SECURITIES & EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q
                                    ---------
(Mark One)

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

For the quarterly period ended March 31, 1999

                                       or

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

For the transition period from            to           

Commission File No. 1-106


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


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


401 Theodore Fremd Avenue, Rye, New York                            10580  
-----------------------------------------                           ------
(Address of principal executive offices)                           (Zip Code)

                                 (914) 921-7601
                                 --------------
               Registrant's telephone number, including area code


Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

Yes  X    No    

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

      Class                                         Outstanding at May 1, 1999  
Common Stock, no par value                                  1,418,248


<PAGE>

                                                                    Page 2 of 21


                                      INDEX

                       LYNCH CORPORATION AND SUBSIDIARIES


PART I.     FINANCIAL INFORMATION


Item 1.     Financial Statements (Unaudited)

            Condensed Consolidated Balance Sheet:
               -      March 31, 1999
               -      December 31, 1998 (Audited)

            Condensed Consolidated Statements of Operations:
               -      Three months ended March 31, 1999 and 1998

            Condensed Consolidated Statements of Cash Flows:
               -      Three months ended March 31, 1999 and 1998

            Notes to Consolidated Financial Statements:


Item 2.    Management's Discussion and Analysis of Financial Condition and 
           Results of Operations

Item 3.    Quantitative and Qualitative Disclosure About Market Risk



PART II.   OTHER INFORMATION

Item 5.    Other Information

Item 6.    Exhibits and Reports on Form 8-K


SIGNATURES




<PAGE>


                                                                    Page 3 of 21


Part 1 - FINANCIAL INFORMATION - Item 1 - Financial Statements
<TABLE>

                       LYNCH CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>

                                                        March 31,          December 31,
                                                           1999                1998
(In thousands)                                         (Unaudited)              (A)
                                                        -------------    -------------
ASSETS
CURRENT ASSETS:
<S>                                                      <C>             <C>         
 Cash and cash equivalents ...........................   $     16,708    $     28,153
 Marketable securities and short-term investments ....          1,287             967
 Receivables, less allowances of $736 and $700 .......         44,882          44,173
 Inventories .........................................         31,795          28,396
 Deferred income taxes ...............................         13,580          13,580
 Other current assets ................................          7,844           8,728
 Net current assets of discontinued operations .......         33,642          38,625
                                                         ------------    ------------
    Total current assets .............................        149,738         162,622

PROPERTY, PLANT AND EQUIPMENT:
 Land ................................................          1,919           1,919
 Buildings and improvements ..........................         22,287          22,176
 Machinery and equipment .............................        183,045         180,557
                                                         ------------    ------------
                                                              207,251         204,652
 Less accumulated depreciation .......................        (70,412)        (66,440)
                                                         ------------    ------------
                                                              136,839         138,212

EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED          69,710          68,815
 ACQUIRED
INVESTMENTS IN AND ADVANCES TO PCS ENTITIES ..........         11,060          23,360
OTHER ASSETS .........................................         14,451          15,340
NET NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS ....         70,823          71,651
                                                         ------------    ------------
    TOTAL ASSETS .....................................   $    452,621    $    480,000
                                                         ============    ============
LIABILITIES AND SHAREHOLDERS EQUITY:
CURRENT LIABILITIES:
 Notes payable to banks ..............................   $     51,328    $     61,723
 Trade accounts payable ..............................         25,773          22,840
 Accrued interest payable ............................          6,440           3,464
 Accrued liabilities .................................         22,465          22,597
 Customer advances ...................................          4,170           4,402
 Current maturities of long-term debt ................         10,020          10,666
 Net current liabilities of discontinued operations ..         16,573          18,162
                                                         ------------    ------------
    TOTAL CURRENT LIABILITIES ........................        136,769         143,854

LONG-TERM DEBT .......................................        244,680         246,000
DEFERRED INCOME TAXES ................................         16,818          22,378
OTHER LONG-TERM LIABILITIES ..........................          6,891           7,169
MINORITY INTERESTS ...................................         12,652          14,526
NET NON-CURRENT LIABILITIES OF DISCONTINUED OPERATIONS          6,280           6,280
SHAREHOLDERS' EQUITY
 Common stock, no par or stated value: authorized ....     10,000,000
shares; issued 1,471,191 shares (at stated value) ....          5,139           5,139
ADDITIONAL PAID-IN CAPITAL ...........................          8,300           8,554
RETAINED EARNINGS ....................................         15,780          26,771
ACCUMULATED OTHER COMPREHENSIVE INCOME ...............             42              59
TREASURY STOCK OF 52,943 SHARES AT COST ..............           (730)           (730)
                                                         ------------    ------------
    Total Shareholders' Equity .......................         28,531          39,793
                                                         ------------    ------------
    Total Liabilities and Shareholders' Equity .......   $    452,621    $    480,000
                                                         ============    ============

<FN>
(A)      The  Balance  Sheet at  December  31,  1998 has been  derived  from the
         Audited Financial  Statements at that date, but does not include all of
         the information and footnotes required by generally accepted accounting
         principles for complete financial statements.
</FN>

See Notes to Condensed Consolidated Financial Statements
</TABLE>


<PAGE>


                                                                    Page 4 of 21

<TABLE>

                       LYNCH CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


<CAPTION>
                                                                                         Three Months Ended
(In thousands, except share amounts)                                                          March 31,
                                                                                      1999            1998
                                                                                  ------------    -----------
SALES AND REVENUES
<S>                                                                                <C>            <C>        
  Multimedia ...................................................................   $    13,387    $    12,932
  Services .....................................................................        35,325         33,971
  Manufacturing ................................................................        46,411         39,505
                                                                                   -----------    -----------
                                                                                        95,123         86,408
Costs and expenses:
  Multimedia ...................................................................         9,585          9,221
  Services .....................................................................        32,312         31,950
  Manufacturing ................................................................        41,771         33,917
  Selling and administrative ...................................................         8,193          7,754
                                                                                   -----------    -----------
OPERATING PROFIT ...............................................................         3,262          3,566

Other income (expense):
Investment income ..............................................................           827            669
Interest expense ...............................................................        (4,885)        (4,215)
Equity in earnings of affiliated companies .....................................            59             73
Reserve for impairment of investment in PCS
 licenses holders ..............................................................       (15,406)          --
Loss on sales of subsidiary stock ..............................................          --              (58)
                                                                                   -----------    -----------
                                                                                       (19,405)        (3,531)
(INCOME) LOSS FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES BEFORE INCOME TAXES, MINORITY INTERESTS,
DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEM .................................       (16,143)            35
Benefit (provision) for income taxes ...........................................         5,533            (15)
Minority interests .............................................................           330             60
                                                                                   -----------    -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEM .................................   $   (10,280)   $        80

Discontinued operations:
  Loss from  discontinued  operations  of  industrial  tape segment of Spinnaker
  Industries (less applicable income tax benefits of $647 and $551 and minority
  interests of $420 and $245) ..................................................          (551)          (516)
                                                                                   -----------    -----------
LOSS BEFORE EXTRAORDINARY ITEM .................................................   $   (10,831)   $      (436)
Loss on early extinguishment of debt, net of income tax
benefit of $105 ................................................................          (160)          --
                                                                                   -----------    -----------
NET LOSS .......................................................................   $   (10,991)   $      (436)
                                                                                   ===========    ===========

Weighted average shares outstanding ............................................     1,418,000      1,418,000
                                                                                   ===========    ===========
BASIC AND DILUTED LOSS PER SHARE:
 Income (loss) from continuing operations before
 discontinued operations and extraordinary item ................................   $     (7.25)   $      0.05
 Loss from discontinued operations .............................................         (0.39)         (0.36)
 Extraordinary item ............................................................         (0.11)          0.00
                                                                                   -----------    -----------
NET LOSS .......................................................................   $     (7.75)   $     (0.31)
                                                                                   ===========    ===========

See Notes to Condensed Consolidated Financial Statements
</TABLE>


<PAGE>

                                                                    Page 5 of 21

<TABLE>
                       LYNCH CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<CAPTION>

                                                            Three Months Ended
(In thousands, except share amounts)                             March 31,
                                                              1999         1998
                                                           ---------   ---------
OPERATING ACTIVITIES
<S>                                                        <C>         <C>      
Net Loss ...............................................   $(10,991)   $   (436)
Adjustment to reconcile net loss to net cash provided by
operating activities:
 Depreciation and amortization .........................      5,028       4,450
 Amortization of deferred financing charges ............        205         156
 Extraordinary charge on early extinguishment of
  debt, net ............................................        160        --
 Net effect of purchase and sales of trading securities        (320)        338
 Deferred taxes ........................................     (5,238)       --
 Share of operations of affiliated companies ...........        (59)        (73)
 Minority interests ....................................       (330)        (60)
 Loss on sale of stock by subsidiaries .................       --            58
 Reserve for impairment of investment in PCS
  licenses holders .....................................     15,406        --
 Changes in operating assets and liabilities:
    Receivables ........................................       (709)       (269)
    Inventories ........................................     (3,399)      1,168
    Accounts payable and accrued liabilities ...........      5,604       4,046
    Other ..............................................        165      (1,802)
 Discontinued operations: non-cash charges and
  working capital changes ..............................      4,546       2,645
                                                           --------    --------
NET CASH PROVIDED BY OPERATING ACTIVITIES ..............     10,068      10,221
INVESTING ACTIVITIES
Capital expenditures ...................................     (3,037)     (3,195)
Investment in Personal Communications Services .........     (3,106)       --
Investment in Spinnaker Coating-Maine ..................       --       (44,770)
Other ..................................................       (539)       (781)
Investing activities of discontinued operations ........       (671)     (1,226)
                                                           --------    --------
NET CASH USED IN INVESTING ACTIVITIES ..................     (7,353)    (49,972)
                                                           --------    --------

FINANCING ACTIVITIES
Issuance (repayments) of long-term debt ................    (12,361)     30,081
Deferred financing costs ...............................       (123)       --
Sale of treasury stock .................................       --            90
Other ..................................................     (1,603)        552
Financing activities of discontinued operations ........        (73)       --
                                                           --------    --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ....    (14,160)     30,723
                                                           --------    --------

Net decrease in cash and cash equivalents ..............    (11,445)     (9,028)
Cash and cash equivalents at beginning of period .......     28,153      33,557
                                                           --------    --------

CASH AND CASH EQUIVALENTS AT END OF PERIOD .............   $ 16,708    $ 24,529
                                                           ========    ========

See Notes to Condensed Consolidated Financial Statements

</TABLE>



<PAGE>
                                                                    Page 6 of 21


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
<TABLE>

A.     Subsidiaries of the Registrant
--     ------------------------------
<CAPTION>
                                                 Owned by
Subsidiary                                        Lynch
----------                                         -----

<S>                                               <C>   
Brighton Communications Corporation .........     100.0%
  Lynch Telephone Corporation IV ............     100.0%
    Bretton Woods Telephone Company .........     100.0%
    World Surfer, Inc. ......................     100.0%
  Lynch Kansas Telephone Corporation ........     100.0%
  Lynch Telephone Corporation VI ............      98.0%
    JBN Telephone Company, Inc. .............      98.0%
      JBN Finance Corporation ...............      98.0%
    Giant Communications, Inc. ..............     100.0%
    Lynch Telephone Corporation VII .........     100.0%
      USTC Kansas, Inc. .....................     100.0%
       Haviland Telephone Company, Inc. .....     100.0%
         Haviland Finance Corporation .......     100.0%
  DFT Communications Corporation ............     100.0%
    Dunkirk & Fredonia Telephone Company ....     100.0%
      Cassadaga Telephone Company ...........     100.0%
        Macom, Inc. .........................     100.0%
      Comantel, Inc. ........................     100.0%
        Erie Shore Communications, Inc. .....     100.0%
        D&F Cellular Telephone, Inc. ........     100.0%
    DFT Long Distance Corporation ...........     100.0%
    DFT Local Service Corporation ...........     100.0%
LMT Holding Corporation .....................     100.0%
 Lynch Michigan Telephone Holding Corporation     100.0%
    Upper Peninsula Telephone Company .......     100.0%
    Alpha Enterprises Limited ...............     100.0%
        Upper Peninsula Cellular North, Inc.      100.0%
        Upper Peninsula Cellular South, Inc.      100.0%

Global Television, Inc. .....................     100.0%

Inter-Community Acquisition Corporation .....     100.0%

Home Transport Service, Inc. ................     100.0%

Lynch Capital Corporation ...................     100.0%

Lynch Entertainment Corporation .............     100.0%
Lynch Entertainment Corporation II ..........     100.0%

Lynch International Exports, Inc. ...........     100.0%

Lynch Manufacturing Corporation .............     100.0%
  Lynch Display Technologies, Inc. ..........     100.0%
</TABLE>



<PAGE>

                                                                    Page 7 of 21
<TABLE>
<CAPTION>
                                                 Owned by
Subsidiary                                        Lynch
----------                                         -----

<S>                                                <C>  
    Lynch Systems, Inc. .....................      91.0%
      Lynch International Holding Corporation      91.0%
      Lynch-AMAV LLC ........................      68.2%
 M-tron Industries, Inc. ....................      91.0%
   M-tron Industries, Ltd. ..................      91.0%
 Spinnaker Industries, Inc. .................      61.2%



    Entoleter, Inc. .........................      61.2%
    Spinnaker Coating, Inc. .................      61.2%
      Spinnaker Coating-Maine, Inc. .........      61.2%
    Central Products Company ................      61.2%

    Spinnaker Electrical Tape Company .......      61.2%

Lynch Multimedia Corporation ................     100.0%
  CLR Video, L.L.C ..........................      60.0%

The Morgan Group, Inc. ......................   70.0%(V)/55.4%(O)
  Morgan Drive Away, Inc. ...................   70.0%(V)/55.4%(O)
    Transport Services Unlimited, Inc. ......   70.0%(V)/55.4%(O)
  Interstate Indemnity Company ..............   70.0%(V)/55.4%(O)
  Morgan Finance, Inc. ......................   70.0%(V)/55.4%(O)
  TDI, Inc. .................................   70.0%(V)/55.4%(O)
    Home Transport Corporation ..............   70.0%(V)/55.4%(O)
    MDA Corporation .........................   70.0%(V)/55.4%(O)

Lynch PCS Communications Corporation ........     100.0%
  Lynch PCS Corporation A ...................     100.0%
  Lynch PCS Corporation F ...................     100.0%
  Lynch PCS Corporation G ...................     100.0%
  Lynch PCS Corporation H ...................     100.0%

Lynch Interactive Corporation ...............     100.0%
Lynch Telecommunications Corporation ........     100.0%
  Lynch Telephone Corporation ...............      83.1%
    Western New Mexico Telephone Company, Inc.     83.1%
    Interactive Networks Corporation ........      83.1%
    WNM Communications Corporation ..........      83.1%
    Wescel Cellular, Inc. ...................      83.1%
      Wescel Cellular of New Mexico, L.P. ...      42.4%
    Wescel Cellular, Inc. II ................      83.1%
      Northwest New Mexico Cellular, Inc. ...      40.6%
      Northwest New Mexico Cellular of New Mexic   20.7%
        Enchantment Cable Corporation .......      83.1%
 Lynch Telephone Corporation II .............     100.0%
   Inter-Community Telephone Company ........     100.0%
     Inter-Community Telephone Company II ...     100.0%
Inter-Community Acquisition Corporation
   Valley Communications, Inc. ..............     100.0%
 Lynch Telephone Corporation III ............      81.0%
   Cuba City Telephone Exchange Company .....      81.0%
   Belmont Telephone Company ................      81.0%

 Notes: (V)=Percentage voting control; (O)=Percentage of equity ownership
</TABLE>


<PAGE>


                                                                    Page 8 of 21

B.    Basis of Presentation
--    ---------------------

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial  statements.  In  the  opinion  of  the  management,  all  adjustments
(consisting  of  normal  recurring  accruals)  considered  necessary  for a fair
presentation  have been included.  Operating  results for the three month period
ended March 31, 1999 are not  necessarily  indicative of the results that may be
expected for the year ended December 31, 1999. For further information, refer to
the  consolidated  financial  statements and footnotes  thereto  included in the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1998.

C.    Discontinued Operations
--    -----------------------

On April 12, 1999,  the Company's 61% owned  subsidiary,  Spinnaker  Industries,
Inc.  reached a  definitive  agreement  to sell its two  industrial  tape units,
Central Products Company and Spinnaker Electrical, which comprise its industrial
tape segment to Intertape Polymer Group, Inc.  ("Intertape"),  for approximately
$105  million and 300,000  seven-year  warrants to purchase  shares of Intertape
common  stock at $35.00  each.  Spinnaker  expects  to  recognize  a gain on the
transactions. The transactions are subject to certain conditions, including U.S.
government approval. As a result, the Company's industrial tape segment is being
reported as discontinued  operations in the accompanying  condensed consolidated
financial  statements.  Accordingly,  operating  results of the industrial  tape
segment  have been  segregated  from  continuing  operations  and  reported as a
separate line item on the statement of operations.

Lynch has restated its prior year financial  statements to present the operating
results  of  the  industrial  tape  segment  as a  discontinued  operation.  The
industrial tape segment's net sales were $29.5 million and $28.8 million for the
three  month  period  ended March 31,  1999 and 1998,  respectively,  and $121.8
million,  $119.7  million and $124.1 million for the fiscal years ended December
31, 1998, 1997, and 1996, respectively.

The net assets of the industrial  tape  businesses of Spinnaker  included in the
accompanying  condensed  consolidated  balance  sheets as of March 31,  1999 and
December 31, 1998 consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                                                March 31,   December 31,
                                                                                  1999         1998
                                                                                ----------  -----------
<S>                                                                                <C>       <C>    
Accounts receivable, net .......................................................   $13,423   $14,815
Inventories, net ...............................................................    14,539    18,167
Prepaids and other .............................................................     5,680     5,643
                                                                                   -------   -------
Current assets of discontinued operations ......................................   $33,642   $38,625

Property, plant and equipment, net .............................................   $47,679   $48,312
Goodwill and other assets ......................................................    23,144    23,339
                                                                                   -------   -------
Non-current assets of discontinued operations ..................................    70,823    71,651

Accounts payable ...............................................................   $12,995   $13,720
Accrued liabilities ............................................................     3,578     4,442
                                                                                   -------   -------
Current liabilities of discontinued operations .................................   $16,573   $18,162
Non-current liabilities of discontinued operations .............................   $ 6,280   $ 6,280
</TABLE>

The  transactions  are  subject  to  certain  conditions,  including  government
approval.



<PAGE>


                                                                    Page 9 of 21


D.  Acquisitions
--  ------------


On July 30, 1998, the Company's subsidiary,  Spinnaker Industries, Inc. acquired
tesa tape,  inc.'s  pressure  sensitive  electrical  tape  product  line and its
Carbondale,  Illinois  manufacturing  plant (the "tesa tape  Acquisition").  The
purchase  price  totaled  $10.7  million plus  transaction  costs,  comprised of
200,000 shares of Spinnaker common stock (subject to adjustment)  valued at $3.7
million,  $4.5 million in term debt,  $2.0  million in cash,  and a $0.5 million
subordinated note. The acquired business produces electrical tape for insulating
motors coils and transformers for customers in Europe, Canada and the U.S.

On March 17, 1998, Spinnaker Coating-Maine, Inc. acquired the pressure sensitive
adhesive-backed  label stock  business of S.D.  Warren.  The purchase  price was
approximately $51.8 million,  plus the assumption of certain liabilities and was
funded by issuing the seller a  convertible  subordinated  note of $7.0  million
with the remainder funded by Spinnaker's  revolving credit facility. As a result
of this  transaction,  the Registrant  recorded  approximately  $21.3 million in
goodwill which is being amortized over 30 years.

All of the above acquisitions were accounted for as purchases,  and accordingly,
the assets  acquired and  liabilities  assumed were recorded at their  estimated
fair market values.

The operating results of the acquired companies are included in the Consolidated
Statement of Operations from their respective  acquisition  dates. The following
unaudited proforma information shows the results of the Registrant's  operations
as though the acquisition of S.D. Warren's  adhesive-backed label stock business
had been made at the beginning of 1998.

<TABLE>
<CAPTION>

                                                            Three Months Ended
                                                                 March 31
(In thousands, except per share data)                      1999        1998
                                                        ---------   ----------
<S>                                                      <C>         <C>     
Sales and Revenues ...................................   $ 95,123    $ 98,522
Operating Profit .....................................      3,262       4,209

Income (Loss) from Continuing Operations Before
  Income Taxes and Minority Interest .................    (16,144)       (281)

Net Income (Loss) from Continuing Operations .........    (10,280)        198
Net Income (Loss) ....................................    (10,991)       (318)
Net Income (Loss) Per Share ..........................      (7.75)      (0.23)
Net Income (Loss) from Continuing Operations Per Share      (7.25)       0.14
</TABLE>


E.    Inventories
--    -----------

Inventories  are stated at the lower of cost or market value. At March 31, 1999,
inventories  were  valued by three  methods:  last-in,  first-out  (LIFO) - 15%,
specific identification - 82%, and first-in,  first-out (FIFO) - 3%. At December
31, 1998, the respective percentages were 15%, 82%, and 3%.



<PAGE>

                                                                   Page 10 of 21

<TABLE>
<CAPTION>

                               (In Thousands)
                            3/31/99  12/31/98
                            -------  --------

<S>                         <C>       <C>    
Raw material and supplies   $ 9,108   $ 7,711
Work in process .........     2,416     1,273
Finished goods ..........    20,271    19,412
                            -------   -------
  Total Inventories .....   $31,795   $28,396
</TABLE>
                            =======   =======

F.     Indebtedness
--     ------------

On a consolidated basis, at March 31, 1999, the Registrant  maintains short-term
and long-term lines of credit facilities totaling $113.2 million, of which $28.8
million was available.  The Registrant  (Parent  Company)  maintains $20 million
short-term  line of credit  facilities,  of which $11.4 million was available at
March 31,  1999.  A $10.0  million  facility  will expire on June 30, 1999 and a
$10.0 million facility will expire on December 29, 1999.  Spinnaker  Industries,
Inc.  maintains  revolving lines of credit at its subsidiaries which total $65.0
million,  of which $11.6  million was  available at March 31,  1999.  The Morgan
Group maintains  lines of credit  totaling $20.0 million,  of which $3.3 million
was  available at March 31, 1999.  These  facilities,  as well as  facilities at
other subsidiaries of the Registrant, generally limit the credit available under
the lines of credit to certain  variables,  such as inventories and receivables,
and are secured by the operating  assets of the subsidiary,  and include various
financial covenants.  Due to certain of these restrictive  covenants and working
capital   requirements  of  the  subsidiaries,   cash   distributions  from  the
subsidiaries  are  limited.  At March 31,  1999,  $28.2  million of these  total
facilities expire within one year.

In general, the long-term debt credit facilities are secured by property,  plant
and equipment,  inventory,  receivables and common stock of certain subsidiaries
and contain certain covenants restricting distributions to the Registrant.
<TABLE>
<CAPTION>

Long term debt consists of:                                                         3/31/99     12/31/98
                                                                                  -----------  -----------

                      
<S>                                                                               <C>          <C> 
Spinnaker Industries, Inc. 10.75% Senior Secured Note
 due 2006 ......................................................................   $ 115,000    $ 115,000

Rural  Electrification  Administration and Rural Telephone Bank notes payable in
 equal quarterly  installments through 2027 at fixed interest rates ranging from
 2% to 7.5% (4.8% weighted average) ............................................      49,345       45,264

Bank Credit  facilities  utilized by certain  telephone  and  telephone  holding
 companies through 2009, $14.9 million at variable interest rates averaging 6.7%
 and $29.5 million at fixed interest rates averaging 8.7% ......................      44,412       50,623

Unsecured notes issued in connection  with  acquisitions at fixed interest rates
 averaging 9.2% with maturities through 2006 ...................................      35,743       35,503

Other ..........................................................................      10,200       10,276
                                                                                   ---------    ---------
                                                                                     254,700      256,666
Current Maturities .............................................................     (10,020)     (10,666)
                                                                                   ---------    ---------
                                                                                   $ 244,680    $ 246,000
                                                                                   =========    =========
</TABLE>

<PAGE>

Proceeds from the sale of Central  Products  Company are  anticipated to satisfy
transactions  costs and repay  certain  of the  working  capital  revolver  debt
including  above  under  caption  "Unsecured  notes  issued in  connection  with
acquisitions,"  the balance of the proceeds  would be available to invest in any
business,   capital  expenditure  or  other  tangible  asset  in  the  Permitted
Businesses, as defined in the Indenture. Any proceeds not so invested within 270
days  after  the  closing  of  the  sale  or  not  used  to  permanently  reduce
indebtedness  (other than  subordinated  debt) shall be used to  repurchase  the
Senior Notes on a pro rata basis as required by the Indenture.

The proceeds from the sale of Spinnaker Electrical,  an unrestricted subsidiary,
will repay certain term debt and working capital revolver debt collateralized by
the assets of Spinnaker Electrical.  The remaining net proceeds will be used for
general purposes,  which may include  purchasing Senior Notes in the open market
where the  Senior  Notes  trade at a  substantial  discount  from the  principal
amount.

G.       Wireless Communications
--       -----------------------

A Lynch  subsidiary  has loans to and a 49.9%  limited  partnership  interest in
Fortunet  Communications,  L.P. ("Fortunet").  Fortunet's only assets consist of
three 15MHz personal  communications licenses covering an area with a population
of  785,000  that were  acquired  in the  C-Block  auction  held by the  Federal
Communications  Commission  ("FCC").  In that auction,  Fortunet  acquired 30MHz
licenses in these markets, but on June 8, 1998, under FCC restructuring options,
it returned  15MHz of the original  30MHz  acquired.  On April 15, 1999, the FCC
completed  the  reauction of all the C- Block  licenses that were returned to it
since the original  C-Block  auction,  including  the three 15MHz  licenses that
Fortunet  returned.  In that reauction,  the successful  bidders paid a total of
$2.7 million for the three  licenses as compared to the $18.7  million  carrying
amount of Lynch's investment in Fortunet.  Accordingly, during the quarter ended
March  31,  1999,  Lynch  has  recorded  a write  down of $15.4  million  in its
investment  in Fortunet  to reflect  the amount bid for similar  licenses in the
reauction, plus an additional $0.7 million of capitalized expenses and interest.

H.    Loss on sale of subsidiary stock
--    --------------------------------

During the first  quarter of 1998,  as a result of the  exercise of a portion of
the stock warrants held by the management of Spinnaker,  the Registrant recorded
a loss of $58,000 ($34,000 net of income tax, or $0.02 per share).

I.     Earnings per share
--     ------------------

Basic  earnings  per common  share  amounts are based on the  average  number of
common shares outstanding during each period,  excluding the dilutive effects of
options,  warrants,  and  convertible  securities.  Diluted  earnings  per share
reflect the effect, where dilutive,  of the exercise of all stock options having
an exercise  price less than the greater of the average or closing  market price
at the end of the  period  of the  Common  Stock  of the  Registrant  using  the
treasury stock method.

I.     Comprehensive income
--     --------------------

Effective  January 1, 1998,  the  Registrant  adopted  SFAS No.  130,  Reporting
Comprehensive  Income.  SFAS No. 130  establishes  standards  for  reporting and
display

<PAGE>


                                                                   Page 11 of 21


of comprehensive  income and its components;  however,  the adoption of SFAS No.
130 had no impact on the Company's net income  (loss) or  shareholders'  equity.
SFAS  No.  130  requires   unrealized   gains  or  losses  on  the  Registrant's
available-for-sale  securities, which prior to adoption were reported separately
in shareholders equity to be included in other comprehensive income.

The components of comprehensive  income,  net of tax, for the three months ended
March 31, 1999 and 1998 are as follows:

<TABLE>
<CAPTION>
                                          1999        1998
                                       --------    ---------
<S>                                    <C>         <C>      
Net loss ...........................   $(10,991)   $   (436)
Unrealized gain (loss) on securities        (17)        423
                                       --------    --------
 Comprehensive income (loss) .......   $(11,008)   $    (13)
</TABLE>

The components of accumulated other comprehensive income, net of related tax, at
March 31, 1999 and December 31, 1998 are as follows:


                                       1999    1998
                                       -----  ------
Unrealized gain (loss) on securities   $(17)   $ 59
                                       ----    ----
Accumulated comprehensive income ...   $ 42    $ 59
                                       ====    ====

J.       Segment Information
--       -------------------

The  Company is  principally  engaged in three  business  segments:  multimedia,
services and  manufacturing.  The Company  measures  performance of its segments
primarily by revenues,  operating profit and EBITDA before corporate  allocation
(operating  profit before  depreciation,  amortization  and allocated  corporate
expenses). Identifiable assets of each segment have not changed materially since
December 31, 1998.


<PAGE>

                                                                   Page 12 of 21


<TABLE>
<CAPTION>
                                                          Three Months Ended
                                                              March 31,
                                                           1999         1998
                                                        ---------   ----------
Revenues:
<S>                                                      <C>         <C>     
Multimedia ...........................................   $ 13,387    $ 12,932
Services .............................................     35,325      33,971
Manufacturing:
  Adhesive-backed label stock ........................     38,591      28,873
  Other manufacturing ................................      7,820      10,632
                                                         --------    --------
  Total manufacturing ................................     46,411      39,505
                                                         --------    --------
Consolidated total ...................................   $ 95,123    $ 86,408
                                                         ========    ========

EBITDA (before corporate allocation):
Multimedia ...........................................   $  7,127    $  6,995
Services .............................................        659         (27)
Manufacturing:
  Adhesive-backed label stock ........................      1,910       2,119
  Other manufacturing ................................         60         856
  Corporate manufacturing expenses ...................       (683)       (533)
                                                         --------    --------
  Total manufacturing ................................      1,287       2,442
Corporate expenses, gross ............................       (783)     (1,394)
                                                         --------    --------
Consolidated total ...................................   $  8,290    $  8,016
                                                         ========    ========

Operating profit:
Multimedia ...........................................   $  3,583    $  3,542
Services .............................................        325        (347)
Manufacturing:
  Adhesive-backed label stock ........................        799       1,551
  Other manufacturing ................................       (269)        541
  Corporate manufacturing expenses ...................       (720)       (582)
                                                         --------    --------
  Total manufacturing ................................       (190)      1,510
Unallocated corporate expense ........................       (456)     (1,139)
                                                         --------    --------
Consolidated total ...................................   $  3,262    $  3,566
                                                         ========    ========

Total operating profit for reportable segments .......   $  3,262    $  3,566
Other profit or loss:
  Investment income ..................................        827         669
  Interest expense ...................................     (4,885)     (4,215)
Equity in earnings of affiliated companies ...........         59          73
Reserve for impairment in investment in PCS
 license holders .....................................    (15,406)          0
Gain on sale of subsidiary stock .....................          0         (58)
 operating assets
                                                         --------    --------
Income (loss) from continuing operations before income
 taxes, minority interests and extraordinary item ....   $(16,143)   $     35
                                                         ========    ========

</TABLE>



<PAGE>

                                                                   Page 13 of 21


Shareholders' Equity
--------------------

In  December  1996,  the  Company's  Board  of  Directors  announced  that it is
examining  the  possibility  of  splitting,  through a  "spin-off."  either  its
communications  operations or its  manufacturing  operations.  A spin-off  could
improve  management focus,  facilitate and enhance  financings and set the stage
for future growth,  including acquisitions.  A split could also help surface the
underlying  values of the Company as the different  business  segments appeal to
differing "value" and "growth" cultures in the investment community. There are a
number of matters to be examined in  connection  with a possible  spin-off,  and
there is no assurance that such a spin-off will be effected.



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

Sales and Revenues
------------------

Revenues  for the first  quarter of 1999  increased  by $8.7  million or 10%, to
$95.1 million,  from the first quarter of 1998.  Within the operating  segments:
multimedia,  whose revenues  increased by 3.5%,  contributed $0.5 million to the
increase;  services, whose revenues increased by 4%, contributed $1.4 million to
the increase;  and manufacturing,  whose revenues increased by 17%,  contributed
$6.9 million to the overall increase.

Multimedia  revenues  grew due  primarily  to growth  in both  telecommunication
services as well as the provision of non-traditional  telephone services such as
Internet.  Morgan's  revenues  grew due to  growth  in  Specialized  Outsourcing
Services  whose  revenues  increased  by 14%.  Within the  manufacturing  group,
revenues for  Spinnaker  increased by $9.5  million,  or 31% from first  quarter
1998.  Spinnaker  completed the acquisition of S.D. Warren's pressure  sensitive
adhesive-backed  label  stock  business  on  March  18,  1998,  which  primarily
accounted for the revenue  increase in  Spinnaker.  This  operation  contributed
$14.3  million  in 1999  versus  $2.5  million  in 1998.  Lynch  Systems,  Inc.,
reflecting lack of orders for extra-large glass press machines which, during the
quarter,  were not  offset by orders  for other  products,  was $0.6  million as
compared to $2.5 million in 1998. Revenues at M-tron Industries,  Inc. were $5.4
million, down from $6.3 million in 1998 reflecting overall industry shortfall in
orders which began in 1998 and continued until a recent turnaround.

Operating profit for the first quarter of 1999 decreased by $0.3 million to $3.3
million, from the first quarter of 1998 due to operating profit shortfall in the
manufacturing  group offset by an increase in services.  Operating profit in the
multimedia  segment was flat as a $0.1 million increase in operating profit from
operations was offset by additional allocation of corporate overhead.  Operating
profit  of  Lynch's   manufacturing   operations  fell  by  $1.7  million.   All
manufacturing units were below the previous year.  Spinnaker's  operating profit
from  continuing  operations  fell  by $0.8  million  due to  continued  pricing
pressure at the adhesive- backed label business and a $0.5 million restructuring
change at Spinnaker Coating. Lynch Systems' shortfall of $0.7 million was due to
lack of order flow and M-tron's operating profit fell by $0.1 million.  Morgan's
operating results swung from a loss of $0.3 million in the first quarter of 1998
to a profit of $0.3 million in the first  quarter of 1999 due to better  pricing
and reduction of Morgan's operational cost


<PAGE>

                                                                   Page 14 of 21


structure.  Net corporate  expense was $0.5 million in the first quarter of 1999
as compared to $1.1 million in the first  quarter of 1998.  Effective  September
30, 1998, the Company  amended its SAR (stock  appreciation  rights)  Program so
that the SARs become  exercisable  only in the event the price for the Company's
shares  double  from the SAR grant  price  within  five years from the  original
issuance.  The grant prices of the 42,700 SARs currently  outstanding range from
$63.03 to $84.63. This amendment eliminated the recording of the profit and loss
effect from changes in the market price in the  Company's  common stock until it
is probable that the SARs will become  exercisable.  During the first quarter of
1998, the Company  recorded $1.1 million SAR expense as compared to no income or
expense in 1999.

Other Income (Expense), Net
---------------------------

Investment income in the first quarter of 1999 of $0.8 million increased by $0.2
million from the first quarter of 1998 due to change in unrealized  gains (loss)
of marketable securities.

Interest expense  increased by $0.7 million to $4.9 million in the first quarter
of 1999 from $4.2  million  in the  first  quarter  of 1998.  The  increase  was
primarily due to the increased debt level resulting from Spinnaker's acquisition
of S.D.  Warren's  pressure  sensitive  adhesive-backed  label stock business on
March 17, 1998, plus a reduction in capitalized interest in 1999.

Interest  expense  from  continuing  operations  is subject  to certain  matters
associated  with the use of the net  proceeds  from the sales of the  industrial
tape units of  Spinnaker,  including  retirement  of senior  debt or  "permitted
investments" as defined under the Indenture.  As a result,  interest expense, as
presented on a historical  basis,  may not necessarily be indicative of interest
expense of continuing operations for the year ended December 31, 1999.

A Lynch  subsidiary  has loans to and a 49.9%  limited  partnership  interest in
Fortunet  Communications,  L.P. ("Fortunet").  Fortunet's only assets consist of
three 15MHz personal  communications  licenses that were acquired in the C-Block
auction held by the Federal Communications  Commission ("FCC"). In that auction,
Fortunet  acquired 30MHz licenses in these markets,  but on June 8, 1998,  under
FCC restructuring  options, it returned 15MHz of the original 30MHz acquired. On
April 15, 1999, the FCC completed the reauction of all the C-Block licenses that
were  returned to it since the original  C-Block  auction,  including  the three
15MHz licenses that Fortunet returned. In that reauction, the successful bidders
paid a total of $2.7  million  for the three  licenses  as compared to the $18.7
million carrying amount of Lynch's investment in Fortunet.  Accordingly, for the
quarter  ended March 31, 1999,  Lynch has recorded a write-down of $15.4 million
in its investment in Fortunet to reflect the amount bid for similar  licenses in
the  reauction,  plus an  additional  $0.7 million of  capitalized  expenses and
interest.

Tax Provision
-------------

The income tax provision  (benefit) includes federal, as well as state and local
taxes. The tax provision (benefit) for the three months ended March 31, 1999 and
1998,  represent  effective  tax  rates of  (34%)  and  42%,  respectively.  The
differences from the federal statutory rate are principally due to the effect of
state income taxes and  amortization  of  non-deductible  goodwill.  Of note, no
state tax benefit has


<PAGE>

                                                                   Page 15 of 21


been  provided  for the  reserve  for the  impairment  of $15.4  million  in the
investment in PCS license holders.

Minority Interest
-----------------

Minority interests  contributed to operating results by $0.3 million in 1999 and
$0.1  million  in  1998 as  increased  profitability  at the  telecommunications
operations  in which  there are  minority  interest  and  Morgan  did not offset
increased losses at Spinnaker.

Discontinued Operations
-----------------------

On April 12,  1999,  Spinnaker  agreed to sell its two  industrial  tape  units,
Central Products Company and Spinnaker Electrical, which comprise its industrial
tape segment. Accordingly, operating results of the industrial tape segment have
been  segregated  from  continuing  operations  and reported  separately  in the
statement  of  operations.  In  addition,  the  Company has  restated  its prior
financial  statements to present the operating  results of the  industrial  tape
segment as a discontinued operation.

Net loss from  discontinued  operations  was higher in 1999  versus  1998 due to
losses associated with the tesa tape acquisition which was acquired in 1998.

Net Income/Loss
---------------

Net loss for the three  months  ended  March 31, 1999 was  ($11.0)  million,  or
($7.75) per share, as compared to a net loss of ($0.4)  million,  or ($0.31) per
share in the previous  year's  quarter.  The reserve for the  impairment  of the
investment in PCS license holders was the primary cause for the swing.

Backlog/New Orders
------------------

Total backlog of manufactured  products from continuing  operations at March 31,
1999 was $17.4  million,  which  represents an increase of $7.6 million from the
backlog of $9.8 million at December 31, 1998.  All operating  units  contributed
significant  increase to the backlog at March 31, 1999.  Included in the backlog
for both periods is a $2.4 million  cancellation  provision,  which the customer
paid, on an earlier  glass press order at Lynch  Systems which was  subsequently
canceled.  The  customer  can use  this  amount  for  future  orders  and if not
utilized, reverts to Lynch Systems.

Liquidity/Capital Resources
---------------------------

As of March 31,  1999,  the  Company had  current  assets of $149.7  million and
current  liabilities  of $136.8  million.  Working  capital was therefore  $12.9
million as  compared to $18.8  million at December  31,  1998.  The  decrease is
primarily due to the pay down of debt.

First quarter capital expenditures were $3.0 million in 1999 and $3.2 million in
1998.

At March 31, 1999,  total debt was $306.0 million,  which was $12.4 million less
than  the  $318.4  million  at  the  end of  1998  primarily  due  to  principal
repayments.  Debt at March 31, 1999 included  $234.7  million of fixed  interest
rate debt, at an average


<PAGE>

                                                                   Page 16 of 21


cash interest  rate of 8.9% and $71.3 million of variable  interest rate debt at
an average  interest rate of 7.7%.  Additionally,  at March 31, 1999 the Company
had $28.8 million in unused short-term lines of credit of which $3.3 million was
attributable to Morgan.  Spinnaker has $11.6 million available under a long-term
line of credit. Certain restrictive covenants within the debt facilities at both
Spinnaker  and Morgan  limit their  ability to provide the parent  company  with
significant  funding. As of March 31, 1999, the Parent Company had borrowed $8.6
million under short-term lines of credit  facilities.  The lines currently total
$20.0  million.  These  short-term  lines of credit  expire June 30, 1999 ($10.0
million) and  December 29, 1999 ($10.0  million).  Management  anticipates  that
these  lines will be renewed  for one year but there is no  assurance  that they
will be.

Lynch Corporation maintains an active acquisition program and generally finances
each  acquisition  with a significant  component of debt. This  acquisition debt
contains  restrictions  on the  amount of  readily  available  funds that can be
transferred to Lynch Corporation from its subsidiaries.

Registrant is close to an agreement to acquire a rural telephone  company in the
Midwest with  approximately  6,000 access lines at a dollar price  comparable to
recent   acquisitions.   The  acquisition  is  not  expected  to  contribute  to
Registrant's  operating  results for 1999.  There can be no  assurance  that the
agreement will be executed.

The  Registrant  has been pursuing  segmentation  of its  businesses,  through a
"spin-off" of its  multimedia  and services  operations,  which company is named
Lynch  Interactive  Corporation.  A spin-off  could  improve  management  focus,
facilitate and enhance financings and set the stage for future growth, including
acquisitions.  A split  could also help  surface  the  underlying  values of the
company and the  different  business  segments  appeal to differing  "value" and
"growth"  cultures  in the  investment  community.  Although  subject  to  final
clearance and  approvals,  the Registrant  expects the proposed  spin-off to its
shareholders of the stock of Lynch  Interactive to be accomplished in the summer
of 1999. The Internal  Revenue  Service has issued a private letter ruling which
provides that the proposed spin-off qualifies as tax-free for the Registrant and
its shareholders.

The Company has a  significant  need for  resources to fund the operation of the
parent  company,  meet its current  funding  commitments and fund future growth.
Lynch is currently considering various alternative long and short-term financing
arrangements.  One such alternative would be to sell a portion or all of certain
investments in operating  entities  either  directly or through an exchange debt
instrument.  Additional  debt  and/or  equity  financing  vehicles at the parent
company and/or subsidiaries are also being considered.  While management expects
to obtain  adequate  financing  resources  to  enable  the  company  to meet its
obligations,  there is no  assurance  that such can be  readily  obtained  or at
reasonable costs.

The  Company  has  recently  initiated  two  programs  which may  effect  future
operations and cash flow.

         A.       Cost Cutting - The Company is taking a three step  approach to
                  cutting  costs.   First  is  a  review  to  eliminate  certain
                  centralized  overhead costs. Second, a review of the Company's
                  overall  financial costs is being undertaken with an objective
                  of  achieving   savings  from  refinancing  and  restructuring
                  certain  debt  instruments.  Third,  the  Company's  operating
                  entities  will take  advantage of cost  savings  opportunities
                  without sacrificing quality of service.

         B.       Harvesting - The second  program is a  concentrated  effort to
                  monetize the Company's assets,  including selling a portion or
                  all of certain  investments in Company's  operating  entities.
                  These may include


<PAGE>


                                                                   Page 17 of 21


                  Company's minority interest in network  affiliated  television
                  stations and certain  telephone  operations where  competitive
                  local exchange carrier opportunities are not readily apparent.
                  There is no assurance that all or any part of this program can
                  be effected on acceptable terms.


YEAR 2000

The Company 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 and conducting 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 Company's  programs
or programs utilized by vendors to the Company 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  miscalculation.  The Company's  Year
2000  review is being  performed  primarily  by internal  staff,  and in certain
operations is supplemented  by outside  consultants.  The principal  Information
Technology  ("IT")  systems  that  may be  impacted  by the  Year  2000  for the
Company's  telecommunications  operations are central office switching,  billing
and  accounting.  The  principal IT systems for the Morgan Group are order entry
dispatch  and   accounting.   The   principal  IT  systems  for  the   Company's
manufacturing  companies are sales order entry,  shop floor  control,  inventory
control and  accounting.  The Year 2000 may also impact various non-IT  systems,
including among other things  security  systems,  HVAC,  elevator  systems,  and
communications  systems.  In addition,  each of the Company's  businesses may be
impacted by the Year 2000 readiness of third party vendors/suppliers.

Due to the integral nature of switching  equipment and billing software to their
operations, the telecommunications businesses are most effected by the Year 2000
issue. The majority of the telephone  companies'  switching and billing software
is Year 2000 compliant, with the remaining expected to be compliant by the third
quarter of 1999. The  telecommunications  businesses rely on switching equipment
and software provided by third party vendors. It is the Company's  understanding
that the vendors have  completed  testing of the software and that no additional
action   by   the   Company   will   be   required   after   installation.   The
telecommunications  businesses  periodically upgrade switching software in order
to remain current with respect to service features.  The upgrades provided other
enhanced  service features as well as included Year 2000 readiness and have been
capitalized. Other remediation costs, including internal costs have been charged
to  expense  as  incurred.  The  total  cost of Year  2000  remediation  for the
telecommunications  businesses is estimated to be approximately $1.1 million, of
which approximately $0.4 million has been spent to date. The  telecommunications
businesses  have not  developed  a  contingency  plan and are in the  process of
determining the needs for such a plan.

The Morgan  Group,  Inc. is in the process of  remediating  the Year 2000 issue,
primarily  through the  replacement  of a  significant  portion of its operating
software.  Implementation  is expected to be completed by July 1999,  with final
testing  completed by September 1999. The total cost of Year 2000 remediation is
estimated to be approximately $0.4 million,  of which approximately $0.1 million
has been spent to date. Costs  specifically  associated with modifying  internal
use software are charged to expense as incurred.  At this time, The Morgan Group
has not developed a comprehensive contingency plan.


<PAGE>

                                                                   Page 18 of 21


The assessment phase for the Company's manufacturing businesses is approximately
90% complete.  Based upon its identification and assessment efforts to date, the
Company  has  determined  that  certain of its  computer  and  software  used in
manufacturing and accounting systems require  replacement or modification.  Such
replacements and modifications are ongoing and estimated to be 80% complete. The
Company expects the assessment  phase to be completed by June 1999, with testing
and  remediation  complete  by  September  1999.  The  total  cost of Year  2000
remediation for the  manufacturing  businesses is estimated to be  approximately
$0.2  million,  of which  approximately  $0.1  million has been spent to date. A
comprehensive contingency plan has not been completed at this time.

The estimated  costs and projected  dates of completion  for the Company's  Year
2000  program  are based on  management's  estimates  and were  developed  using
numerous  assumptions of future  events,  some of which are beyond the Company's
control.  The Company  presently  believes that with  modifications  to existing
software  and  converting  to new  software,  the Year 2000  issue will not pose
significant  operational  problems for the Company as a whole.  However, if such
modifications  and conversions are not completed timely or are ineffective,  the
Year 2000 issue may  materially  and adversely  impact the  Company's  financial
condition, results of operations and cash flows.

MARKET RISK

The Company is exposed to market risk  relating to changes in the general  level
of U.S. interest rates. Changes in interest rates affect the amounts of interest
earned  on  the  Company's   cash   equivalents   and   short-term   investments
(approximately  $18.0 million at March 31, 1999). The Company generally finances
the debt  portion of the  acquisition  of  long-term  assets  with  fixed  rate,
long-term  debt.  The Company  generally  maintains  the majority of its debt as
fixed rate in nature  either by  borrowing on a fixed  long-term  basis or, on a
limited basis, entering into interest rate swap agreements. The Company does not
use  derivative  financial  instruments  for  trading or  speculative  purposes.
Management  does not foresee any  significant  changes in the strategies used to
manage  interest rate risk in the near future,  although the  strategies  may be
reevaluated as market conditions dictate.

At  March  31,  1999,  approximately  $71.3  million,  or 23%  of the  Company's
long-term debt and notes payable bears interest at variable rates.  Accordingly,
the Company's earnings and cash flows are affected by changes in interest rates.
Assuming the current level of  borrowings  for variable rate debt and assuming a
one  percentage  point  change in the 1999  average  interest  rate under  these
borrowings,  it is estimated  that the  Company's  first  quarter 1999  interest
expense would have changed by $0.2 million. In the event of an adverse change in
interest  rates,  management  would likely take actions to further  mitigate its
exposure. However, due to the uncertainty of the actions that would be taken and
their  possible  effects,  the analysis  assumes no such actions.  Further,  the
analysis  does not  consider  the  effects of the change in the level of overall
economic activity that could exist in such an environment.

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

Included in this Management  Discussion and Analysis of Financial  Condition and
Results of Operations and Item 5 below are certain forward looking financial and
other  information,   including  without  limitation  matters  relating  to  the
agreement by


<PAGE>


                                                                   Page 19 of 21


Spinnaker  to sell its  industrial  tape  units,  PCS,  a possible  spin-off,  a
possible telephone  acquisition,  a  refinancing/strategic  initiative  program,
harvesting and cost cutting  initiatives,  Year 2000 matters and Market Risk. It
should be  recognized  that  such  information  are  projections,  estimates  or
forecasts based on various  assumptions,  including without limitation,  meeting
its  assumptions  regarding  expected  operating  performance  and other matters
specifically set forth, as well as the expected performance of the economy as it
impacts the Registrant's businesses,  government and regulatory actions, and tax
consequences.  As a result, such information is subject to uncertainties,  risks
and inaccuracies.

Item 3.           Quantitative and Qualitative Disclosure About Market Risk

                  See "Market Risk" under Item 2 above.

PART II OTHER INFORMATION

Item 5.        Other Information

               On  April  12,  1999,  Spinnaker   Industries,   Inc.  (AMEX:SKK)
               Registrant's 61% owned subsidiary, reached a definitive agreement
               to sell its two industrial tape units,  Central  Products Company
               and Spinnaker  Electrical Tape Company,  which comprised its (and
               Registrant's)  industrial  tape  segment,  to  Intertape  Polymer
               Group,  Inc. The transactions  are subject to certain  conditions
               including U.S. Government approval, which will govern the closing
               dates.  See  Footnotes  C, D, and F to the  "Notes  to  Condensed
               Consolidated  Financial Statements" and "Management's  Discussion
               and analysis of  Financial  Condition  and Result of  Operations"
               included herein.  There can be no assurance that the transactions
               will be  consummated.  

               Registrant is close to an agreement to acquire a rural  telephone
               company in the Midwest with approximately 6,000 access lines at a
               dollar price comparable to recent  acquisitions.  The acquisition
               is not expected to contribute to Registrant's  operating  results
               for 1999.  There can be no assurance  that the agreement  will be
               executed.



Item 6.        Exhibits and Reports on Form 8-K

               (a)      Exhibits

               3(d)(iv) -          

               Eighth  Amendment  to Credit  Agreement  dated as of October  23,
               1996, among Central Products Company,  Spinnaker  Coating,  Inc.,
               Spinnaker Coating-Maine, Inc., Entoleter, Inc., the Registrant as
               guarantor,  each of the financial institutions party thereto from
               time to time, BT Commercial Corporation,  as agent,  Transamerica
               Business Credit  Corporation,  as collateral  agent,  and Bankers
               Trust Company as issuing bank (the "Credit  Agreement"),  made as
               of December 31, 1998.  (Incorporated by reference to Exhibit 99-1
               to the Form 10-Q of  Spinnaker  Industries,  Inc. for the quarter
               ended March 31, 1999.)

               27 - Financial Data Schedule
<PAGE>


                                                                   Page 20 of 21

              (b)     Reports on Form 8-K

                                  None


                                   SIGNATURES


Pursuant to the  requirements  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
                                  (Registrant)

                                              By: s/Robert E. Dolan      
                                                    Robert E. Dolan
                                                    Chief Financial Officer
May 17, 1999