UNITED STATES
                 SECURITIES AND EXCHANGE COMMISSION
                       WASHINGTON, D.C. 20549

                             FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d)of the
    Securities Exchange Act of 1934 

    For the Quarter Ended     September 27, 1998          

    or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the
    Securities Exchange Act of 1934

    Commission File Number     1-9298                     


                         RAYTECH CORPORATION                
       (Exact Name of Registrant as Specified in its Charter)


           DELAWARE                               06-1182033     
(State or other Jurisdiction of              (I.R.S. Employer     
 Incorporation or Organization)               Identification No.) 


   Suite 295, Four Corporate Drive 
   Shelton, Connecticut                                  06484    
(Address of Principal Executive Offices)               (Zip Code) 


                         203-925-8023           
                (Registrant's Telephone Number)  


Indicate by check mark whether the Registrant (1) has filed all
reports 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           

As of September 27, 1998, 3,421,395 shares of the Registrant's
common stock, par value $1.00, were issued and outstanding.
 

                             Page 1 of 33
<PAGE>
  
                         RAYTECH CORPORATION  

                                INDEX  


                                                            Page     
                                                          Number

PART I.   UNAUDITED FINANCIAL INFORMATION: 

Item 1.   Condensed Consolidated Balance Sheets as           
          at September 27, 1998 and December 28, 1997         3

          Condensed Consolidated Statements of  
          Operations for the thirteen weeks 
          and thirty-nine weeks ended 
          September 27, 1998 and September 28, 1997           4
          
          Condensed Consolidated Statements of Cash  
          Flows for the thirteen weeks and thirty-nine
          weeks ended September 27, 1998 and                  5
          September 28, 1997
  
          Consolidated Statements of Shareholders' 
          Equity - 1998                                       6
  
          Consolidated Statements of Shareholders'
          Equity - 1997                                       7
  
          Notes to Condensed Consolidated 
          Financial Statements                                8
   
 Item 2.  Management's Discussion and Analysis of                    
          Financial Condition and Results of Operations      20 
  
  
 PART II. OTHER INFORMATION
  
 Item 1.  Legal Proceedings                                  24
  
 Item 6.  Exhibits and Reports on Form 8-K                   31 
  
          Signature                                          33 
  
  
  
  
  
  
  
  
                                   -2-<PAGE>
  

RAYTECH CORPORATION

<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share data)(Unaudited)   
<CAPTION>
                                                                 Sept. 27,    Dec. 28,
As at                                                               1998       1997  
  <S>                                                            <C>          <C>
                                                                 
ASSETS                                                                        
Current assets                                                                
  Cash and cash equivalents                                      $  8,879     $ 9,913
  Trade accounts receivable, less allowance of $900                                  
    for 1998 and $1,186 for 1997                                   34,481      26,903
  Inventories                                                      30,008      28,202
  Other current assets                                              9,436       8,590
      Total current assets                                         82,804      73,608
 
Property, plant and equipment                                     156,722     143,131
  Less accumulated depreciation                                    90,039      82,141
      Net property, plant and equipment                            66,683      60,990
Investment in and advances to affiliates                              -        10,249
Other assets                                                       24,945       8,538
Total assets                                                     $174,432    $153,385
                                                                                      
LIABILITIES                                                                           
Current liabilities                                                                   
  Notes payable                                                  $ 22,358    $ 13,039
  Current portion of long-term debt - Raymark                      11,037       9,970
  Current portion of long-term debt                                 1,121         130
  Accounts payable                                                 16,498      20,703
  Accrued liabilities                                              17,657      22,442
      Total current liabilities                                    68,671      66,284
                                                                                      
Long-term debt due to Raymark                                      20,784      21,988
Long-term debt                                                      5,831       1,178
Postretirement benefits other than pensions                        10,848      10,044
Other long-term liabilities                                         6,757       5,429
Total liabilities                                                 112,891     104,923
                                                                                   
SHAREHOLDERS' EQUITY                                                                  
Capital stock                                                                         
  Cumulative preference stock, no par value                                           
  800,000 shares authorized, none issued & outstanding                                
  Common stock, par value $1.00                                       -           -   
  7,500,000 shares authorized, 5,553,454 and 5,417,367                      
    issued and outstanding in fiscal 1998 and 1997, respectively    5,553       5,417
Additional paid in capital                                         70,501      70,275 
Accumulated deficit                                               (10,160)    (23,384)
Accumulated other comprehensive income                                208         715
                                                                   66,102      53,023 
Less treasury shares at cost                                       (4,561)     (4,561)
      Total shareholders' equity                                   61,541      48,462
Total liabilities and shareholders' equity                       $174,432    $153,385
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>

<PAGE>
                            RAYTECH CORPORATION
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (000's omitted, except share data)



<TABLE>
<CAPTION>


                                       For the 13 Weeks Ended    For the 39 Weeks Ended
                                       Sept. 27,     Sept. 28,   Sept. 27,    Sept. 28,
                                         1998           1997       1998          1997    
<S>                                    <C>           <C>         <C>          <C>

Net Sales                              $ 61,486      $ 56,251    $ 188,026    $176,132
Cost of sales                           (48,515)      (44,469)    (143,887)   (136,739)

       Gross profit                      12,971        11,782       44,139      39,393

Selling and administrative expenses      (7,485)       (5,395)     (23,101)    (18,364)

       Operating profit                   5,486         6,387       21,038      21,029

Interest expense                           (299)         (338)      (1,359)       (983)
Interest expense - Raymark                  (46)         (563)        (136)     (1,594)
Other income (expense), net                  11            86          587       1,007

Income before provision for income
  taxes and minority interest             5,152         5,572       20,130      19,459
Provision for income tax                 (1,744)       (1,677)      (5,653)     (5,812)
Minority interest                          (327)         (185)      (1,253)       (512)

Net income                             $  3,081      $  3,710    $  13,224    $ 13,135

Basic earnings per share               $    .90      $   1.14    $    3.90    $   4.03

Diluted earnings per share             $    .87      $   1.05    $    3.71    $   3.73

<FN>
The accompanying notes are an integral part of these statements.
</TABLE>

<PAGE>
                            RAYTECH CORPORATION

              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)



<TABLE>
<CAPTION>
                                                                                           
                                                        Sept. 27,   Sept. 28, 
For the 39 Weeks Ended                                    1998         1997 
    <S>                                               <C> <C>      <C>

    Net cash provided by operating activities         $   7,970    $  15,735

Cash flow from investing activities:
  Capital expenditures                                  (11,936)     (14,754)
  Proceeds on sale of property, plant and equipment         136          125
  Note receivable due from AFM                                -          101
  Purchase of common stock in AFM                        (3,337)          - 
  Payments to AFM for land and building                       -       (7,076)
    Net cash used in investing activities               (15,137)     (21,604)

Cash flow from financing activities:
  
  Cash overdraft                                           (739)          - 
  Net (payments) proceeds from short-term borrowings      1,175         (373)
  Net borrowing (payments) under revolving 
    line of credit                                        3,456        4,078
  Proceeds on long-term debt                              2,356          462
  Principal payments on long-term debt                     (129)        (126)
  Principal payments on borrowings from Raymark            (349)      (3,905)       
  Other                                                     356           97 


    Net cash used in financing activities                 6,126          233     

Effect of exchange rate changes on cash                       7          (89)

Net change in cash and cash equivalents                  (1,034)      (5,725)

Cash and cash equivalents at beginning of period          9,913       11,341

Cash and cash equivalents at end of period            $   8,879     $  5,616


<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
    
    <PAGE>
                                        RAYTECH CORPORATION
                          CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (in thousands, except share data)


<TABLE>
<CAPTION>
                                                                    Accumulated
                           Number              Paid                   Other                   
                          of Shares   Common    in   Accumulated   Comprehensive   Treasury Stock   
                           Issued      Stock  Capital   Deficit       Income      Cost      Shares  
  <C>      <C> <C>        <C>        <C>      <C>      <C>           <C> <C>    <C>      <C>

Balance,
  December 28, 1997       5,417,367  $ 5,417  $70,275  $ (23,384)    $   715    $(4,561) (2,132,059)     

Stock options exercised     136,087      136      226                        

Cumulative translation
  adjustment                                                            (507)

Purchase of treasury  
  stock

Net income for the
 period ended     
 September 27, 1998                                       13,224                                    
Balance,
 September 27, 1998       5,553,454  $ 5,553  $70,501  $ (10,160)    $   208    $(4,561) (2,132,059)
<FN>
The accompanying notes are an integral part of these statements.<PAGE>
</TABLE>

                                        RAYTECH CORPORATION
                          CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (in thousands, except share data)

<TABLE>
<CAPTION>

                                                                  Accumulated
                           Number              Paid                   Other                   
                          of Shares   Common    in   Accumulated  Comprehensive    Treasury Stock   
                           Issued      Stock  Capital   Deficit      Income       Cost      Shares  
  <C>      <C> <C>        <C>        <C>      <C>      <C>           <C>        <C>      <C>

Balance,
  December 29, 1996       5,371,821  $ 5,372  $70,208  $ (38,922)    $ 1,918    $(4,561) (2,132,059)     

Stock options exercised      38,162       38       59                        

Cumulative translation
  adjustment                                                          (1,466)

Purchase of treasury  
  stock

Net income for the
 period ended     
 September 28, 1997                                       13,135                                    
Balance,
 September 28, 1997       5,409,983  $ 5,410  $70,267  $ (25,787)    $   452    $(4,561) (2,132,059)

<FN>
The accompanying notes are an integral part of these statements.
</TABLE>





<PAGE>
  
                       RAYTECH CORPORATION  
       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  
             (dollars in thousands, except share data)
                            (Unaudited)
  
  
  NOTE:  For purposes of the notes and Item 2, Raytech Corporation
         and its subsidiaries are referenced on a consolidated basis
         as "Raytech" or the "Company" where appropriate.
  
   
  NOTE A - RESTRUCTURING OF RAYTECH, CHAPTER 11 PROCEEDINGS 
           AND OTHER LITIGATION
  
        Raytech Corporation ("Raytech" or the "Company") was
  incorporated on June 13, 1986 in Delaware and held as a subsidiary
  of Raymark Corporation ("Raymark").  In October 1986, Raytech
  became the publicly traded (NYSE) holding company of Raymark stock
  through a triangular merger restructuring plan approved by
  Raymark's shareholders at its October 1986 Annual Meeting whereby
  each share of common stock of Raymark was automatically converted
  into both a share of Raytech common stock and a right to purchase
  a warrant for Raytech common stock.  Each warrant entitled the
  holder to purchase one share of Raytech common stock at a price of
  $9.00 at any time, subject to certain limitations, prior to
  October 1, 1991, extended to 1994.  The warrants expired on
  October 1, 1994.  Raymark, thereby, became a wholly-owned
  subsidiary of Raytech.  The purpose of the formation of Raytech
  and the restructuring plan was to provide a means to gain access
  to new sources of capital and borrowed funds to be used to finance
  the acquisition and operation of new businesses in a corporate
  structure that should not subject it or such acquired businesses
  to any asbestos-related or other liabilities of Raymark.
  
        Prior to the formation of Raytech, Raymark was first sued
  in an asbestos-related claim in 1971 and has since been named as a
  defendant in more than 88,000 lawsuits in which substantial
  damages have been sought for injury or death from exposure to
  airborne asbestos fibers.  More than 35,000 of such lawsuits have
  been disposed of by settlements, dismissals, summary judgments and
  trial verdicts at a cost in excess of $333,000 principally covered
  by Raymark's insurance.  Subsequent to the sale of Raymark, as
  described below, lawsuits continued to be filed against Raymark at
  the rate of approximately 1,000 per month until an involuntary
  petition in bankruptcy was filed against Raymark in February 1989,
  which stayed all its litigation.  In August 1996, the involuntary
  petition filed against Raymark was dismissed following a trial and
  the stay was lifted.  However, in March 1998 Raymark filed a
  voluntary bankruptcy petition again staying the litigation.
  
    <PAGE>
        In accordance with the restructuring plan, Raytech
  purchased the Wet Clutch and Brake Division and German subsidiary
  in 1987 from its then wholly-owned subsidiary, Raymark.  Each such
  acquisition was financed through borrowed funds from new lenders 
  and Raytech stock and notes.  Pursuant to these acquisitions,
  Raymark agreed to indemnify Raytech for any future legal
  liabilities and costs that may result from asbestos litigation. 
  Management believed that each purchase by Raytech from Raymark
  complied with Raytech's restructuring plan principles of (I)
  paying fair market value, (ii) acquiring businesses that did not
  give rise to any asbestos-related or other claims against Raymark,
  (iii) permitting Raymark to retain the proceeds for its ongoing
  business and creditors, (iv) entering the transactions in good
  faith and not to hinder, delay or defraud creditors, and (v)
  conducting its affairs independent of Raymark. 
  
        In May 1988, following shareholder approval, Raytech sold
  all of the Raymark stock to Asbestos Litigation Management, Inc.,
  thereby divesting itself of Raymark.  Consideration received for
  the Raymark stock consisted of $50 cash paid at the closing and a
  7-l/2% $950 promissory note paid in six equal annual installments.
  
        Despite the restructuring plan implementation and
  subsequent divestiture of Raymark, Raytech was named a co-
  defendant with Raymark and other named defendants in approximately
  3,300 asbestos-related lawsuits as a successor in liability to
  Raymark.  The dollar value of these lawsuits cannot be estimated. 
  Until February 1989, the defense of all such lawsuits was provided
  to Raytech by Raymark in accordance with the indemnification
  agreement included as a condition of the purchase of the Wet
  Clutch and Brake Division and German subsidiary from Raymark in
  1987.  In February 1989, an involuntary petition in bankruptcy was
  filed against Raymark, and subsequently, a restrictive funding
  order was issued by an Illinois Circuit Court, which required one
  of Raymark's insurance carriers to pay claims but not defense
  costs, and another insurance carrier had been declared insolvent. 
  These circumstances caused Raymark to be unable to fund the costs
  of defense to Raytech in the asbestos-related lawsuits referenced
  above, as provided in the indemnity section of the acquisition
  agreement.  Raytech management was informed that Raymark's cost of
  defense and disposition of cases up to the automatic stay of
  litigation under the involuntary bankruptcy proceedings was
  approximately $333 million of Raymark's total insurance coverage
  of approximately $395 million.  Raytech management was also
  informed that as a result of the dismissal of the involuntary
  petition, Raymark again encountered asbestos-related lawsuits but
  had received $27 million from a state guarantee association to
  make up the insurance policies of the insolvent carrier and had
  $32 million in other policies to defend against such litigation. 
  However, in March 1998 Raymark filed a voluntary bankruptcy
  petition naming several large asbestos-related judgment creditors.
  
        In an asbestos-related personal injury case decided in
  October 1988 in a U.S. District Court in Oregon, Raytech was ruled
  under Oregon equity law to be a successor to Raymark's asbestos-
  related liability.  The successor ruling was appealed by Raytech
  and in October 1992 the Ninth Circuit Court of Appeals 
  affirmed the District Court's judgment on the grounds stated in
  the District Court's opinion.  The effect of this decision
  extends beyond the Oregon District due to a Third Circuit Court of
  Appeals decision in a related case cited below wherein Raytech was
  collaterally estopped (precluded) from relitigating the issue of
  its successor liability for Raymark's asbestos-related
  liabilities.
  
        As the result of the inability of Raymark to fund
  Raytech's costs of defense recited above, and in order to obtain a
  ruling binding across all jurisdictions as to whether Raytech is
  liable as a successor for asbestos-related and other claims,
  including claims yet to be filed relating to the operations of
  Raymark or its predecessors, on March 10, 1989, Raytech filed a
  petition seeking relief under Chapter 11 of Title 11, United
  States Code in the United States Bankruptcy Court, District of
  Connecticut.  Under Chapter 11, substantially all litigation
  against Raytech has been stayed while the debtor corporation and
  its non-filed operating subsidiaries continue to operate their
  businesses in the ordinary course under the same management and
  without disruption to employees, customers or suppliers.  In the
  Bankruptcy Court a creditors' committee was appointed, comprised
  primarily of asbestos claimants' attorneys.  In August 1995, an
  official committee of equity security holders was appointed 
  relating to a determination of equity security holders' interest
  in the estate.
  
        In June 1989 Raytech filed a class action in the
  Bankruptcy Court against all present and future asbestos claimants
  seeking a declaratory judgment that it not be held liable for the
  asbestos-related liabilities of Raymark.  It was the desire of
  Raytech to have this case heard in the U.S. District Court, and
  since the authority of the Bankruptcy Court is referred from the
  U.S. District Court, upon its motion and argument the U.S.
  District Court withdrew its reference of the case to the
  Bankruptcy Court and thereby agreed to hear and decide the case. 
  In September 1991, the U.S. District Court issued a ruling
  dismissing one count of the class action citing as a reason the
  preclusive effect of the 1988 Oregon case, previously discussed,
  under the doctrine of collateral estoppel (conclusiveness of
  judgment in a prior action), in which Raytech was ruled to be a
  successor to Raymark's asbestos liability under Oregon law.  The
  remaining counts before the U.S. District Court involve the
  transfer of Raymark's asbestos-related liabilities to Raytech on
  the legal theories of alter-ego and fraudulent conveyance.  Upon a
  motion for reconsideration, the U.S. District Court affirmed its
  prior ruling in February 1992.  Also, in February 1992, the U.S.
  District Court transferred the case in its entirety to the U.S.
  District Court for the Eastern District of Pennsylvania.  Such
  transfer was made by the U.S. District Court without motion from
  any party in the interest of the administration of justice as 
  stated by the U.S. District Court.  In December 1992, Raytech
  filed a motion to activate the case and to obtain rulings on the
  remaining counts which was denied by the U.S. District Court.  In
  October 1993, the creditors' committee asked the Court to certify
  the previous dismissal of the successor liability count.  In
  February 1994, the U.S. District Court granted the motion to
  certify and the successor liability dismissal was accordingly
  appealed.  In May 1995, the Third Circuit Court of Appeals ruled
  that Raytech is collaterally estopped (precluded) from
  relitigating the issue of its successor liability as ruled in the
  1988 Oregon case recited above, affirming the U.S. District
  Court's ruling of dismissal.  A petition for a writ of certiorari
  was denied by the U.S. Supreme Court in October 1995.  The ruling
  leaves the Oregon case, as affirmed by the Ninth Circuit Court of
  Appeals, as the prevailing decision holding Raytech to be a
  successor to Raymark's asbestos-related liabilities. 
  
        Since the bankruptcy filing several entities have
  asserted claims in Bankruptcy Court alleging environmental
  liabilities of Raymark based upon similar theories of successor
  liability against Raytech as alleged by asbestos claimants.  These
  claims are not covered by the class action referenced above and
  will be resolved in the bankruptcy case.  The environmental claims
  include a claim of the Pennsylvania Department of Environmental
  Resources ("DER") to perform certain activities in connection with
  Raymark's Pennsylvania manufacturing facility, which includes
  submission of an acceptable closure plan for a landfill containing
  hazardous waste products located at the facility and removal of
  accumulated baghouse dust from its operations.  In March 1991, the
  Company entered a Consent Order which required Raymark to submit a
  revised closure plan which provides for the management and removal
  of hazardous waste, for investigating treatment and monitoring of
  any contaminated groundwater and for the protection of human
  health and environment at the site, all relating to the closure of
  the Pennsylvania landfill and to pay a nominal civil penalty.  The
  estimated cost for Raymark to comply with the order is $1.2
  million.  The DER has reserved its right to reinstitute an action
  against the Company and the other parties to the DER order in the
  event Raymark fails to comply with its obligations under the
  Consent Order.  Another environmental claim was filed against the
  Company by the U.S. Environmental Protection Agency for civil
  penalties charged Raymark in the amount of $12 million arising out
  of alleged Resource Conservation and Recovery Act violations at
  Raymark's Stratford, Connecticut, manufacturing facility.  
  
        In January 1997, the U.S. Environmental Protection Agency
  ("EPA") and the State of Connecticut filed suit against Raymark
  claiming an amended amount of $300 million in damages for cleanup
  of the Stratford, Connecticut, site.  The EPA has also filed a
  bankruptcy claim against Raytech as a successor to Raymark for
  cleanup of the Stratford site and other Raymark sites. 
  Determination of Raytech's liability for such claims, if any, is
  subject to Bankruptcy Court deliberations and proceedings. 
  
        Under bankruptcy rules, the debtor-in-possession has
  an exclusive period in which to file a reorganization plan. 
  Such exclusive period had been extended by the Bankruptcy Court
  pending the conclusion of the successor liability litigation.  
  However, in December 1992, the creditors' committee filed a
  motion to terminate the exclusive period to file a plan of 
  reorganization.  At a hearing in May 1993, the motion was
  denied by the Bankruptcy Court but was appealed by the
  creditors' committee.  In November 1993, the U.S. District
  Court reversed the Bankruptcy Court and terminated the
  exclusive period to file a plan of reorganization effective in
  January 1994.  Accordingly, any party in interest, including
  the debtor, the creditors' committee, or a creditor could
  thereafter file a plan of reorganization.
  
        In May 1994, Raytech filed a Plan of Reorganization
  ("Debtor's Plan") in the U.S. Bankruptcy Court for the purpose
  of seeking confirmation allowing Raytech to emerge from the
  bankruptcy filed March 10, 1989. In September 1994, the
  creditors' committee filed its own Plan of Reorganization in
  competition to the Debtor's Plan ("Creditors' Plan").  Upon
  motion of the parties and support of the Bankruptcy Court, the
  major interested parties agreed in August 1995 to participate
  in non-binding mediation to attempt to effectuate a consensual
  plan of reorganization.  The mediation process commenced in
  October 1995 and was concluded in March 1996 without agreement
  for a consensual plan of reorganization.  The competing plans
  of Raytech and its creditors then returned to Bankruptcy Court
  procedures. 
  
        In October, 1998 Raytech reached a tentative
  settlement with its creditors and entered into a Memorandum of
  Understanding with respect to achieving a consensual plan of
  reorganization (the "Plan").  The parties to the settlement
  include Raytech, the Official Creditors Committee, the Guardian
  ad litem for Future Claimants, the Connecticut Department of
  Environmental Protection and the U. S. Department of Justice,
  Environmental and Natural Resources Division.  Substantive
  economic terms of the Memorandum of Understanding provide for
  all general unsecured creditors including but not limited to
  all asbestos and environmental claimants to receive, through a
  trust established under The Bankruptcy Code, 90% of the equity
  in a company to be reorganized ("Reorganized Raytech") and any
  and all refunds of taxes paid or net reductions in taxes owing
  resulting from the transfer of equity to the trust,and existing
  equity holders in Raytech to receive 10% of the equity in
  Reorganized Raytech.  Substantive non-economic terms of the
  Memorandum of Understanding provide for the parties to jointly
  work to achieve a consensual Plan, to determine an appropriate
  approach to related pension and employee benefit plans and to
  cease activities that have generated adverse proceedings in the
  Bankruptcy Court.  The parties have also agreed to jointly
  request a finding in the confirmation order to the effect that
  while Raytech's liabilities appear to exceed the reasonable
  value of its assets, the allocation of 10% of the equity to
  existing equity holders is fair and equitable by virtue of the
  benefit to the estate of resolving complicated issues without
  further costly and burdensome litigation and the risks
  attendant therewith and the economic benefits of emerging from
  bankruptcy without further delay.
  
        Following Raytech's cessation of monthly $650,000 note
  payments to Raymark in December 1997, Raymark commenced 33
  separate lawsuits against Raytech subsidiaries in various
  jurisdictions from New York to California ("Raymark
  Litigation") demanding payment or the return of assets for
  breach of contract.  Raytech filed an adversary proceeding
  complaint to halt the Raymark litigation and was granted a
  temporary restraining order in December 1997 by the Bankruptcy
  Court that remains in effect.  The creditors' committee
  intervened in the action in support of the restraining order.
  
        In March and April 1998 Raymark and its parent,
  Raymark Corporation, filed voluntary petitions in bankruptcy in
  a Utah Court which stayed all litigation in the Raytech
  bankruptcy in which Raymark was a party.  In connection with
  its attempt to assert control over Raymark and its assets the
  creditors' committee, joined by Raytech, the Guardian Ad Litem
  for future claimants, the equity committee and the government
  agencies moved to have the venue of the Raymark bankruptcies
  transferred from Utah to the Connecticut Court.  In July 1998,
  the Bankruptcy Court issued an order on the motions and
  transferred venue to the Connecticut Court.  Raymark filed an
  appeal of the order but has since withdrawn the appeal.  In
  October 1998 a trustee was appointed by the United States
  Trustee over the Raymark bankruptcies.
  
        In April 1996, the Indiana Department of Environmental
  Management ("IDEM") advised Raybestos Products Company ("RPC"),
  a wholly-owned subsidiary of the Company, that it may have
  contributed to the release of lead and PCB's (polychlorinated
  biphenyls) found in small waterways near its Indiana facility. 
  In June, IDEM named RPC as a potentially responsible party
  ("PRP").  RPC notified its insurers of the IDEM action and one
  insurer responded by filing a complaint in January 1997 in the
  U.S. District Court, Southern District of Indiana, captioned
  Reliance Insurance Company vs. RPC seeking a declaratory
  judgment that any liability of RPC is excluded from its policy
  with RPC.  The discovery process in this action is nearing
  completion.  RPC continues to assess the extent of the
  contamination and its involvement and is currently negotiating
  with IDEM for an agreed order of cleanup.  The Company intends
  to offset its investigation and cleanup costs against its notes
  payable to Raymark when such costs become known pursuant to the
  indemnification clause in the wet clutch and brake acquisition
  agreement since it appears that any source of contamination
  would have occurred during Raymark's ownership of the Indiana
  facility.  Blood tests administered to residents in the
  vicinity of the small waterways revealed no exposure.  The
  Company incurred $1,751 in legal and testing costs associated
  with this matter during fiscal years 1996 and 1997 and has
  filed for reimbursement from Raymark under the indemnification
  agreement.  The amount is included in other current assets at
  December 28, 1997.  An additional $137 in legal costs has been
  incurred in 1998.
  
        As a result of an inspection, the Company was notified
  that the operations purchased from AFM in January 1996 in
  Sterling Heights, Michigan, are in violation of a consent order
  issued by the Michigan Department of Environmental Quality
  ("DEQ").  The consent order included a compliance program
  providing for measures to be taken to bring certain operations
  into compliance and record keeping on operations in compliance. 
  Potential fines for the violations were as high as $4.6
  million; however, negotiations with the DEQ have been in
  progress concerning the compliance program and fines for past
  violations, resulting in an agreement finalized in September
  1998 providing for a consent judgment with a fine of $324.
  
        In January 1997, Raytech was named through a
  subsidiary in a third party complaint captioned Martin
  Dembinski, et al. vs. Farrell Lines, Inc., et al. vs. American
  Stevedoring, Ltd., et al. filed in the U.S. District Court for
  the Southern District of New York for damages for asbestos-
  related disease.  The case has been removed to the U.S.
  District Court, Eastern District of Pennsylvania.  When
  required, the Company will seek an injunction in the Bankruptcy
  Court to halt the litigation.
  
        Costs incurred by the Company for asbestos related
  liabilities are subject to indemnification by Raymark under the
  1987 acquisition agreements.  By agreement, in the past,
  Raymark has reimbursed the Company in part for such indemnified
  costs by payment of the amounts due in Raytech common stock of
  equivalent value.  Under such agreement, Raytech received
  926,821 shares in 1989, 177,570 shares in 1990, 163,303 in 1991
  and 80,000 shares in 1993.  The Company's acceptance of its own
  stock was based upon an intent to control dilution of its
  outstanding stock.  In 1992, the indemnified costs were
  reimbursed by offsetting certain payments due Raymark from the
  Company under the 1987 acquisition agreements.  Costs incurred
  in 1994, 1995, 1996 and 1997 were applied as a reduction of the
  note obligations pursuant to the agreements.
  
        The adverse ruling in the Third Circuit Court of
  Appeals, of which a petition for writ of certiorari was denied
  by the U.S. Supreme Court, precluding Raytech from relitigating
  the issue of its successor liability leaves the U.S. District
  Court's (Oregon) 1988 ruling as the prevailing decision holding
  Raytech to be a successor to Raymark's asbestos-related
  liabilities.  This ruling could have had a material adverse
  impact on Raytech as it did not have the resources needed to
  fund Raymark's potentially substantial uninsured asbestos-
  related and environmental liabilities.  However, the tentative
  settlement between Raytech and its creditors as recited in the
  Memorandum of Understanding referenced above has defined the
  impact of the successor liabilities imposed by the referenced
  court decisions.  While an outline of principles in the
  Memorandum of Understanding has been agreed to by Raytech and
  its creditors, a consensual plan of reorganization must still
  be written and agreed to and is subject to review and
  confirmation by the Bankruptcy Court, which at this time cannot
  be predicted with certainty.  Should the Memorandum of
  Understanding not result in a confirmed plan of reorganization, 
  the ultimate liability of the Company with respect to asbestos-
  related, environmental, or other claims would remain
  undetermined.  The accompanying financial statements have been
  prepared assuming that the Company will continue as a going
  concern, which contemplates continuity of operations,
  realization of assets and liquidation of liabilities in the
  normal course of business.  The uncertainties regarding the
  reorganization proceedings raise substantial doubt about the
  Company's ability to continue as a going concern.  The
  financial statements do not include any adjustments relating to
  the recoverability, revaluation and classification of recorded
  asset amounts or adjustments relating to establishment,
  settlement and classification of liabilities that may be
  required in connection with reorganizing under the Bankruptcy
  Code.
  
  
  NOTE B - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
               
               In the opinion of management, the accompanying
  condensed consolidated financial statements contain all
  adjustments necessary to fairly present the financial position
  of Raytech as of September 27, 1998 and December 28, 1997, the
  results of operations for the thirty-nine weeks ended
  September 27, 1998 and statements of cash flows for the thirty-
  nine weeks ended September 27, 1998.  All adjustments are of a
  normal recurring nature except for the reversal of $1,800 in
  environmental accruals for the quarter ended September 28,
  1997.  The financial statements contained herein should be read
  in conjunction with the financial statements and related notes
  filed on Form 10-K for the year-ended December 28, 1997.
  
          The year-end condensed balance sheet data was derived
  from audited financial statements but does not include all
  disclosures required by generally accepted accounting
  principles.
  
  
  NOTE C - INVENTORIES
  
          Net, inventories consist of the following:
  
                             Sept. 27, 1998    December 28, 1997 
  
           Raw material           $10,981            $10,751 
           Work in process          7,746              7,760
           Finished goods          11,281              9,691
                                  $30,008            $28,202
  
    <PAGE>
  
 NOTE D - EARNINGS PER SHARE

<TABLE>
<CAPTION>
                      
                                     For the 13 Weeks Ended   For the 39 Weeks Ended
                                     Sept. 27,     Sept. 28,  Sept. 27,    Sept. 28,
                                       1998          1997       1998         1997  

  <S>                               <C>          <C>         <C>           <C>

Basic EPS Computation
                              
Numerator                               3,081        3,710      13,224        13,135

Denominator:

Common shares outstanding at
  beginning of year                 3,285,308    3,239,762   3,285,308     3,239,762

Weighted average of stock options
  exercised                           135,990       25,582     109,756        16,746

Weighted average shares             3,421,298    3,265,344   3,395,064     3,256,508

Basic earnings per share                  .90         1.14        3.90          4.03




Diluted EPS Computation

Numerator                               3,081        3,710      13,224       13,135

Denominator:

Common shares outstanding                               
  at beginning of year              3,285,308    3,239,762   3,285,308    3,239,762

Weighted average of stock options
  exercised                           135,990       25,582     109,756       16,746

Dilutive potential common shares      138,746      273,637     165,283      264,979

Adjusted weighted average shares    3,560,044    3,538,981   3,560,347    3,521,487

Diluted earnings per share                .87         1.05        3.71         3.73<PAGE>
  
</TABLE>

NOTE E - COMPREHENSIVE INCOME
  
          During the first quarter of 1998, the Company adopted 
  Statement of Financial Accounting Standards ("SFAS") No. 130,
  "Reporting Comprehensive Income" and has elected to report
  comprehensive income in the condensed consolidated statement of
  shareholders' equity.  Comprehensive income is the change in
  equity from transactions and other events from nonowner
  sources.  Comprehensive income includes net income and other
  comprehensive income.  The components and related activity of
  accumulated other comprehensive income, resulting from foreign
  currency adjustments, are as follows:
  
                                               Accumulated
                                                  Other
                                            Comprehensive Income
  
  Balance December 29, 1996                     $ 1,918
  Changes year-to-date                           (1,466)
  
  Balance September 28, 1997                     $  452
  
  Balance December 28, 1997                      $  715
  Changes year-to-date                             (507)
  
  Balance September 27, 1998                     $  208
  
  
  NOTE F - ACQUISITION OF COMMON STOCK OF AFM
  
          In January 1996 RCI acquired 47% of the stock of
  Advanced Friction Materials Company ("AFM").  The Stock
  Purchase Agreement ("Agreement") provided for the 53% stock
  owner to put his stock to RCI anytime after two years.  The
  owner put 53% of AFM stock to RCI which assigned its obligation
  to purchase the stock to AFM.  Based on the formulated amount
  of $6,044 in accordance with the Agreement AFM redeemed 53% of
  its stock by paying $3,022 in April 1998, and the balance of
  $3,022 is payable in three equal annual installments.  The note
  bears interest at a rate equal to the prime rate as stated in
  THE WALL STREET JOURNAL.  Effective April 1998, Raytech has
  consolidated the results of AFM, which were previously recorded
  under the equity method.  The pro forma effect on operations
  had Raytech made the acquisition at the beginning of the period
  is not significant.
  
          With the redemption of 53% of AFM Stock, AFM became a
  wholly-owned subsidiary of RCI.  AFM has a revolving line of
  credit, payable to NationsCredit Commercial Funding which
  provides for borrowings up to $10 million in the aggregate,
  subject to a borrowing formula based upon AFM's accounts
  receivable.  The loan bears an interest rate of .50% above the
  prime rate.  The outstanding balance under the line of credit
  is $4,834 at September 27, 1998.  The additional borrowing
  availability at September 27, 1998 is $2,166 based upon the
  asset-based borrowing formula.
  
  
  NOTE G - DEBT
  
          During the third quarter of fiscal 1998, Raytech
  management reconsidered the impact of the January 1998
  Bankruptcy Court decision to require Raytech to halt payments
  on its promissory note payable to Raymark.  Based upon the 
  Court's decision, Raytech has concluded that interest should
  not be accrued during the cease payment period.  Accordingly,
  no interest has been accrued in the fiscal 1998 third quarter,
  and the first and second fiscal 1998 quarters have been
  restated to reverse interest accrued during those periods of
  $629 and $222, respectively.  The effect of the restatement on
  net income and earnings per share for the 1998 first and second
  quarters was $463 and $169 and $.14 and $.05 per share,
  respectively.
  
          The ultimate resolution of interest to be paid on the
  note is subject to the uncertainties inherent in reorganization
  proceedings under the Bankruptcy Code.
 
 <PAGE>
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 
           CONDITION AND RESULTS OF OPERATIONS
  
  
          In preparing the discussion and analysis required by
  the Federal Securities Laws, it is presumed that users of the
  interim financial information have read or have access to the
  discussion and analysis for the preceding fiscal year.
  
  RESULTS OF OPERATIONS
  
          Raytech Corporation continued strong performance in
  the third quarter with net income of $3.081 million or $.90 per
  basic share, compared with $3.710 million or $1.14 per basic
  share, for the same quarter last year.  Nine-month net income
  was $13.2 million, or $3.90 per basic share, compared with
  $13.1 million, or $4.03 per basic share for the same nine-
  month period in the prior year.  Revenue growth, driven by
  strong demand for Company products led to the strong
  performance.  Third quarter profits reflected positive
  contributions from the original equipment market, the
  aftermarket and the European dry clutch market.
  
          Worldwide net sales and revenues rose 9.3% for the
  quarter, to $61.5 million, and 6.8% for nine months, to $188.0
  million, compared with $56.3 million and $176.1 million,
  respectively, last year.  Domestic automotive original
  equipment sales account for substantially all of the increased
  sales reflecting an increase of $10.0 million for the nine-
  month period over the prior year.  Domestic aftermarket sales
  continue to produce increased sales reflecting a $1.0 million
  increase for the nine-month period as compared with the same
  period in the prior year.  Due to an adverse foreign exchange
  translation impact, overseas sales were slightly lower in
  dollar terms for both the quarter and year-to-date.  The
  inclusion of AFM in consolidated results of operations since
  April 1988 positively increased revenue by $2.4 million year-to-date.
  
          The ratio of cost of goods sold to net sales was 79
  percent in the third quarter of 1998 and 1997.  During the
  first nine months of 1998, the ratio of cost of goods sold to
  net sales was 76.5 percent compared to 77.6 percent in the
  first nine months of last year.  The increased year-to-date
  ratio was primarily due to the effect of increased unit
  production offset in part by higher materials and labor costs
  and price reductions to certain customers. 
  
          Selling, general and administrative expenses
  increased 25.8 percent for the nine-month period to $23.1
  million, compared to $18.4 million in 1997.  The consolidation
  of AFM accounts for $2.4 million of the increase or 51 percent
  and higher costs associated with increased sales volume. 
  Additionally, in 1997 $1.8 million of accrued liabilities
  relating to potential environmental problems at the Sterling
  Heights, Michigan, facility were reversed.  This accrual
  reversal accounts for 38 percent of the change year-to-year. 
  The interest expense for the period increased due to increased
  borrowings to support increased sales and additional borrowings
  associated with the AFM acquisition.  
  
          During the third quarter of fiscal 1998, Raytech
  management reconsidered the impact of the January 1998
  Bankruptcy Court decision to require Raytech to halt payments
  on its promissory note payable to Raymark.  Based upon the 
  Court's decision, Raytech has concluded that interest should
  not be accrued during the cease payment period.  Accordingly,
  no interest has been accrued in the fiscal 1998 third quarter,
  and the first and second fiscal 1998 quarters have been
  restated to reverse interest accrued during those periods of
  $629 and $222, respectively.  The effect of the restatement on
  net income and earnings per basic share for the 1998 first and
  second quarters was $463 and $169 and $.14 and $.05 per basic
  share, respectively.
  
          The ultimate resolution of interest to be paid on the
  note is subject to the uncertainties inherent in reorganization
  proceedings under the Bankruptcy Code.
    
  Year 2000
  
          The Company's Year 2000 Program addresses major
  assessment areas that include information systems, mainframe
  computers, personal computers, the distributed network, the
  shop floor, facilities systems, the Company's products, product
  research and development facilities, and the readiness of the
  Company's suppliers and distribution network.  The program
  includes the following phases: identification and assessment,
  business criticality analysis, project work prioritization,
  compliance plan development, remediation and testing,
  production implementation, and contingency plan development for
  mission critical systems.
  
          The Company's objective is to become Year 2000
  compliant with its mission critical activities and systems by
  mid 1999, allowing substantial time for further testing,
  verification and the final conversion of less important
  systems.  The Company continues to be on schedule in its plans
  to accomplish this objective and has initiated infrastructure
  and information systems modifications to ensure that both
  hardware and software systems are compliant.  The Company also
  is requesting assurances from its significant suppliers and
  dealers that they are addressing this issue to ensure there
  will be no major disruptions.
  
          The total cost of the modifications and upgrades
  should not exceed $3.5 million.  Although no assurances can be
  given as to the Company's compliance, particularly as it
  relates to third-parties based upon the progress to date, the
  Company does not expect that either future costs of
  modifications or the consequences of any unsuccessful
  modifications will have a material adverse effect on the
  Company's financial position or results of operations. 
  Accordingly, the Company believes that the most reasonably
  likely worst case Year 2000 scenario would not have a material
  adverse effect on the Company's financial position or results
  of operations.  However, the Company is reviewing the need to
  develop contingency plans, which should be determined by early
  1999, should any Year 2000 failures occur in any of the
  assessment areas noted above.
  
  OUTLOOK
  
          The statements continued in this Outlook section are
  based on management's current expectations.  With the exception
  of the historical information contained herein, the statements
  presented in this Outlook section are forward-looking
  statements that involve numerous risks and uncertainties. 
  Actual results may differ materially.  The forward-looking
  statements contained in this Form 10-Q are within the meaning
  of Section 27A of the Securities Exchange Act of 1933 and
  Section 21E of the Securities Exchange Act of 1934.
  
          The Company expects to continue to face an
  increasingly competitive automotive environment and a slowdown
  for the demand in certain agricultural machine products.  Our
  major customers in the automotive industry face an increased
  competitive automotive environment which is likely to continue
  to limit Raytech's pricing flexibility in the near term.  In
  addition, the weakness of the Japanese yen and other Asian
  currencies against the U. S. dollar and the continued
  deterioration in the Asian economies could result in
  substantial increases in imports from Asia to the U. S. and
  Canada.  The Asian economic difficulties could have an
  unfavorable effect on overall economic conditions in the U. S.
  and Canada, where our major customers' sales are concentrated.
  
          With regard to the Company's agricultural equipment
  operations, worldwide farm commodity prices continued on a
  downward course during the quarter as a result of prospects for
  increased global supplies of grains and oilseeds, as well as
  fears about the Asian economic crisis.  United States crop
  conditions remained generally good throughout the Midwest, with
  federal financial assistance expected to offset some of the
  drought-related losses being experienced in the South.  Under
  these conditions, it is expected that retail demand for
  agricultural equipment will decline for the rest of 1998 and
  1999.  In light of this outlook and the Company's continuing
  commitment to aggressive asset management, production schedules
  are being reviewed for the fourth quarter of 1998 and 1999 to
  ensure the Company's production meets demand.
  
          The Company's outlook for 1998 worldwide sales and
  revenue remains unchanged, calling for sales and revenues to
  slightly surpass 1997 record levels.
  
  CAPITAL RESOURCES AND LIQUIDITY
  
          The Company's cash and cash equivalents totaled $8.9
  million at September 27,1998 compared to $9.9 million at
  December 28, 1997.  The decrease in cash is primarily caused by
  increased inventory and accounts receivable in support of the
  increased sales for the period.  Capital investment for the
  nine-month period totaled $11.9 million, compared to $14.9
  million for the same period in 1997.  The level of capital
  investment is consistent with planned expenditures in both
  years.
  
          The Company uses secured lines of credit for funding
  purposes in the United States.  Currently, the outstanding
  balances from available lines of credit are $13.3 million, with
  $2.2 million available in additional borrowings.  The Company's
  wholly-owned German subsidiaries had available unused lines of
  credit amounting to DM2.8 million or $1.7 million, which expire
  upon demand. The Company believes that cash provided by
  operations will provide sufficient liquidity to meet its
  funding requirements.<PAGE>

                  PART II. OTHER INFORMATION 
  
  
  ITEM 1.  LEGAL PROCEEDINGS
  
  
          The formation of Raytech and the implementation of
  the restructuring plan more fully described in Item 1 above was
  for the purpose of providing a means to acquire and operate
  businesses in a corporate structure that would not be subject
  to any asbestos-related or other liabilities of Raymark.
  
          Prior to the formation of Raytech, Raymark was first
  sued in an asbestos-related claim in 1971 and has since been
  named as a defendant in more than 88,000 lawsuits in which
  substantial damages have been sought for injury or death from
  exposure to airborne asbestos fibers.  More than 35,000 of such
  lawsuits were disposed of by settlements, dismissals, summary
  judgments and trial verdicts at a cost in excess of $333
  million principally covered by Raymark's insurance.  Subsequent
  to the sale of Raymark in 1988, lawsuits continued to be filed
  against Raymark at the rate of approximately 1,000 per month
  until an involuntary petition in bankruptcy was filed against
  Raymark in February 1989 which stayed all its litigation.  In
  August 1996, the involuntary petition filed against Raymark was
  dismissed following a trial and the stay was lifted.  However,
  in March 1998 Raymark filed a voluntary bankruptcy petition
  again staying the litigation.
  
          Despite the restructuring plan implementation and
  subsequent divestiture of Raymark, Raytech was named a co-
  defendant with Raymark and other named defendants in
  approximately 3,300 asbestos-related lawsuits as a successor in
  liability to Raymark.  The dollar value of these lawsuits
  cannot be estimated.  Until February 1989, the defense of all
  such lawsuits was provided to Raytech by Raymark in accordance
  with the indemnification agreement included as a condition of
  the purchase of the Wet Clutch and Brake Division and German
  subsidiary from Raymark in 1987.  In February 1989, an
  involuntary petition in bankruptcy was filed against Raymark,
  and subsequently, a restrictive funding order was issued by an
  Illinois Circuit Court, which required one of Raymark's
  insurance carriers to pay claims but not defense costs, and
  another insurance carrier had been declared insolvent.  These
  circumstances caused Raymark to be unable to fund the costs of
  defense to Raytech in the asbestos-related lawsuits referenced
  above, as provided in the indemnity section of the acquisition
  agreement.  Raytech management was informed that Raymark's cost
  of defense and disposition of cases up to the automatic stay of
  litigation under the involuntary bankruptcy proceedings was
  approximately $333 million of Raymark's total insurance
  coverage of approximately $395 million.  Raytech management was
  also informed that as a result of the dismissal of the
  involuntary petition, Raymark again encountered asbestos-
  related lawsuits but had received $27 million from a state
  guarantee association to make up the insurance policies of the
  insolvent carrier and had $32 million in other policies to
  defend against such litigation.  However, in March 1998 Raymark
  filed a voluntary bankruptcy petition naming several large
  asbestos-related judgment creditors.
  
          In October 1988, in a case captioned Raymond A.
  Schmoll v. ACandS, Inc., et al., the U.S. District Court for
  the District of Oregon ruled, under Oregon equity law, Raytech
  to be a successor to Raymark's asbestos-related liability.  The
  successor ruling was appealed by Raytech and in October 1992
  the Ninth Circuit Court of Appeals affirmed the District
  Court's judgment on the grounds stated in the District Court's
  opinion.  The effect of this decision extends beyond the Oregon
  District due to a Third Circuit Court of Appeals decision in a
  related case cited below wherein Raytech was collaterally
  estopped (precluded) from relitigating the issue of its
  successor liability for Raymark's asbestos-related liabilities. 
  
          As the result of the inability of Raymark to fund
  Raytech's cost of defense recited above, and in order to obtain
  a ruling binding across all jurisdictions on whether Raytech is
  liable as a successor for asbestos-related and other claims
  including claims yet to be filed relating to the operations of
  Raymark or Raymark's predecessors, on March 10, 1989 Raytech
  filed a petition seeking relief under Chapter 11 of Title 11,
  United States Code in the United States Bankruptcy Court,
  District of Connecticut.  Under Chapter 11, substantially all
  litigation against Raytech has been stayed while the debtor
  corporation and its non-filing operating subsidiaries continue
  to operate their businesses in the ordinary course under the
  same management and without disruption to employees, customers
  or suppliers.  In the Bankruptcy Court a creditors' committee
  was appointed, comprised primarily of asbestos claimants'
  attorneys.  In August 1995, an official committee of equity
  security holders was appointed relating to a determination of
  equity security holders' interest in the estate.
  
          In June 1989 Raytech filed a class action in the
  Bankruptcy Court against all present and future asbestos
  claimants seeking a declaratory judgment that it not be held
  liable for the asbestos-related liabilities of Raymark.  It was
  the desire of Raytech to have this case heard in the U.S.
  District Court, and since the authority of the Bankruptcy Court
  is referred from the U.S. District Court, upon its motion and
  argument the U.S. District Court withdrew its reference of the
  case to the Bankruptcy Court and thereby agreed to hear and
  decide the case.  In September 1991, the U.S. District Court
  issued a ruling dismissing one count of the class action citing
  as a reason the preclusive effect of the 1988 Oregon case,
  previously discussed, under the doctrine of collateral estoppel
  (conclusiveness of judgment in a prior action), in which
  Raytech was ruled to be a successor to Raymark's asbestos
  liability under Oregon law.  The remaining counts before the
  U.S. District Court involve the transfer of Raymark's asbestos-
  related liabilities to Raytech on the legal theories of alter-
  ego and fraudulent conveyance.  Upon a motion for
  reconsideration, the U.S. District Court affirmed its prior
  ruling in February 1992.  Also, in February 1992, the U.S.
  District Court transferred the case in its entirety to the U.S.
  District Court for the Eastern District of Pennsylvania.  Such
  transfer was made by the U.S. District Court without motion
  from any party in the interest of the administration of justice
  as stated by the U.S. District Court.  In December 1992,
  Raytech filed a motion to activate the case and to obtain
  rulings on the remaining counts which was denied by the U.S.
  District Court.  In October 1993, the creditors' committee
  asked the Court to certify the previous dismissal of the
  successor liability count.  In February 1994, the U.S. District
  Court granted the motion to certify and the successor liability
  dismissal was accordingly appealed.  In May 1995, the Third
  Circuit Court of Appeals ruled that Raytech is collaterally
  estopped (precluded) from relitigating the issue of its
  successor liability as ruled in the 1988 Oregon case recited
  above, affirming the U.S. District Court's ruling of dismissal. 
  A petition for a writ of certiorari was denied by the U.S.
  Supreme Court in October 1995.  The ruling leaves the Oregon
  case, as affirmed by the Ninth Circuit Court of Appeals, as the
  prevailing decision holding Raytech to be a successor to
  Raymark's asbestos-related liabilities. 
  
          Since the bankruptcy filing, several entities have
  asserted claims in Bankruptcy Court alleging environmental 
  liabilities of Raymark based upon similar theories of successor
  liability against Raytech as alleged by asbestos claimants. 
  These claims are not covered by the class action referenced
  above and will be resolved in the bankruptcy case.  The
  environmental claims include a claim of the Pennsylvania
  Department of Environmental Resources ("DER") to perform
  certain activities in connection with Raymark's Pennsylvania
  manufacturing facility, which includes submission of an
  acceptable closure plan for a landfill containing hazardous
  waste products located at the facility and removal of
  accumulated baghouse dust from its operations.  In March 1991,
  the Company entered a Consent Order which required Raymark to
  submit a revised closure plan which provides for the management
  and removal of hazardous waste, for investigating, treatment
  and monitoring of any contaminated groundwater and for the
  protection of human health and environment at the site, all
  relating to the closure of the Pennsylvania landfill and to pay
  a nominal civil penalty.  The estimated cost for Raymark to
  comply with the order is $1.2 million.  The DER has reserved
  its right to reinstitute an action against the Company and the
  other parties to the DER order in the event Raymark fails to
  comply with its obligations under the Consent Order.  Another
  environmental claim was filed against the Company by the U.S.
  Environmental Protection Agency for civil penalties charged
  Raymark in the amount of $12 million arising out of alleged
  Resource Conservation and Recovery Act violations at Raymark's
  Stratford, Connecticut, manufacturing facility.  
  
          In January 1997, the U.S. Environmental Protection
  Agency ("EPA") and the State of Connecticut filed suit against
  Raymark claiming damages for cleanup of the Stratford,
  Connecticut, site in an amended amount of $300 million.  The
  EPA has also filed a bankruptcy claim against Raytech as a
  successor to Raymark for cleanup of the Stratford site and
  other Raymark sites.  Determination of Raytech's liability for
  such claims, if any, is subject to Bankruptcy Court
  deliberations and proceedings. 
  
          Under bankruptcy rules, the debtor-in-possession has
  an exclusive period in which to file a reorganization plan. 
  Such exclusive period had been extended by the Bankruptcy Court
  pending the conclusion of the successor liability litigation. 
  However, in December 1992, the creditors' committee filed a
  motion to terminate the exclusive period to file a plan of
  reorganization.  At a hearing in May 1993, the motion was
  denied by the Bankruptcy Court but was appealed by the
  creditors' committee.  In November 1993, the U.S. District
  Court reversed the Bankruptcy Court and terminated the
  exclusive period to file a plan of reorganization effective in
  January 1994.  Accordingly, any party in interest, including
  the debtor, the creditors' committee or a creditor could
  thereafter file a plan of reorganization.  
  
          In May 1994, Raytech filed a Plan of Reorganization
  ("Debtor's Plan") in the U.S. Bankruptcy Court for the purpose
  of seeking confirmation allowing Raytech to emerge from the
  bankruptcy filed March 10, 1989.  In September 1994, the
  Creditors' Committee filed its own Plan of Reorganization in
  competition to the Debtor's Plan ("Creditors' Plan").  Upon
  motion of the parties and support of the Bankruptcy Court, the
  major interested parties agreed in August 1995 to participate
  in non-binding mediation to attempt to effectuate a consensual
  plan of reorganization.  The mediation process commenced in
  October 1995 and was concluded in March 1996 without agreement
  for a consensual plan of reorganization.  The competing plans
  of Raytech and its creditors then returned to Bankruptcy Court
  procedures.
  
    <PAGE>
 In October, 1998 Raytech reached a tentative
  settlement with its creditors and entered into a Memorandum of
  Understanding with respect to achieving a consensual plan of
  reorganization.  The parties to the settlement include Raytech,
  the Official Creditors Committee, the Guardian ad litem for
  Future Claimants, the Connecticut Department of Environmental
  Protection and the U. S. Department of Justice, Environmental
  and Natural Resources Division.  Substantive economic terms of
  the Memorandum of Understanding provide for all general
  unsecured creditors including but not limited to all asbestos
  and environmental claimants to receive, through a trust
  established under The Bankruptcy Code, 90% of the equity in a
  company to be reorganized ("Reorganized Raytech") and any and
  all refunds of taxes paid or net reductions in taxes owing
  resulting from the transfer of equity to the trust,and existing
  equity holders in Raytech to receive 10% of the equity in
  Reorganized Raytech.  Substantive non-economic terms of the
  Memorandum of Understanding provide for the parties to jointly
  work to achieve a consensual Plan, to determine an appropriate
  approach to related pension and employee benefit plans and to
  cease activities that have generated adverse proceedings in the
  Bankruptcy Court.  The parties have also agreed to jointly
  request a finding in the confirmation order to the effect that
  while Raytech's liabilities appear to exceed the reasonable
  value of its assets, the allocation of 10% of the equity to
  existing equity holders is fair and equitable by virtue of the
  benefit to the estate of resolving complicated issues without
  further costly and burdomsome litigation and the risks
  attendant therewith and the economic benefits of emerging from
  bankruptcy without further delay.
  
          Following Raytech's cessation of monthly $650,000
  note payments to Raymark in December 1997, Raymark commenced 33
  separate lawsuits against Raytech subsidiaries in various
  jurisdictions ("Raymark Litigation") demanding payment or the
  return of assets for breach of contract.  Raytech filed an
  adversary proceeding complaint to halt the Raymark litigation
  and was granted a temporary restraining order in December 1997
  by the Bankruptcy Court that remains in effect.  The creditors'
  committee intervened in the action in support of the
  restraining order.
  
          In March and April 1998 Raymark and its parent,
  Raymark Corporation, filed voluntary petitions in bankruptcy in
  a Utah Court which stayed all litigation in the Raytech
  bankruptcy in which Raymark was a party.  In connection with
  its attempt to assert control over Raymark and its assets, the
  creditors' committee joined by Raytech, the guardian ad litem
  for future claimants, the equity committee and the government
  agencies moved to have the venue of the Raymark bankruptcies
  transferred from Utah to the Connecticut Court.  In July 1998,
  the Bankruptcy Court issued an order on the motions and
  transferred venue to the Connecticut Court.  Raymark filed an
  appeal of the order but has since withdrawn the appeal.  In
  October 1998 a trustee was appointed by the United States
  Trustee over the Raymark bankruptcies.
  
          In April 1996, the Indiana Department of
  Environmental Management ("IDEM") advised Raybestos Products
  Company ("RPC"), a wholly-owned subsidiary of the Company, that
  it may have contributed to the release of lead and PCB's
  (polychlorinated biphenyls) found in small waterways near its
  Indiana facility.  In June, IDEM named RPC as a potentially
  responsible party ("PRP").  RPC notified its insurers of the
  IDEM action and one insurer responded by filing a complaint in
  January 1997 in the U.S. District Court, Southern District of
  Indiana, captioned Reliance Insurance Company vs. RPC seeking a
  declaratory judgment that any liability of RPC is excluded from
  its policy with RPC.  The discovery process in this action is
  nearing completion.  RPC continues to assess the extent of the
  contamination and its involvement and is currently negotiating
  with IDEM for an agreed order of cleanup.  The Company intends
  to offset its investigation and cleanup costs against its notes
  payable to Raymark when such costs become known pursuant to the
  indemnification clause in the wet clutch and brake acquisition
  agreement since it appears that any source of contamination
  would have occurred during Raymark's ownership of the Indiana
  facility.  Blood tests administered to residents in the
  vicinity of the small waterways revealed no exposure.  The
  Company incurred $1,751 in legal and testing costs associated
  with this matter in 1996 and 1997 and has filed for
  reimbursement from Raymark under the indemnification agreement. 
  An additional $137 in legal costs has been incurred in 1998.
  
          As a result of an inspection, the Company has been
  notified that the operations purchased from AFM in January 1996
  in Sterling Heights, Michigan, are in violation of a consent
  order issued by the Michigan Department of Environmental
  Quality ("DEQ").  The consent order included a compliance
  program providing for measures to be taken to bring certain
  operations into compliance and record keeping on operations in
  compliance.  Potential fines for the violations were as high as
  $4.6 million; however, negotiations with the DEQ have been in
  progress concerning the compliance program and fines for past
  violations, resulting in an agreement finalized in September
  1998 providing for a consent judgment with a fine of $324.
  
          In January 1997, Raytech was named through a
  subsidiary in a third party complaint captioned Martin
  Dembinski, et al. vs. Farrell Lines, Inc., et al. vs. American
  Stevedoring, Ltd., et al. filed in the U.S. District Court for
  the Southern District of New York for damages for asbestos-
  related disease.  The case has been removed to the U.S. 
  
  <PAGE>
District Court, Eastern District of Pennsylvania.  When
  required, the Company will seek an injunction in the Bankruptcy
  Court to halt the litigation.
  
          Costs incurred by the Company for asbestos related
  liabilities are subject to indemnification by Raymark under the
  1987 acquisition agreements.  By agreement, in the past, Raymark
  has reimbursed the Company in part for such indemnified costs by
  payment of the amounts due in Raytech common stock of equivalent
  value.  Under such agreement, Raytech received 926,821 shares in
  1989, 177,570 shares in 1990, 163,303 in 1991 and 80,000 shares in
  1993.  The Company's acceptance of its own stock was based upon an
  intent to control dilution of its outstanding stock.  In 1992, the
  indemnified costs were reimbursed by offsetting certain payments
  due Raymark from the Company under the 1987 acquisition
  agreements.  Costs incurred in 1994, 1995, 1996 and 1997 were
  applied as a reduction of the note obligations pursuant to the
  agreements.
  
          The adverse ruling in the Third Circuit Court of
  Appeals, of which a petition for writ of certiorari was denied by
  the U.S. Supreme Court, precluding Raytech from relitigating the
  issue of its successor liability leaves the U.S. District Court's
  (Oregon) 1988 ruling as the prevailing decision holding Raytech to
  be a successor to Raymark's asbestos-related liabilities.  This
  ruling could have had a material adverse impact on Raytech as it
  did not have the resources needed to fund Raymark's potentially
  substantial uninsured asbestos-related and environmental
  liabilities.  However, the tentative settlement between Raytech
  and its creditors as recited in the Memorandum of Understanding
  referenced above has defined the impact of the successor
  liabilities imposed by the referenced court decisions.  While an
  outline of principles in the Memorandum of Understanding has been
  agreed to by Raytech and its creditors, a consensual plan of
  reorganization must still be written and agreed to and is subject
  to review and confirmation by the Bankruptcy Court, which at this
  time cannot be predicted with certainty.  Should the Memorandum of
  Understanding not result in a confirmed plan of reorganization, 
  the ultimate liability of the Company with respect to asbestos-
  related, environmental, or other claims would remain
  undetermined.  The accompanying financial statements have been
  prepared assuming that the Company will continue as a going
  concern, which contemplates continuity of operations, realization
  of assets and liquidation of liabilities in the normal course of
  business.  The uncertainties regarding the reorganization
  proceedings raise substantial doubt about the Company's ability to
  continue as a going concern.  The financial statements do not
  include any adjustments relating to the recoverability,
  revaluation and classification of recorded asset amounts or
  adjustments relating to establishment, settlement and
  classification of liabilities that may be required in connection
  with reorganizing under the Bankruptcy Code.
  
  
  
  
  
  ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
  
           (a)  EXHIBITS
  
                 (10)  Memorandum of Understanding 
                       Re. Consensual Plan of Reorganization
  
                 (27)  Financial data schedule (Edgar Only)
  
  
            (b)  REPORTS ON 8-K
  
                 Filed:  October 8, 1998          
                 
                 Tentative Settlement of Raytech Corporation       
                 Bankruptcy
  
                 Raytech Corporation, the Registrant/Debtor
                 ("Raytech")has reached a tentative settlement (the
                 "Settlement") with representatives for its
                 creditors and equityholders with respect to a
                 consensual plan of reorganization ("Plan") to be
                 filed in its Chapter 11 bankruptcy case which was
                 commenced in the United States Bankruptcy Court
                 for the District of Connecticut (the "Bankruptcy
                 Court") in March 1989.  The Settlement is by and
                 among Raytech, the Official Creditors' Committee,
                 the Guardian Ad Litem for Future Claimants, the
                 State of Connecticut, Department of Environmental
                 Protection, the United States Department of
                 Justice, Environmental and Natural Resources
                 Division, and the Official Equity Committee. 
                 Under the Settlement, the Plan, which is subject
                 to the vote of creditors and equityholders, and
                 confirmation by the Bankruptcy Court, will provide
                 general unsecured creditors, including the present
                 and future asbestos claimants and government
                 claimants, through the vehicle of a trust
                 established pursuant to Section 524(g) of the
                 Bankruptcy Code, with (i) ninety percent (90%) of
                 the stock of reorganized Raytech, (ii) all excess
                 cash not necessary to fund the ongoing operations
                 of reorganized Raytech, and (iii) net recoveries
                 from certain claims against third parties.  Under
                 the Plan, the existing Raytech stockholders shall
                 receive ten percent (10%) of the stock of
                 reorganized Raytech.  It is estimated that the
                 entire plan confirmation process could take up to
                 a year.
  
                 The dilution of shareholder value under the
                 Settlement reflects the fact that pursuant to
                 court decisions discussed below, Raytech's
                 adjudged liabilities, as successor to Raymark
                 Industries, Inc. ("Raymark"), appear to
                 substantially exceed the reasonable value of its
                 assets.  The corporate restructuring of Raytech
                 approved by the shareholders in 1986 was ruled
                 invalid by a U.S. District Court in Oregon and
                 Raytech was thereby held to have successor
                 liability for Raymark's asbestos tort liabilities. 
                 See Schmoll v. Acands, Inc., 703 F. Supp. 868 (D.
                 Ore. 1988), aff'd 977 F.2d 499 (9th Cir. 1992). 
                 Raytech then filed a voluntary petition in
                 bankruptcy to stay the multiple asbestos tort
                 suits filed against it on theories of successor
                 liability.  Thereafter, Raytech sought
                 determination in its bankruptcy case, that it was
                 not bound by the decision in Schmoll.  The U.S.
                 District Court ruled that Raytech was bound under
                 the principles of collateral estoppel by the
                 decision in Schmoll.  
  
                 Raytech Corporation v. White, No. B-89-623 (D.
                 Conn., August 28, 1991) and that decision was
                 affirmed by the Court of Appeals, 54 F3d 187 (3d
                 Cir. 1995), cert. denied, 516 U.S. 914, 116 S. Ct.
                 302 (1995).
  
                 Raytech then filed an adversary proceeding in the
                 Bankruptcy Court seeking a declaration that its
                 liability as successor to Raymark was limited. 
                 (See Adversary Proceeding No. 96-5181.)  The Court
                 granted the creditors' motion for summary judgment
                 against Raytech ruling that under Schmoll and
                 White, Raytech's liability as Raymark's successor
                 was unlimited in scope (Bkrptcy. Conn Feb 11,
                 1998).
  
  
     
  
    <PAGE>
            
                            SIGNATURE 
           
  
         Pursuant to the requirements of the Securities Exchange Act of
  1934, the Registrant has duly caused this Report to be signed on
  its behalf by the undersigned thereunto duly authorized.
  
                                        RAYTECH CORPORATION
  
  
                                    By: /s/JOHN B. DEVLIN        
                                        John B. Devlin
                                        Vice President, Treasurer 
                                        and Chief Financial Officer
  
  Date: November 6, 1998