN ADDITIONAL EXPENSES.

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

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

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

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

      We anticipate that all of our earnings will be retained for the
development of our business. The Board of Directors has adopted a policy of not
paying cash dividends on our common shares. We do not anticipate paying cash
dividends on our common shares in the foreseeable future.

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

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

      o     changes in financial estimates or investment recommendations by
            securities analysts relating to our shares;
      o     loss of a major customer;
      o     announcements by us or our competitors of significant contracts,
            acquisitions, strategic partnerships, joint ventures or capital
            commitments; and
      o     changes in key personnel.


                                       9


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

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

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

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

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

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

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

      o     political and economic instability in countries in which our
            products are manufactured and sold;
      o     expropriation or the imposition of government controls;
      o     sanctions or restrictions on trade imposed by the United States
            government;
      o     export license requirements;
      o     trade restrictions;
      o     currency controls or fluctuations in exchange rates;
      o     high levels of inflation or deflation;
      o     greater difficulty in collecting our accounts receivable and longer
            payment cycles;
      o     changes in labor conditions and difficulties in staffing and
            managing our international operations; and
      o     limitations on insurance coverage against geopolitical risks,
            natural disasters and business operations.

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

      OUR BUSINESSES ARE CYCLICAL. THE RECENT DECLINE IN DEMAND IN THE
ELECTRONIC COMPONENT AND GLASS COMPONENT INDUSTRIES MAY CONTINUE, RESULTING IN
ADDITIONAL ORDER CANCELLATIONS AND DEFERRALS AND LOWER AVERAGE SELLING PRICES
FOR OUR PRODUCTS.

      Our subsidiaries sell to industries that are subject to cyclical economic
changes. The electronic component and glass component industries in general, and
specifically the Company, have for the past several years experienced a decline
in product demand on a global basis, resulting in order cancellations and
deferrals and lower average selling prices. This decline is primarily
attributable to a slowing of growth in the demand for components used by


                                       10


telecommunications infrastructure manufacturers and newer technologies
introduced in the glass display industry. We cannot assure you that any expected
or perceived improvements in the economy and the electronic component and glass
component industry will occur. The slowdown may continue and may become more
pronounced. A slowdown in demand, as well as recessionary trends in the global
economy, make it more difficult for us to predict our future sales, which also
makes it more difficult to manage our operations.

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

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

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

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

      WE MAY NOT REALIZE THE SYNERGIES OR ACHIEVE THE INTENDED OBJECTIVES SOUGHT
FROM MTRON'S ACQUISITION OF PTI.

      Effective September 30, 2004, Mtron completed its acquisition of PTI. The
value of this acquisition is largely based on the synergies that we believe will
be created by the integration of these two companies. This process involves a
number of risks, including the diversion of our management's attention from our
existing business to integrate PTI's operations and personnel, and possible
adverse effects on our operating results during the integration process. In
addition, we may be unable to integrate, operate, maintain and manage PTI's
operations or employees. We also may not be able to maintain uniform standards,
controls, procedures and policies, and this may lead to operational
inefficiencies.

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

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

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

      In 2004, approximately 12% of MtronPTI's net sales was attributable to
finished products that were manufactured by an independent contract manufacturer
located in both Korea and China. We expect this manufacturer to account for a
smaller but substantial portion of MtronPTI's net sales in 2005 and a material
portion of MtronPTI's sales for the next several years. MtronPTI does not have a
written, long-term supply contract with this manufacturer. If this manufacturer
becomes unable to provide products in the quantities needed, or at acceptable
prices, MtronPTI would have to identify and qualify acceptable replacement


                                       11


manufacturers or manufacture the products internally. Due to specific product
knowledge and process capability, MtronPTI could encounter difficulties in
locating, qualifying and entering into arrangements with replacement
manufacturers. As a result, a reduction in the production capability or
financial viability of this manufacturer, or a termination of, or significant
interruption in, MtronPTI's relationship with this manufacturer, may adversely
affect MtronPTI's results of operations and our financial condition.

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

      Virtually all of MtronPTI's 2003 and 2004 net sales came from sales of
frequency control devices, which consist of packaged quartz crystals, oscillator
modules and electronic filters. We expect that this product line will continue
to account for substantially all of MtronPTI's net sales for the foreseeable
future. Any decline in demand for this product line or failure to achieve
continued market acceptance of existing and new versions of this product line
may harm MtronPTI's business and our financial condition.

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

      MtronPTI's business depends heavily upon capital expenditures by the
providers of communications and network services. In 2004, the majority of
MtronPTI's net sales were to manufacturers of communications and network
infrastructure equipment, including indirect sales through distributors and
contract manufacturers. In 2005, MtronPTI expects a smaller but significant
portion of its net sales to be to manufacturers of communications and network
infrastructure equipment. MtronPTI intends to increase its sales to
communications and network infrastructure equipment manufacturers in the future.
Communications and network service providers have experienced periods of
capacity shortage and periods of excess capacity. In periods of excess capacity,
communications systems and network operators cut purchases of capital equipment,
including equipment that incorporates MtronPTI's products. A slowdown in the
manufacture and purchase of communications and network infrastructure equipment
could substantially reduce MtronPTI's net sales and operating results and
adversely affect our financial condition. Moreover, if the market for
communications or network infrastructure equipment fails to grow as expected,
MtronPTI may be unable to sustain its growth. In addition, MtronPTI's growth
depends upon the acceptance of its products by communications and network
infrastructure equipment manufacturers. If, for any reason, these manufacturers
do not find MtronPTI's products to be appropriate for their use, our future
growth will be adversely affected.

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

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

      MTRONPTI'S GOVERNMENT CONTRACTS CONTAIN PROVISIONS THAT ARE UNFAVORABLE TO
IT AND HAVE A NUMBER OF SPECIFIC RISKS THAT MAY RESULT IN LOST ORDERS AND
PROFITS.

      Many of MtronPTI's contracts with government agencies contain provisions
that give the governments rights and remedies not typically found in private
commercial contracts, including provisions enabling the government to:

      o     terminate or cancel existing contracts without good reason or
            penalty;
      o     suspend MtronPTI from doing business with a foreign government or
            prevent MtronPTI from selling its products in certain countries;
      o     audit and object to MtronPTI's contract-related costs and expenses,
            including allocated indirect costs; and
      o     change specific terms and conditions in MtronPTI's contracts,
            including changes that would reduce the value of the contract to
            MtronPTI.


                                       12


      MtronPTI's business generated from government contracts could be
materially and adversely affected if:

      o     MtronPTI's reputation or relationship with government agencies were
            impaired;
      o     MtronPTI were suspended or otherwise prohibited from contracting
            with a domestic or foreign government;
      o     any of MtronPTI's products were to fail to meet the requirements of
            certain applicable specified military standards;
      o     levels of government spending were to decrease;
      o     MtronPTI were barred from entering into new government contracts or
            extending existing government contracts based on violations or
            suspected violations of laws or regulations; or
      o     MtronPTI were not granted security clearances required to provide
            its services and solutions to governments, or such security
            clearances were revoked.

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

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

      LYNCH SYSTEMS' REVENUE IS LARGELY DEPENDENT ON DEMAND FOR ITS TELEVISIONS
AND COMPUTER MONITORS BASED ON CATHODE-RAY TUBE TECHNOLOGY. THIS TECHNOLOGY WILL
EVENTUALLY BE REPLACED BY PLASMA AND LIQUID CRYSTAL DISPLAYS.

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

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

      Lynch Systems' sales to its ten largest customers accounted for
approximately 84% of its net sales in 2003, 2002 and 2001 and 80% in 2004. Lynch
Systems' sales to its largest customer accounted for approximately 20% of its
net sales in 2003, 2002 and 2001 and 36% in 2004. If a significant customer
reduces, delays or cancels its orders for any reason, the business and results
of operations of Lynch Systems would be negatively affected.

      AN ORDER TO BUILD MULTIPLE MACHINES IN THE FUTURE WITH A SIGNIFICANT
CUSTOMER IN THE TABLEWARE MARKET IS CONTINGENT UPON THE SUCCESSFUL INSTALLATION
AND OPERATION OF MACHINES CURRENTLY IN PRODUCTION.

      Lynch Systems has a significant order for glass manufacturing machines
that are scheduled to be shipped and installed in the customer's factories in
2005. We expect that this contract will represent approximately 33% of Lynch
Systems' revenues in 2005. Many of these machines utilize new processes and
require customer training. The ability of the customer's personnel and resources
to operate these machines successfully is critical. If the customer does not
realize the full benefit from these machines, new orders from this customer may
be cancelled.

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

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

      LYNCH SYSTEMS MAY BE UNABLE TO PROTECT ITS INTELLECTUAL PROPERTY.

      The success of Lynch Systems' business depends, in part, upon its ability
to protect trade secrets, designs, drawings and patents, obtain or license
patents and operate without infringing on the intellectual property rights of
others. Lynch Systems relies on a combination of trade secrets, designs,
drawings, patents, nondisclosure agreements and technical measures to protect
its proprietary rights in its products and technology. The steps taken by Lynch
Systems in this regard may not be adequate to prevent misappropriation of its


                                       13


technology. In addition, the laws of some foreign countries in which Lynch
Systems operates do not protect its proprietary rights to the same extent as do
the laws of the United States. Although Lynch Systems continues to evaluate and
implement protective measures, we cannot assure you that these efforts will be
successful. Lynch Systems' inability to protect its intellectual property rights
could diminish or eliminate the competitive advantages that it derives from its
technology, cause Lynch Systems to lose sales or otherwise harm its business.

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

                           FORWARD LOOKING INFORMATION

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

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

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

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

EXECUTIVE OFFICERS OF THE COMPANY

      Pursuant to General Instruction G (3) of Form 10-K, the following list of
executive officers of the Company is included in Part I of this Annual Report on
Form 10-K in lieu of being included in the Proxy Statement for the 2005 Annual
Meeting of Shareholders. Such list sets forth the names and ages of all
executive officers of the Company indicating all positions and offices with the
Company held by each such person and each such person's principal occupations or
employment during the past five years.

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

Marc Gabelli.........     Chairman  (September  2004 to present) and Director  (May 2003 to May 2004) of      37
                          the  Corporation;  Managing  director  (1996 to 2004) and  President  (2004 to
                          present)  of Gabelli  Group  Capital  Partners,  Inc.,  the parent  company of
                          Gabelli Asset Management,  Inc., a private corporation which makes investments
                          for its own account;  President of Gemini Capital  Management  LLC;  President
                          of Venator Merchant Fund, LP.


                                       14


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

John C. Ferrara......     President  and Chief  Executive  Officer  (October  2004 to  present) of Lynch      53
                          Corporation;  Private investor from March 2002 to present; President and Chief
                          Executive  Officer (2001 to March 2002) and Chief  Financial  Officer (1999 to
                          2001) of Space Holding Corporation,  a private multimedia company dedicated to
                          space,  science and  technology;  Executive Vice President and Chief Financial
                          Officer  (1998 to 1999) of Golden Books Family  Entertainment,  Inc., a NASDAQ
                          listed  publisher,  licenser  and  marketer of  entertainment  products;  Vice
                          President  and  Chief   Financial   Officer  (1989  to  1997)  of  Renaissance
                          Communications   Corp.,  a  NYSE  listed  owner  and  operator  of  television
                          stations;  Director of Gabelli  Asset  Management  Inc. and Lynch  Interactive
                          Corporation.

Eugene Hynes.........     Vice  President  of Finance  (September  2004 to present) of the  Corporation;      39
                          Vice President and Controller of Space Holding Corp (1999 to September  2004);
                          Manager Financial Planning and Analysis of Golden Books Family  Entertainment,
                          Inc. (1998-1999).

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

ITEM 2. PROPERTIES

      On November 2, 2004, the Company announced the relocation of its corporate
headquarters from Providence, Rhode Island, to 140 Greenwich Avenue, Greenwich,
Connecticut. The Company is currently operating under a monthly lease for
approximately 1,100 square feet of office space in Greenwich, Connecticut.

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

      MtronPTI's operations are located in Yankton, South Dakota, Orlando,
Florida, India and Hong Kong. MtronPTI has two separate facilities in Yankton,
these facilities contain approximately 51,000 square feet in the aggregate. The
manufacturing facility that is owned by MtronPTI contains approximately 35,000
square feet, is situated on approximately 15 acres of land and is subject to
security deeds relating to loans. The other facility is leased and contains
approximately 16,000 square feet. The lease expires on September 30, 2006, with
no options to extend the lease. MtronPTI has two buildings, approximately 78,000
square feet, on approximately 8 acres in Orlando that was purchased in
connection with the acquisition of PTI. MtronPTI has approximately 1,500 square
feet of office space in Hong Kong; the lease expires October 5, 2006 and does
not include renewal options and the Company has leases approximately 7,500
square feet of office and manufacturing space in Delhi, India.

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

ITEM 3. LEGAL PROCEEDINGS

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


                                       15


IN RE: SPINNAKER COATING, INC., DEBTOR/PACE LOCAL 1-1069 V. SPINNAKER COATING,
INC., AND LYNCH CORPORATION, U.S. BANKRUPTCY COURT, DISTRICT OF MAINE, CHAPTER
11, ADV. PRO. NO. 02-2007, AND PACE LOCAL 1-1069 V. LYNCH CORPORATION AND LYNCH
SYSTEMS, INC. CUMBERLAND COUNTY SUPERIOR COURT, CV-2001-00352

      On or about June 26, 2001, in anticipation of the July 15, 2001 closure of
Spinnaker's Westbrook, Maine facility, Plaintiff PACE Local 1-1069 ("PACE")
filed a three count complaint in Cumberland County Superior Court, CV-2001-00352
naming the following Defendants: Spinnaker Industries, Inc., Spinnaker Coating,
Inc., and Spinnaker Coating-Maine, Inc. (collectively, the "Spinnaker Entities")
and the Company. The complaint alleged that under Maine's Severance Pay Act both
the Spinnaker Entities and the Company would be liable to pay approximately
$1,166,000 severance pay under Maine's Severance Pay Act in connection with the
plant closure. Subsequently, the Spinnaker Entities filed for relief under
Chapter 11 of the Bankruptcy Code and the action proceeded against the Company
on the issue of whether the Company has liability to PACE's members under the
Maine Severance Pay Act.

      In 2002, both plaintiff and defendants 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 plaintiff on the second count of its complaint
based on its earlier ruling that the Company was the parent corporation of the
Spinnaker Entities. T he 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 plaintiff $653,018 (subsequently
modified to $656,020) in severance pay, which is approximately one-half the
amount claimed by it. The Court rejected plaintiff's claim for pre-judgment
interest, but granted its request for attorney fees.

      Both the plaintiff and the Company have filed notices of appeal to the
Maine Supreme Judicial Court. 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 on
February 14, 2001, and the seal was lifted on January 11, 2002. The Company was
formally served with the complaint on July 9, 2002. The main allegation in the
case is that the defendants participated in the creation of "sham" bidding
entities that allegedly defrauded the 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 document filed by the relator
(a private party that filed the action on behalf of the United States) discloses
an initial computation of damages of not less than $88 million resulting from
bidding credits awarded defendants in FCC auctions and $120 million of unjust
enrichment through the disposition of licenses obtained in FCC auctions. Lynch
Interactive has stated that the bidding credits the defendents received were
considerably less than the $88 million amount reported. On September 30, 2003,
the Court granted Lynch Interactive's motion to transfer the action to the
Southern District of New York.

      On September 14, 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 is pending and pre-trial discovery
continues.


      The U. S. Department of Justice has notified the Court that is has
declined to intervene in the case. The Defendants strongly believe that the
action is completely without merit and that the relator's initial damage
computation is without basis, and are vigorously defending it. Under the
separation agreement between the Company and Lynch Interactive pursuant to which


                                       16



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. Nevertheless, the Company
cannot predict the ultimate outcome of the litigation, nor can the Company
predict the effect that the lawsuit or its outcome will have on the Company's
business or plan of operation.

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

      Not applicable.

                                    PART II

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

      The Common Stock of the Company is traded on the American Stock Exchange
under the symbol "LGL." The market price highs and lows in consolidated trading
of the Common Stock during the fiscal years ended December 31, 2004 and December
31, 2003 are as follows:

2004                            MARCH 31           JUNE 30       SEPTEMBER 30      DECEMBER 31
----                            --------           -------       ------------      -----------

High....................          17.00             16.25            15.10             16.74
Low.....................           9.80             12.26            11.65             12.25

2003                            MARCH 31           JUNE 30       SEPTEMBER 30      DECEMBER 31
----                            --------           -------       ------------      -----------

High....................           9.05             13.00            12.35             11.38
Low.....................           7.71              6.30             8.24              9.10

      At March 25, 2005, the Company had 781 shareholders of record.

DIVIDEND POLICY

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

EQUITY COMPENSATION PLAN INFORMATION

      On May 2, 2002, the Company's shareholders approved the 2001 Equity
Incentive Plan and the issuance of up to 300,000 options to purchase shares of
Company common stock. The options approved included the grant of 180,000 fully
vested options to the Company's former Chairman and Chief Executive Officer,
Ralph R. Papitto, and 24,000 options that vest over three years starting in 2002
to each of Raymond H. Keller, the Company's former Chief Financial Officer, and
to Richard E. McGrail, the Company's former President and Chief Operating
Officer. In 2004, Mr. Keller and Mr. McGrail resigned from their respective
positions with the Company. As a result, any options that remained unvested at
the time of their respective resignations were cancelled, effective three months
after their date of resignation. For both Mr. Keller and Mr. McGrail the vested
options were cancelled, in first quarter 2005, in accordance with option
cancellation provisions.


                                       17


      The following table sets forth the Equity Compensation Plan information
required by Item 201(d) of Regulation S-K as of December 31, 2004:

                                                                                             NUMBER OF SECURITIES
                                                                                            REMAINING AVAILABLE FOR
                                                                                             FUTURE ISSUANCE UNDER
                                NUMBER OF SECURITIES TO BE    WEIGHTED-AVERAGE EXERCISE    EQUITY COMPENSATION PLANS
                                  ISSUED UPON EXERCISE OF       PRICE OF OUTSTANDING         (EXCLUDING SECURITIES
                                   OUTSTANDING OPTIONS,         OPTIONS, WARRANTS AND              REFLECTED
        PLAN CATEGORY               WARRANTS AND RIGHTS                RIGHTS                   IN COLUMN (a))
--------------------------------------------------------------------------------------------------------------------
                                            (a)                          (b)                          (c)
--------------------------------------------------------------------------------------------------------------------

Equity compensation plans
   approved by security               224,000 shares                                             76,000 shares
   holders.................            Common Stock               $17.50 per share                Common Stock
Equity compensation plans not
   approved by security
   holders.................                 --                          --                            --
                                --------------------------    -------------------------    -------------------------
Total......................           224,000 shares                                             76,000 shares
                                       Common Stock               $17.50 per share                Common Stock
                                ==========================    =========================    =========================

ISSUER REPURCHASE OF ITS EQUITY SECURITIES

      There were no repurchases made by the Company during the fourth fiscal
quarter of 2004.

ITEM 6. SELECTED FINANCIAL DATA

                       LYNCH CORPORATION AND SUBSIDIARIES

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

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

                                                                        YEAR ENDED DECEMBER 31, (a)
                                                    -----------------------------------------------------------------
                                                      2004          2003          2002*         2001*         2000
                                                    ---------     ---------     ---------     ---------     ---------

Revenues .......................................    $  33,834     $  27,969     $  26,386     $ 141,073     $ 219,196
Operating profit (loss)(b) .....................       (2,888)         (832)       16,168       (19,240)        2,352
Gain (loss) on sale of subsidiary stock and
   other operating assets ......................           --            35           (92)           --            --
Gain on release of customer related  contingency           --           728            --            --            --
Income (loss) from continuing operations
   before income taxes and minority interests ..       (3,226)          183        15,996       (26,597)      (10,399)
(Provision) benefit for income taxes ...........         (100)          (73)        1,967          (358)          181
Minority interests .............................           --            --            --         4,017         6,780
Net income (loss) ..............................    $  (3,326)    $     110     $  17,963     $ (22,938)    $  (3,438)
                                                    =========     =========     =========     =========     =========
Per Common Share:(c)
   Net income (loss):
      Basic ....................................    $   (2.18)    $    0.07     $   11.99     $  (15.24)    $   (2.31)
      Diluted ..................................        (2.18)         0.07         11.99        (15.24)        (2.31)
Cash, securities and short-term  Investments(e)     $   6,189     $   6,292     $   6,847     $   4,247     $  10,543
Restricted cash(e)(f) ..........................        1,125         1,125         1,125         4,703         6,500
Total assets(d)(e) .............................       33,883        23,019        23,430        31,615       162,820
Long-term debt, exclusive of current  portion(e)        3,162           833         1,089         1,678        61,350
Shareholders' equity (deficiency) (d)(e) .......        9,993        11,033        10,934        (7,451)       15,432


                                       18


NOTES:

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

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

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

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

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

(e)   2004, 2003, 2002 and 2001 exclude Spinnaker Industries as a result of the
      September 30, 2001 deconsolidation of Spinnaker resulting from the
      Company's disposition of shares of Spinnaker that reduced its ownership
      and voting interest of Spinnaker Industries, Inc. to 41.8% and 49.5%
      respectively, and the Company's subsequent disposition of its remaining
      interest in Spinnaker on September 23, 2002.

(f)   See discussion of Restricted Cash and Notes Payable and Long-Term Debt in
      Note 4 to the Consolidated Financial Statements.

(g)   For three-year trend data of revenues and operating profit (loss) by
      segment, see Note 12 to the Consolidated Financial Statements - "Segment
      Information".

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

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


                                       19


RESULTS OF OPERATIONS

      2004 COMPARED TO 2003

CONSOLIDATED REVENUES AND GROSS MARGIN

      Consolidated revenues increased $5.8 million, or 21%, to $33.8 million for
the year ended December 31, 2004 from $28.0 million for the comparable period in
2003. The increase came from MtronPTI, including the contribution of the PTI
acquisition, and was partially offset by lower revenues at Lynch Systems.

      Revenues at MtronPTI increased by $8.2 million, or 54%, to $23.4 million
for the year ended December 31, 2004 from $15.2 million for the comparable
period in 2003. The increase was due to improvements in the telecommunications
market resulting from a stronger general economy, improvements in the
infrastructure segment of the telecommunications market, new customers and the
PTI acquisition which contributed approximately $3.6 million in revenue since it
was acquired effective September 30, 2004.

      Revenues at Lynch Systems declined by $2.4 million, or 19%, to $10.4
million for the year ended December 31, 2004 from $12.8 million for the
comparable period in 2003. This decrease was primarily due to less revenue for
glass press machines. However, order backlog of $9.9 million at December 31,
2004 represented a significant improvement of $7.1 million compared to December
31, 2003. Most of Lynch Systems' $9.9 million backlog as of December 31, 2004 is
scheduled to be delivered in 2005 with the majority scheduled to be delivered in
the second quarter.

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

      MtronPTI's gross margin as a percentage of revenues for year ended
December 31, 2004, increased to 26.9% from 23.1% in 2003. The sales improvement
at Mtron and the contribution from PTI, combined with selective price increases
and operational efficiencies resulted in the improved gross margin rates.

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

OPERATING LOSS

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

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

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

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

                                       20


OTHER INCOME (EXPENSE), NET

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

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

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

INCOME TAXES

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

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

NET INCOME (LOSS)

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

BACKLOG/NEW ORDERS

      Total backlog of manufactured products at December 31, 2004 was $17.6
million, a $12.0 million increase compared to the backlog at December 31, 2003.
The backlog at December 31, 2004 at MtronPTI increased $4.9 million to $7.7
million from $2.8 million at December 31, 2003 primarily due to the addition of
the backlog at PTI of $4.7 million at December 31, 2004. The backlog at December
31, 2004 at Lynch Systems increased $7.1 million to $9.9 million from $2.8
million at December 31, 2003 primarily due to increased new orders from both
television and tableware manufacturers.

      YEAR 2003 COMPARED TO 2002

NET SALES

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

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


                                       21


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

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

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

OPERATING PROFIT

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

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

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

OTHER INCOME/EXPENSE

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

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

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

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

      Income tax benefit (expense) includes federal, state, local and foreign
taxes. The Company has a $2,735,000 net operating loss ("NOL") carry forward as
of 12/31/03. This NOL expires in 2024 if not utilized prior to that date. There
was no state income tax provision in 2003 due to deductions applicable to the
Company's Georgia business. There was no federal tax benefit as a result of 2003


                                       22


net operating losses because the Company utilized its applicable carry-back
("NOL") in 2003 and there is uncertainty regarding the utilization of the NOL
carry-forward. The $73,000 tax expense recorded in 2003 represents the
applicable tax at the Hong Kong tax rate on Mtron's foreign subsidiaries'
earnings.

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

      The Company's cash, cash equivalents and investments in marketable
securities at December 31, 2004 totaled $7.3 million (including $1.1 million of
restricted cash) compared to $7.4 million at December 31, 2003. In addition, the
Company had a $2.8 million borrowing capacity under Lynch Systems' and
MtronPTI's revolving line of credit at December 31, 2004.

      At December 31, 2004, the Company had $5,557,000 in notes payable to banks
consisting of a revolving credit loan at MtronPTI for $3,557,000 due in April,
2005 and a working capital revolver at Lynch Systems for $2,000,000 due in May,
2005. The Company is currently in discussions with the banks and expects to
renew these facilities with the existing banks. At December 31, 2004, the
Company also had $3,842,000 in current maturities of long-term debt, including a
bridge loan of $3,000,000 that was collateralized with the buildings and
property at PTI. The Company is currently in discussion with several banks and
expects to refinance the $3,000,000 bridge loan with a longer term mortgage.
However, there are no assurances that the existing facilities will be renewed or
that the Company will be able to obtain a mortgage at MtronPTI. The Company
expects to pay off the other amounts due. The Company believes that existing
cash and cash equivalents, cash generated from operations and available
borrowings under its subsidiaries' lines of credit, including the proposed
renewals and new mortgage, will be sufficient to meet its ongoing working
capital and capital expenditure requirements for the foreseeable future.

      At December 31, 2004, the Company had current assets of $24.8 million and
current liabilities of $20.7 million. At December 31, 2003, the company had
current assets of $18.6 million and current liabilities of $11.2 million. At
December 31, 2004, the working capital was $4.1 million as compared to $7.4
million at December 31, 2003. The ratio of current assets to current liabilities
was 1.19 to 1.00 at December 31, 2004, compared to 1.66 to 1.00 ratio at
December 31, 2003. The increase in current assets is primarily related to the
PTI acquisition and the increase in current liabilities is primarily due to the
financing of the PTI acquisition and a $2.0 million working capital loan at
Lynch Systems.

      Cash used in operating activities was approximately $1.4 million in 2004,
compared to approximately $0.5 million in 2003. The year over year unfavorable
change in operating cash flow of $0.9 million was mainly the result of a $3.3
million loss for the year ended December 31, 2004 versus $0.1 million income for
the comparable period in 2003.


                                       23


      Capital expenditures were $440,000 in 2004 and $141,000 in 2003.

      At December 31, 2004, total debt of $12.6 million was $8.8 million greater
than the total debt at December 31, 2003 of $3.8 million. The increase in debt
was primarily attributed to debt relating to the PTI acquisition and increased
borrowings under Lynch Systems' revolver of $2.0 million. Debt outstanding at
December 31, 2004 included $1.4 million of fixed rate debt at a year-end average
interest rate of 4.4%, and $11.2 million of variable rate debt at a year-end
average rate of 5.2%.

      In connection with the completion of the acquisition of PTI, on October
14, 2004, Mtron and PTI, entered into a Loan Agreement with First National Bank
of Omaha. The Loan Agreement provides for loans in the amounts of $2,000,000
(the "Term Loan") and $3,000,000 (the "Bridge Loan"), together with a $5,500,000
Revolving Line of Credit (the "Revolving Loan"). The Term Loan bears interest at
the greater of prime rate plus 50 basis points, or 4.5%, and is to be repaid in
monthly installments of $37,514, with the then remaining principal balance plus
accrued interest to be paid on the third anniversary of the Loan Agreement. The
Bridge Loan bears interest at the same rate as the Term Loan. Accrued interest
thereon is payable monthly and the principal amount thereof, together with
accrued interest, is payable on the first anniversary of the Loan Agreement. The
Revolving Loan bears interest at the greater of prime rate or 4.5%. Amounts
outstanding are to be repaid, together with accrued interest, on April 30, 2005.
All outstanding obligations under the Loan Agreement are collateralized by
security interests in the assets of Mtron and PTI, as well as by a mortgage on
PTI's premises. The Loan Agreement contains a variety of affirmative and
negative covenants of types customary in an asset-based lending facility. The
Loan Agreement also contains financial covenants relating to maintenance of
levels of minimal tangible net worth and working capital, and current, leverage
and fixed charge ratios, restricting the amount of capital expenditures.
At December 31, 2004, the Company was in violation of certain of its financial
covenants for which it received a waiver from the bank through December 31,
2005.



      Concurrently with this new financing, Mtron's $3,000,000 line of credit
with First National Bank of Omaha was replaced by the $5,500,000 Revolving Line
of Credit. 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.

      On October 14, 2004, in connection with the acquisition of PTI, the
Company provided $1.8 million of subordinated financing to MtronPTI and MtronPTI
issued a subordinated promissory note to the Company in such amount increasing
the subordinated total to $2.5 million.

      The Company has guaranteed a Letter of Credit issued to the First National
Bank of Omaha on behalf of its subsidiary, Mtron Industries, Inc. As of December
31, 2004, the $1,000,000 Letter of Credit issued by Fleet Bank to The First
National Bank of Omaha was secured by a $1,125,000 deposit in a Fleet Bank
Treasury Fixed Income Fund. The Company's outstanding Letter of Credit in the
amount of $1.0 million for the benefit of the bank can be reduced to $500,000
when Mtron is profitable for 5 of 6 consecutive months and the cumulative after
tax profit equals or exceeds $500,000. The remaining $500,000 Letter of Credit
will be released when the earning parameters are met for a second time. These
thresholds were not met in 2004 and there is no assurance they will be met in
2005.

      Funding for the Champion transaction in October, 2002 was provided by the
Areawide Business Council, Yankton Area Progressive Growth, Inc. and the South
Dakota Board of Economic Development, and in the amount of $250,000, $100,000
and $296,000 respectively. These loans, which total $646,000, are secured by
Mtron's real estate and have maturity dates of April 21, 2005; November 10, 2007
and December 19, 2007, respectively. $406,000 is outstanding on these three
loans as of December 31, 2004. Principal payments under three loans will total
$70,000 in 2005. The average interest rate in 2005 for these fixed rate loans
will be 3.14%. (See Note 4 to the Consolidated Financial Statements - "Notes
Payable to Bank and Long-term Debt").

      On May 29, 2004, Lynch Systems renewed its loan agreement with its bank
for a $7 million line of credit to be used for the issuance of standby letters
of credit and/or revolving credit. This line of credit is secured by accounts
receivable and inventories. Amounts available under this line of credit are used
to fund letters of credit securing customer advances, and for certain warranty
coverages and working capital. This loan includes an unsecured parent company
guarantee. At December 31, 2004, there were outstanding Letters of Credit of
$2.0 million and $2.0 million of borrowings under the working capital line.
There were no parent company obligations to SunTrust Bank as of December 31,
2003. This $7 million line of credit with SunTrust Bank has a May 31, 2005
maturity date. The Company expects to renew this credit in its present form.


                                       24


      On August 4, 2003, Lynch Systems entered into a new term loan agreement
with SunTrust Bank. The new loan is in the amount of $498,000 and is secured by
a lien on Lynch Systems' real estate. The new loan has a 10-year term with
interest at 5.5%. Principal payments are $4,150 per month for 120 months
commencing August 2003. The loan proceeds were used to retire the First Port
City loan that was due in its entirety on August 5, 2003 in the amount of
$554,000. As of December 31, 2004, $427,000 is outstanding on this term loan.

      Mtron, under its loan with First National Bank of Omaha, may pay a cash
dividend to the parent company equal to 50% of Mtron's prior year earnings and
pay interest on the subordinated debt owed by Mtron to the Corporation, both
subject to terms of the loan agreement. Lynch Systems, under its loan with
SunTrust Bank, may pay a cash dividend to the parent company equal to 50% of
Lynch Systems' net income for the prior fiscal year, subject to the minimum net
worth covenant in the loan agreement. In addition, Lynch Systems may pay an
annual management fee to the parent company in an amount not to exceed $250,000,
and Lynch Systems may reimburse the parent company for expenses and taxes paid
by the parent on its behalf. The Company does not at present have credit
facilities at the parent company level.

      The Board of Directors has adopted a policy of not paying cash dividends,
a policy which is reviewed annually. This policy takes into account the
long-term growth objectives of the Company, especially in its acquisition
program, shareholders' desire for capital appreciation of their holdings and the
current tax law disincentives for corporate dividend distributions. Accordingly,
no cash dividends have been paid since January 30, 1989 and none are expected to
be paid in 2005. (See Note 4 to the Consolidated Financial Statements - "Notes
Payable to Banks and Long-term Debts" - for restrictions on the companies
assets).

OFF-BALANCE SHEET ARRANGEMENTS

      Aside from the Company's stand-by Letter of Credit in the amount of
$1,000,000, the Company does not have any off-balance sheet arrangements.

AGGREGATE CONTRACTUAL OBLIGATIONS

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

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

                                                    LESS THAN 1                                MORE THAN 5
CONTRACTUAL OBLIGATIONS                   TOTAL        YEAR        1 - 3 YEARS   3 - 5 YEARS      YEARS
--------------------------------------   -------    -----------    -----------   -----------   -----------

Short-term Debt                          $ 5,829      $ 5,829        $    --        $    --      $    --
Long-term Debt Obligations                 7,574        4,145          3,086            260           83
Capital Lease Obligations                     --           --             --             --           --
Operating Lease Obligations                  333          181            136             16           --
Purchase Obligations                          --           --             --             --           --
Other Long-term Liabilities Reflected
   on the Registrant's Balance Sheet
   under GAAP                                 --           --             --             --           --
                                         -------      -------        -------        -------      -------
         TOTAL                           $13,736      $10,155        $ 3,222        $   276      $    83
                                         =======      =======        =======        =======      =======

CRITICAL ACCOUNTING POLICIES

      The Company's significant accounting policies are described in Note 1 to
the Consolidated Financial Statements included in Item 8 of this Form 10-K. The
Company's discussion and analysis of its financial condition and results of
operations are based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of


                                       25


assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, the Company evaluates its
estimates, including those related to the carrying value of inventories,
realizability of outstanding accounts receivable, percentage of completion of
long-term contracts, and the provision for income taxes. The Company bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. In the past, actual results
have not been materially different from the Company's estimates. However,
results may differ from these estimates under different assumptions or
conditions.

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

      ACCOUNTS RECEIVABLE

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

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

      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 47% and
73% of consolidated inventories at December 31, 2004 and 2003, respectively. The
decline is due to the fact that PTI, acquired effective September 30, 2004,
values its inventory at first-in-first-out (FIFO). The balance of inventories at
December 31, 2004 and 2003 are valued using the first-in-first-out (FIFO)
method. If actual market conditions are more or less favorable than those
projected by management, adjustments may be required.

      REVENUE RECOGNITION AND ACCOUNTING FOR LONG-TERM CONTRACTS

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

      Lynch Systems is engaged in the manufacture and marketing of glass-forming
machines and specialized manufacturing machines. Certain sales contracts require
an advance payment (usually 30% of the contract price), which is accounted for
as a customer advance. The contractual sales prices are paid either (i) as the
manufacturing process reaches specified levels of completion or (ii) based on
the shipment date. Guarantees by letter of credit from a qualifying financial
institution are required for most sales contracts. Because of the specialized
nature of these machines and the period of time needed to complete production
and shipping, Lynch Systems accounts for these contracts using the
percentage-of-completion accounting method as costs are incurred compared to
total estimated project costs (cost to cost basis). At December 31, 2004 and
2003, unbilled accounts receivable (included in accounts receivable) were $2.5
million and $2.4 million, respectively.

                                       26


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

      WARRANTY EXPENSE

      Lynch Systems provides a full warranty to worldwide customers who acquire
machines. The warranty covers both parts and labor and normally covers a period
of one year or thirteen months. Based upon historical experience, the Company
provides for estimated warranty costs based upon three to five percent of the
selling price of the machine. The Company periodically assesses the adequacy of
the reserve and adjusts the amounts as necessary.

                                                                  (IN THOUSANDS)
Balance, beginning of the year                                       $  585
Warranties issued during the year                                       369
Settlements made during the year                                       (460)
Changes in liabilities for pre-existing warranties during
 the year, including expirations                                        (28)
                                                                     ------
Balance, end of the year                                             $  466
                                                                     ======

      INCOME TAXES

      The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
which requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. A valuation allowance is recorded for
deferred tax assets whose realization is not likely. As of December 31, 2004 and
December 31, 2003, a valuation allowance of $2,070,000 and $1,034,000,
respectively, was recorded.

      The carrying value of the Company's net deferred tax asset at December 31,
2004 of $111,000 is equal to the amount of the Company's carry-forward
alternative minimum tax ("AMT") at that date.

      EARNINGS PER SHARE AND STOCK BASED COMPENSATION

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

      At December 31, 2004, the Company has a stock-based employee compensation
plan, which is described in Note 9 to the Consolidated Financial Statements -
"Stock Options Plans". The Company accounts for the plan under the recognition
and measurement principles of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations. No
stock-based employee compensation cost is reflected in net income, as all
options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. The Company provides
pro forma disclosures of the compensation expense determined under the fair
value provisions of Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock-Based Compensation." See Notes 1 and 9 to the Consolidated
Financial Statements.


                                       27


      RECENT ISSUED ACCOUNTING PRONOUNCEMENTS

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

      The Company is exposed to market risk relating to changes in the general
level of U.S. interest rates. Changes in interest rates affect the amounts of
interest earned on the Company's cash and cash equivalents and restricted cash
(approximately $3.7 million at December 31, 2004). The Company generally
finances the debt portion of the acquisition of long-term assets with fixed
rate, long-term debt. The Company does not use derivative financial instruments
for trading or speculative purposes. Management does not foresee any significant
changes in the strategies used to manage interest rate risk in the near future,
although the strategies may be reevaluated as market conditions dictate. There
has been no significant change in market risk since December 31, 2004.

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

      At December 31, 2004, approximately $11.2 million of the Company's debt
bears interest at variable rates. Accordingly, the Company's earnings and cash
flows are slightly affected by changes in interest rates. Assuming the current
level of borrowings for variable rate debt, and assuming a two percentage point
increase in the 2004 average interest rate under these borrowings, it is
estimated that the Company's interest expense would change by approximately than
$0.2 million. In the event of an adverse change in interest rates, management
would take actions to further mitigate its exposure.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      See Item 15(a).

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

      Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

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

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


                                       28


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

      The information required by this Item 10 is either included in Item 1 of
this Form 10-K or included in Company's Proxy Statement for its 2005 Annual
Meeting of Shareholders, which information is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

      The information required by this Item 11 is included in the Company's
Proxy Statement for its 2005 Annual Meeting of Shareholders, which information
is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The information required by this Item 12 is either provided in Item 5 or
included in the Company's Proxy Statement for its 2005 Annual Meeting of
Shareholders, which information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information required by this Item 13 is included in the Company's
Proxy Statement for its 2005 Annual Meeting of Shareholders, which information
is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      The information required by this Item 14 is included in the Company's
Proxy Statement for its 2005 Annual Meeting of Shareholders, which information
is incorporated herein by reference.

                                    PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K

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

            (1)   Financial Statements:

                  The Report of Independent  Registered Public Accounting Firm
                  and the following  Consolidated  Financial Statements of the
                  Company are included herein:
                  Consolidated Balance Sheets at December 31, 2004 and 2003
                  Consolidated Statements of Operations -- Years ended December
                  31, 2004, 2003 and 2002
                  Consolidated Statements of Shareholders' Equity -- Years ended
                  December 31, 2004, 2003, and 2002
                  Consolidated Statements of Cash Flows -- Years ended December
                  31, 2004, 2003, and 2002
                  Notes to Consolidated Financial Statements

            (2)   Financial Statement Schedules as of December 31, 2004 and 2003
                  and for the three years ended December 31, 2004:

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

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


                                       29


      (b)   Reports on Form 8-K filed on: October 8, 2004, October 20, 2004,
            November 18, 2004 and December 22, 2004.

      (c)   Exhibits

                                  EXHIBIT INDEX

EXHIBIT
 NO.        DESCRIPTION
-------     -----------

 3(a)*      Restated Articles of Incorporation of the Company.
  (b)*      Articles of Amendment of the Articles of Incorporation of the
            Company.
  (c)       By-laws of the Company (incorporated by reference to Exhibit 3.1 to
            the Company's Current Report on Form 8-K dated December 22, 2004).
10(a)       Lynch Corporation 401(k) Savings Plan (incorporated by reference to
            Exhibit 10(b) to the Company's Annual Report on Form 10-K for the
            period ended December 31, 1995).
  (b)       Directors Stock Plan (incorporated by reference to Exhibit 10(o) to
            the Company's Form 10-K for the year ended December 31, 1997).
  (c)       Lynch Corporation 2001 Equity Incentive Plan adopted December 10,
            2001 (incorporated by reference to Exhibit 10(y) to the Company's
            Form 10-K for the year ended December 31, 2001).
  (d)       Amended and Restated Credit Agreement by and between Lynch Systems,
            Inc. and SunTrust Bank dated as of June 10, 2002 (incorporated by
            reference to Exhibit 10(z) to the Company's Form 10-K for the year
            ended December 31, 2002).
  (e)       Unlimited Continuing Guaranty Agreement by Guarantor, Lynch
            Corporation, dated June 10, 2002 (incorporated by reference to
            Exhibit 10(aa) to the Company's Form 10-K for the year ended
            December 31, 20020.
  (f)       First Amendment and Waiver to Amended and Restated Credit Agreement
            between Lynch Systems, Inc. and SunTrust Bank dated May 30, 2003
            (incorporated by reference to Exhibit 10(ee) to the Company's Form
            10-Q for the period ending June 30, 2003).
  (g)       Term Loan Promissory Note between Lynch Systems, Inc. and SunTrust
            Bank dated August 4, 2003 (incorporated by reference to Exhibit
            10(ff) to the Company's Form 10-Q for the period ending June 30,
            2003).
  (h)       Second Amendment to Security Deed and Agreement dated August 4, 2003
             between Lynch Systems, Inc. and SunTrust Bank (incorporated by
            reference to Exhibit 10(gg) to the Company's Form 10-Q for the
            period ending June 30, 2003).
  (i        Mortgage dated October 21, 2002 by Mortgagor, Mtron Industries,
            Inc., to Mortgagee, Yankton Area Progressive Growth, Inc.
            (incorporated by reference to Exhibit 10(hh) to the Company's Annual
            Report on Form 10-K for the year ended December 31, 2003).
  (j)       Promissory Note between Mtron Industries, Inc. and Yankton Area
            Progressive Growth, Inc., dated October 21, 2002 (incorporated by
            reference to Exhibit 10(ii) to the Company's Annual Report on Form
            10-K for the year ended December 31, 2003).
  (k)       Standard Loan Agreement by and between Mtron Industries, Inc. and
            Areawide Business Council, Inc., dated October 10, 2002 and Exhibits
            thereto (incorporated by reference to Exhibit 10(jj) to the
            Company's Annual Report on Form 10-K for the year ended December 31,
            2003).
  (l)       Loan Agreement by and between Mtron Industries, Inc. and South
            Dakota Board of Economic Development, dated December 19, 2002
            (incorporated by reference to Exhibit 10(kk) to the Company's Annual
            Report on Form 10-K for the year ended December 31, 2003).
  (m)       Promissory Note between Mtron Industries, Inc. and South Dakota
            Board of Economic Development, dated December 19, 2002 (incorporated
            by reference to Exhibit 10(ll) to the Company's Annual Report on
            Form 10-K for the year ended December 31, 2003).
  (n)       Employment Agreement by and between Mtron Industries, Inc. and South
            Dakota Board of Economic Development, dated December 19, 2002
            (incorporated by reference to Exhibit 10(mm) to the Company's Annual
            Report on Form 10-K for the year ended December 31, 2003).
  (o)       Loan Agreement by and among Mtron Industries, Inc., Piezo
            Technology, Inc. and First National Bank of Omaha (incorporated by
            reference to Exhibit 10.1 to the Company's Current Report on Form
            8-K dated October 20, 2004).


                                       30


  (p)       Unconditional Guaranty for Payment and Performance with First
            National Bank of Omaha (incorporated by reference to Exhibit 10.2 to
            the Company's Current Report on Form 8-K dated October 20, 2004).
  (q)       Registration Rights Agreement by and between the Company and Venator
            Merchant Fund, L.P. dated October 15, 2004 (incorporated by
            reference to Exhibit 10.4 to the Company's Current Report on Form
            8-K dated October 20, 2004).
14*         Amended and Restated Business Conduct Policy.
21*         Subsidiaries of the Company.
23*         Consent of Independent Registered Public Accounting Firm - Ernst &
            Young LLP.
24*         Powers of Attorney.
31(a)*      Certifications of the Company's principal executive officer required
            by Exchange Act Rule 13a-14(a).
31(b)*      Certifications of the Company's principal financial officer required
            by Exchange Act Rule 13a-14(a).
32(a)*      Section 1350 Certifications of the Company's principal executive
            officer required by Exchange Act Rule 13a-14(b).
32(b)*      Section 1350 Certifications of the Company's principal financial
            officer required by Exchange Act Rule 13a-14(b).

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

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


                                       31


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

                                               LYNCH CORPORATION


March 24, 2005                                 BY: /s/ John C. Ferrara
                                                   -----------------------------
                                                   JOHN C. FERRARA
                                                   CHIEF EXECUTIVE OFFICER
                                                   (PRINCIPAL EXECUTIVE OFFICER)

                                POWER OF ATTORNEY

      The Company and each of the undersigned do hereby appoint Marc Gabelli,
John C. Ferrara and Eugene Hynes and each of them severally, its or his true and
lawful attorney to execute on behalf of the Company and the undersigned any and
all amendments to this Annual Report on Form 10-K and to file the same with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission; each of such attorneys shall have the power
to act hereunder with or without the other.

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

        SIGNATURE                         CAPACITY                             DATE
------------------------  ------------------------------------------      --------------

   /s/ JOHN C. FERRARA         Principal Executive Officer and            March 24, 2005
------------------------                  Director
     JOHN C. FERRARA


    /s/ MARC GABELLI         Chairman of the Board of Directors           March 24, 2005
------------------------                and Director
      MARC GABELLI


   /s/ E. VAL CERUTTI                     Director                        March 24, 2005
------------------------
     E. VAL CERUTTI


     /s/ AVRUM GRAY                       Director                        March 24, 2005
------------------------
       AVRUM GRAY


/s/ ANTHONY R. PUSTORINO                  Director                        March 24, 2005
------------------------
  ANTHONY R. PUSTORINO


    /s/ EUGENE HYNES      Principal Financial and Accounting Officer      March 24, 2005
------------------------
      EUGENE HYNES


                                       32


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Shareholders and Board of Directors
Lynch Corporation

      We have audited the accompanying consolidated balance sheets of Lynch
Corporation and subsidiaries ("Lynch Corporation" or the "Company") as of
December 31, 2004 and 2003, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 2004. Our audits also included the financial
statement schedules listed in the index at Item 15(a). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.

      We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
perform an audit of the Company's internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Lynch Corporation and subsidiaries at December 31, 2004 and 2003 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2004, in conformity with U.S.
generally accepted accounting principles. Also, in our opinion, the related
financial statements schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects,
the information set forth therein.


                                                /s/ ERNST & YOUNG LLP

Providence, Rhode Island
March 16, 2005, except as to Note 4
as to which the date is March 31, 2005


                                       33


                       LYNCH CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                      (IN THOUSANDS, EXCEPT SHARE AMOUNTS)

                                                                                          DECEMBER 31,
                                                                                      ---------------------
                                                                                        2004         2003
                                                                                      --------     --------

ASSETS
Current Assets:
   Cash and cash equivalents .....................................................    $  2,580     $  3,981
   Restricted cash (Note 1) ......................................................       1,125        1,125
   Investments - marketable securities (Note 1) ..................................       3,609        2,311
   Accounts receivable, less allowance for doubtful accounts  of $92 and $91,
      respectively (Note 1) ......................................................       8,867        5,797
   Inventories (Note 3) ..........................................................       7,852        4,911
   Deferred income taxes .........................................................         111           57
   Prepaid expense ...............................................................         626          456
                                                                                      --------     --------
      Total Current Assets .......................................................      24,770       18,638
Property, Plant and Equipment
   Land ..........................................................................         871          291
   Buildings and improvements ....................................................       5,811        4,198
   Machinery and equipment .......................................................      14,443       11,377
                                                                                      --------     --------
                                                                                        21,125       15,866
   Less: Accumulated depreciation ................................................     (12,669)     (11,689)
                                                                                      --------     --------
                                                                                         8,456        4,177
   Other assets ..................................................................         657          204
                                                                                      --------     --------
      Total Assets ...............................................................    $ 33,883     $ 23,019
                                                                                      ========     ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
   Notes payable to banks ........................................................    $  5,557     $  1,976
   Trade accounts payable ........................................................       2,667        2,054
   Accrued warranty expense ......................................................         466          585
   Accrued compensation expense ..................................................       1,101        1,219
   Accrued income taxes ..........................................................         966          716
   Accrued professional fees .....................................................         534          273
   Accrued commissions ...........................................................         249          429
   Margin liability on marketable securities .....................................       1,566        1,033
   Other accrued expenses ........................................................         890          664
   Commitments and contingencies (Note 11) .......................................         775           --
   Customer advances .............................................................       2,115        1,206
   Current maturities of long-term debt ..........................................       3,842          998
                                                                                      --------     --------
      Total Current Liabilities ..................................................      20,728       11,153
   Long-term debt ................................................................       3,162          833
      Total Liabilities ..........................................................      23,890       11,986
Shareholders' Equity
      Common stock, $0.01 par value -- 10,000,000 shares authorized; 1,649,834 and
         1,513,191 shares issued; 1,632,126 and 1,497,833 shares outstanding,
         respectively ............................................................          16           15
   Additional paid-in capital ....................................................      17,404       15,645
   Accumulated deficit ...........................................................      (7,786)      (4,460)
   Accumulated other comprehensive Income ........................................         849          291
   Treasury stock, at cost, of 17,708 and 15,308 shares, respectively ............        (490)        (458)
                                                                                      --------     --------
      Total Shareholders' Equity .................................................       9,993       11,033
                                                                                      --------     --------
      Total Liabilities and Shareholders' Equity .................................    $ 33,883     $ 23,019
                                                                                      ========     ========

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       34


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

                                                      YEARS ENDED DECEMBER 31,
                                             -------------------------------------------
                                                2004            2003            2002
                                             -----------     -----------     -----------

SALES AND REVENUES                           $    33,834     $    27,969     $    26,386
Costs and expenses:
   Manufacturing cost of sales                    25,784          20,319          19,437
   Selling and administrative                     10,163           8,482          10,201
   Litigation provision (Note 11)                    775              --              --
                                             -----------     -----------     -----------
                                                  36,722          28,801          29,638
Gain on deconsolidation (Note 1)                      --              --          19,420
                                             -----------     -----------     -----------
OPERATING (LOSS) PROFIT                           (2,888)           (832)         16,168
Other income (expense):
   Investment income                                  15             534             121
   Interest expense                                 (360)           (282)           (201)
   Other income (expense)                              7             763             (92)
                                             -----------     -----------     -----------
                                                    (338)          1,015            (172)
                                             -----------     -----------     -----------
(LOSS) INCOME BEFORE INCOME TAXES                 (3,226)            183          15,996
(Provision) Benefit for income taxes                (100)            (73)          1,967
                                             -----------     -----------     -----------
NET (LOSS) INCOME                            $    (3,326)    $       110     $    17,963
                                             ===========     ===========     ===========
Weighted average shares outstanding            1,524,863       1,497,900       1,497,900
                                             -----------     -----------     -----------
Basic and diluted (loss) income per share    $     (2.18)    $      0.07     $     11.99
                                             ===========     ===========     ===========

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

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       35


                       LYNCH CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                                                                                           ACCUMULATED
                                  SHARES OF                    ADDITIONAL                     OTHER
                                COMMON STOCK      COMMON         PAID-IN      RETAINED    COMPREHENSIVE     TREASURY
                                 OUTSTANDING      STOCK          CAPITAL      EARNINGS        INCOME          STOCK         TOTAL
                                ------------    ----------     ----------    ----------   -------------    ----------    ----------

Balance at December 31, 2001      1,497,883     $    5,139     $   10,403    $  (22,533)    $       (2)    $     (458)   $   (7,451)
Assign $0.01 par value (Note 7)          --         (5,124)         5,124            --             --             --            --
Comprehensive Income :
   Net income for year                   --             --             --        17,963             --             --        17,963
   Other comprehensive income            --             --             --            --            304             --           304
                                                                                                                         ----------
    Comprehensive Income                                                                                                     18,267
Unredeemed minority interest
   Shares                                --             --            118            --             --             --           118
                                  ---------     ----------     ----------    ----------     ----------     ----------    ----------
Balance at December 31, 2002      1,497,883             15         15,645        (4,570)           302           (458)       10,934
Comprehensive Income (Loss):
   Net income for year                   --             --             --           110             --             --           110
   Other comprehensive loss              --             --             --            --            (11)            --           (11)
                                                                                                                         ----------
    Comprehensive Income                                                                                                         99
                                  ---------     ----------     ----------    ----------     ----------     ----------    ----------
Balance at December 31, 2003      1,497,883             15         15,645        (4,460)           291           (458)       11,033
Comprehensive Income (Loss):
   Net loss for year                     --             --             --        (3,326)            --             --        (3,326)
   Other comprehensive income            --             --             --            --            558             --           558
                                                                                                                         ----------
    Comprehensive Loss                                                                                                       (2,768)
   Issuance of Common Stock to
   fund acquisition, net of
   fees of $40,000                  136,643              1          1,759            --             --             --         1,760
   Purchase of Treasury Stock        (2,400)            --             --            --             --            (32)          (32)
                                  ---------     ----------     ----------    ----------     ----------     ----------    ----------
Balance at December 31, 2004      1,632,126     $       16     $   17,404    $   (7,786)    $      849     $     (490)   $    9,993
                                  =========     ==========     ==========    ==========     ==========     ==========    ==========

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

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       36


                       LYNCH CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

                                                                                  YEARS ENDED DECEMBER 31,
                                                                             ----------------------------------
                                                                               2004         2003        2002
                                                                             --------     --------     --------

OPERATING ACTIVITIES
Net (loss) income                                                            $ (3,326)    $    110     $ 17,963
Adjustments to reconcile net (loss) income to net cash (used in) provided
   by operating activities
Gain on deconsolidation                                                            --           --      (19,420)
Restricted operating cash                                                          --           --        4,703
Loss on disposal of fixed assets                                                   47           --          145
Gain realized on sale of marketable securities                                     --         (483)          --
Depreciation                                                                      980          982        1,044
Amortization of definite--lived intangible assets                                 187          257          206
Lawsuit settlement provision                                                      775           --           --
Deferred taxes                                                                     (6)         150          202
Recoverable income taxes                                                           --           --         (532)
Other                                                                              --          (22)          --
Changes in operating assets and liabilities:
   Receivables                                                                 (1,505)      (2,273)       6,294
   Inventories                                                                   (456)         503          194
   Accounts payable and accrued liabilities                                      (198)       1,617       (7,620)
   Other assets/liabilities                                                     1,592       (1,385)         414
                                                                             --------     --------     --------
Net cash (used in) provided by operating activities                            (1,910)        (544)       3,593

INVESTING ACTIVITIES
Acquisition of minority interest                                                   --           --         (220)
Capital expenditures                                                             (440)        (141)        (223)
Restricted investing cash                                                          --           --       (1,125)
Acquisition, net of cash acquired (See Note 2)                                 (7,348)          --         (850)
Proceeds from sale of  marketable securities                                       --        1,041           --
Payment on margin liability on marketable securities                             (300)        (454)          --
Purchase of marketable securities                                                (754)      (1,565)        (306)
Other                                                                              --           --         (214)
                                                                             --------     --------     --------
Net cash used in investing activities                                          (8,842)      (1,119)      (2,938)

FINANCING
Net borrowings (repayments) of notes payable                                    3,581         (252)       1,453
Repayment of long--term debt                                                     (972)        (884)        (369)
Proceeds from long--term debt                                                   5,000          794           --
Issuance of common stock, net of fees of $40,000                                1,760           --           --
Purchase of treasury stock                                                        (32)          --           --
Other                                                                              14           --           --
                                                                             --------     --------     --------
Net cash provided by (used in) financing activities                             9,351         (342)       1,084
(Decrease) increase in cash and cash equivalents
                                                                               (1,401)      (2,005)       1,739
                                                                             --------     --------     --------
Cash and cash equivalents at beginning of year                                  3,981        5,986        4,247
                                                                             --------     --------     --------
Cash and cash equivalents at end of year                                     $  2,580     $  3,981     $  5,986
                                                                             ========     ========     ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Interest Paid                                                             $    343     $    282     $    272
                                                                             ========     ========     ========

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

           SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       37


                       LYNCH CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

1. ACCOUNTING AND REPORTING POLICIES

      ORGANIZATION

      Lynch Corporation (the "Company" or "Lynch") is a diversified holding
company with subsidiaries engaged in manufacturing primarily in the United
States. The Company has three principal operating subsidiaries M-tron
Industries, Inc. ("Mtron"), Piezo Technology, Inc. ("PTI") (acquired effective
September 30, 2004) and Lynch Systems, Inc ("Lynch Systems"). and until
September 23, 2002, an investment in Spinnaker Industries, Inc. ("Spinnaker");
see discussion below. The combined operations of Mtron and PTI are referred to
herein as MtronPTI. Information on the Company's operations by segment and
geographic area is included in Note 12 -- "Segment Information".

      As of December 31, 2004, the Subsidiaries of the Company are as follows:

                                                                 OWNED BY
                                                                   LYNCH
                                                                 --------
            Lynch Systems, Inc. ............................      100.0%
            M-tron Industries, Inc. ........................      100.0%
                 M-tron Industries, Ltd. ...................      100.0%
                 Piezo Technology, Inc. ....................      100.0%
                         Piezo Technology India Private Ltd.       99.9%

      BASIS OF PRESENTATION

      Prior to September 30, 2001, the Company owned 47.6% of the equity of
Spinnaker (60.4% voting control), an entity engaged in the manufacture of
adhesive-backed material. Under accounting principles generally accepted in the
United States, Spinnaker was a consolidated entity and the Company was required
to record all of the losses of Spinnaker since the non-Company investors
interests were not required to absorb their share of the losses (52.4%) after
their investment was fully absorbed by losses (which occurred in the first
quarter of 2001).

      Effective September 30, 2001, the Company donated 430,000 shares of
Spinnaker Class A common stock to a university on whose board several of the
Company's executives serve as Trustees, thereby relinquishing control of such
securities. This resulted in the reduction of the Company's ownership and voting
interests in Spinnaker to 41.8% and 49.5%, respectively. As a result, effective
September 30, 2001, the Company deconsolidated Spinnaker and prospectively
accounted for its ownership of Spinnaker using the equity method of accounting.
On September 23, 2002, the Company disposed of its remaining investment in
Spinnaker. This deconsolidation resulted in a non-cash gain of $27,406,000 which
reduced the Company's negative investment in Spinnaker to $19,420,000. This
remaining interest, which represents losses in excess of investment, was
recorded as a deferred credit on the Company's balance sheet until the Company
disposed of its remaining interests in Spinnaker on September 23, 2002 at which
time this deferred credit of $19,420,000 was recognized in earnings.

      PRINCIPLES OF CONSOLIDATION

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


                                       38


      USES OF ESTIMATES

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

      RECLASSIFICATIONS

      Certain prior year amounts in the accompanying consolidated financial
statements have been reclassified to conform to current year presentation.

      CASH AND CASH EQUIVALENTS

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

      At December 31, 2004 and 2003, assets of $0.1 million and $1.9 million,
which are classified as cash and cash equivalents, are invested in United States
Treasury money market funds for which affiliates of the Company serve as
investment managers to the respective funds.

      RESTRICTED CASH

      At December 31, 2004 and 2003, the Company had $1.1 million of restricted
cash that secures a letter of credit issued to the Bank of Omaha as collateral
for Mtron's loans. (See Note 4 to the Consolidated Financial Statements - "Notes
Payable to Banks and Long-term Debt").

      INVESTMENTS

      Investments in marketable equity securities are classified as available
for sale and are recorded at fair value as a component of other assets, pursuant
to Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities". Unrealized gains and losses on these
securities, net of income taxes, are included in shareholders' equity as a
component of accumulated other comprehensive income (loss). Investments in
non-marketable equity securities are accounted for under either the cost or
equity method of accounting. The Company periodically reviews investment
securities for impairment based on criteria that include the duration of the
market value decline.

      The Company's ability to hold to recovery, information regarding the
market and industry trends for the investee's business, the financial strength
and specific prospects of the investee, and investment analyst reports, if
available. If a decline in the fair value of an investment security is judged to
be other than temporary, the cost basis is written down to fair value with a
charge to earnings

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

                                          GROSS          GROSS
                                        UNREALIZED     UNREALIZED      ESTIMATED
EQUITY SECURITIES           COST          GAINS          LOSSES       FAIR VALUE
-----------------          ------       ----------     ----------     ----------
December 31, 2004          $2,774          $835             --           $3,609
December 31, 2003          $2,020          $291             --           $2,311

      The Company has a margin liability against these investments of $1,566,000
and $1,033,000 as of December 31, 2004 and 2003, respectively, that must be
settled upon the disposition of the related securities, whose fair value is
based on quoted market prices.


                                       39


      ACCOUNTS RECEIVABLE

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

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

      PROPERTY, PLANT AND EQUIPMENT, NET

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

      REVENUE RECOGNITION

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

      ACCOUNTING FOR LONG-TERM CONTRACTS

      Lynch Systems is engaged in the manufacture and marketing of glass-forming
machines and specialized manufacturing machines. Certain sales contracts require
an advance payment (usually 30% of the contract price) which is accounted for as
a customer advance. The contractual sales prices are paid either (i) as the
manufacturing process reaches specified levels of completion or (ii) based on
the shipment date. Guarantees by letter of credit from a qualifying financial
institution are required for most sales contracts. Because of the specialized
nature of these machines and the period of time needed to complete production
and shipping, Lynch Systems accounts for these contracts using the
percentage-of-completion accounting method as costs are incurred compared to
total estimated project costs (cost to cost basis). At December 31, 2004 and
2003, unbilled accounts receivable (included in accounts receivable) were $2.5
million and $2.4 million, respectively.

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


                                       40


      WARRANTY EXPENSE

      Lynch Systems provides a full warranty to worldwide customers who acquire
machines. The warranty covers both parts and labor and normally covers a period
of one year or thirteen months. Based upon historical experience, the Company
provides for estimated warranty costs based upon three to five percent of the
selling price of the machine. The Company periodically assesses the adequacy of
the reserve and adjusts the amounts as necessary.

                                                                 (IN THOUSANDS)
                                                                 --------------
      Balance, beginning of the year                                  $ 585
      Warranties issued during the year                                 369
      Settlements made during the year                                 (460)
      Changes in liabilities for pre-existing warranties
          during the year, including expirations                        (28)
                                                                      -----
      Balance, end of the year                                        $ 466
                                                                      =====

      RESEARCH AND DEVELOPMENT COSTS

      Research and development costs are charged to operations as incurred. Such
costs were $1,193,000, $745,000 and $944,000 in 2004, 2003, and 2002,
respectively.

      ADVERTISING EXPENSE

      Advertising costs are charged to operations as incurred. Such costs were
$183,000, $136,000 and $191,000, in 2004, 2003 and 2002, respectively.

      EARNINGS PER SHARE AND STOCK BASED COMPENSATION

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

      At December 31, 2004, the Company has a stock-based employee compensation
plan that is described in Note 6 to the Consolidated Financial Statements -
"Stock Option Plans". The Company accounts for the plan under the recognition
and measurement principles of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations. No
stock-based employee compensation cost is reflected in net income, as all
options granted under those plans had an exercise price equal to the market
value of the underlying common stock on the date of grant. The Company provides
pro forma disclosures of the compensation expense determined under the fair
value provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation."


                                       41


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

                                                                         (IN THOUSANDS EXCEPT
                                                                        PER SHARE INFORMATION)
                                                                ------------------------------------
                                                                   2004          2003          2002
                                                                --------     --------       --------

Net (loss) income as reported                                   $ (3,326)    $    110       $ 17,963
Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all
    awards, net of related tax effect                                (52)        (154)        (1,260)
                                                                --------     --------       --------
Pro forma net (loss) income                                     $ (3,378)    $    (44)      $ 16,703
                                                                ========     ========       ========

Basic and diluted (loss) earnings per share:
As reported                                                     $  (2.18)    $   0.07       $  11.99
Pro forma                                                       $  (2.22)    $  (0.03)      $  11.15

      CONCENTRATION OF CREDIT RISK

      In 2004, a communications original equipment manufacturer ("OEM")
accounted for approximately 18% of MtronPTI's net sales, compared to less than
12% in 2003. No other customer accounted for more than 10% of its 2004 revenues.
Sales to its ten largest customers accounted for approximately 48% of net sales
in 2004, compared to approximately 40% and 60% of net sales for 2003 and 2002,
respectively.

      Lynch Systems' sales to its ten largest customers accounted for
approximately 84% of its net sales in 2003, 2002 and 2001 and 80% in 2004. Lynch
Systems' sales to its largest customer accounted for approximately 20% of its
net sales in 2003, 2002 and 2001 and 36% in 2004. If a significant customer
reduces, delays or cancels its orders for any reason, the business and results
of operations of Lynch Systems would be negatively affected.

      In 2004, approximately 12% of MtronPTI's net sales was attributable to
finished products that were manufactured by an independent contract manufacturer
located in both Korea and China. We expect this manufacturer to account for a
smaller but substantial portion of MtronPTI's net sales in 2005 and a material
portion of MtronPTI's sales for the next several years. MtronPTI does not have a
written, long-term supply contract with this manufacturer. If this manufacturer
becomes unable to provide products in the quantities needed, or at acceptable
prices, MtronPTI would have to identify and qualify acceptable replacement
manufacturers or manufacture the products internally. Due to specific product
knowledge and process capability, MtronPTI could encounter difficulties in
locating, qualifying and entering into arrangements with replacement
manufacturers. As a result, a reduction in the production capability or
financial viability of this manufacturer, or a termination of, or significant
interruption in, MtronPTI's relationship with this manufacturer, may adversely
affect MtronPTI's results of operations and our financial condition.

      SEGMENT INFORMATION

      The Company reports segment information in accordance with Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires companies to
report financial and descriptive information for each operating segment based on
management's internal organizational decision-making structure. See Note 12 to
the Consolidated Financial Statements - "Segment Information" - for the detailed
presentation of business segments report.

      IMPAIRMENTS OF LONG-LIVED ASSETS

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

      FINANCIAL INSTRUMENTS

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

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

      The Company maintains cash and cash equivalents and short-term investments
with various financial institutions. These financial institutions are located
throughout the country and the Company's policy is designed to limit exposure to
any one institution. The Company performs periodic evaluations of the relative
credit standing of those financial institutions that are considered in the
Company's investment strategy. Other than certain accounts receivable, the
Company does not require collateral on these financial instruments.


                                       42


      GUARANTEES

      The Company presently guarantees (unsecured) the SunTrust Bank loans of
Lynch Systems, as of December 31, 2004, there were no obligations to the
SunTrust Bank. The Company has guaranteed to First National Bank of Omaha the
payment and performance of Mtron's obligations under the Loan Agreement and
ancillary agreements and instruments and has guaranteed a Letter of Credit
issued to the First National Bank of Omaha on behalf of its subsidiary, Mtron
(see Note 4 to the Consolidated Financial Statements - "Notes Payable to Banks
and Long-term Debt"). These guarantees are subject only to the disclosure
requirements of the Financial Accounting Standards Board Interpretation No. 45
"Guarantors Accounting and Disclosure Requirements for Guarantors, Including
Indirect Guarantees of Indebtedness of Others. As of December 31, 2004, the
$1,000,000 Letter of Credit issued by Bank of America to The First National Bank
of Omaha was secured by a $1,125,000 deposit in a Bank of America Treasury Fixed
Income Fund. (See "Restricted Cash" included in Note 1 to the Consolidated
Financial Statements.) The loans with First National Bank of Omaha require that
the Company have a Tangible Net Worth of $7,500,000.

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

      RECENT ISSUED ACCOUNTING PRONOUNCEMENTS

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

      2. ACQUISITIONS

      On October 15, 2004, the Company acquired, through its wholly-owned
subsidiary, Mtron, 100% of the common stock of PTI. The acquisition was
effective September 30, 2004. PTI manufactures and markets high-end oscillators,
crystals, resonators and filters used in electronic and communications systems.
The purchase price was approximately $8,736,000 (before deducting cash acquired,
and before adding acquisition costs and transaction fees). The Company funded
the purchase price by (a) new notes payable and long-term debt of $6,936,000 and
(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 preliminary 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.........................................           4,773
Intangible assets..............................................             627
                                                                  -------------
Total assets acquired..........................................   $      11,692
                                                                  =============
LIABILITIES:
Accounts payable...............................................   $         556
Accrued expenses...............................................           1,255
Debt assumed by the Company....................................           1,145
Total liabilities assumed......................................           2,956
                                                                  -------------
Net Assets acquired............................................   $       8,736
                                                                  =============


                                       43


      The Company is in the process of finalizing the purchase price accounting
and related income tax implications.

      The fair market value of net assets acquired in the PTI acquisition
exceeded the purchase price, resulting in negative goodwill of approximately
$4.1 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 $647,000 consist of customer relationships, trade
name and funded technologies, and were determined to have definite lives that
range from two to ten years.

      The following unaudited pro forma financial information reflects
consolidated results of operations of PTI as if the acquisition had taken place
on January 1, 2004 and January 1, 2003. The pro forma financial information is
not necessarily indicative of the results of operations that would have occurred
if the acquisition had been completed on January 1, 2004 and January 1, 2003,
nor are they indicative of future operations.


                                       44


                                             FOR THE YEARS ENDED DECEMBER 31,
                                                 2004               2003
                                                 ----               ----
                                                       PRO FORMA
                                          (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                          --------------------------------------
Net sales.................................      $ 12,353           $  9,797
Net income(loss)..........................           252               (603)
PER SHARE DATA:
  Basic earnings(loss)....................      $   0.15           $  (0.37)

      On October 18, 2002, the Company's subsidiary, Mtron Industries, Inc.,
acquired certain assets of an industry competitor, Champion Technologies, Inc.,
("Champion") from U.S. Bank in a transaction accounted for as a purchase.
Champion's product line includes crystals, clock oscillators, specialized
crystal oscillators, and timing solutions. The $850,000 purchase price included
inventories, fixed assets, and the customers order backlog. There were no
assumed liabilities in this transaction. A 7.5% royalty was applicable to
certain sales through December 31, 2004. Financing for this transaction included
$646,000 in new loans from State and local agencies and a $200,000 parent
Company cash infusion (See Note 4 to the Consolidated Financial Statements -
"Notes Payable to Banks and Long-term Debt").

      The purchase price for Champion was allocated to the acquired assets based
on their estimated fair value at the date of acquisition to property, plant &
equipment, goodwill and other current assets in the amounts of $728,000, $40,000
and $82,000 respectively.

3. INVENTORIES

      Inventories are stated at the lower of cost or market value. Inventories
valued using the last-in, first-out (LIFO) method comprised approximately 47%
and 73% of consolidated inventories at December 31, 2004 and 2003, respectively.
The decline is due to the fact that newly acquired PTI values their inventory at
first-in-first-out (FIFO). The balance of inventories at December 31, 2004 and
2003 are valued using the first-in-first-out (FIFO) method.

                                                              DECEMBER 31,
                                                        ------------------------
                                                           2004          2003
                                                        -----------  -----------
                                                             (IN THOUSANDS)
Raw materials and supplies.....................         $     2,308  $     1,394
Work in progress...............................               3,763        1,641
Finished goods.................................               1,781        1,876
                                                        -----------  -----------
   Total.......................................         $     7,852  $     4,911
                                                        ===========  ===========

      Current cost exceeded the LIFO value of inventories by $1,110,000 and
$930,000 at December 31, 2004 and 2003, respectively.


                                       45


4. NOTES PAYABLE TO BANKS AND LONG-TERM DEBT

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

                                                                                                DECEMBER 31,
                                                                                                ------------
                                                                                           2004             2003
                                                                                         ---------        ---------

Notes payable:
Mtron bank revolving loan at variable interest rates (greater of prime or 4.5%;
   5.25% at December 31, 2004), due April, 2005                                          $   3,557        $   1,976
Lynch Systems working capital revolving loan at variable interest rates, (LIBOR +
   2%; 4.28% at December 31, 2004), due May, 2005                                            2,000               --
                                                                                         ---------        ---------
                                                                                         $   5,557        $   1,976
                                                                                         =========        =========
Long-term debt:
Mtron commercial bank term loan at variable interest rates (5.5% at December 31,
   2004), due April, 2007                                                                $     686        $     829
Yankton Area Progressive Growth loan at 0% interest, due April, 2005                            50              150
South Dakota Board of Economic Development at a fixed rate of 3%, due December,
   2007                                                                                        273              285
Yankton Areawide Business Council loan at a fixed interest rate of 5.5%, due
   November, 2007                                                                               83               90
Lynch Systems term loan at a fixed interest rate of 5.5%, due August, 2013                     427              477
Mtron bridge loan at variable interest rates (greater of prime or 4.5%; 5.25% at
   December 31, 2004), due October, 2005                                                     3,000               --
Mtron term loan at variable interest rates (greater of prime plus 50 basis points
   or 4.5%; 5.75% at December 31, 2004), due October, 2007                                   1,943               --
Rice University Promissory Note at a fixed interest rate of 4.5%, due August, 2009             345               --
Smythe Estate Promissory Note at a fixed interest rate of 4.5% due August, 2009                197               --
                                                                                         ---------        ---------
                                                                                             7,004            1,831
Current maturities                                                                          (3,842)            (998)
                                                                                         ---------        ---------
                                                                                         $   3,162        $     833
                                                                                         =========        =========

      On a consolidated basis, at December 31, 2004, Lynch maintains short-term
credit facilities totaling $12.5 million, of which $2.8 million was available
for future borrowings, including up to $2.8 million for working capital and/or
up to $1.3 million for letters of credit. These facilities generally limit the
credit available under the lines of credit to certain variables, such as
inventories and receivables, and are secured by the operating assets of the
respective subsidiary borrower, and include various financial covenants, which
currently restrict the transfer of substantially all the assets of the
subsidiaries. At December 31, 2004, the revolving credit facilities expire
within one year. The weighted average interest rates for short-term borrowings
at December 31, 2004 and 2003 were 4.9% and 4.5%, respectively. Cash of $1.1
million at December 31, 2004 and 2003 has been disclosed as restricted as
required under an outstanding letter of credit issued by Bank of America for the
benefit of First National Bank of Omaha.

      In connection with the completion of the acquisition of PTI, on October
14, 2004, Mtron and PTI, each wholly-owned subsidiaries of Lynch Corporation,
entered into a Loan Agreement with First National Bank of Omaha. The Loan
Agreement provides for loans in the amounts of $2,000,000 (the "Term Loan") and
$3,000,000 (the "Bridge Loan"), together with a $5,500,000 Revolving Line of
Credit (the "Revolving Loan"). The Term Loan bears interest at the greater of
prime rate plus 50 basis points, or 4.5%, and is to be repaid in monthly
installments of $37,514, with the then remaining principal balance plus accrued
interest to be paid on the third anniversary of the Loan Agreement. The Bridge
Loan bears interest at the same rate as the Term Loan. Accrued interest thereon
is payable monthly and the principal amount thereof, together with accrued
interest, is payable on the first anniversary of the Loan Agreement. The
Revolving Loan bears interest at the greater of prime rate or 4.5%. Amounts
outstanding are to be repaid, together with accrued interest, on April 30, 2005.


                                       46


      All outstanding obligations under the Loan Agreement are collateralized by
security interests in the assets of Mtron and PTI, as well as by a mortgage on
PTI's premises. The Loan Agreement contains a variety of affirmative and
negative covenants of types customary in an asset-based lending facility. The
Loan Agreement also contains financial covenants relating to maintenance of
levels of minimal tangible net worth and working capital, and current, leverage
and fixed charge ratios, restricting the amount of capital expenditures. At
December 31, 2004, the Company was in violation of certain of its financial
covenants for which it received a waiver from the bank through December 31,
2005.

      The Company has guaranteed a letter of credit issued to the First National
Bank of Omaha on behalf of its subsidiary, Mtron Industries, Inc. As of December
31, 2004, the $1,000,000 letter of credit issued by Bank of America to The First
National Bank of Omaha was secured by a $1,125,000 deposit in a Bank of America
Treasury Fixed Income Fund. The Company's outstanding letter of credit in the
amount of $1.0 million for the benefit of the bank can be reduced to $500,000
when Mtron is profitable for 5 of 6 consecutive months and the cumulative after
tax profit equals or exceeds $500,000. The remaining $500,000 letter of credit
will be released when the earning parameters are met for a second time. These
thresholds were not met in 2004 and there is no assurance they will be met in
2005.

      The new Mtron revolving loan is secured by accounts receivable and
inventories and carries an interest rate equal to the First National Bank of
Omaha's national prime rate with a minimum rate of 4.5%. At December 31, 2004,
borrowings under this line totaled $3,557,000 at 5.25% with additional borrowing
capacity of $1,943,000.

      In conjunction with the acquisition of Champion in October of 2002, Mtron
entered into loan arrangements with two Yankton, South Dakota agencies and a
state agency to provide $646,000 at a weighted average interest rate of 2.6%.
Yankton Area Progressive Growth, Inc. provided $250,000 at a 0% interest rate
and $100,000 was provided by the Areawide Business Council, Inc. at a 5.5%
interest rate. The South Dakota Board of Economic Development loan of $296,000
is at a 3.0% interest rate and includes a $250,000 balloon payment in December
2007. Aggregate principal maturities of this acquisition debt for each of the
next five years are as follows: 2005 - $70,000; 2006 - $21,000; 2007 - $315,000
and $0 in subsequent years. These state and local agency loans are secured by
Mtron's real estate.

      Mtron, under its loan with First National Bank of Omaha, may pay a cash
dividend to the parent company equal to 50% of Mtron's prior year earnings and
pay interest on the subordinated debt owed by Mtron to the Corporation, both
subject to terms of the loan agreement. Lynch Systems, under its loan with
SunTrust Bank, may pay a cash dividend to the parent company equal to 50% of
Lynch Systems' net income for the prior fiscal year, subject to the minimum net
worth covenant in the loan agreement. In addition, Lynch Systems may pay an
annual management fee to the parent company in an amount not to exceed $250,000,
and may reimburse the parent company for expenses and taxes paid by the parent
on its behalf. Lynch Systems renewed its' loan agreement with SunTrust Bank on
May 29, 2004. The lender has provided a $7 million line of credit, which can be
used entirely for stand-by letters of credit to secure customer advances and
certain warranty coverages as well as domestic revolving credit to finance
working capital within the $7 million line. The Lynch Systems line of credit is
secured by accounts receivable and inventories and bears an interest rate of one
month LIBOR plus 2.0%. At December 31, 2004, there were outstanding letters of
credit and working capital loans of $2.0 million and $2.0 million, respectively.

      Both Mtron and Lynch Systems intend to renew the credit agreements that
expire on April 30, and May 31, 2005, respectively, with their incumbent
lenders.

      Aggregate principal maturities of long-term debt for each of the next five
years are as follows: 2005 - $3,842,000; 2006 - $821,000; 2007 - $1,859,000;
2008 - $173,000 and $132,000 in 2009.

5. RELATED PARTY TRANSACTIONS

      TRANSACTIONS WITH CERTAIN AFFILIATED PERSONS

      Prior to the Company's move to Greenwich, Connecticut, the principal
executive offices were located in Providence, Rhode Island and shared with Avtek
Inc. ("Avtek") a private holding company co-owned by Mr. Papitto, the Company's
former Chairman and Chief Executive Officer, and Mr. Mario Gabelli, the
Company's former Vice Chairman, until November 27, 2002 and now controlled


                                       47


solely by Mr. Papitto. Since August 2001, Avtek and the Company have shared (i)
all occupancy costs of the shared premises and (ii) the salary expense of
certain persons employed by Avtek at the premises (including Mr. McGrail, the
Company's President and Chief Operating Officer until his resignation on October
1, 2004 and Mr. Keller, the Company's Chief Financial Officer until his
resignation on November 12, 2004, and other administrative and clerical
personnel) whose services are provided to both the Company and Avtek. The
Company's paid share of such occupancy and salary costs for 2004 was $433,625.

6. STOCK OPTION PLANS

      On May 2, 2002, the Company's shareholders approved the 2001 Equity
Incentive Plan and the issuance of up to 300,000 options to purchase shares of
Company common stock to certain employees of the Company, of which 228,000
options were granted (subject to shareholder approval) at $17.50 per share on
December 10, 2001. Shareholders' approval was obtained on May 2, 2002. These
options have lives of five to ten years. As of December 31, 2004, 224,000 of
these options are fully vested.

      Pro forma information regarding net income and earnings per share is
required by SFAS 123, which requires that the information be determined as if
the Company has accounted for its employee stock options under the fair value
method of that Statement. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 2002 (no options outstanding in 2001 or 2000)
risk-free interest rate of 5.3%; dividend yield of 0.0%; volatility factors of
the expected market price of the Company's common stock of .49 and
weighted-average expected life of the option of 10 years. See Note 1 to the
Consolidated Financial Statements - "Basis of Presentation".

7. SHAREHOLDERS' EQUITY

      On October 15, 2004, in connection of the acquisition of PTI, the Company
entered into a Securities Purchase Agreement with Venator Merchant Fund, L.P
("Venator"). Under the Purchase Agreement, the Company sold to Venator 136,643
shares of its Common Stock, par value $0.01 per share for $13.173 per share, or
an aggregate purchase price of approximately $1,800,000. Venator is an
investment limited partnership controlled by the Company's Chairman of the
Board, Marc Gabelli.

      The Board of Directors previously authorized the purchase of up to 400,000
shares of Common Stock. During 2004 the Company purchased 2,400 shares of Common
Stock at an average price of $13.38 per share. There were no purchases in 2003
and 2002.

      Both Mtron and Lynch Systems have plans that provided certain former
shareholders with Stock Appreciation Rights (SAR's). These SAR's are fully
vested and expire at the earlier of certain defined events or 2008 to 2010.
These SAR's provide the participants a certain percentage, ranging from 1-5%, of
the increase in the defined value of Mtron and Lynch Systems, respectively.
Vested amounts are payable at the holder's option in cash or equivalent amount
of Mtron or Lynch Systems stock. Expense related to the SAR's was $0, $70,000,
and $22,000, in 2004, 2003 and 2002 respectively. During the year ended December
31, 2004, the Company paid out the entire SAR liability that had been accrued at
December 31, 2003. There is no liability remaining at December 31, 2004.

      At the Annual Meeting of Stockholders of the Registrant held on May 2,
2002, the Stockholders approved an amendment to the Restated Articles of
Incorporation of Registrant that effected a change of all 10,000,000 shares of
Registrant's authorized Common Stock from shares without par value into shares
having a par value of $0.01 per share for all purposes, without otherwise
changing the designations, rights, preferences, or limitations of such shares
and without increasing or decreasing the number of such shares. As a result,
common stock at par value is now valued at $15,000 resulting in a $5.1 million
reclassification to additional paid-in capital.

8. INCOME TAXES

      The Company files consolidated federal income tax returns, which includes
all subsidiaries excluding Spinnaker for all periods.


                                       48


      The Company has a $4,212,000 net operating loss ("NOL") carry-forward as
of December 31, 2004. This NOL expires in 2025 if not utilized prior to that
date.

      Year 2004 income tax includes federal, state, local, and foreign taxes.
There was no state income tax provision in 2004 due to deductions applicable to
the Company's Georgia business. There was no federal tax benefit in 2004 as a
result of 2004 net operating losses because the Company utilized its carry-back
("NOL") in 2004 and there is uncertainty regarding the utilization of the NOL
carry-forward. The Company recorded a $82,000 tax provision in 2004 for foreign
taxes at the Hong Kong tax rate on Mtron's foreign subsidiaries' earnings. Year
2003 income tax includes federal, state, local, and foreign taxes. The 2004
state tax provision of $24,000 pertains to PTI. There was no state income tax
provision in 2003 due to deductions applicable to the Company's Georgia
business. There was no federal tax benefit in 2003 as a result of 2003 net
operating losses because the Company utilized its carry-back ("NOL") in 2003 and
there is uncertainty regarding the utilization of the NOL carry-forward. The
Company recorded a $73,000 tax provision in 2003 for foreign taxes at the Hong
Kong tax rate on Mtron's foreign subsidiaries' earnings.

      Deferred income taxes for 2004 and 2003 provided for the temporary
differences between the financial reporting basis and the tax basis of the
Company's assets and liabilities. Cumulative temporary differences and
carry-forwards at December 31, 2004 and 2003 are as follows:

                                                                        DECEMBER 31, 2004         DECEMBER 31, 2003
                                                                       --------------------      -------------------
                                                                           DEFERRED TAX              DEFERRED TAX
                                                                       ASSET      LIABILITY      ASSET     LIABILITY
                                                                       -----      ---------      -----     ---------
                                                                                     (IN THOUSANDS)


Inventory reserve...........................................        $   730       $     --    $     593    $       --
Fixed assets ...............................................             --          1,729           --           337
Other reserves and accruals.................................          1,509             --          577            --
Other.......................................................             --            253           --           729
Tax loss and other credit carry forwards....................          1,924             --          987            --
                                                                    -------       --------    ---------    ----------
Total deferred income taxes.................................          4,163       $  1,982        2,157    $    1,066
                                                                                  ========                 ==========
Valuation allowance.........................................         (2,070)                     (1,034)
                                                                    -------                   ---------
                                                                    $ 2,093                   $   1,123
                                                                    =======                   =========

      At December 31, 2004, the net deferred tax asset of $111,000 presented in
the Company's balance sheet is comprised of deferred tax assets of $2,093,000
offset by deferred tax liabilities of $1,982,000. At December 31, 2003, the net
deferred tax asset of $57,000 was comprised of deferred tax assets of $1,123,000
offset by deferred tax liabilities of $1,066,000. At both December 31, 2004 and
2003, the net deferred tax asset relates to an AMT credit carry forward.

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

                                                           2004        2003         2002
                                                           ----        ----         ----
                                                                 (IN THOUSANDS)

Current:
   Federal........................................       $    --   $     (150)  $   (2,332)
   State and local................................            24           --          144
   Foreign........................................            82           73           19
                                                         -------   ----------   ----------
Total Current.....................................           106          (77)      (2,169)
                                                         -------   ----------   ----------
Deferred:
   Federal........................................            --          150          264
   State and local................................            (6)          --          (62)
                                                         -------   ----------   ----------
Total Deferred....................................            (6)         150          202
                                                         -------   ----------   ----------
                                                         $   100   $       73   $   (1,967)
                                                         =======   ==========   ==========


                                       49


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

                                                          2004        2003         2002
                                                          ----        ----         ----
                                                                 (IN THOUSANDS)

Tax (benefit) at statutory rate...................     $ (1,097)   $       62   $    5,439
Foreign tax rate differential.....................          (87)          (81)          --
State and local taxes, net of federal benefit.....            5            --           54
Deconsolidation gain..............................           --            --       (6,603)
Foreign export sales benefit......................          (66)          (54)        (142)
Capital loss utilization..........................           --            --         (860)
Valuation allowance...............................        1,245           139           29
Other.............................................          100             7          116
                                                        -------    ----------   ----------
                                                        $   100    $       73   $   (1,967)
                                                        =======    ==========   ==========

      Profit (loss) before income taxes from foreign operations was $499,000,
$452,000 and ($336,000) in 2004, 2003, and 2002 respectively.

      Federal, State and Foreign income tax payments were $0, $0.3, and $0,
for the years 2004, 2003 and 2002, respectively. Income tax recoveries were
$532,000 in 2003 for tax loss carry-backs, and totaled $2,170,000 in 2002,
including refunds of 2001 estimated tax payments in the amount of $700,000 and
$1,470,000 for tax loss carry-backs.

      The valuation allowance increased $1,245,000 in 2004 to $2,070,000 at
December 31, 2004. Of this change, $209,000 was not reflected through the
Statement of Operations, but rather was applied to the negative goodwill
associated with the PTI acquisition. The remaining valuation reserve increase of
$1,036,000 is primarily the result of an increased in domestic net operating
losses during the year and management is uncertain of the ability to utilize
these losses in the future.

9. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

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

      Total comprehensive income was $18,267,000 in the year ended December 31,
2002, including "other" comprehensive income of $304,000 that was the result of
unrealized gains on available for sale securities.

      The components of accumulated other comprehensive income (loss), net of
related tax, at December 31, 2004, 2003, and 2002 are as follows:

                                                                  2004        2003         2002
                                                               ---------   ---------    ---------

Balance beginning of year.................................     $     291   $     302    $      (2)
Foreign currency translation..............................            14          --           --
Unrealized gain (loss) on available for-sale securities...           544         (11)         304
                                                               ---------   ---------    ---------
Accumulated other comprehensive income (loss).............     $     849   $     291    $     302
                                                               =========   =========    =========


                                       50


10. EMPLOYEE BENEFIT PLANS

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

                                                                  2004        2003         2002
                                                               ---------   ---------    ---------

Defined contribution total................................     $      90   $      48    $      34
                                                               =========   =========    =========

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

11. COMMITMENTS AND CONTINGENCIES

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

IN RE: SPINNAKER COATING, INC., DEBTOR/PACE LOCAL 1-1069 V. SPINNAKER COATING,
INC., AND LYNCH CORPORATION, U.S. BANKRUPTCY COURT, DISTRICT OF MAINE, CHAPTER
11, ADV. PRO. NO. 02-2007, AND PACE LOCAL 1-1069 V. LYNCH CORPORATION AND LYNCH
SYSTEMS, INC. CUMBERLAND COUNTY SUPERIOR COURT, CV-2001-00352

      On or about June 26, 2001, in anticipation of the July 15, 2001 closure of
Spinnaker's Westbrook, Maine facility, Plaintiff PACE Local 1-1069 ("PACE")
filed a three count complaint in Cumberland County Superior Court, CV-2001-00352
naming the following Defendants: Spinnaker Industries, Inc., Spinnaker Coating,
Inc., and Spinnaker Coating-Maine, Inc. (collectively, the "Spinnaker Entities")
and the Company. The complaint alleged that under Maine's Severance Pay Act both
the Spinnaker Entities and the Company would be liable to pay approximately
$1,166,000 severance pay under Maine's Severance Pay Act in connection with the
plant closure. Subsequently, the Spinnaker Entities filed for relief under
Chapter 11 of the Bankruptcy Code and the action proceeded against the Company
on the issue of whether the Company has liability to PACE's members under the
Maine Severance Pay Act.

      In 2002, both plaintiff and defendants 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 plaintiff 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 plaintiff $653,018 (subsequently
modified to $656,020) in severance pay, which is approximately one-half the
amount claimed by it. The Court rejected plaintiff's claim for pre-judgment
interest, but granted its request for attorney fees.

      Both the plaintiff and the Company have filed notices of appeal to the
Maine Supreme Judicial Court. 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.


                                       51


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 on
February 14, 2001, and the seal was lifted on January 11, 2002. The Company was
formally served with the complaint on July 9, 2002. The main allegation in the
case is that the defendants participated in the creation of "sham" bidding
entities that allegedly defrauded the 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 document filed by the relator
(a private party that filed the action on behalf of the United States) discloses
an initial computation of damages of not less than $88 million resulting from
bidding credits awarded defendants in FCC auctions and $120 million of unjust
enrichment through the disposition of licenses obtained in FCC auctions. Lynch
Interactive has stated that the bidding credits the defendents received were
considerably less than the $88 million amount reported. On September 30, 2003,
the Court granted Lynch Interactive's Motion to Transfer the action to the
Southern District of New York.

      On September 14, 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 is pending and pre-trial discovery
continues.

      The U. S. Department of Justice has notified the Court that is has
declined to intervene in the case. The Defendants strongly believe that the
action is completely without merit and that the relator's initial 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. Nevertheless, the Company
cannot predict the ultimate outcome of the litigation, nor can the Company
predict the effect that the lawsuit or its outcome will have on the Company's
business or plan of operation.

RENT EXPENSE

      Rent expense under operating leases was $285,000, $284,000 and $320,000
for the years ended December 31, 2004, 2003 and 2002, respectively. The Company
leases certain property and equipment, including warehousing and sales and
distribution equipment, under operating leases that extend from one to five
years. Certain of these leases have renewal options and escalation provisions.

      Future minimum rental payments under long-term non-cancelable operating
leases subsequent to December 31, 2004 are as follows:

                                                     (in thousands)
         2005...................................           $181
         2006...................................            107
         2007...................................             15
         2008...................................             15
         2009 and thereafter....................             15

12. SEGMENT INFORMATION

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


                                       52


      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 $350,000 in 2004, $175,000 in 2003, and
$200,000 in 2002. 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.

                                                       YEARS ENDED DECEMBER 31,
                                                 ----------------------------------
                                                   2004         2003         2002
                                                 --------     --------     --------

REVENUES
Glass manufacturing equipment - USA              $  1,114     $  3,677     $  1,790
Glass manufacturing equipment - Foreign             9,307        9,109       13,184
                                                 --------     --------     --------
Total Glass manufacturing equipment                10,421       12,786       14,974

Frequency control devices - USA                    12,096        7,282        5,562
Frequency control devices - Foreign                11,317        7,901        5,850
                                                 --------     --------     --------
Total Frequency control devices                    23,413       15,183       11,412
                                                 --------     --------     --------
Consolidated total revenues                      $ 33,834     $ 27,969     $ 26,386
                                                 ========     ========     ========

OPERATING PROFIT (LOSS)
Glass manufacturing equipment                    $ (1,340)    $    822     $    936
Frequency control devices                           1,012         (170)      (2,574)
                                                 --------     --------     --------
Total manufacturing                                  (328)         652       (1,638)

Unallocated Corporate expense                      (2,560)      (1,484)      (1,614)
Gain on deconsolidation                                --           --       19,420
                                                 --------     --------     --------
Consolidated total operating profit (loss)       $ (2,888)    $   (832)    $ 16,168
                                                 ========     ========     ========

OTHER PROFIT (LOSS)
Investment income                                      15          534          121
Interest expense                                     (360)        (282)        (201)
Other income (expense)                                  7          763          (92)
                                                 --------     --------     --------
Consolidated total profit (loss) before taxes    $ (3,226)    $    183     $ 15,996
                                                 ========     ========     ========

CAPITAL EXPENDITURES
Glass manufacturing equipment                    $     97           74           89
Frequency control devices                             326           67          134
General Corporate                                      17           --           --
Consolidated total capital expenditures          $    440     $    141     $    223

TOTAL ASSETS
Glass manufacturing equipment                    $ 10,832     $ 12,207     $ 13,181
Frequency control devices                          17,417        7,860        7,021
General Corporate                                   5,634        2,952        3,228
                                                 --------     --------     --------
Consolidated total assets                        $ 33,883     $ 23,019     $ 23,430
                                                 ========     ========     ========

13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

      The following is a summary of the quarterly results of operations for the
years ended December 31, 2004 and December 31, 2003:


                                       53


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

Sales and revenues                     $ 6,812      $ 6,736        $8,257        $ 7,943    $12,343
Gross profit                             1,512        1,986         1,925          1,526      3,026
Operating loss                            (763)        (467)         (516)          (915)      (743)
Net loss                                  (808)        (560)         (566)          (965)      (993)
Basic and diluted (loss) per share      ($0.54)      ($0.37)       ($0.38)        ($0.64)    ($0.62)

      The quarterly results of operations for the third quarter of 2004 have
been restated to reflect the correction for certain inventory related
adjustments that were discovered at year-end which relate to the three-month
period ended September 30, 2004.

                                                                                  2003 THREE MONTHS ENDED
                                                                      ----------------------------------------------
                                                                        MAR. 31     JUNE 30     SEP. 30     DEC. 31
                                                                      ---------    ---------   ---------   ---------
                                                                         (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Sales and revenues................................................    $   4,744    $   6,714   $   7,716   $   8,795
Gross profit......................................................          793        1,732       2,221       2,904
Operating profit (loss)...........................................       (1,040)        (278)         68         418
Net income (loss).................................................         (738)        (173)        783         238
Basic and diluted earnings (loss) per share.......................    $   (0.49)   $   (0.12)  $    0.52   $    0.16

                SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF
                          REGISTRANT LYNCH CORPORATION

                             CONDENSED BALANCE SHEET
                                 (IN THOUSANDS)

                                                                                       DECEMBER 31,
                                                                                     2004        2003
                                                                                  ----------  ----------

ASSETS
Current Assets
   Cash and cash equivalents ............................................          $     415   $   1,966
   Restricted cash ......................................................              1,125       1,125
   Investments - marketable securities...................................              3,609       2,311
   Deferred income taxes.................................................                 --         166
   Other current assets..................................................                153         189
                                                                                  ----------  ----------
                                                                                       5,302       5,757

Net Property, Plant & Equipment                                                       16          18

Other Assets (principally investment in and amounts due from wholly
   owned subsidiaries)...................................................              7,720       9,945
                                                                                  ----------  ----------
Total Assets.............................................................         $   13,038  $   15,720
                                                                                  ==========  ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities......................................................         $    3,045  $    5,649
Long Term Liabilities....................................................                 --        (962)
Total Shareholders' Equity...............................................              9,993      11,033
                                                                                  ----------  ----------
Total Liabilities And Shareholders' Equity...............................         $   13,038  $   15,720
                                                                                  ==========  ==========
          See Accompanying Notes to Consolidated Financial Statements

                                       54


                                LYNCH CORPORATION

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

                                                                                        YEARS ENDED DECEMBER 31,
                                                                                   --------------------------------
                                                                                     2004        2003        2002
                                                                                   --------    --------    --------

Interest, dividends and gains on sale of marketable securities................     $     17    $    523    $     40
Dividend from subsidiary......................................................           22         486       1,306
Interest and other income from subsidiaries...................................           55          36          12
                                                                                   --------    --------    --------
TOTAL INCOME..................................................................           94       1,045       1,358
Costs and Expenses:...........................................................
Unallocated corporate administrative expense..................................        1,435       1,309       1,414
Commitments and contingencies.................................................          775          --          --
Interest expense..............................................................           47          18           9
                                                                                   --------    --------    --------
TOTAL COST AND EXPENSE........................................................        2,257       1,327       1,423
                                                                                   --------    --------    --------
LOSS BEFORE INCOME TAXES AND EQUITY IN NET LOSS
   OF SUBSIDIARIES............................................................       (2,163)       (282)        (65)
(Provision) Benefit for income taxes .........................................           --          96          20
Equity in net (loss) income of subsidiaries...................................       (1,163)        296      18,008
                                                                                   --------    --------    --------
NET (LOSS) INCOME.............................................................     $ (3,326)   $    110    $ 17,963
                                                                                   ========    ========    ========

          See Accompanying Notes to Consolidated Financial Statements


                                       55


                                LYNCH CORPORATION

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

                                                                                        YEAR ENDED DECEMBER 31,
                                                                                   ---------------------------------
                                                                                     2004        2003        2002
                                                                                   --------    --------    ---------

CASH PROVIDED BY (USED IN)  OPERATING ACTIVITIES..............................     $   (430)   $    193    $     910
                                                                                   --------    --------    ---------
INVESTING ACTIVITIES:
Capital expenditures..........................................................          (17)         --           --
Proceeds from sale of maketable securities....................................           --       1,041           --
Payment on margin liability...................................................         (300)       (454)          --
Purchase of marketable securities.............................................         (754)     (1,565)        (306)
Dividend from subsidiaries....................................................           22         464        1,300
                                                                                   --------    --------    ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES...........................       (1,049)       (514)         994
                                                                                   --------    --------    ---------
FINANCING ACTIVITIES:
Loans to Subsidiary...........................................................       (1,800)         --         (700)
Issuance of Common Stock......................................................        1,760          --           --
Purchase of Treasury Stock....................................................          (32)         --           --
                                                                                   --------    --------    ---------
NET CASH USED IN FINANCING ACTIVITIES.........................................          (72)         --         (700)
                                                                                   --------    --------    ---------
TOTAL (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........................       (1,551)       (321)       1,204
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR................................        1,966       2,287        1,083
                                                                                   --------    --------    ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR......................................     $    415    $  1,966    $   2,287
                                                                                   ========    ========    =========
          See Accompanying Notes to Consolidated Financial Statements

NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE A -- BASIS OF PRESENTATION

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



                                       56



                       LYNCH CORPORATION AND SUBSIDIARIES

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002

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

Year ended December 31, 2004
   Allowance for uncollectible
   accounts receivable.............      $      91,000   $      14,000         --       $      13,000   $      92,000
                                         =============   =============   =============  =============   =============
Year ended December 31, 2003
   Allowance for uncollectible
   accounts receivable.............      $      91,000   $      10,000         --       $      10,000   $      91,000
                                         =============   =============   =============  =============   =============
Year ended December 31, 2002
   Allowance for uncollectible
   accounts receivable.............      $     118,000   $       7,000         --       $      34,000   $      91,000
                                         =============   =============   =============  =============   =============

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


                                       57


                                  EXHIBIT INDEX

EXHIBIT
  NO.       DESCRIPTION
-------     -----------

 3(a)*      Restated Articles of Incorporation of the Company.
  (b)*      Articles of Amendment of the Articles of Incorporation of the
            Company.
  (c)       By-laws of the Company (incorporated by reference to Exhibit 3.1 to
            the Company's Current Report on Form 8-K dated December 22, 2004).
10(a)       Lynch Corporation 401(k) Savings Plan (incorporated by reference to
            Exhibit 10(b) to the Company's Annual Report on Form 10-K for the
            period ended December 31, 1995).
  (b)       Directors Stock Plan (incorporated by reference to Exhibit 10(o) to
            the Company's Form 10-K for the year ended December 31, 1997).
  (c)       Lynch Corporation 2001 Equity Incentive Plan adopted December 10,
            2001 (incorporated by reference to Exhibit 10(y) to the Company's
            Form 10-K for the year ended December 31, 2001).
  (d)       Amended and Restated Credit Agreement by and between Lynch Systems,
            Inc. and SunTrust Bank dated as of June 10, 2002 (incorporated by
            reference to Exhibit 10(z) to the Company's Form 10-K for the year
            ended December 31, 2002).
  (e)       Unlimited Continuing Guaranty Agreement by Guarantor, Lynch
            Corporation, dated June 10, 2002 (incorporated by reference to
            Exhibit 10(aa) to the Company's Form 10-K for the year ended
            December 31, 2002).
  (f)       First Amendment and Waiver to Amended and Restated Credit Agreement
            between Lynch Systems, Inc. and SunTrust Bank dated May 30, 2003
            (incorporated by reference to Exhibit 10(ee) to the Company's Form
            10-Q for the period ending June 30, 2003).
  (g)       Term Loan Promissory Note between Lynch Systems, Inc. and SunTrust
            Bank dated August 4, 2003 (incorporated by reference to Exhibit
            10(ff) to the Company's Form 10-Q for the period ending June 30,
            2003).
  (h)       Second Amendment to Security Deed and Agreement dated August 4, 2003
            between Lynch Systems, Inc. and SunTrust Bank (incorporated by
            reference to Exhibit 10(gg) to the Company's Form 10-Q for the
            period ending June 30, 2003).
  (i)       Mortgage dated October 21, 2002 by Mortgagor, Mtron Industries,
            Inc., to Mortgagee, Yankton Area Progressive Growth, Inc.
            (incorporated by reference to Exhibit 10(hh) to the Company's Annual
            Report on Form 10-K for the year ended December 31, 2003).
  (j)       Promissory Note between Mtron Industries, Inc. and Yankton Area
            Progressive Growth, Inc., dated October 21, 2002 (incorporated by
            reference to Exhibit 10(ii) to the Company's Annual Report on Form
            10-K for the year ended December 31, 2003).
  (k)       Standard Loan Agreement by and between Mtron Industries, Inc. and
            Areawide Business Council, Inc., dated October 10, 2002 and Exhibits
            thereto (incorporated by reference to Exhibit 10(jj) to the
            Company's Annual Report on Form 10-K for the year ended December 31,
            2003).
  (l)       Loan Agreement by and between Mtron Industries, Inc. and South
            Dakota Board of Economic Development, dated December 19, 2002
            (incorporated by reference to Exhibit 10(kk) to the Company's Annual
            Report on Form 10-K for the year ended December 31, 2003).
  (m)       Promissory Note between Mtron Industries, Inc. and South Dakota
            Board of Economic Development, dated December 19, 2002 (incorporated
            by reference to Exhibit 10(ll) to the Company's Annual Report on
            Form 10-K for the year ended December 31, 2003).
  (n)       Employment Agreement by and between Mtron Industries, Inc. and South
            Dakota Board of Economic Development, dated December 19, 2002
            (incorporated by reference to Exhibit 10(mm) to the Company's Annual
            Report on Form 10-K for the year ended December 31, 2003).
  (o)       Loan Agreement by and among Mtron Industries, Inc., Piezo
            Technology, Inc. and First National Bank of Omaha (incorporated by
            reference to Exhibit 10.1 to the Company's Current Report on Form
            8-K dated October 20, 2004).
  (p)       Unconditional Guaranty for Payment and Performance with First
            National Bank of Omaha (incorporated by reference to Exhibit 10.2 to
            the Company's Current Report on Form 8-K dated October 20, 2004).


                                       58


  (q)       Registration Rights Agreement by and between the Company and Venator
            Merchant Fund, L.P. dated October 15, 2004 (incorporated by
            reference to Exhibit 10.4 to the Company's Current Report on Form
            8-K dated October 20, 2004).
14*         Amended and Restated Business Conduct Policy
21*         Subsidiaries of the Company.
23*         Consent of Independent Registered Public Accounting Firm - Ernst &
            Young LLP.
24*         Powers of Attorney.
31(a)*      Certifications of the Company's principal executive officer required
            by Exchange Act Rule 13a-14(a).
31(b)*      Certifications of the Company's principal financial officer required
            by Exchange Act Rule 13a-14(a).
32(a)*      Section 1350 Certifications of the Company's principal executive
            officer required by Exchange Act Rule 13a-14(b).
32(b)*      Section 1350 Certifications of the Company's principal financial
            officer required by Exchange Act Rule 13a-14(b).

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

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


                                       59