SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the transition period from                      to                     

Commission File No. 1-106

LYNCH CORPORATION

(203) 622-1150

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 þ       No o

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

Yes o       No þ

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

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INDEX

LYNCH CORPORATION AND SUBSIDIARIES

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Part 1 — FINANCIAL INFORMATION -

Item 1 — Financial Statements

LYNCH CORPORATION AND SUBSIDIARIES

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

See accompanying Notes to Consolidated Financial Statements

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PART I — FINANCIAL INFORMATION

Item 1 — Financial Statements

LYNCH CORPORATION AND SUBSIDIARIES

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Effective September 30, 2004, the Company acquired, through its subsidiary M-tron Industries, Inc., 100% of the common stock of Piezo Technology, Inc. (See Note D to the Condensed Consolidated Financial Statements.) The three month results for the period ending March 31, 2004 do not include Piezo Technology, Inc.

See accompanying Notes to Consolidated Financial Statements

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PART I — FINANCIAL INFORMATION

ITEM 1 — Financial Statements

LYNCH CORPORATION AND SUBSIDIARIES

See accompanying Notes to Consolidated Financial Statements

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A. Subsidiaries of the Registrant

As of March 31, 2005, the Subsidiaries of the Registrant are as follows:

B. Basis of Presentation

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

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

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

C. Adoption of Accounting Pronouncements

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

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

D. Acquisition

     On October 15, 2004, the Company acquired, through its wholly-owned subsidiary, Mtron, 100% of the common stock of PTI. The acquisition was effective September 30, 2004. PTI manufactures and markets high-end oscillators, crystals, resonators and filters used in electronic and communications systems. The purchase price was approximately $8,736,000 (before deducting cash acquired, and before adding acquisition costs and transaction fees). The Company funded the purchase price by (a) new notes payable and long-term debt of $6,936,000 and (b) proceeds of $1,800,000 received from the sale of Lynch Stock to Venator Merchant Fund (“Venator”), which is controlled by the Company’s Chairman, Marc Gabelli.

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     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.

     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 $627,000 consist of customer relationships, trade name and funded technologies, and were determined to have definite lives that range from two to ten years.

E. Restricted Cash

     At March 31, 2005 and December 31, 2004, the Company had $1.0 million and $1.1 million, respectively, of Restricted Cash that secures a Letter of Credit issued by Bank of America to the First National Bank of Omaha as collateral for its M-tron subsidiary’s loans.

F. Investments

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

     The Company has a margin liability against this investment of $1,582,000 at March 31, 2005 and of $1,566,000 at December 31, 2004 which must be settled upon the disposition of the related securities whose fair value is based on quoted market prices. The Company has designated these investments as available for sale pursuant to Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities”.

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G. Inventories

     Inventories are stated at the lower of cost or market value. At March 31, 2005, inventories were valued by two methods: last-in, first-out (LIFO) 56%, and first-in, first-out (FIFO) 44%. At December 31, 2004, inventories were valued by the same two methods: LIFO — 47%, and FIFO — 53%.

     Current costs exceed LIFO value of inventories by $1,112,000 and $1,110,000 at March 31, 2005 and December 31, 2004, respectively.

H. Indebtedness

     On a consolidated basis, at March 31, 2005, Lynch maintains short-term credit facilities totaling $12.5 million, of which $2.6 million was available for future borrowings, including up to $2.6 million for working capital and/or up to $0.5 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.

     Lynch Systems, Inc. and M-tron Industries, Inc. maintain their own credit facilities. In general, the credit facilities are secured by property, plant and equipment, inventory, receivables and common stock of certain subsidiaries and contain certain covenants restricting distributions to the Company. The Lynch Systems facilities include an unsecured parent Company guarantee. M-tron’s revolving credit agreement includes a unsecured parent Company guarantee and is supported by a $1.0 million Letter of Credit that is secured by a $1.0 million deposit at Bank of America (see Note E — “Restricted Cash”).

     MtronPTI has received an extension on its credit agreement until June 30, 2005. MtronPTI intends to renew the credit agreement with the incumbent lender for another year. Lynch Systems’ SunTrust Bank loan matures May 31, 2005. Lynch Systems is currently in discussions with the bank. If Lynch Systems is unable to renew this agreement it will have to obtain new financing, however, there can be no assurances that such financing will be available. At March 31, 2005, the Company was in violation of certain of its financial covenants for which it received a waiver from one of the banks and is in discussions with the other.

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I. Long-Term Contracts and Warranty Expense

     Lynch Systems, a 100% wholly-owned subsidiary of the Company, is engaged in the manufacture and marketing of glass-forming machines and specialized manufacturing machines. Certain sales contracts require an advance payment (usually 30% of the contract price) which is accounted for as a customer advance. The contractual sales prices are paid either (i) as the manufacturing process reaches specified levels of completion or (ii) based on the shipment date or (iii) negotiated terms of sale. Guarantees by letter of credit from a qualifying financial institution are required for most sales contracts. Because of the specialized nature of these machines and the period of time needed to complete production and shipping, Lynch Systems accounts for these contracts using the percentage-of-completion accounting method as costs are incurred compared to total estimated project costs (cost-to-cost basis). At March 31, 2005 and December 31, 2004, unbilled accounts receivable were $3.3 million and $2.5 million, respectively.

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

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J. Earnings Per Share and Stockholders’ Equity

     The Company’s basic and diluted earnings per share are equivalent as the options issued in May 2002 to purchase 228,000 shares of the Company’s common stock were anti-dilutive throughout 2003 and 2004.

     On March 24, 2005, the Board of Directors approved, subject to shareholder approval at the May 2005 Annual Meeting, amendments to the 2001Equity Incentive to increase the total number of shares of the Company’s Common Stock available for issuance from 300,000 to 600,000 shares and to add provisions that require terms and conditions of awards to comply with section 409A of the Internal Revenue Code of 1986.

     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 March 31, 2005, 180,000 of these options are fully vested. During the first quarter 2005, 44,000 options were cancelled.

     The Company has a stock-based employee compensation plan. 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 or above the market value of the underlying common stock on the date of grant. The Company provides pro-forma disclosures of the compensation expense determined under the fair value provisions of Financial Accounting Standards Board Statement No. 123, “Accounting for Stock-Based Compensation” as follows:

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

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K. Accumulated Other Comprehensive Income (Loss)

     Total comprehensive income was $493,000 in the three months ended March 31, 2005, compared to a total comprehensive loss of $222,000 in the three months ended March 31, 2004. “Other” comprehensive income, resulting from unrealized gains on available for sale securities included in total comprehensive income was $422,000 in the three months ended March 31, 2005 and $586,000 in the three months ended March 31, 2004.

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

L. Segment Information

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

     Operating profit (loss) is equal to revenues less operating expenses, excluding investment income, interest expense, and income taxes. The Company allocates a negligible portion of its general corporate expenses to its operating segments. Such allocation was $125,000 and $87,500 in the first three months of 2005 and 2004, respectively. Identifiable assets of each industry segment are the assets used by the segment in its operations excluding general corporate assets. General corporate assets are principally cash and cash equivalents, short-term investments and certain other investments and receivables.

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