<PAGE>   1
                                   FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended December 31, 1997     Commission file number  1-106
                          -----------------                             -----

                                   OR
[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from                       to
                              -----------------------  -----------------------


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


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

8 Sound Shore Drive, Suite 290, Greenwich, CT                  06830
---------------------------------------------           --------------------
(Address of principal executive offices)                    (Zip Code)

Registrant's telephone number, including area code    (203) 629-3333
                                                   --------------------

Securities registered pursuant to Section 12(b) of the Act:

                                                   Name of each exchange
       Title of each class                          on which registered
       -------------------                         ---------------------
    Common Stock, No Par Value                    American Stock Exchange

Securities registered pursuant to section 12(g) of the Act:  None
                                                             ----

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

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

         The aggregate market value of voting stock held by non-affiliates of
the Registrant (based upon the closing price of the Registrant's Common Stock
on the American Stock Exchange on March 23, 1998 of $103.875 per share) was
$112,428,587.  (In determining this figure, the Registrant has assumed that all
of the Registrant's directors and officers are affiliates.   This assumption
shall not be deemed conclusive for any other purpose.)

     The number of outstanding shares of the Registrant's Common Stock was
1,418,248 as of March 23, 1998.

                      DOCUMENTS INCORPORATED BY REFERENCE:

Part II:   Certain portions of Registrant's Annual Report to Shareholders for
           the year ended December 31, 1997.
Part III:  Certain portions of Registrant's  Proxy Statement for the 1998
           Annual Meeting of Shareholders.
<PAGE>   2
FORWARD LOOKING INFORMATION

         This Form 10-K contains certain forward looking information, including
without limitation examining the possibility of a spin-off (pg.2), Item 1-I.A
"Regulatory Environment" and possible changes thereto and "Competition" (pgs.
4-6), Item 1-I.C "Personal Communications Services ("PCS")", including possible
write downs of Registrant subsidiary's investment in Fortunet (pgs. 9-10), Item
1-II.  Morgan "Growth Strategy" (p.12), Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and Notes to
Financial Statements (Item 14(a) below).  It should be recognized that such
information are estimates or forecasts based upon various assumptions,
including the matters referred to therein, as well as meeting the Registrant's
internal performance assumptions regarding expected operating performance and
the expected performance of the economy and financial markets as it impacts
Registrant's businesses.  As a result, such information is subject to
uncertainties, risks and inaccuracies.


                                     PART I


ITEM 1. BUSINESS

         The Registrant, Lynch Corporation ("Lynch"), incorporated in 1928
under the laws of the State of Indiana, is a diversified holding company with
subsidiaries engaged in multimedia, services and manufacturing.  Lynch's
executive offices are located at 8 Sound Shore Drive, Greenwich, Connecticut
06830, but are expected to become 401 Theodore Fremd Avenue, Rye, New York
10580-1430 in April 1998.  Its current telephone number is 203-629-3333.

         Registrant's business development strategy is to expand its existing
operations through internal growth and acquisitions.  It may also, from time to
time, consider the acquisition of other assets or businesses that are not
related to its present business.  For the year ended December 31, 1997,
multimedia operations provided 10% of the Registrant's consolidated revenues;
services operations provided 32% of the Registrant's consolidated revenues; and
manufacturing operations provided 58% of the Registrant's consolidated
revenues.  As used herein, the Registrant includes subsidiary corporations.

         Registrant is pursuing segmentation of its business, through a
spin-off of either its multimedia operations or its manufacturing operations.
There are a number of matters to be examined in connection with a possible
spin-off, including tax consequences (Registrant expects to file a ruling
request in the second quarter of 1998 with the Internal Revenue Service with
respect thereto) and there is no assurance that the ruling request will be
filed, and if filed, granted in a form acceptable to Registrant or that such a
spin-off will be effected.


I.  MULTIMEDIA

A.  TELECOMMUNICATIONS

         Operations. The Registrant conducts its telecommunications operations
through subsidiary corporations.  The telecommunications segment is expanding





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through the selective acquisition of local exchange telephone companies serving
rural areas and by offering additional services to existing customers.  From
1989 through 1997, Registrant has acquired ten telephone companies, five of
which have indirect minority ownership of 2% to 19%, whose operations range in
size from less than 500 to over 9,500 access lines.  As of December 31, 1997,
total access lines were 36,525, 100% of which are served by digital switches.

         These subsidiaries' principal line of business is providing
telecommunications services.  These services fall into four major categories:
local network, network access, long distance and other.  Toll service to areas
outside franchised telephone service territory is furnished through switched
and special access connections with intrastate and interstate long distance
networks.

         At December 31, 1997, the Registrant owned minority interests in
certain entities that provide wireless cellular telephone service in several
Rural Service Areas ("RSA's") in New Mexico and North Dakota, covering areas
with a total population of approximately 393,133, of which the Registrant's
proportionate interest is approximately 15,116.  Operating results through 1997
have not been significant to date.

         Inter-Community Telephone Company's participation in the Defense
Commercial Telecommunications Network/Defense Switching Network (DCTN/DSN) was
terminated in early 1996.

         The Company holds franchises, licenses and permits adequate for the
conduct of its business in the territories which it serves.

         Future growth in telephone operations is expected to be derived from
the acquisition of additional telephone companies, from providing service to
new establishments, from upgrading existing customers to higher grades of
service, and from offering related services such as Internet. The following
table summarizes certain information regarding the Registrant's telephone
operations.

<TABLE>
<CAPTION>
                                                   YEAR ENDED DECEMBER 31,
                                                   -----------------------
                                                  1997       1996        1995
                                                  ----       ----        ----
<S>                                              <C>        <C>         <C>
           Telephone Operations

Access lines* . . . . . . . . . . . . . . . . .  36,525     28,984      15,586
  % Residential . . . . . . . . . . . . . . . .     75%        74%         78%
  % Business (nonresidential) . . . . . . . . .     25%        26%         22%

Total revenues ($000's) . . . . . . . . . . . .  43,824     28,608      23,328
  % Local service . . . . . . . . . . . . . . .     17%        14%         13%
  % Network access and long distance. . . . . .     73%        73%         69%
  % Other . . . . . . . . . . . . . . . . . . .     10%        13%         17%
</TABLE>

------------
* An "access line" is a single or multi-party circuit between the customer's
establishment and the central switching office.

         Telephone Acquisitions.  The Registrant pursues an active program of
acquiring operating telephone companies.  From January 1, 1989 through December
31, 1997, Lynch has acquired ten telephone companies serving a total of





                                      -3-
<PAGE>   4
approximately 30,950 access lines at the time of these acquisitions for an
aggregate consideration totaling approximately $135 million.  In November 1996,
a subsidiary of Registrant acquired the stock of Dunkirk & Fredonia Telephone
Company and its subsidiaries, Cassadaga Telephone Corporation and Comantel,
Inc. (collectively "DFT") for approximately $22 million.  DFT serves
approximately 11,600 access lines in western New York, including the community
of Fredonia, the Village of Cassadaga and the Hamlet of Stockton.  DFT also
owns and operates other telecommunications businesses, including Internet, long
distance resale, security systems, and sales and servicing of
telecommunications equipment.  In the spring of 1997, Registrant acquired the
stock of Upper Peninsula Telephone Company ("UPTC") for approximately $26.5
million.  UPTC serves approximately 6,600 access lines located primarily in the
Upper Peninsula of Michigan.

         The Registrant continually evaluates acquisition opportunities
targeting domestic rural telephone companies with a strong market position,
good growth potential and predictable cash flow.  In addition, Registrant seeks
companies with excellent local management already in place who will remain
active with their company.  Telephone holding companies and others actively
compete for the acquisition of telephone companies and such acquisitions are
subject to the consent or approval of regulatory agencies in most states.
While management believes that it will be successful in making additional
acquisitions, there can be no assurance that the Registrant will be able to
negotiate additional acquisitions on terms acceptable to it or that regulatory
approvals, where required, will be received.

         Regulatory Environment.  Operating telephone companies are regulated
by state regulatory agencies with respect to its intrastate telephone services
and the Federal Communications Commission ("FCC") with respect to its
interstate telephone service and, with the enactment of the Telecommunications
Act of 1996 (the "1996 Act"), certain other matters relating principally to
fostering  local and intrastate competition.

         The Registrant's telephone subsidiaries participate in the National
Exchange Carrier Association ("NECA") common line and traffic sensitive tariffs
and participate in the access revenue pools administered by NECA for interstate
services.  Where applicable, the Company's subsidiaries also participate in
similar pooling arrangements approved by state regulatory authorities for
intrastate services.  Such interstate and intrastate arrangements are intended
to compensate local exchange carriers ("LEC's"), such as the Registrant's
operating telephone companies, for the costs, including a fair rate of return,
of facilities furnished in originating and terminating interstate and
intrastate long distance services.

         In addition to access pool participation, certain of the Registrant's
subsidiaries are compensated for their intrastate costs through billing and
keeping access charge revenues (without participating in an access pool).  The
access charge revenues are developed based on intrastate access rates filed
with the state regulatory agency.





                                      -4-
<PAGE>   5
         In addition, a 1989 FCC decision provided for price cap regulation for
certain interstate services.  The price cap approach differs from traditional
rate-of-return regulation by focusing primarily on the prices of communications
services.  The intention of price cap regulation is to focus on productivity
and the approved plan for telephone operating companies.  This allows for the
sharing with its customers of profits achieved by increasing productivity.
Alternatives to rate-of-return regulation have also been adopted or proposed in
some states as well. Inter-Community Telephone Company is an example of one
such subsidiary which has elected a price cap limitation on local exchange
access charges.  However, management does not believe that this agreement will
have a material effect on the Registrant's results.  In certain states,
regulators have ordered the restructuring of local service areas to eliminate
nearby long distance calls and substitute extended calling areas.

         Various aspects of federal and state telephone regulation have in
recent years been subject to re-examination and on-going modification.  In
February 1996, the 1996 Act, which is the most substantial revision of
communication law since the 1930's, became law. The Act is intended generally
to allow telephone, cable, broadcast and other telecommunications providers to
compete in each other's businesses, while loosening regulation of those
businesses.  Among other things, the Act (i) would allow major long distance
telephone companies and cable television companies to provide local exchange
telephone service; (ii) would allow new local telephone service providers to
connect into existing local telephone exchange networks and purchase services
at wholesale rates for resale; (iii) would provide for a commitment to
universal service for high-cost, rural areas and authorizes state regulatory
commissions to consider their status on certain competition issues; (iv) would
allow the Regional Bell Operating Companies to offer long distance telephone
service and enter the alarm services and electronic publishing businesses; (v)
would remove rate regulation over non-basic cable service in three years; and
(vi) would increase the number of television stations that can be owned by one
party.

         Although the FCC has completed numerous regulatory proceedings
required to implement the 1996 Act, the FCC is still in the process of
promulgating new regulations covering these and related matters.  For certain
issues, the FCC bifurcated the proceedings between price cap and rate-of-return
companies or in the case of the Universal Service Fund (USF) between rural and
non-rural companies.  In several cases, the regulations for the price-cap (or
non-rural) local exchange carriers (LECs) have been or are being determined
first, followed by separate proceedings for rate-of-return (or rural)
companies.  Since all of the Registrant's telephone subsidiaries are rural,
rate-of-return companies for the interstate jurisdiction, many of the issues
are yet to be resolved by the FCC for the Registrant's subsidiaries.  Current
or anticipated proceedings, which could have significant revenue impacts for
rural, rate-of-return companies, include changes in access charge regulations,
jurisdictional separations rules and permanent USF procedures.

         In May 1997, the FCC adopted interim USF procedures effective January
1, 1998 which continue to use actual embedded costs for rural companies.  The
interim procedures transferred the Weighted DEM and Long-Term Support (LTS) to
the USF and required all telecommunications companies (including the
Registrant's telephone subsidiaries) to contribute to the fund.  In addition, a
cap was implemented on the amount of corporate expense allowable for the
computation of USF. The interim





                                      -5-
<PAGE>   6
rules will be in effect until January 1, 2001, when the rural companies will
begin transitioning to USF revenues based on forward-looking economic costs.
The transition is currently scheduled to be complete January 1, 2004 at which
time the USF revenue would be exclusively computed based on forward-looking
economic costs.  It is impossible to determine the impact of these proposed
changes on the Registrant's ten telephone companies at this time.

         In May 1997, the FCC also ordered several changes for price cap
companies to the rules applicable to interstate access charges which long
distance telephone carriers pay to local exchange companies.  It is anticipated
that the FCC may commence a proceeding in early 1998 to propose that
rate-of-return companies adopt those same changes.  In October 1997, the FCC
initiated a proceeding where companies provided comments to the FCC regarding
how costs should be allocated between the state and interstate jurisdictions.
In October 1998, the FCC is expected to begin the process of determining a
forward-looking economic cost model for determining permanent USF procedures
for rural telephone carriers.  The FCC is currently in the process of
determining USF procedures for non-rural carriers.  Since interstate revenues
constituted approximately 51% of the revenues of the Registrant's ten telephone
companies in 1997, modifications to access charges, separations, and/or USF
could have a material effect.

         Registrant cannot predict the effect of the 1996 Act, state
initiatives and new proposed Federal and state regulations, but because its
telecommunications and multimedia properties (other than its television
stations interests) are primarily in high-cost, rural areas, Registrant expects
competitive changes to be slower in coming.

         Competition.  All of the Registrant's current telephone companies are
currently monopoly providers in their respective area of local telephone
exchange service; although there can be no assurance that this will continue.
However, as a result of the 1996 Act, FCC and state regulatory authority
initiatives and judicial decisions, competition has been introduced into
certain areas of the toll network wherein certain providers are attempting to
bypass local exchange facilities to connect directly with high-volume toll
customers.  For example, in the last few years the States of New York,
Michigan, Wisconsin and Kansas passed or amended telecommunications bills
intended to introduce more competition among providers of local services and
reduce regulation.  Regulatory authorities in certain states have taken steps
to promote competition in local telephone exchange service, including in New
York, by requiring certain companies to offer wholesale rates to resellers. A
substantial impact is yet to be seen on Registrant's telephone companies.  The
Registrant's subsidiaries do not expect bypass to pose a significant near-term
competitive threat due to a limited number of high-volume customers they serve.
In addition, cellular radio or similar radio-based services, including personal
communication services ("PCS"), and internet based service could provide an
alternative local telephone exchange service as well as possible competition
from electric companies.


B.   BROADCASTING

STATION WHBF-TV - Lynch Entertainment Corporation ("Lynch Entertainment I"), a
wholly-owned subsidiary of Registrant, and Lombardo Communications, Inc.,
wholly-owned by Philip J. Lombardo, are the general partners of Coronet





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<PAGE>   7
Communications Company ("Coronet").  Lynch Entertainment I has a 20% interest
in Coronet and Lombardo Communications, Inc. has an 80% interest.  Coronet owns
a CBS-affiliated television station WHBF-TV serving Rock Island and Moline,
Illinois and Davenport and Bettendorf, Iowa.

STATION WOI-TV - Lynch Entertainment Corporation II ("LEC-II"), a wholly-owned
subsidiary of Registrant, owns 49% of the outstanding common shares of Capital
Communications Corporation ("Capital") and a convertible preferred stock, which
when converted, would bring LEC-II's common share ownership to 50%.  On March
1, 1994, Capital acquired the assets of WOI-TV for $12.7 million.  WOI-TV is an
ABC affiliate and serves the Ames/Des Moines, Iowa market.  Lombardo
Communications, Inc. II, controlled by Philip J. Lombardo, has the remaining
share interest in Capital.

         Operations.  Revenues of a local television station depend to some
extent upon its relationship with an affiliated network.  In general, the
affiliation contracts of WHBF-TV and WOI-TV with CBS and ABC, respectively,
provide that the network will offer to the affiliated station the programs it
generates, and the affiliated station will transmit a number of hours of
network programming each month.  The programs transmitted by the affiliated
station generally include advertising originated by the network, for which the
network is compensated by its advertisers.

         The affiliation contract provides that the network will pay to the
affiliated station an amount which is determined by negotiation, based upon the
market size and rating of the affiliated station.  Typically, the affiliated
station also makes available a certain number of hours each month for network
transmission without compensation to the local station, and the network makes
available to the affiliated station certain programs which will be broadcast
without advertising, usually public information programs.  Some network
programs also include "slots" of time in which the local station is permitted
to sell spot advertising for its own account.  The affiliate is permitted to
sell advertising spots preceding, following, and sometimes during network
programs.

         A network affiliation is important to a local station because network
programs, in general, have higher viewer ratings than non-network programs and
help to establish a solid audience base and acceptance within the market for
the local station.  Because network programming often enhances a station's
audience ratings, a network-affiliated station is often able to charge higher
prices for its own advertising time.  In addition to revenues derived from
broadcasting network programs, local television stations derive revenues from
the sale of advertising time for spot advertisements, which vary from 10
seconds to 120 seconds in length, and from the sale of program sponsorship to
national and local advertisers.  Advertising contracts are generally short in
duration and may be canceled upon two-weeks notice.  WHBF-TV and WOI-TV are
represented by a national firm for the sale of spot advertising to national
customers, but have local sales personnel covering the service area in which
each is located.  National representatives are compensated by a commission
based on net advertising revenues from national customers.

         Competition.  WHBF-TV and WOI-TV compete for revenues with local
television and radio stations, cable television, and other advertising media,
such as newspapers, magazines, billboards and direct mail.  Generally,
television stations





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<PAGE>   8
such as WHBF-TV and WOI-TV do not compete with stations in other markets.

         Other sources of competition include community antenna television
("CATV") systems, which carry television broadcast signals by wire or cable to
subscribers who pay a fee for this service.  CATV systems retransmit
programming originated by broadcasters, as well as providing additional
programming that is not originated on, or transmitted from, conventional
broadcasting stations.  In addition, some alternative media operators, such as
multipoint distribution service owners, provide for a fee and on a subscription
basis, programming that is not a part of regular television service.
Additional program services are provided by low-power television stations and
direct broadcast satellites provide video services as well.

         Federal Regulation.  Television broadcasting is subject to the
jurisdiction of the FCC under the Communications Act of 1934, as amended (the
"Communications Act").  The Communications Act, and/or the FCC's rules, among
other things, (i) prohibit the assignment of a broadcast license or the
transfer of control of a corporation holding a license without the prior
approval of the FCC; (ii) prohibit the common ownership of a television station
and an AM or FM radio station or daily newspaper in the same market, although
AM-FM station combinations by itself are permitted; (iii) prohibit ownership of
a CATV system and television station in the same market; (iv) restrict the
total number of broadcast licenses which can be held by a single entity or
individual or entity with attributable interests in the stations and prohibits
such individuals and entities from operating or having attributable interests
in most types of stations in the same service area (loosened in the 1996 Act);
and (v) limit foreign ownership of FCC licenses under certain circumstances.
See Regulatory Environment under A. above for a description of certain
provisions of the 1996 Act including in particular those which would remove the
regulations over non-basic cable service in three years and permit telephone
service providers to provide cable service.  In calculating media ownership
interests, Registrant's interests may be aggregated under certain circumstances
with certain other interests of Mr. Mario J. Gabelli, Chairman and Chief
Executive Officer of the Registrant, and certain of his affiliates.

         Television licenses are issued for terms of eight years and are
renewable for terms of eight years.  The current licenses for WHBF-TV and
WOI-TV expire on December 1, 2005 and February 1, 2006, respectively.

OTHER

         On December 1, 1995, CLR Video LLC, a 60% owned subsidiary of
Registrant acquired 23 cable television systems in northeast Kansas serving
approximately 4,500 subscribers for $5.2 million.  Certain of the systems
cluster with local telephone exchanges owned by J.B.N. Telephone.  Registrant
also owns a small cable system in Haviland, Kansas.

         Registrant also has the right to market direct broadcasting TV
services via satellite to approximately 5,398 households in New Mexico and had
approximately 1,390 customers at December 31, 1997.  Operating results have not
been material to date.






                                      -8-
<PAGE>   9
C.   PERSONAL COMMUNICATIONS SERVICES ("PCS").

         A subsidiary of Registrant is a 49.9% limited partner in Fortunet
Communications, L.P. ("Fortunet").  Fortunet is the successor to five
partnerships that won 30 megahertz personal communications services licenses in
the FCC's C-Block auction (restricted to small businesses and certain other
qualifying bidders), which concluded in 1996.  Fortunet won 31 licenses in 17
states covering a population of approximately 7 million people.  The licenses
had an aggregate purchase price of $216 million after a 25% bidding credit.

         Under FCC rules, Fortunet made a down payment equal to 10% of the cost
(net of bidding credits) of the licenses ($21.6 million).  The Government
provided 10 year installment financing, interest only for the first six years
at an interest rate of 7% per annum.  Registrant's subsidiary has loaned
Fortunet an aggregate of $24.0 million to fund the down payments and the first
interest payment on the licenses.  The 50.1% general partner has no obligation
to provide loans or additional funds to Fortunet.  Due to changed circumstances
there may probably be no obligation of the limited partner to provide
additional loans or funds.

         Certain C-Block licensees, including Fortunet, have experienced
substantial financial problems in connection with servicing the FCC installment
debt and/or building out the licenses.  At least two major C-Block licenses
have filed for protection under the Federal Bankruptcy Act.  As a result, the
FCC in March 1997, suspended interest payments on the FCC installment debt
while it examined the situation.  In September 1997 the FCC gave C-Block
licensees four choices (one of which was the resumption of principal and
interest payments) with respect to their licenses.  The three other options, as
modified in March 1998, are (i) giving up all C-Block licenses in any
Metropolitan Trading Areas ("MTA"); for licenses returned, the licensee may
either opt (a) to rebid on those licenses in the reauction and forfeit 100% of
the down payment or (b) to forego the opportunity to rebid on those licenses
and receive a credit of 70% of the down payment to be used to prepay any
licenses retained, (ii) using 70% of the down payments (100% in the case of
licenses to be paid up) to prepay licenses in any MTA while giving up the
licenses not prepaid, and (iii) giving up 15 MHZ of the 30 MHZ licenses in any
MTAs for forgiveness of 50% of the debt; a licensee who elects to resume
installment payments on the remaining portion would be entitled to a credit
towards debt service equal to 40% of the down payments on the spectrum given
up while a licensee who elects to prepay the retained licenses would receive a
credit towards prepayment equal to 70% of the down payments on the spectrum
given up.  The FCC has not yet given a specific date for licensees to make
their elections, but it will not be before late May 1998. Fortunet has not yet
determined what election it intends to make.

         In the third quarter of 1997, Registrant provided a reserve of 30% of
its subsidiary's investment in Fortunet ($4.6 million after-tax).  Depending on
the election made, Registrant may have to write-down substantially all of its
investment in Fortunet.

         Another subsidiary of Registrant, Lynch PCS Corporation F ("LPCSF"),
was a 49.9% limited partner in Aer Force Communications B, L.P. ("Aer
Force").In the FCC's F-Block Auction (restricted to small businesses and
certain other qualifying bidders) of 10 megahertz PCS licenses, Aer Force won
five licenses in four states covering a population of approximately 20 million
people.  The licenses have an aggregate purchase price of $19 million after a
25% bidding credit.  In December 1997, East/West Communications, Inc.
("East/West") succeeded to the assets and liabilities of Aer Force with LPCSF
receiving 49.9% of the common stock.  Immediately thereafter, Registrant spun
off 39.9% of the common stock of East/West





                                      -9-
<PAGE>   10
to Registrant's shareholders and transferred 10% of East/West stock to Gabelli
Funds, Inc. ("GFI") in satisfaction of an obligation to pay it 10% of the net
profits of Aer Force (after an assumed cost of capital).  Registrant also has
7,800 shares ($7,800,000 par and liquidation value) of 5% payment-in-kind
preferred stock of East/West redeemable in 2009, subject to earlier payment in
certain circumstances.  East/West has certain financial and operating hurdles to
overcome in the near term.

         Another subsidiary of the Registrant, Lynch PCS Corporation G
("LPCSG") has an agreement with Rivgam Communications L.L.C. ("Rivgam"), a
subsidiary of GFI, which won licenses in the FCC's D and E Block PCS Auctions
for 10 megahertz  PCS licenses, to receive a fee equal to 10% of the realized
net profits of Rivgam (after an assumed cost of capital) in return for
providing bidding and certain other services.  Rivgam won 12 licenses in seven
states covering a population of 33 million, with an aggregate cost of $85.1
million.  For a variety of reasons, and subject to any limitations of law and
FCC regulation, East/West might enter into joint venture and/or working or
other arrangements with Rivgam.

         LPCSG also has an agreement with Bal/Rivgam LLC (in which GFI has a
49.9% equity interest), which won licenses in FCC's Wireless Communications
Services ("WCS") Auction in 1997, to receive a fee equal to 5% of the realized
net profits of Bal/Rivgam (after an assumed cost of capital), in return for
providing bidding and certain other services to Bal/Rivgam.  Bal/Rivgam won 5
WCS licenses covering a population of approximately 42 million with an
aggregate cost of $0.7 million.  LPCSG also has an agreement to provide
BCK\Rivgam L.L.C., in which GFI has a 49.9% equity interest, with similar
services in connection with the FCC's Local Multipoint Distribution Services
("LMDS") Auction ended on March 25, 1998.  Subject to final grant, BCK\Rivgam
won 3 licenses covering a population of 1.3 million with an aggregate cost of
$6.1 million.  LPCSG has an agreement to receive 5% of the net profits of
BCK\Rivgam (after an assumed  cost of capital).

         FCC rules impose build-out requirements that require PCS licensees to
provide adequate service to at least one-third of the population in the
licensed area within five years from the date of grant and two-thirds within
ten years, as well as build out requirements for WCS and LMDS licenses.
Neither Fortunet nor East/West has begun any build out of their licenses.
There are also substantial restrictions on the transfer of control of C and F
Block PCS licenses, WCS licenses and LMDS licenses.

         There are many risks relating to PCS communications including without
limitation, the high cost of PCS licenses, the fact that it involves start-up
businesses, raising the substantial funds required to pay for the licenses and
the build out, determining the best way to develop the licenses and which
technology to utilize, the small size and limited resources of Fortunet and
East/West compared to other potential competitors, existing and changing
regulatory requirements, additional auctions of wireless telecommunications
spectrum and actually building out and operating new businesses profitably in a
highly competitive environment (including already established cellular
telephone operators and other new PCS licensees).  There are also similar risks
as to WCS and LMDS licenses.  There can be no assurance that any licenses
granted to Fortunet or East/West can be successfully sold or financed or
developed, with Registrant's subsidiaries recovering their debt and equity
investments.


II.  SERVICES





                                      -10-
<PAGE>   11
A.  THE MORGAN GROUP, INC.

         The Morgan Group Inc. ("Morgan") is the Registrant's only service
subsidiary. On July 22, 1993, Morgan completed an initial public offering
("IPO") of 1,100,000 shares of its Class A common Stock, $.015 par value, at
$9.00 per share.  As a result of this offering, Lynch's equity ownership in
Morgan was reduced from 90% to 47%, represented by its ownership of 1,200,000
shares of Class B common stock.  In December 1995, Lynch acquired from Morgan
150,000 shares of Class A common stock (plus $1.3 million in cash plus accrued
dividends) in exchange for its 1,493,942 shares of Series A Preferred Stock of
Morgan.  At December 31, 1997, Lynch's equity ownership in Morgan is
approximately 51%.  Because the Class B common stock is entitled to two votes
per share, its voting interest in Morgan is approximately 66% and, therefore,
Lynch continues to consolidate Morgan's results in its financial statements.
Morgan Class A Common Stock is listed on the American Stock Exchange under the
symbol "MG."

         Morgan is the leading provider of outsourcing transportation services
to the manufactured housing and recreational vehicle ("RV") and commercial
truck industries in the United States and has been operating since 1936.
Morgan provides outsourcing transportation services through a national network
of approximately 1,560 independent owner-operators and 1,350 drive-away
drivers.  Morgan dispatches its drivers from 123 locations in 35 states.
Morgan's largest customers include Fleetwood Enterprises, Inc., Oakwood Homes
Corporation, Winnebago Industries, Inc., Champion Enterprises, Inc., Cavalier
Homes, Inc., Clayton Homes, Skyline Corporation and Ryder Systems.  Morgan's
services also include arranging for transporting other products, including
commercial vehicles and office trailers.

         In May 1995, Morgan acquired the assets of Transfer Drivers, Inc.
("TDI"), which focuses on relocating rental equipment for companies such as
Ryder Systems, Budget Rentals and Penske Truck Leasing and also delivery of new
equipment from manufacturers including Utilimaster, Grumman Olson and Bluebird
Bus.  TDI had revenues of $5.3 million in 1995.  On December 30, 1996, Morgan
acquired the operating assets of Transit Homes of America ("Transit") which had
more than 400 independent contract drivers and serves a number of leading
producers in the manufactured housing industry.  Transit had revenues of $29.5
million in 1996.

         As of December 31, 1997, Morgan owned transportation equipment
consisted of 23 tractors, having disposed of all of its trailers in
conjunction with the sale and discontinuance of the "truckaway" operation (see
below).

         Morgan also provides certain insurance and financing services to its
owner-operators.  Morgan currently provides physical damage insurance to the
owners of equipment under lease to the Company through a captive insurance
subsidiary.  In addition, Morgan provides financing and certain guarantees of
equipment loans through its finance subsidiary.

         In the first half of 1997, Morgan discontinued the "truckaway"
operation of the Specialized Transport Division taking a special charge to
income in the fourth quarter of 1996.  Truckaway is a line of business which
focused on the transportation of van conversions, tent campers, and automotive
product utilizing Company-owned equipment.  The truckaway operation had
revenues of $12,900,000,





                                      -11-
<PAGE>   12
$14,400,000, and $20,600,000 and estimated losses of $1,800,000, $1,200,000 and
estimated profits of $1,200,000 for the years ended December 31, 1996, 1995,
and 1994, respectively.

         Industry Information.  Morgan's business is substantially dependent
upon the manufactured housing and recreational vehicle industries.  Both of
these industries are subject to broad production cycles.  The manufactured
housing industry was essentially flat in 1997, while the recreational vehicle
industry was down in 1997.

         Growth Strategy.  Morgan's strategy is to (i) capitalize on its
stronger market position in the manufactured housing business, growing
internally and through acquisitions and (ii) emphasize the Company's role in
the large outsourcing transport industry which encompasses arranging for
deliveries of numerous types of consumer and commercial vehicles.

         Morgan's initiatives for improved margins are to exit lines of
business which are unrewarding, reducing corporate overhead, and improving the
Company's safety record.  There is no assurance that such strategy and
initiatives will be successful in light of changing economics market and
competitive conditions.

         Morgan is continuously reviewing and negotiating potential
acquisitions. There can be no assurance that any future acquisitions will be
effected or, if effected, that they can be successfully integrated with
Morgan's business.

         Customers and Marketing.  Morgan's ten largest customers accounted for
approximately 66%, 58.8% and 58.6% of its revenues in 1997, 1996, and 1995.

         Competition.  All of Morgan's activities are highly competitive.  In
addition to fleets operated by manufacturers, Morgan competes with several
large national interstate carriers and numerous small regional or local
interstate and intrastate carriers.  Morgan's principal competitors in the
manufactured housing and RV marketplaces are privately owned.  In the
commercial transport market, Morgan competes with large national interstate
carriers, many of whom have substantially greater resources than Morgan.
Morgan also competes for certain services with railroad carriers.  No assurance
can be given that Morgan will be able to maintain its competitive position in
the future.

         Competition among carriers is based on the rate charged for services,
quality of service, financial strength, insurance coverage and the geographic
scope of the carrier's authority and operational structure.  The availability
of tractor equipment and the possession of appropriate registration approvals
permitting shipments between points required by the customer may also be
influential.





                                      -12-
<PAGE>   13
         Selected Operating Information.  The following table sets forth
certain operating information for each of the five years ended December 31,
1997.

<TABLE>
<CAPTION>
                                                        YEARS ENDED DECEMBER 31
                                     1993          1994         1995          1996         1997
                                  ---------------------------------------------------------------
                                                     (Revenues in thousands)
<S>                                <C>          <C>          <C>           <C>           <C>
MANUFACTURED HOUSING GROUP:
 Shipments . . . . . . .             95,184      121,604      135,750       144,601       178,533
 Revenues. . . . . . . .           $ 39,930     $ 53,520     $ 63,353      $ 72,616      $ 93,092

DRIVER OUTSOURCING:
 Shipments . . . . . . .             30,978       32,060       49,885        58,368        45,857
 Revenues. . . . . . . .           $ 13,416     $ 15,197     $ 19,842      $ 23,090      $ 20,163

SPECIALIZED TRANSPORT:
 Shipments . . . . . . .             38,618       41,934       44,406        41,255        34,457
 Revenues  . . . . . . .           $ 25,835     $ 28,246     $ 29,494      $ 26,169      $ 19,173

OTHER SERVICE REVENUES             $  3,612     $  4,917     $  9,614      $ 10,333      $ 13,726
                                   ---------    --------     --------      ---------     --------
Total operating
 Revenues . . . . . . .            $ 82,793     $101,880     $122,303      $132,208      $146,154
                                   ========     ========     ========      ========      ========
</TABLE>

INDUSTRY PARTICIPATION.  The following tables set forth participation in the
two principal industries the company operates in where industry information is
available:

<TABLE>
<CAPTION>
                                      1993         1994         1995        1996          1997
                                   ---------------------------------------------------------------
<S>                                 <C>          <C>          <C>           <C>           <C>
MANUFACTURED HOMES:
 Industry production(1). .          374,126      451,646      505,819       553,133       558,435
 Shipments . . . . . . . .           76,188       98,181      114,890       121,136       154,389
 Shares of units shipped .            20.4%        21.7%        22.7%         21.9%         27.6%

RECREATIONAL VEHICLES:
 Industry productions(2) .          406,300      426,100      380,300       376,400       362,700
 Units moved(3)  . . . . .           71,792       67,502       64,303        57,703        39,102
 Shares of units shipped(3)           17.7%        15.8%        16.9%         15.3%         10.8%
</TABLE>




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

      (1)  Based on reports of Manufactured Housing Institute ("MHI").
           To calculate shares of homes shipped, Morgan assumes two
           unit shipments for each multi-section home.

      (2)  Based on reports of Recreational Vehicle Industry
           Association ("RVIA"), excluding van campers, truck campers,
           pick-up truck conversions, and sport utility vehicles
           conversions.  RVIA began reporting truck and sport utility
           vehicle conversions in their industry shipment data in
           1994.

      (3)  Shares of units shipped calculation includes travel
           trailers, two types of motor homes, van conversions, and
           tent campers and truck conversions in 1994 - 1997.
           Morgan's share of units shipped are based on units moved
           compared to industry production rather than shipped are
           based on units moved compared to industry production rather
           than shipments because certain RV shipments include more
           than one unit per move.



                                      -13-
<PAGE>   14
         Risk Management, Safety and Insurance.  The risk of substantial losses
arising from traffic accidents is inherent in any transportation business.
Morgan carries insurance to cover such losses up to $25 million per occurrence
with a deductible of up to $250,000 per occurrence for personal injury and
property damage.  The frequency and severity of claims under the Company's
liability insurance affect the cost, and potentially the availability, of such
insurance.  If Morgan is required to pay substantially greater insurance
premiums, or incurs substantial losses above $25 million or substantial losses
below its $250,000 deductible, its results of operations can be materially
adversely affected.  There can be no assurance that Morgan can continue to
maintain its present insurance coverage on acceptable terms.

         Interstate Indemnity Company ("Interstate"), a wholly-owned insurance
subsidiary of the Company, makes available physical damage insurance coverage
for the Company's owner-operators.  Interstate also writes performance surety
bonds for Morgan Drive Away, Inc.

         Regulation.  Morgan's interstate operations are subject to regulation
by the Federal Highway Administration, which is an agency of the United States
Department of Transportation ("D.O.T.").  Effective August 26, 1994,
essentially all motor common carriers were no longer required to file
individually determined rates, classifications, rules or practices with the
Interstate Commerce Commission ("I.C.C.")  Effective January 1, 1995, the
economic regulation of certain intrastate operations by various state agencies
was preempted by federal law.  The states will continue to have jurisdiction
primarily to insure that carriers providing intrastate transportation services
maintain required insurance coverage, comply with all applicable safety
regulations, and conform to regulations governing size and weight of shipments
on state highways.  Most states have adopted D.O.T. safety regulations and
conform to regulations governing size and weight of shipments on state highway,
and actively enforce them in conjunction with D.O.T.  personnel.

         Carriers normally are required to obtain authority from the I.C.C. or
its successor as well as various state agencies.  Morgan is approved to provide
transportation from, to, and between all points in the continental United
States.

         Morgan provides contract and non-contract transportation services to
the shipping public pursuant to governing rates and charges maintained at its
corporate and various dispatching offices.  A contract carrier provides
transportation services pursuant to a written contract designed to meet a
customer's specific shipping needs or by dedicating equipment exclusively to a
given customer for the movement of a series of shipments during a specified
period of time.

         Federal regulations govern not only operating authority and
registration, but also such matters as the content of agreements with
owner-operators, required procedures for processing of cargo loss and damage
claims, and financial reporting.  Morgan believes that it is in substantial
compliance with all material regulations applicable to its operations.





                                      -14-
<PAGE>   15
         The D.O.T. regulates safety matters with respect to the interstate
operations of Morgan.  Among other things, the D.O.T. regulates commercial
driver qualifications and licensing; sets minimum levels of carrier liability
insurance; requires carriers to enforce limitations on drivers' hours of
service; prescribes parts, accessories and maintenance procedures for safe
operation of freight vehicles; establishes noise emission and employee health
and safety standards for commercial motor vehicle operators; and utilizes
audits, roadside inspections and other enforcement procedures to monitor
compliance with all such regulations.  In 1997, the D.O.T. has established
regulations which mandate random, periodic, pre-employment, post-accident and
reasonable cause drug testing for commercial drivers.  The D.O.T. has also
established similar regulations for alcohol testing.  Morgan believes that it
is in substantial compliance with all material D.O.T. requirements applicable
to its operations.

         From time to time, tax authorities have sought to assert that owner
operators in the trucking industry are employees, rather than independent
contractors.  No such tax claim has been successfully made with respect to
Morgan.  Under existing industry practice and interpretations of federal and
state tax laws, as well as Morgan's current method of operation, Morgan, based
on the advice of counsel, maintains that its owner operators are not employees.
Whether an owner operator is an independent contractor or employee is, however,
generally a fact-sensitive determination and the laws and their interpretations
can vary from state to state.  There can be no assurance that tax authorities
will not successfully challenge this position, or that such tax laws or
interpretations thereof will not change.  If the owner operators were
determined to be employees, such determination could materially increase
Morgan's employment tax and workers' compensation exposure.

         Interstate, Morgan's insurance subsidiary, is a captive insurance
company incorporated under Vermont law.  It is required to report annually to
the Vermont Department of Banking, Insurance & Securities and must submit to an
examination by this Department on a triennial basis.  Vermont regulations
require Interstate to be audited annually and to have its loss reserves
certified by an approved actuary.  Morgan believes Interstate is in substantial
compliance with Vermont insurance regulations.


III.     MANUFACTURING

A.  SPINNAKER INDUSTRIES, INC. ("SPINNAKER")

         Spinnaker's Common Stock and Class A Common Stock are publicly
traded.  In August 1996, Spinnaker changed the name of its existing Common
Stock to Class A Common Stock and declared a stock dividend of one share of a
new Common Stock for each share of Class A Common Stock outstanding.  At March
1, 1998, Registrant owned 2,237,203 shares of Spinnaker Common Stock,
approximately 62% of the outstanding, and 2,259,063 shares of Class A Common
Stock, approximately 63% of the outstanding.

         In June 1994, Spinnaker entered into an agreement with Boyle, Fleming,
Inc. ("BF"), for BF to provide operating and strategic management to Spinnaker
and for Messrs. Boyle and Fleming to become Chairman and President.  In
addition to a management fee, BF received a warrant to purchase 678,945 shares
of Spinnaker





                                      -15-
<PAGE>   16
Class A Common Stock and Common Stock (20%) at a price of $2.67 for one share
of both Common Stock and Class A Common Stock (adjusted for the 3 for 2 stock
splits in December 1994 and December 1995 and the August 1996 Common Stock
Dividend).  In August 1996, the Management Agreement with BF was terminated and
Messrs. Richard J. Boyle and Ned Fleming III became employees of Spinnaker.
All BF warrants have now been exercised.

         Spinnaker is a leading manufacturer and marketer of adhesive carton
sealing tape and adhesive-backed label stock, primarily for the carton sealing
tape and pressure sensitive label stock markets.  Spinnaker's products are
grouped into two principal businesses that accounted for the following
percentages of 1997 net sales: industrial sealing tape (51.6%) and
adhesive-backed label stock (46.0%).  For the fiscal year ended December 31,
1997, Spinnaker had net sales of $232 million.

         Spinnaker has four 100% owned subsidiaries: Spinnaker Coating, Inc.,
(formerly called Brown-Bridge Industries, Inc.) ("Spinnaker Coating"), 80.1% of
which was acquired in September 1994, Central Products Company ("Central
Products"), acquired in October 1995, Spinnaker Coating-Maine, Inc.
("Coating-Maine"), and Entoleter, Inc. ("Entoleter"), which it has owned since
Registrant acquired Spinnaker in 1987.  In October 1996, Spinnaker acquired the
remaining 19.9% of outstanding stock of Spinnaker Coating (plus management stock
options), which were owned by the management of Spinnaker Coating, BF and
Registrant. Spinnaker Coating and Coating - Maine are in the adhesive-backed
label stock industry.  Central Products manufactures industrial sealing tape.
Entoleter manufactures a line of industrial process equipment and a line of air
pollution equipment.

         In March 1998, Coating-Maine acquired the Pressure Sensitive
Business of S.D. Warren Company ("Warren") for an aggregate purchase price of
approximately $51.8 million plus the assumption of certain liabilities
(excluding substantially all trade payables).  The Pressure Sensitive Business
manufactures standard pressure sensitive products that are primarily used for
EDP labels and consumer products labels that are sold to major forms
manufacturers and distributors.  The Pressure Sensitive Business operates at
S.D. Warren's Westbrook, Maine facility and had sales of approximately $62.1
million for its fiscal year ended October 1, 1997.  The purchase price was paid
by the issuance of a 10% subordinated convertible note (the "Note") to Warren,
in the original principal amount of $7.0 million, and the remainder with funds
available under Spinnaker's asset-backed working capital revolving credit
facility with BT Commercial Corporation (The "Revolving Credit Facility"),
which was concurrently amended to increase the aggregate facility amount to $60
million.

         The principal amount outstanding under the Note is prepayable by
Spinnaker at any time without penalty. The Note has a payment-in-kind ("PIK")
feature that allows Spinnaker to pay interest accrued during the first year
with an additional subordinated note having substantially similar terms as the
Note, and Spinnaker may also issue such a PIK note if at a future interest
payment date a default or event of default exists, or would be caused by the
payment of interest in cash, under the Revolving Credit Facility. Payments of
principal and interest are subject to restrictions contained in, and in any
event are junior and subordinate in right of payment to, the payment of
indebtedness outstanding under the Revolving Credit Facility and Spinnaker's 10
3/4% Senior Secured Notes due 2006. The Note matures on January 31, 2002,
however it is expected to be prepaid earlier if certain conditions or events
occur. Prepayments of principal in an amount equal to 30% and 70% of the
original principal amount are due on March 31, 1999 and on March 31, 2000,
respectively, subject to there being sufficient unused availability and no
existing default or event of default under the Revolving Credit Facility. The
Note is convertible for shares of Spinnaker's common stock, no par value
("Common Stock"), on the basis of 40 shares per $1,000 of the outstanding
principal amount of the Note (or $25 per share), subject to adjustment as set
forth in the Note. Upon conversion of the Note, the holder thereof will be
entitled to certain registration rights with respect to the shares of Common
Stock received upon such conversion.

CENTRAL PRODUCTS

         Central Products' carton sealing tape is used for the packaging of
goods for shipment by manufacturing, retail or distribution companies. Central
Products manufactures pressure sensitive tape with all three primary adhesive
technologies: acrylic, hot melt and natural rubber. It also offers three types
of water sensitive tape: paper tape, fiberglass reinforced tape and box tape.
Central Products believes it is the only United States supplier to manufacture
both pressure sensitive tape and water sensitive tape, and is the only company
to produce pressure sensitive tape utilizing all three pressure sensitive
adhesive technologies.





                                      -16-
<PAGE>   17
         Pressure Sensitive Tape.  Pressure sensitive tape is manufactured
primarily through the coating of plastic film with a thin layer of acrylic, hot
melt or natural rubber adhesive. The adhesive is applied to various grades of
high-quality, low-stretch polypropylene film for use in most applications as
well as PVC and polyester films which are used for certain specialized
applications.  Acrylic adhesives, which are noted for their clarity,
non-yellowing properties, good temperature resistance and low application cost,
are best suited for manual applications on light and medium carton sealing
situations. Hot melt adhesives, noted for their quiet release and easy unwind
during application, are the most widely used pressure sensitive adhesives
because they satisfy 90% of all carton sealing requirements. Natural rubber
adhesives are unique because of their aggressive adhesion properties and,
although they are ideal for recycled content cartons and cartons requiring hot,
humid or cold packing, transportation and storage, they can be used for a wide
variety of surface conditions and extreme temperature tolerances. Central
Products' pressure sensitive tapes are sold under the trade names Alltac and
Central.

         Water Sensitive Tape.  Water sensitive tape is generally manufactured
through the application of a thin layer of water sensitive adhesive to gumming
kraft paper. It is offered as either non-reinforced (paper) tape or fiberglass
reinforced tape.  Non-reinforced tape is made by applying an adhesive to a
single layer of high tensile strength kraft paper coated with Central Products'
patented starch-based adhesive. Non-reinforced tapes are totally biodegradable
and are used in light to medium carton sealing applications.  Fiberglass
reinforced tape contains a layer of fiberglass yarn placed between two layers
of kraft paper, and is typically used to seal heavy packages or on cartons that
will be subject to a high level of abuse during shipping and is also favored in
shipping high value goods due to its strong sealing qualities.  Both
non-reinforced tape and fiberglass reinforced tape are available in light,
medium and heavy grades. Central Products' water sensitive carton sealing tapes
are sold under the trade names Glasseal, Central, Green Core and Tru-Seal.

         Central Products also supplies tape dispensing equipment manufactured
by other companies. It currently offers a broad line of carton sealing
equipment for pressure sensitive tape, which ranges from hand held dispensers
to automatic random sizing equipment. Central Products also offers two types of
table top dispensers for water sensitive tape, a manual dispenser and a more
expensive electric dispenser.

SPINNAKER COATING

         Spinnaker Coating develops, manufactures and markets adhesive-backed
label stock that is converted by printers and industrial users into products
that are utilized for marking, identifying, labeling and decorating
applications and products.  Spinnaker Coating is a major supplier of
adhesive-back label stock for use in United States postage stamps.  Spinnaker
Coating's products are offered in three primary adhesive categories: pressure
sensitive, water sensitive and heat sensitive.

         Pressure Sensitive.  Pressure sensitive products, which are activated
by the application of pressure, are manufactured with a three element
construction consisting of face stock, adhesive coating and silicone coated
release liner. The adhesive product is sold in roll or sheet form for further
conversion into





                                      -17-
<PAGE>   18
products used primarily for marking, identification and promotional labeling.
Spinnaker Coating's pressure sensitive products are sold under the trade names
Strip Tac and Strip Tac Plus . Roll pressure sensitive products are generally
sold to label printers that produce products used primarily for informational
labels (shipping labels, price labels, warning labels, etc.), product
identification and postage stamps. Sheet pressure sensitive products are sold
to commercial sheet printers, who provide information labels and other products
(such as laser printer stock).  During 1997, pressure sensitive products
constituted approximately 87% of Spinnaker Coating's net sales of
adhesive-backed label stock products.

         Water Sensitive.  Water sensitive products, which are activated by the
application of water, include a broad range of paper and cloth materials,
coated with a variety of adhesives. The adhesive coated products are sold in
roll or sheet form for further conversion to postage and promotional stamps,
container labels, inventory control labels, shipping labels and splicing,
binding and stripping tapes.  The water sensitive line is sold under the trade
name Pancake and consists of three product groups: dry process, conventional
gummed and industrial. Dry process is sold primarily for label and business
form uses.  Conventional gum products serve many of the same end uses for hand
applied labels as dry process stock. A major portion of these products is sold
for government postage and promotional stamp uses. Industrial products are sold
in several niche markets, such as electrical and other specialty markets.

         Heat Sensitive.  Heat sensitive products, which are activated by the
application of heat, are manufactured by coating a face stock with either a hot
melt coating or an emulsion process adhesive. The heat sensitive product line
is sold primarily for labeling end uses, such as pharmaceutical bottles, meat
and cheese packages, supermarket scales, cassettes and bakery packages. The
adhesive coated product is sold in roll or sheet form for further conversion.
Brown-Bridge's heat sensitive products are sold under the trade name Heat Seal.

Marketing and Customers

         Spinnaker markets its broad range of products to a variety of
customers. During 1997, no single customer accounted for more than 10% of
Spinnaker's net sales.

         Central Products' marketing and sales strategy emphasizes supplying a
full line of both water sensitive and pressure sensitive tape products to the
carton sealing tape industry.  Central Products sells its products directly to
over 1,500 paper distributors (customers), who in turn resell these tape
products to the end user markets. In addition, Central Products sells
private-brand carton closure tapes direct to large customers who in turn
distribute the products under their name to end users.  Central Products
provides its distributor customers with a high level of product education to
enable them to better sell the Company's products.

         Spinnaker Coating generally markets its products through its own sales
representatives to regional and national printers, converters and merchants.
The majority of sales represent product sold and shipped from Spinnaker
Coating's facilities in Troy, Ohio.  However, to broaden its market penetration,
Spinnaker Coating also contracts with seven regional processors throughout the
United States, with whom Spinnaker Coating stores product until sold. Generally,
these processors perform





                                      -18-
<PAGE>   19
both slitting and distribution services for Spinnaker Coating.

Manufacturing and Raw Materials

         Spinnaker produces all adhesive technologies for carton sealing tape
and adhesive-backed label stock.  It produces carton sealing tapes and label
stock for a variety of standard and custom applications requiring water,
pressure and heat sensitive technologies. Spinnaker believes its strong
manufacturing capabilities enable it to maintain high product quality and low
operating costs and respond to customers' needs quickly and efficiently.

         Raw materials are the most significant cost component in Spinnaker's
production process. The material component accounts for approximately 65% of
the total cost of its products, with the most important raw materials being
paper (gumming kraft and face stock), adhesive materials, fiberglass, and
polypropylene resin. These materials are currently readily available and are
procured from numerous suppliers.

         Among Spinnaker's manufacturing strengths at its Central Products
water sensitive tape operation are fully integrated, computerized coating and
laminating machines, fully automated slitting, rewinding and packaging machines
and a state of the art print shop. At its pressure sensitive tape operation,
they include an in-house film line for production of polypropylene film and an
advanced computerized coating machine for each of the three adhesive
technologies.  Spinnaker Coating has installed at its Troy, Ohio, facilities a
new production line for silicone coating.

         See Item 2 below for a description of manufacturing and distribution
facilities.

Competition

         The adhesive-backed materials industry is highly competitive, and
Spinnaker competes with both national and regional suppliers. As a result of
the competitive environment in the markets in which Spinnaker operates,
Spinnaker faces (and will continue to face) pressure on sales prices of its
products.  As a result of such pricing pressures, Spinnaker may in the future
experience reductions in the profit margins on its sales, or may be unable to
pass future raw material price increases to its customers (which would also
reduce profit margins). Spinnaker operates in markets characterized by a few
large diversified companies selling products under recognized trade names and a
number of smaller public and privately-held companies selling to the market. In
addition to branded products, some companies in the industry produce
private-label products to enhance supply relationships with large buyers.

         Central Products competes with other manufacturers of carton sealing
tape products as well as manufacturers of alternative carton closure products.
Competition in the carton sealing market is based primarily on price and
quality, although other factors may enhance a company's competitive position,
including product performance characteristics, technical support, product
literature and customer support. There are a wide range of participants in the
carton sealing industry, including large diversified corporations (principally
in pressure sensitive) and small private companies (principally in water
sensitive tape).





                                      -19-
<PAGE>   20
Central Products is one of the leading manufactures of water sensitive tape. 3M
Corporation is the largest manufacturer of pressure sensitive tape in the
carton sealing market in the United States.

         The adhesive-backed label stock market is fragmented.  Spinnaker
Coating competes with several national manufacturers, including Avery-Dennison,
Bemis, 3M Corporation and a number of smaller regional manufacturers. Spinnaker
believes that Avery-Dennison, Bemis and 3M Corporation are the only competitors
with national production facilities and Avery-Dennison and 3M Corporation are
the only competitors with nationally recognized brand names.

Environmental Regulations

         Spinnaker's operations are subject to environmental laws and
regulations governing emissions to the air, discharges to waterways, and
generation, handling, storage, transportation, treatment and disposal of waste
materials.  Spinnaker is also subject to other federal and state laws and
regulations regarding health and safety matters. Environmental laws and
regulations are constantly evolving and it is impossible to predict the effect
that these laws and regulations will have on Spinnaker in the future.  While
Spinnaker believes it is currently in substantial compliance with all such
environmental laws and regulations, there can be no assurance that it will at
all times be in complete compliance with all such requirements. In addition,
although Spinnaker believes that any noncompliance is unlikely to have a
material adverse affect on Spinnaker, it is possible that such noncompliance
could have a material adverse affect on Spinnaker.  Spinnaker  has made and
will continue to make capital expenditures to comply with environmental
requirements. As is the case with manufacturers in general, if a release of
hazardous substances occurs on or from Spinnaker's properties or any associated
offsite disposal location, or if contamination from prior activities is
discovered at any of  Spinnaker's properties, Spinnaker may be held liable and
the amount of such liability could be material.

Patents and Trademarks

         Patents are held by Spinnaker with respect to the manufacture of
certain of its products, but its management does not consider such patents to
be important to Spinnaker's operations. The patents expire over various lengths
of time with the last patent expiring in about 10 years.  Spinnaker has
registered several of its trade names and trademarks for adhesive-backed
materials.

International Sales

         Spinnaker's international sales were $14.2 million, $11.5 million and
$10.4 million 1997, 1996, and 1995, respectively. Of the $14.2 million in 1997
international sales, approximately 85% were represented by exports of Spinnaker
Coating and Central Products adhesive-backed materials. The substantial
majority of these sales were to Canadian customers and, consequently, Spinnaker
believes that the risks commonly associated with doing business in
international countries are minimal. The profitability of foreign sales
is substantially equivalent to that of domestic sales. Because international
sales are transacted in United States dollars, payments in many cases are
secured by irrevocable letters of credit.





                                      -20-
<PAGE>   21

Backlog

         The Company's backlog believed to be firm was $7.1 million at December
31, 1997, as compared to $9.2 million at December 31, 1996.

Industrial Process Equipment Business

         Through its Entoleter subsidiary, the Company engineers, manufactures
and markets a line of industrial process equipment and a line of air pollution
control equipment. Entoleter's net sales consist entirely of sales to
commercial and industrial customers.   Spinnaker is exploring strategic
alternative with respect to Entoleter, including a possible spin-off of the
Entoleter stock to its shareholders.  There can be no assurance, however, that
any transaction involving Entoleter will occur.

Employees

         As of December 31, 1997, Spinnaker employed approximately 945 persons,
of which 542 were Central Products employees, 357 were Spinnaker Coating
employees, and 36 were Entoleter employees. All employees other than management
are paid on an hourly basis.  A majority of its hourly employees are not
represented by unions. Central Products has a labor agreement expiring in 1998
with the United Paperworkers International Union AFL-CIO covering 184 hourly
employees at the Menasha, Wisconsin plant.  Entoleter's 15 hourly-paid
production employees are members of the United Electrical, Radio and Machine
Workers of America Union. The current collective bargaining agreement expires
on April 30, 1999. Spinnaker believes that its relations with its employees are
good; however, there can be no assurance that the Company will not experience
work stoppages or slowdowns in the future.


B.   LYNCH SYSTEMS, INC. (FORMERLY CALLED LYNCH MACHINERY, INC.)

         Lynch Systems, Inc. ("LS"), a 90% owned subsidiary of Registrant and
the initial part of the Lynch Display Technologies group, designs, develops,
manufactures and markets a broad range of manufacturing equipment for the
electronic display and consumer glass industries.  LS also produces replacement
parts for various types of packaging and glass container-making machines which
LS does not manufacture.

         CRT Display and Consumer Glass Manufacturing Technologies.  LS
manufactures  glass-forming presses and electronic controls to provide
high-speed automated systems to form different sizes of face panels and tubes
for television screens and computer monitors.  LS produces an HDTV model press
to build large-screen televisions for the HDTV (high definition television)
market.  LS manufactures and installs presses to form table ware such as glass
tumblers, plates, cups, saucers and commercial optical glass.  LS also
manufactures and installs electronic controls and retrofit systems for CRT
display and consumer glass presses.  LS shipped  6 controls and retrofit
systems amounting to approximately $2.8 million in 1997.





                                      -21-
<PAGE>   22
         The production of glass pressware entails the use of machines which
heat glass and, using great pressure, form an item by pressing it into a
desired shape.  Because of the high cost of bringing the machine and materials
up to temperature, a machine for producing glass pressware must be capable of
running 24 hours a day, 365 days a year.

         During 1997, LS delivered 9 glass press machines, compared to 4
machines in 1996; however, revenues are recognized on a percentage of
completion basis.  At December 31, 1997, LS had orders for, and had in various
stages of production,  9 glass press machines, at a total sales price of
approximately $17.4 million, which are scheduled for delivery in 1998 and
beyond.  One order for $16 million of machines with an Asian purchaser, permits
the purchaser to cancel the order on the payment of a $2.4 million penalty.
 The customer has currently put a hold on this order and LS does not expect
significant production during 1998.  There can be no assurance that LS can
obtain orders for additional large glass pressing orders to replace its
existing orders.

         LS believes that it is the largest supplier to glass companies that do
not manufacture their own pressware machines in the worldwide pressware market.
Competitors include various companies in Italy, Japan, France, Germany and
elsewhere.

         While several of the largest domestic and international producers of
glass pressware frequently build their own glass-forming machines and produce
spare parts in-house, nearly all pressware producers have made purchases of
machines and/or spare parts from LS.

         Packaging Machinery.  Effective in January 1996, LS discontinued the
manufacturing of automated case packers and related equipment.  In mid-1996, LS
discontinued and sold its Tri-Can International operation, which manufactured
packaging machines.  In connection therewith, LS recognized a charge to income
in 1996 of approximately $0.8 million (after tax).

         International Sales.   During 1997, approximately 81% of LS's sales
were made to international customers, and 100% of its large glass pressing
machine orders were from international customers in Asia.  The profitability of
international sales is equivalent to that of domestic sales.  Because many
international orders require partial advance deposits, with the balance often
secured by irrevocable letters of credit from banks in the international
country, the Registrant believes that some of the credit risks commonly
associated with doing business in international countries are minimized.  The
Registrant avoids currency exchange risk by transacting all international sales
in United States dollars.  LS is unable to predict how great an adverse impact
the current East Asia financial crisis will have on its international business.

         Backlog.   LS had an order backlog of approximately $18.6 million at
December 31, 1997, compared with approximately $6.6 million at December 31,
1996.  LS includes as backlog those orders which are subject to written
contract, written purchase orders and telephone orders from long standing
customers who maintain satisfactory credit ratings.  LS has historically
experienced only insignificant cancellations of the orders included in its
backlog; however, see above for the right of a purchaser to cancel an order
upon the payment of a penalty.





                                      -22-
<PAGE>   23
         Raw Materials.  Raw materials are generally available to LS in
adequate supply from a number of suppliers.


C.       M-TRON INDUSTRIES, INC. ("M-TRON")

         M-tron, a 91% owned subsidiary of the Registrant, is a manufacturer
and importer of quartz crystal products and clock oscillator modules used for
clocking digital circuits, precision time base references and
telecommunications equipment.  A quartz crystal is an oscillating component
which performs the clocking function in a circuit.  Crystals and clock
oscillator modules are used primarily in microprocessor-related equipment and
telecommunications equipment.  Frequency and time related products essentially
use crystals or clock oscillators, with the addition of electronic circuitry
vertically integrating the product.  Crystal and clock oscillators are sold to
original equipment manufacturers, both directly and through commissioned
representatives and distributors.

         For 1997, 1996, and 1995, M-tron's sales consisted of (in thousands):

<TABLE>
<CAPTION>
                                                  1997     1996     1995
                                                -------  -------  -------
 <S>                                            <C>     <C>      <C>
 Crystals............................           $12,611  $10,594  $13,778

 Oscillator Modules..................            10,217    7,839    6,434
                                                -------   ------   ------
                       Total                    $22,828  $18,433  $20,212
                                                =======  =======  =======
</TABLE>


         Competition.  Quartz crystals and clock oscillators are sold in a
highly competitive industry.  There are numerous domestic and international
manufacturers who are capable of providing quartz crystals and clock
oscillators comparable in quality and performance to M-tron's products.
International competitors, particularly from the Far East, continue to dominate
the United States market.  M-tron seeks to manufacture smaller specialty orders
of crystals and oscillators, which it believes it can competitively fill based
upon price, quality and order response time.  M-tron also performs quality
control tests on all products it imports from the Far East and resells
domestically and internationally.

         International Sales.  M-tron's international sales in 1997 were
approximately 43% of total sales and were concentrated in Canada and Western
Europe. The profitability of international sales has been substantially
equivalent to that of domestic sales.  M-tron is unable to predict what effect
the East Asian financial crisis will have on its business.  However, because
sales are ordinarily spread over a number of customers in a number of developed
countries with no individually significant shipments, the Registrant believes
that risks commonly associated with doing business in international countries
are minimized.

         Backlog.  M-tron had backlog orders of approximately $5,215,000 at
December 31, 1997, compared with $5,049,000 at December 31, 1996.  M-tron
includes as backlog those orders which are subject to specific production
release orders under written contracts, verbal and written orders from
distributors with which M-tron has had long-standing relationships, as well as
written purchase orders from sales representatives.  M-tron believes that all
of the backlog at December 31, 1997, will be shipped during 1998.





                                      -23-
<PAGE>   24
         Raw Material.  To the extent possible, M-tron's raw materials are
purchased from multiple sources.  Of primary significance are quartz crystal
bars and the bases used for mounting certain finished crystals.  M-tron
currently has at least two qualified vendors for each of these items.  No
shortages have occurred in the recent past nor are any anticipated in the near
future.


IV.      OTHER INFORMATION

         While the Registrant holds licenses and patents of various types,
Registrant does not believe they are critical to its overall operations, except
for (1) the television-broadcasting license of WHBF-TV and WOI-TV; (2)
Registrant's telephone subsidiaries franchise certificates to provide
local-exchange telephone service within its service areas; (3) Western's FCC
licenses to operate point-to-point microwave systems; (4) licenses held by
partnerships and corporations in which Western and Inter-Community own minority
interests to operate cellular radio systems covering areas in New Mexico and
North Dakota, (5) CLR Video's franchises to provide cable television service
within its service areas and (6) personal communications services licenses held
by companies in which Lynch subsidiaries have investments.

         The Registrant conducts product development activities with respect to
each of its major lines of manufacturing business.  Currently, such activities
are directed principally toward the improvement of existing products, the
development of new products and/or diversification.  The cost of such
activities, which have been funded entirely by the Registrant, amounted to
approximately $1,022,000 in 1997, $1,627,000 in 1996, and $1,673,000 in 1995.

         The capital expenditures, earnings and competitive position of
Registrant have not been materially affected by compliance with current
federal, state, and local laws and regulations relating to the protection of
the environment; however, Registrant cannot predict the effect of future laws
and regulations.  The Registrant has not experienced difficulties relative to
fuel or energy shortages but substantial increases in fuel costs or fuel
shortages could adversely affect the operations of Morgan.

         Registrant has initiated a comprehensive review of its computer
systems to identify the systems that could be affected by the "Year 2000" issue
and is developing an implementation plan to resolve the issue.  The Year 2000
problem is the result of computer programs being written using two digits
(rather than four) to define the applicable year.  Any of the Registrant's
programs or programs utilized by vendors to the Registrant that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000.  This could result in a major system failure or
miscalculations.  Of Registrant's subsidiaries, the most potential exposure
exists at the telephone companies, both with the switching equipment and third
party billing vendors, and at Morgan.  Registrant presently believes that, with
modifications to existing software and converting to new software, the Year
2000 problem will not pose significant operational problems for Registrant's
computer systems as so modified and converted.  However, if such modifications
and conversions are not completed timely, the Year 2000 problem may have a
material impact on the operations of Registrant.  Registrant cannot yet
estimate the cost of such modifications or conversions.





                                      -24-
<PAGE>   25
         No portion of the business of the Registrant is regarded as seasonal,
except that, in the case of Morgan, fewer shipments are scheduled during the
winter months in those parts of the country where weather conditions limit
highway use.

         There were no customers in 1997 or 1996 that represents 10% or more of
consolidated revenues.  The Registrant does not believe that it is dependent on
any single customer.

         Excluding the following for The Morgan Group, Inc.: approximately
1,560 independent owner-operators and 1,350 drive-away drivers, the Registrant
had a total of 1,881 employees at December 31, 1997 and 1,910 employees at
December 31, 1996.

         Additional information with respect to each of the Registrant's lines
of business is included in Note 14 to the Consolidated Financial Statements
included as Item 14(a) below.


V.   EXECUTIVE OFFICERS OF THE REGISTRANT

         Pursuant to General Instruction G (3) of Form 10-K, the following list
of executive officers of the Registrant is included in Part 1 of this Annual
Report on Form 10-K in lieu of being included in the Proxy Statement for the
1998 Annual Meeting of Shareholders.  Such list sets forth the names and ages
of all executive officers of Registrant indicating all positions and offices
with the Registrant held by each such person and each such person's principal
occupations or employment during the past five years.

<TABLE>
<CAPTION>
      NAME                            OFFICES AND                        AGE
      ----                           POSITIONS HELD                      ---
                                     --------------
<S>                       <C>                                            <C>
Mario J. Gabelli          Chairman and Chief Executive Officer
                          (since May 1986); Chairman and Chief
                          Executive Officer (since March 1980)
                          of Gabelli Funds Inc. (successor to
                          The Gabelli Group, Inc.), holding
                          Company for subsidiaries engaged in
                          various aspects of the securities
                          business.                                      55

Robert E. Dolan           Chief Financial Officer (since
                          February 1992) and Controller (since
                          May 1990).                                     46
</TABLE>





                                      -25-
<PAGE>   26
<TABLE>
<S>                       <C>                                           <C>
Robert A. Hurwich         Vice President-Administration,
                          Secretary & General Counsel (since
                          February 1994); Private Law Practice
                          (1991-1993); Vice President,
                          Secretary & General Counsel of Moore
                          McCormack Resources, Inc.
                          (1975-1989).                                  56
</TABLE>

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


ITEM 2. PROPERTIES

         Effective April 1998, Lynch will lease space containing approximately
4,000 square feet for its executive offices in Rye, New York.

         LS's operations are housed in two adjacent buildings situated on 3.19
acres of land in Bainbridge, Georgia.  In January 1997, LS completed an
expansion of its manufacturing capacity at this site, which added approximately
15,000 square feet, bringing total manufacturing space to approximately 73,000
square feet.  Finished office area in the two buildings totals approximately
17,000 square feet.  All such properties are subject to security deeds relating
to loans.

         M-tron's operations are housed in two separate facilities in Yankton,
South Dakota.  These facilities contain approximately 34,000 square feet in the
aggregate.  One facility owned by M-tron contains approximately 18,000 square
feet and is situated on 5.34 acres of land.  This land and building are subject
to a mortgage executed in support of a bank loan.  The other Yankton facility
containing approximately 16,000 square feet is leased, which lease expires on
September 30, 2000, with options to extend the lease to 2006.

         Spinnaker's corporate headquarters is located in Dallas, Texas, where
it shares office space with an affiliate of its principal executive officers.

         Spinnaker Coating owns two manufacturing facilities, Plant One and
Plant Two, in Troy, Ohio.  Plant One is a 200,000 square foot complex located
on approximately five acres of land adjacent to the Miami River and Plant Two
is a 98,000 square foot facility located on approximately five aces of land
nearby.  There are approximately five undeveloped acres of land adjacent to
Plant Two that are available for expansion.  Both facilities house
manufacturing, administrative and shipping operations.

         Central Products owns two manufacturing facilities, one in Menasha,
Wisconsin and the other in Brighton, Colorado.  The Menasha facility contains
approximately 160,000 square feet and the Brighton facility contains
approximately 210,000 square feet.  The corporate office and center for
administrative services are located in a 20,000 square foot facility adjacent
to the Menasha plant.





                                      -26-
<PAGE>   27
Central Products also maintain two leased distribution centers in Neenah, WI
(90,000 square feet), and Denver, CO (100,000 square feet).

         Entoleter owns a manufacturing plant containing 72,000 square feet
located on approximately 5 acres of land in Hamden, Connecticut.  The land and
building are subject to a mortgage and security agreement executed in support
of a bank loan.  Entoleter also owns approximately 6 unimproved acres located
in Hamden, Connecticut adjacent to its property.

         In connection with Spinnaker's acquisition of the Pressure Sensitive
Business of S.D. Warren in March 1998, the parties entered into the Site Lease,
which provides for Warren's lease of a portion of its Westbrook, Maine facility
to Spinnaker.  Such lease is for a term of 99 years, provides for nominal rent
of $1.00 per year, and permits Spinnaker to lease additional space for
expansion at the site.

         During 1997 and 1996, Registrant's manufacturing facilities (except
for LS) operated in the aggregate at a relatively high level of capacity
utilization.

         Morgan owns approximately 24 acres of land with improvements in
Elkhart, Indiana.  The improvements include a 23,000 square foot office
building used as Morgan's principal office, a 7,000 square foot leased building
containing additional offices, a 9,000 square foot building used for Morgan's
safety and driver service departments and also for storage and an 8,000 square
foot building used for driver training and commercial driver licensing, testing
and certification.  Most of Morgan's 93 regional and 110 dispatch offices are
situated on leased property.  Morgan also owns and leases property for parking
and storage of equipment at various locations throughout the United States,
usually in proximity to manufacturers of products moved by Morgan.  The
property leases have lease term commitments of a minimum of thirty days and a
maximum of five years, at monthly rental ranging from $100 to $11,048.  The
Elkhart facility is currently mortgaged to one of Morgan's lenders.  In total,
Morgan owns 69 acres of land throughout the United States, including the
Elkhart facilities.

         Western New Mexico Telephone Company owns a total of 16.9 acres at
fourteen sites located in southwestern New Mexico.  Its principal operating
facilities are located in Silver City, where Western owns a building comprising
a total of 6,480 square feet housing its administrative offices and certain
storage facilities.  In Cliff, Western owns five buildings with a total of
14,055 square feet in which are located additional offices and storage
facilities as well as a vehicle shop, a wood shop, and central office switching
equipment.  Smaller facilities, used mainly for storage and for housing central
office switching equipment, with a total of 8,384 square feet, are located in
Lordsburg, Reserve, Magdalena and five other localities.  In addition, Western
leases 1.28 acres on which it has constructed four microwave towers and a 120
square-foot equipment building.  Western has the use of 38 other sites under
permits or easements at which it has installed various equipment either in
small company-owned buildings (totaling 2,403 square feet) or under protective
cover.  Western also owns 3,248 miles of buried copper cable and 421 miles of
buried fiber optic cable running through rights-of-way within its 15,000
square-mile service area.  All Western's properties described herein are
encumbered under mortgages held by the Rural Utilities Service ("RUS").





                                      -27-
<PAGE>   28
         Inter-Community Telephone Company owns 12 acres of land at 10 sites.
Its main office at Nome, ND, contains 4,326 square feet of office and storage
space.  In addition, it has 4,400 square feet of garage space and 5,035 square
feet utilized for its switching facilities.  Inter-Community has 1,743 miles of
buried copper cable and 172 miles of buried fiber optic cable.  All of
Inter-Community's properties described herein are encumbered under mortgages
held by the National Bank for Co-Operatives ("Co-Bank").

         Cuba City Telephone Company is located in a 3,800 square foot brick
building on 0.4 of an acre of land.  The building serves as the central office,
commercial office, and garage for vehicle and material storage.  The company
also owns a cement block storage building of 800 square feet on 0.1 of an acre.
In Madison, Wisconsin, Cuba City leases 900 square feet for administrative
headquarters and financial functions.  Belmont Telephone Company is located in
a cement block building of 800 square feet on .5 acre of land in Belmont,
Wisconsin.  The building houses the central office equipment for Belmont.  The
companies own a combined total of 217 miles of buried copper cable and 22 miles
of fiber optic cable.  All of Cuba City's and Belmont's property described
herein are encumbered under mortgages held by the RUS and Rural Telephone Bank,
respectively.

         J.B.N. Telephone Company owns a total of approximately 2.25 acres at
fifteen sites located in northeast Kansas.  Its administrative and commercial
office consisting of 2,820 square feet along with a 1,600 square feet garage
and warehouse facility are located in Wetmore, Kansas.  In addition, J.B.N.
owns thirteen smaller facilities housing central office switching equipment and
over 1,186 miles of buried copper cable and 186 miles of buried fiber optic
cable.  All properties described herein are encumbered under mortgages held by
the RUS.

         Haviland Telephone Company owns a total of approximately 3.9 acres at
20 sites located in south central Kansas.  Its administrative and commercial
office consisting of 4,450 square feet is located in Haviland, Kansas.  In
addition, Haviland owns 19 smaller facilities housing garage, warehouse, and
central office switching equipment and over 1,500 miles of buried copper cable.
All properties described herein are encumbered under a mortgage to Co-Bank.

         Dunkirk & Fredonia Telephone Company (including its subsidiaries) own
a total of approximately 16.4 acres at 5 sites located in western New York.  Its
host central office switching equipment, administrative and commercial offices
consisting of 18,297 square feet is located in Fredonia, New York.  In
addition, Dunkirk & Fredonia owns 4 other smaller facilities housing garage,
warehouse and central office switching equipment and over 62 miles of buried
copper cable and 21 miles of fiber optic cable.

         Upper Peninsula Telephone Company owns a total of approximately 25
acres at 19 sites located principally in the Upper Peninsula of Michigan.  Its
host central office switching equipment, administrative and commercial offices
consisting of 11,200 square feet is located in Carney, Michigan.  In addition,
Upper Peninsula owns 25 other smaller facilities housing garage, warehouse and
central office switching equipment and over 2,100 miles of buried copper cable
and 95 miles of fiber optic cable.  All properties described herein are
encumbered under mortgages held by the RUS and Co-Bank.

         CLR Video has its headquarters in leased space in Wetmore, Kansas.  It
also





                                      -28-
<PAGE>   29
owns one small parcel of land and leases 22 small sites, which it uses for its
cable receiving and transmission equipment.  All properties described herein
are encumbered under a mortgage to Co-Bank.

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


ITEM 3.    LEGAL PROCEEDINGS

         Registrant is a party to certain lawsuits in the ordinary course of
business.


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

       Not applicable.


                                    PART II


ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
          STOCKHOLDER MATTERS

         The information required by this Item 5 is incorporated herein by
reference to "Market Price Information and Common Stock Ownership" in
Registrant's Annual Report to Shareholders for the year ended December 31,
1997.


ITEM 6. SELECTED FINANCIAL DATA

         The information required by this Item 6 is incorporated herein by
reference to "Five Year Summary Selected Financial Data" in Registrant's Annual
Report to Shareholders for the year ended December 31, 1997.


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

         The information required by this Item 7 is incorporated herein by
reference to "Management Discussion and Analysis of Financial Condition and
Results of Operations" in Registrant's Annual Report to Shareholders for the
year ended December 31,1997.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         Not applicable.


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The Report of Independent Auditors and the following Consolidated
Financial





                                      -29-
<PAGE>   30
Statements of the Registrant are incorporated herein by reference to
Registrant's Annual Report to Shareholders for the year ended December 31,
1997.

                 Consolidated Balance Sheets - December 31, 1997, and 1996.

                 Consolidated Statements of Operations - Years ended December
                 31, 1997, 1996, and 1995.

                 Consolidated Statements of Shareholders' Equity - Years ended
                 December 31, 1997, 1996, and 1995.

                 Consolidated Statements of Cash Flows - Years ended December
                 31, 1997, 1996, and 1995.

                 Notes to Consolidated Financial Statements


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

         On August 25, 1997, Registrant's majority-owned subsidiary Spinnaker
Industries, Inc. ("Spinnaker") dismissed Deloitte & Touche LLP, independent
accountants ("DT"), as the principal accountant for Central Products Company, a
wholly owned subsidiary of Spinnaker ("Central Products"), and expanded the
auditing responsibility of Registrant's and Spinnaker's principal accountants,
Ernst & Young LLP ("EY"), to include Central Products operations.  EY has
served as the Registrant's and Spinnaker's principal independent accountant
since at least 1988.  EY referred to DT's audits of Central Products' financial
statements as of December 31, 1995 and 1996 and for the year ended December 31,
1996 and the three months ended December 31, 1995, in its reports regarding its
audits of the financial statements of Registrant and Spinnaker.

         Spinnaker's Audit Committee, with the knowledge of Registrant's Audit
Committee, recommended the foregoing change in accountants to Spinnaker's Board
of Directors, who approved such action on August 12, 1997.  The Spinnaker Audit
Committee's recommendation was based upon its desire to consolidate its annual
audit process under one independent accounting firm.

         The reports of DT on Central Products' financial statements as of
December 31, 1996 and 1995 and for the year ended December 31, 1996 and the
three months ended December 31, 1995, have not contained an adverse opinion or
a disclaimer of an opinion, nor were they qualified or modified as to
uncertainty, audit scope, or





                                      -30-
<PAGE>   31
accounting principles.  There were no disagreements with DT or any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure during those two periods and in the subsequent interim
periods, which, if they had not been resolved to the satisfaction of DT, would
have caused it to make reference to such disagreement in its report on Central
Products' financial statements.  Spinnaker filed a Form 8-K dated August 25,
1997, with respect to such change.


                                    PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      The information required by this Item 10 is included under the captions
"Executive Officers of the Registrant" in Item 1 hereof and included under the
captions "Election of Directors" and "Section 16(a) Reporting" in Registrant's
Proxy Statement for its Annual Meeting of Shareholders for 1998, which
information is incorporated herein by reference.


ITEM 11.  EXECUTIVE COMPENSATION

      The information required by this Item 11 is included under the captions
"Compensation of Directors," "Executive Compensation," "Executive Compensation
and Benefits Committee Report on Executive Compensation" and "Performance
Graph" in Registrant's Proxy Statement for its Annual Meeting of Shareholders
for 1998, which information is incorporated herein by reference.  The
Performance Graph in the Proxy Statement shows that Registrant's Common Stock
underperformed the American Stock Exchange Market Value Index and a combined
peer group index (telephone communications, except radio telephone operations;
converted paper and paperboard; and trucking except local) in 1993 and out
performed said indices through 1994, 1995, 1996, and 1997.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The information required by this Item 12 is included under the caption
"Security Ownership of Certain Beneficial Owners and Management," in the
Registrant's Proxy Statement for its Annual Meeting of Shareholders for 1998,
which information is included herein by reference.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information required by this Item 13 is included under the caption
"Executive Compensation", and "Transactions with Certain Affiliated Persons" in
the Registrant's Proxy Statement for its Annual Meeting of Shareholders for
1998, which information is included herein by reference.





                                      -31-
<PAGE>   32
                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

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

         (1)  Financial Statements:

         The Report of Independent Auditors and the following Consolidated
Financial Statements of the Registrant are incorporated herein by reference to
the Registrant's Annual Report to Shareholders for the year ended December 31,
1997, as noted on Page 29-30 in Item 8 hereof:


         Consolidated Balance Sheets - December 31, 1997 and 1996

         Consolidated Statements of Operations - Years ended December 31, 1997,
         1996, and 1995

         Consolidated Statements of Shareholders' Equity - Years ended December
         31, 1997, 1996, and 1995

         Consolidated Statements of Cash Flows - Years ended December 31, 1997,
         1996, and 1995

         Notes to Consolidated Financial Statements

         (2)   Financial Statement Schedules:
               Schedule I - Condensed Financial Information of Registrant

               Schedule II - Valuation and Qualifying Accounts

               Other Financial Statement Schedules have been excluded because
               they are not required.



                                      -32-
<PAGE>   33
           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                               LYNCH CORPORATION
                       CONDENSED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                                          Year Ended December 31
                                                                      ------------------------------
                                                                      1997        1996       1995
                                                                      ----        ----       ----
                                                                       (In Thousands of Dollars)
<S>                                                                   <C>       <C>        <C>
Interest, Dividends & Gain on Sales of Marketable Securities          $ 377     $   649    $   232
Interest, Dividend & Other Income from Subsidiaries                      35         621        715
Gain on Sale of Subsidiary and Affiliate Stock:
  Brown-Bridge Industries, Inc.                                          -          203          -
                                                                      -----      ------     ------
            TOTAL INCOME                                                412       1,473        947

Costs and Expenses:
  Unallocated Corporate Administrative Expense                        $ 1,436   $ 2,312    $ 2,869
  Interest Expense                                                      1,257       669        448
  Interest Expense to Subsidiaries                                        741       249         --
                                                                      -------   -------    -------
             TOTAL COST AND EXPENSES                                    3,434     3,230      3,317
                                                                      -------   -------    -------


LOSS BEFORE INCOME TAXES, EQUITY IN NET INCOME (LOSS)
  OF SUBSIDIARIES                                                      (3,022)   (1,758)    (2,370)

Income Tax Benefit                                                      1,142       515        779
Equity in Net Income (Loss) of Subsidiaries                              (998)    3,939      6,736
                                                                      --------  -------    -------
NET INCOME                                                            $(2,878)  $ 2,696    $ 5,145
                                                                      =======   =======    =======
</TABLE>



NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE A - DIVIDENDS FROM SUBSIDIARIES

Cash dividends paid to Lynch Corporation from the Registrant's consolidated
subsidiaries were $1,195,000 in 1997, $1,811,000 in 1996, and $1,166,000 in
1995.   No other dividends were received from subsidiaries or investees.

NOTE B - SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR ADDITIONAL
INFORMATION





                                      -33-
<PAGE>   34
           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                               LYNCH CORPORATION
                            CONDENSED BALANCE SHEET

<TABLE>
<CAPTION>
                                                                      Year Ended December 31
                                                                       1997            1996
                                                                       ----            ----
                                                                     (In Thousands of Dollars)
<S>                                                                   <C>            <C>
ASSETS

CURRENT ASSETS
  Cash and Cash Equivalents                                           $  290         $    68
  Marketable Securities and Short Term Investments                       755             573
  Deferred Income Tax Benefits                                           348             738
  Other Current Assets                                                    47              11
                                                                      ------         -------

    Total Current Assets                                               1,440           1,390


OFFICE EQUIPMENT (Net of Depreciation)                                    22              26



OTHER ASSETS (Principally Investment in
and Advances to Subsidiaries)                                         $69,255        $61,836
                                                                      -------        -------

  Total Assets                                                        $70,717        $63,252
                                                                      =======        =======


LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES                                                   $28,602        $18,965

LONG TERM DEBT                                                          2,190          2,090
DEFERRED INCOME TAX LIABILITIES                                         1,478          1,585

DEFERRED CHARGES                                                        1,996          1,689

TOTAL SHAREHOLDERS' EQUITY                                            $36,451        $38,923
                                                                      -------        -------

  Total Liabilities and Shareholders' Equity                          $70,717        $63,252
                                                                      =======        =======
</TABLE>





                                      -34-
<PAGE>   35
           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                               LYNCH CORPORATION
                       CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                            Year Ended December 31
                                                                          1997       1996         1995
                                                                          ----       ----         ----
                                                                            (In Thousands of Dollars)

<S>                                                                     <C>          <C>          <C>
 Cash Provided From (Used In) Operating Activities                       $   (25)    $   469      $(1,158)
                                                                         --------    -------      -------

INVESTING ACTIVITIES:
  Investment in Lynch Manufacturing                                        1,135       1,683          781
  Investment and Advances to Brighton Communications                         (17)     (2,053)          -
  Loan to Spinnaker Industries, Inc.                                          -        1,330           --
  Investment in Brown-Bridge Industries, Inc.                                 -          407           -
  Investment in and Advances to Lenco II                                      -           -         2,535
  Investment in and Advances to The Morgan Group, Inc.                         7          60        1,300
  Investment in and Advances to Pcs Partnerships                          (8,628)    (14,315)      (7,010)
  Other                                                                     (101)        607          (13)
                                                                          -------    -------      -------
NET CASH PROVIDED FROM (USED IN) INVESTING ACTIVITIES                     (7,604)    (12,281)      (2,407)
                                                                         -------     -------      -------

FINANCING ACTIVITIES:
Net Borrowings
  Lines of Credit                                                          7,179       8,627        3,709
  Issuance of Long Term Debt                                                  -        2,000           --
  Sale of Treasury Stock                                                     672         754           -
  Other                                                                       -            1          248
                                                                          ------      ------       ------

NET CASH PROVIDED FROM FINANCING ACTIVITIES                                7,851      11,382        3,957
                                                                          ------      ------      -------

TOTAL INCREASE (DECREASE)IN CASH AND CASH EQUIVALENTS                        222        (430)         392

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                68         498          106
                                                                          ------      ------      -------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                  $  290      $   68      $   498
                                                                          ======      ======      =======
</TABLE>





                                      -35-
<PAGE>   36
                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                 SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
                       LYNCH CORPORATION AND SUBSIDIARIES
                 YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995



<TABLE>
<CAPTION>
                                    COLUMN A     COLUMN B    COLUMN C          COLUMN D         COLUMN E
                                                       ADDITIONS
                                    BALANCE AT                  CHARGED TO     CHARGED TO
                                    BEGINNING    COSTS AND    OTHER ACCOUNTS   DEDUCTIONS       BALANCE AT
  DESCRIPTION                       OF PERIOD    EXPENSES       -DESCRIBE       -DESCRIBE         PERIOD
<S>                               <C>          <C>            <C>             <C>               <C>
YEAR ENDED DECEMBER 31, 1997
 ALLOWANCE FOR UNCOLLECTIBLE      $1,525,000   $  742,000     $       0       $  819,000(B)     $1,448,000


YEAR ENDED DECEMBER 31, 1996
 ALLOWANCE FOR UNCOLLECTIBLE      $1,732,000   $1,900,000     $   75,000(A)    $2,182,000(B)    $1.525.000

YEAR ENDED DECEMBER 31, 1995
 ALLOWANCE FOR UNCOLLECTIBLE       $ 737,000   $  987,000     $1,160,000(A)    $1,152,000(B)    $1,732,000
</TABLE>


(A) ALLOCATION OF PURCHASE PRICE OF ACQUIRED COMPANY.

(B) UNCOLLECTIBLE ACCOUNTS WRITTEN OFF ARE NET OF RECOVERIES.





                                      -36-
<PAGE>   37
         All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions, or are inapplicable, and therefore
have been omitted.

         See Page 2 above re Forward Looking Information.

         (3)    Exhibits: See the Exhibit Index on pages 40 - 43 of
                this Form 10-K Annual Report.

         The following Exhibits listed in the Exhibit Index are filed with this
Form 10-K Annual Report:

         10(o)  -         Directors Stock Plan

   10(u)(i)(a)  -         Correction to Loan Agreement

         10(y)  -         Letter Agreement dated as of January 20, 1998,
                          between Lynch PCS Corporation G and BCK/Rivgam, L.L.C.


         10(z)   -        Employment Agreement dated February 2, 1998 between
                          Registrant and Mark Feldman

         13      -        Annual Report to Shareholders for the year ended
                          December 31, 1997 (only those portions of the Annual
                          Report expressly incorporated by reference herein
                          shall be deemed filed)

         21      -        Subsidiaries of the Registrant

         23      -        Consents of Independent Auditors
                          -       Ernst & Young LLP
                          -       Arthur Andersen LLP
                          -       McGladrey & Pullen, LLP(2)
                          -       Deloitte & Touche, LLP
                          -       Johnson Mackowiak Moore & Myott, LLP
                          -       Frederick & Warriner, L.L.C.

         24      -        Powers of Attorney

         27      -        Financial Data Schedules

         99               Report of Independent Auditors.

                          -       Report of Arthur Andersen LLP on the
                                  Consolidated Financial Statements of the
                                  Morgan Group, Inc. for the year ended
                                  December 31, 1995.
                        -         Report of McGladrey & Pullen, LLP on the
                                  Financial Statements of Capital
                                  Communications Corporation for the years ended
                                  December 31, 1996 and 1995.
                          -       Report of McGladrey & Pullen, LLP on the
                                  Financial Statements of Coronet
                                  Communications Corporation for the years ended
                                  December 31, 1996 and 1995.
                          -       Report of Deloitte & Touche LLP on the
                                  Financial Statements of Central Products
                                  Company for the year ended December 31, 1996
                                  and the three months ended December 31, 1995.
                          -       Report of Johnson Mackowiak Moore & Myott,
                                  LLP on the Consolidated Financial Statements
                                  of Dunkirk & Fredonia Telephone Company for
                                  the period November 26, 1996 through
                                  December 31, 1996.
                          -       Report of Frederick & Warinner, L.L.C. on the
                                  Financial Statements of CLR Video, Inc. for
                                  the year ended December 31, 1996.





                                      -37-
<PAGE>   38

(b)        Reports on Form 8-K:  Reports on Form 8-K were filed as of (i)
           October 15,  1997, and December 8, 1997, to report under Item 5 on
           letters to Hector Communications, Inc. with respect to shares of
           stock of Hector .

(c)        Exhibits:

           Exhibits are listed in response to Item 14(a)(3)

(d)        Financial Statement Schedules:

           Financial Statement Schedules are listed in response to Item 14(a)(2)





                                      -38-
<PAGE>   39
                                   SIGNATURES

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

LYNCH CORPORATION

By:s/ROBERT E. DOLAN
--------------------------
         ROBERT E. DOLAN
         Chief Financial Officer (Principal
         Financial and Accounting Officer)

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

<TABLE>
<CAPTION>
     SIGNATURE                       CAPACITY                                     DATE
     ---------                       --------                                     ----
<S>                               <C>                                          <C>
* MARIO J. GABELLI                Chairman of the Board of
-------------------               Directors and Chief
  MARIO J. GABELLI                Executive Officer                               March 30, 1998
                                  (Principal Executive Officer)


* E. VAL CERUTTI                  Director                                        March 30, 1998
------------------
  E. VAL CERUTTI

* PAUL J. EVANSON                 Director                                        March 30, 1998
------------------
  PAUL J. EVANSON

* JOHN C. FERRARA                 Director                                        March 30, 1998
-----------------
  JOHN C. FERRARA

* DAVID C. MITCHELL               Director                                        March 30, 1998
-------------------
  DAVID C. MITCHELL

* SALVATORE MUOIO                 Director                                        March 30, 1998
-----------------
  SALVATORE MUOI0

* RALPH R. PAPITTO                Director                                        March 30, 1998
------------------
  RALPH R. PAPITTO

s/ROBERT E. DOLAN                 Chief Financial Officer
------------------                (Principal Financial
  ROBERT E. DOLAN                 and Accounting Officer)                         March 30, 1998


*s/ROBERT A. HURWICH
--------------------
   ROBERT A. HURWICH
   Attorney-in-fact
</TABLE>





                                      -39-
<PAGE>   40
                                 EXHIBIT INDEX


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

3        (a)     Restated Articles of Incorporation of Registrant (incorporated
                 by reference to Exhibit 3(a) of the Registrant's Annual
                 Report on Form 10-K for the year ended December 31, 1987).

         (b)     By-Laws of the Registrant, (incorporated by reference to the
                 Exhibit 3(b) of the Registrant's Annual Report on Form 10-K
                 for the year ended December 31, 1987).

4        (a)     Loan Agreement and Revolving Loan Note of Lynch Telephone
                 Corporation, dated October 18, 1989, (incorporated by
                 reference to Exhibit 4(d) of the Registrant's Form 10-K for
                 the year ended  December 31, 1989).

         (b)     Purchase Agreement, dated October 18, 1996 (the "Purchase
                 Agreement") among Spinnaker Industries, Inc., a Delaware
                 corporation ("Spinnaker"), Brown-Bridge Industries, Inc., a
                 Delaware corporation ("Brown-Bridge), Central Products
                 Company, a Delaware corporation ("Central Products"), and
                 Entoleter, Inc., ("Entoleter") and together with Brown-Bridge
                 and Central Products, the "Guarantors") and BT Securities
                 Corporation (the "Initial Purchaser") (incorporated by
                 reference to Exhibit 4.1 to Registrant's Form 8-K, dated
                 October 23, 1996).

         (c)     Indenture dated, October 23, 1996, among Spinnaker, the
                 Guarantors and the Chase Manhattan Bank, as Trustee
                 (incorporated by reference to Exhibit 4.3 to Registrant's Form
                 8-K, dated April 19, 1996).

         (d)     Credit Agreement among Central Products, Brown-Bridge and
                 Entoleter, as Borrowers, Spinnaker, as Guarantor, each of the
                 financial institutions listed on Schedule 1 thereto, BT
                 Commercial  Corporation, as Agent, Transamerican Business
                 Credit Corporation,  as Collateral Agent, and Bankers Trust
                 Company as Issuing Bank  (incorporated by reference to Exhibit
                 99.1 to Registrant's Form 8-K dated October 23, 1996).

         The Registrant, by signing this Form 10-K Annual Report, agrees to
furnish to the Securities and Exchange Commission a copy of any long-term debt
instrument where the amount of the securities authorized thereunder does not
exceed 10 percent of the total assets of the Registrant on a consolidated
basis.

10       (a)     Partnership Agreement, dated March 11, 1987, between Lombardo
                 Communications, Inc. and Lynch Entertainment Corporation
                 (incorporated by reference to Exhibit 10(e) of the
                 Registrant's Annual Report on Form 10-K for the year ended
                 December 31, 1987).

         *(b)    Lynch Corporation 401(k) Savings Plan (incorporated by
                 reference to Exhibit 10(b) to Registrant's Report Form 10-K
                 for the year  ended December 31, 1995).

         (c)     Stock Purchase Agreement, dated May 13, 1993, whereby
                 Registrant acquired J.B.N. Telephone Company, Inc.
                 (incorporated by reference to Exhibit 2(a) of the
                 Registrant's Form 8-K, dated December 13, 1993).+

         (d)     Stock Purchase Agreement, dated January 19, 1994, between
                 Registrant and Mario J. Gabelli (incorporated by reference to
                 Exhibit II of Amendment





                                      -40-
<PAGE>   41
                 Number 36 to Schedule 13D filed by Mario  J. Gabelli and
                 affiliated companies on January 19, 1994).

         (e)     Shareholders Agreement among Capital Communications Company,
                 Inc., Lombardo Communications, Inc. and Lynch Entertainment
                 Corporation II (incorporated by reference to Exhibit 10 of
                 Registrant's Form  8-K, dated March 14, 1994).

         (f)     Acquisition Agreement between Brown-Bridge Acquisition
                 Corporation and Kimberly-Clark Corporation, dated June 15,
                 1994 (exhibit omitted) (incorporated by reference to Exhibit
                 10(c) to Registrant's Form 10-Q for the quarter ended June
                 10, 1994).+

         *(g)    Management Agreement, dated as of June 10, 1994, by and among
                 Boyle, Fleming, George & Co., Inc. and Safety Railway Service
                 Corporation (incorporated by reference by Exhibit 7.1 to the
                 Registrant's Form 8-K, dated June 13, 1994).


         (h)     Warrant Purchase Agreement, dated as of June 10, 1994, by and
                 among Boyle, Fleming, George & Co., Inc. and Safety Railway
                 Service Corporation (incorporated by reference by Exhibit 7.1
                 to the Registrant's Form 8-K, dated June 13, 1994).

         (i)     A Warrant, dated as of June 10, 1994, executed by Safety
                 Railway  Service Corporation (incorporated by reference to
                 Exhibit 7.1 to  Registrant's Form 8-K, dated June 12, 1994).

      (j)(i)     Asset Purchase Agreement, dated as of June 15, 1994, between
                 Kimberly-Clark Corporation and Brown-Bridge Acquisition Corp.
                 (Exhibits omitted) (incorporated by reference to Exhibit 10(c)
                 to Registrant's Form 10-Q for the quarter ended June 30,
                 1994).+

     (j)(ii)     Amendments Nos. 1-3 to Asset Purchase Agreement by and between
                 Kimberly-Clark Corporation and Brown-Bridge Industries, Inc.
                 (formerly Brown-Bridge Acquisition Corp.) (incorporated by
                 reference to Registrant's Form 8-K, dated September 19, 1994).

         (k)     Stock Purchase Agreement, dated as of August 26, 1994, among
                 Brighton Communications Corporation, Lynch Telephone
                 Corporation VII, Universal Service Telephone Company and
                 InterDigital Communications Corporation (Exhibits omitted)
                 (incorporated by  reference to Exhibit 7.1 to Registrant's
                 Form 8-K, dated September  26, 1994).+

        *(l)     Stock Purchase and Loan Program (incorporated by reference to
                 Exhibit 10(p) to Registrant's Form 10-K for the year ended
                 December 31, 1994).

         (m)     Shareholders' and Voting Agreement, dated September 16, 1994,
                 among Safety Railway Service Corporation, Brown-Bridge
                 Industries, Inc. and the other stockholders of Brown-Bridge
                 (incorporated by  reference to Exhibit 10(q) to Registrant's
                 Form 10-K for the year   ended December 31, 1994).

         (n)     Put Option Agreements, dated September 16, 1994, among Safety
                 Railway Service Corporation, Brown-Bridge Industries, Inc. and
                 certain stockholders of Brown Bridge (incorporated by
                 reference to  Exhibit 10(q) to Registrant's Form 10-K for the
                 year ended December 31, 1994).

       *(o)      Directors Stock Plan





                                      -41-
<PAGE>   42
       *(p)      Phantom Stock Plan (incorporated by reference to Exhibit 10(p)
                 to Registrant's Form 10-Q for the year ended March 31, 1997).

         (q)     Stock and Asset Purchase Agreement, dates as of September 27,
                 1995, by and among Central Products Acquisition Corp.,
                 Unisource  Worldwide, Inc. and Alco Standard Corporation
                 (incorporated by  reference to Exhibit 7.1 to Registrant's
                 Form 8-K dated October 18, 1995).+

         (r)     Stock Purchase Agreement, dated as of November 1, 1995, among
                 Brighton Communications Corporation, Lynch Telephone
                 Corporation  VIII and certain other persons (excluding
                 exhibits) (incorporated by reference to Exhibit 10(v) to
                 Registrant's Form 10-K for the year ended December 31, 1995).+

      (s)(i)     Loan Agreement, dated as of November 6, 1995, between Lynch
                 PCS Corporation A and Aer Force Communications L.P.  (now
                 Fortunet Wireless, L.P.) (four similar loan agreements with
                 Fortunet Wireless, L.P. increase the total potential
                 commitment to $41.8 million) (incorporated by reference to
                 Exhibit 10(w) to Registrant's Form 10-K for the year ended
                 December 31, 1995..

     (s)(ii)     Amendment No. 1 to the Loan Agreement, dated as of November 6,
                 1995, referred to in 10(s)(i) (incorporated by reference to
                 Exhibit 10(a) to Registrant's Form 10-Q for quarter ended
                 March 31, 1996).

         (t)     Agreement and Plan of Merger (Brown-Bridge Minority Interest),
                 by and among Spinnaker, BB Merger Corp., Brown-Bridge
                 Industries, Inc. and the stockholders of Brown-Bridge
                 Industries, Inc. on Exhibit A thereto (incorporated by
                 reference to Exhibit 99.2 to Registrant's Form 8-K, dated
                 April 19, 1996).+

      (u)(i)     Loan Agreement, dated as of August 12, 1996, between Gabelli
                 Funds, Inc. and Registrant (incorporated by reference to
                 Exhibit 10(u)(i) of Registrant's Form 10-K for the year ended
                 December 31, 1996.

      (u)(a)     Correction to Loan Agreement.

     (u)(ii)     Pledge and Security Interest Agreement, dated as of August 12,
                 1996, by and between Gabelli Funds, Inc. Registrant and
                 certain subsidiaries of Registrant (incorporated by reference
                 to Exhibit 10(u)(ii) to Registrant's Form 10-K for the year
                 ended December 31, 1996).

         (v)     Letter Agreement, dated as of August 12, 1996, between Rivgam
                 Communicators, L.L.P. and Lynch PCS Corporation G
                 (incorporated by reference to Exhibit 10(u)(ii) to
                 Registrant's Form 10-K for the year ended December 31, 1996).

         (w)     Loan Agreement, dated as of August 12, 1996 between Lynch PCS
                 Corporation F and Aer Force Communications B, L.P.
                 (incorporated by reference to Exhibit 10(u)(ii) to
                 Registrant's Form 10-K for the year ended December 31, 1996).

 10(x)           Letter Agreement between Lynch PCS Corporation G and
                 Bal/Rivgam, L.L.C. (incorporated by reference to Exhibit 10(x)
                 to Registrant's Form 10-Q for the Quarter ended September 30,
                 1997).

 10(y)           Letter Agreement, dated January 20, 1998, between Lynch PCS
                 Corporation G and BCK/Rivgam, L.L.C.

*10(z)           Employment Agreement, dated February 2, 1998, between
                 Registrant and Mark Feldman.

 13              Annual Report to Shareholders for the year ended December 31,
                 1997 (only





                                      -42-
<PAGE>   43
                 those portions of the Annual Report expressly incorporated by
                 reference herein shall be deemed filed.)
16               Letter Re: Change in Certifying Accountant (incorporated by
                 reference to Exhibit 16 to Registrant's Form 8-K, dated March
                 19, 1996).

21       Subsidiaries of the Registrant.

23                        Consents of Independent Auditors.
                          -  Ernst & Young LLP
                          -  Arthur Andersen LLP
                          -  McGladrey & Pullen, LLP(2)
                          -  Deloitte & Touche, LLP
                          -  Johnson Mackowiak Moore & Myott, LLP
                          -  Frederick & Warinner, L.L.C.

24               Powers of Attorney.

99               Report of Independent Auditors.

                          -       Report of Arthur Andersen LLP on the
                                  Consolidated  Financial Statements of the
                                  Morgan Group, Inc.  for the  year ended
                                  December 31, 1995.
                         -        Report of McGladrey & Pullen, LLP on the
                                  Financial Statements of Capital
                                  Communications Corporation for the years ended
                                  December 31, 1996 and 1995.
                          -       Report of McGladrey & Pullen, LLP on the
                                  Financial Statements of Coronet
                                  Communications Corporation for the years ended
                                  December 31, 1996 and 1995.
                          -       Report of Deloitte & Touche LLP on the
                                  Financial Statements of Central Products
                                  Company for the year ended December 31, 1996
                                  and the three months ended December 31, 1995.
                          -       Report of Johnson Mackowiak Moore & Myott,
                                  LLP on the Consolidated  Financial Statements
                                  of Dunkirk & Fredonia Telephone Company for
                                  the period November 26, 1996 through December
                                  31, 1996.
                          -       Report of Frederick & Warinner, L.L.C. on the
                                  Financial Statements of CLR Video, Inc. for
                                  the year ended December 31, 1996.

----------------------
*    Management contract or compensatory or arrangement.

+    Registrant agrees to furnish a supplemental copy of any omitted schedule to
the Securities and Exchange Commission upon request.


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





                                      -43-