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, 1998

                                       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  (20 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, 1998
          -----                                --------------------------
Common Stock, no par value                             1,418,248
<PAGE>
                                                                    Page 2 of 16


                                      INDEX

                       LYNCH CORPORATION AND SUBSIDIARIES


PART I.     FINANCIAL INFORMATION

Item 1.     Financial Statements (Unaudited)

            Condensed Consolidated Balance Sheet:
              -         March 31, 1998
              -         December 31, 1997 (Audited)

            Condensed Consolidated Statements of Operations:
              -         Three months ended March 31, 1998 and 1997

            Condensed Consolidated Statements of Cash Flows:
              -         Three months ended March 31, 1998 and 1997

            Notes to Consolidated Financial Statements:


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


PART II.    OTHER INFORMATION

Item 2.     Changes in Securities

Item 5.     Other Information

Item 6.     Exhibits and Reports on Form 8-K


SIGNATURES
<PAGE>
                                                                    Page 3 of 16


Part 1 - FINANCIAL INFORMATION
Item 1 - Financial Statements

                       LYNCH CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      -------------------------------------

            (In thousands)
<TABLE>
<CAPTION>
                                                                                                   March 31,         December 31,
                                                                                                     1998                1997
                                                                                                  ---------           ---------
                                                                                                  (Unaudited)             (A)
<S>                                                                                               <C>                 <C>      
ASSETS
CURRENT ASSETS:
 Cash and cash equivalents                                                                        $  24,529           $  33,557
 Marketable securities and short-term investments                                                       647
                                                                                                                            985
 Receivables, less allowances of $1,417 and $1,448                                                   59,781
                                                                                                                         54,480
 Inventories                                                                                         45,055              35,685
 Deferred income taxes                                                                               17,993              17,993
 Other current assets                                                                                11,147              10,059
                                                                                                  ---------           ---------
            Total current assets                                                                    159,152             152,759

PROPERTY, PLANT AND EQUIPMENT:
 Land                                                                                                 2,780               1,742
 Buildings and improvements                                                                          27,403              25,272
 Machinery and equipment                                                                            211,707             190,579
                                                                                                  ---------           ---------
                                                                                                    241,890             217,593
 Less accumulated depreciation                                                                      (64,872)            (60,064)
                                                                                                  ---------           ---------
 Net property, plant and equipment                                                                  177,018             157,529

EXCESS OF COSTS OVER FAIR VALUE OF NET ASSETS ACQUIRED                                               93,607              73,257
INVESTMENTS IN AND ADVANCES TO PCS ENTITIES                                                          25,949              25,448
OTHER ASSETS                                                                                         16,190              14,645
                                                                                                  ---------           ---------
Total assets                                                                                      $ 471,916           $ 423,638
                                                                                                  ---------           ---------

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks                                                                            $  61,429           $  29,021
Trade accounts payable                                                                               25,588              21,381
Accrued liabilities                                                                                  39,587              37,104
Current maturities of long-term Debt                                                                 10,801               9,302
                                                                                                  ---------           ---------
     Total current liabilities                                                                      137,405              96,808

LONG-TERM DEBT                                                                                      245,950             242,776
DEFERRED INCOME TAXES                                                                                34,070              33,764
PENSION LIABILITIES AND OTHER POST-RETIREMENT BENEFITS                                                2,970                   0
MINORITY INTERESTS                                                                                   15,001              13,839
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                                                                         8,710               8,644
 RETAINED EARNINGS                                                                                   22,978              23,414
 ACCUMULATED OTHER COMPREHENSIVE INCOME                                                                 423                   0
 TREASURY STOCK OF 52,943 AND 54,143 SHARES AT COST                                                    (730)               (746)
                                                                                                  ---------           ---------
            Total Shareholders' Equity                                                               36,520              36,451
                                                                                                  ---------           ---------
            Total Liabilities and Shareholders' Equity                                            $ 471,916           $ 423,638
                                                                                                  =========           =========
</TABLE>
(A)The Balance  Sheet at December  31,  1997 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.

See Notes to Condensed Consolidated Financial Statements


<PAGE>
                                                                    Page 4 of 16

                       LYNCH CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 -----------------------------------------------
                                   (UNAUDITED)
                      (In thousands, except share amounts)
<TABLE>
<CAPTION>
                                                                                                 Three months ended
                                                                                                      March 31,
Sales And Revenues                                                                        1998                         1997
                                                                                          ----                         ----
<S>                                                                                  <C>                           <C>        
  Multimedia                                                                         $    12,932                   $    10,067
  Services                                                                                33,971                        33,633
  Manufacturing                                                                           68,314                        65,079
                                                                                     -----------                   -----------
                                                                                         115,217                       108,779
                                                                                     -----------                   -----------
Costs and expenses:
  Multimedia                                                                               9,221                         7,807
  Services                                                                                31,950                        30,969
  Manufacturing                                                                           58,691                        55,442
  Selling and administrative                                                              10,968                        10,325
                                                                                     -----------                   -----------
OPERATING PROFIT                                                                           4,387                         4,236

Other income (expense):
Investment income                                                                            669                           433
Interest expense                                                                          (6,348)                       (5,469)
Share of operations of
  affiliated companies                                                                        73                            14
Loss on sale of subsidiary stock                                                             (58)                            0
                                                                                     -----------                   -----------
                                                                                          (5,664)                       (5,022)
                                                                                     -----------                   -----------
LOSS FROM CONTINUING OPERATIONS
  BEFORE INCOME TAXES AND
  MINORITY INTERESTS                                                                      (1,277)                         (786)
Benefit for income taxes                                                                     536                           315
Minority interests                                                                           305                           (41)
                                                                                     -----------                   -----------

 NET LOSS                                                                            $      (436)                  $      (512)
                                                                                     ===========                   ===========

Weighted average shares
 outstanding                                                                           1,418,000                     1,413,000
                                                                                     ===========                   ===========

BASIC EARNINGS PER SHARE:
  NET LOSS                                                                           $     (0.31)                  $     (0.36)
                                                                                     ===========                   ===========
DILUTED EARNINGS PER SHARE:
  NET LOSS                                                                           $     (0.31)                  $     (0.36)
                                                                                     ===========                   ===========
</TABLE>

See Notes to Condensed Consolidated Financial Statements
<PAGE>
                                                                    Page 5 of 16


                       LYNCH CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                 -----------------------------------------------
                                   (UNAUDITED)
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                              Three months ended
                                                                                                  March 31,
                                                                                      ---------------------------------
                                                                                         1998                   1997
                                                                                      ---------------------------------
<S>                                                                                   <C>                     <C>      
OPERATING ACTIVITIES

Net loss                                                                              $   (436)               $   (512)
Adjustments to reconcile net loss to net
cash provided by operating activities:
  Depreciation and amortization                                                          5,977                   4,826
  Net effect of purchases and
    sales of trading securities                                                            338                     490
  Share of operations of affiliated companies                                              (73)                    (14)
  Minority interests                                                                      (305)                     41
  Loss on sale of stock by subsidiaries                                                     58                       0
  Changes in operating assets and liabilities:
    Receivables                                                                           (702)                    998
    Inventories                                                                           (100)                    922
    Accounts payable and accrued liabilities                                             8,031                    (663)
    Other                                                                               (2,567)                 (1,153)
                                                                                      --------                --------

NET CASH PROVIDED BY OPERATING ACTIVITIES                                               10,221                   4,935
                                                                                      --------                --------

INVESTING  ACTIVITIES
Capital expenditures                                                                    (4,421)                 (3,315)
Investment in Spinnaker Coating-Maine, Inc.                                            (44,770)                      0
Investment in Coronet Communications Company                                                 0                   2,995
Investment in Upper Peninsula Telephone Company                                              0                 (15,474)
Investment in Personal Communications
  Services Partnerships                                                                      0                   4,989
Other                                                                                     (781)                      7
                                                                                      --------                --------

NET CASH USED IN INVESTING ACTIVITIES                                                  (49,972)                (10,798)
                                                                                      --------                --------

FINANCING ACTIVITIES
Issuance (repayments)of long-term debt, net                                             30,081                  (1,017)
Treasury stock transactions                                                                 90                     657
Minority interest transactions                                                             552                     (38)
                                                                                      --------                --------

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                     30,723                    (398)
                                                                                      --------                --------

Net decrease in cash and cash equivalents                                               (9,028)                 (6,261)
Cash and cash equivalents at beginning of period                                        33,557                  33,946
                                                                                      --------                --------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                                              24,529                  27,685
                                                                                      ========                ========
</TABLE>

See Notes to Condensed Consolidated Financial Statements.
<PAGE>
                                                                    Page 6 of 16

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
              ----------------------------------------------------

A.     SUBSIDIARIES OF THE REGISTRANT

                                                           Owned by
Subsidiary                                                  Lynch
----------                                                  -----

Brighton Communications Corporation             100.0%
  Lynch Telephone Corporation IV                            100.0%
    Bretton Woods Telephone Company, Inc.                   100.0%
    World Surfer, Inc.                                      100.0%
  Lynch Kansas Telephone Corporation            100.0%
  Lynch Telephone Corporation VI                 98.0%
    J.B.N. Telephone Company, Inc.                           98.0%
      J.B.N. Finance Corporation                 98.0%
    Giant Communications, Inc.                               98.0%
    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%
        D&F Cellular Telephone, Inc.            100.0%
          Erie Shore Communications, Inc.                   100.0%
    DFT Long Distance 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 Services, 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%
    Lynch Systems, Inc.                                     100.0%
  M-tron Industries, Inc.                        91.0%
    M-tron Industries, Ltd.                                  91.0%
  Spinnaker Industries, Inc                                  63.0%


    Entoleter, Inc.                                          63.0%
    Spinnaker Coating, Inc.                                  63.0%
       Spinnaker Coating-Maine, Inc.             63.0%
    Central Products Company                                 63.0%

<PAGE>
                                                                    Page 7 of 16


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

The Morgan Group, Inc.                              66.24%(V)/51.47%(O)
  Morgan Drive Away, Inc.                           66.24%(V)/51.47%(O)
    Transport Services Unlimited, Inc.              66.24%(V)/51.47%(O)
  Interstate Indemnity Company                      66.24%(V)/51.47%(O)
  Morgan Finance, Inc.                              66.24%(V)/51.47%(O)
  TDI, Inc.                                         66.24%(V)/51.47%(O)
   Home Transport Corporation                       66.24%(V)/51.47%(O)
    MDA Corporation                                 66.24%(V)/51.47%(0)

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 Interactive Corporation                   100.0%
Lynch Telecommunications Corporation            100.0%
  Lynch Telephone Corporation                                83.1%
    Western New Mexico Telephone Co., Inc.                   83.1%
    WNM Communications Corporation                           83.1%
    Wescel Cellular, Inc.                                    83.1%
      Wescel Cellular of New Mexico
      Limited Partnership                        51.0%       42.4%
    Wescel Cellular, Inc. II                                 83.1%
    Northwest New Mexico Cellular, Inc.          50.0%       40.6%
      Northwest New Mexico Cellular of
      New Mexico Limited Partnership             51.0%       20.7%
    Enchantment Cable Corporation                83.1%
  Lynch Telephone Corporation II                 83.0%
    Inter-Community Telephone Company            83.0%
      Inter-Community Telephone Company II                   83.0%
  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

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, 1998 are not  necessarily  indicative of the results that may be
expected for the year ended December 31, 1998. 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, 1997.

C.    ACQUISITIONS

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 $52.0 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 

<PAGE>
                                                                    Page 8 of 16

funded  by  Spinnaker's   revolving  credit  facility.   As  a  result  of  this
transaction,  the Registrant  recorded  approximately  $19.6 million in goodwill
which is being amortized over 30 years.

On March 18, 1997,  Lynch Michigan  Telephone  Holding  Company,  a wholly-owned
subsidiary of the  Registrant,  acquired  approximately  60% of the  outstanding
shares of Upper Peninsula  Telephone  Company for $15.2 million.  The Registrant
completed the  acquisition  of the remaining 40% on May 23, 1997. The total cost
of the  acquisition  was $26.5  million.  As a result of this  transaction,  the
Registrant  recorded  approximately  $7.4  million  in  goodwill  which is being
amortized over 25 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
and the  acquisition  of  Upper  Peninsula  Telephone  Company  was  made at the
beginning of 1997.

                                                     Three Months Ended
                                                         March 31
                                                         --------
                                                   1998            1997
                                                   ----            ----
                                           (In thousands, except per share data)

Sales and Revenues                               $127,331       $127,377
Operating Profit                                    5,030          6,849
Income (Loss) from Continuing
 Operations Before Income Taxes
 and Minority Interest                             (1,593)           468
Net Income (Loss)                                    (318)           289
Net Income (Loss) Per Share                        $(0.22)         $0.20


D.    INVENTORIES

Inventories  are stated at the lower of cost or market value. At March 31, 1998,
inventories  were  valued by three  methods:  last-in,  first-out  (LIFO) - 41%,
specific identification - 53%, and first-in,  first-out (FIFO) - 6%. At December
31, 1997, the respective percentages were 48%, 43%, and 9%.

                                                            In Thousands
                                                            ------------
                                                      3-31-98         12-31-97
                                                      -------         --------
               Raw material and supplies              $11,858         $10,493
               Work in process                          4,525           3,544
               Finished goods                          28,672          21,648
                                                      -------         -------
                   Total Inventories                  $45,055         $35,685
                                                      =======         =======

E.     INDEBTEDNESS

On a consolidated basis, at March 31, 1998, the Registrant  maintains short-term
and long-term lines of credit facilities totaling $106.0 million, of which $30.8
million was available.  The Registrant  (Parent Company) maintains $24.0 million
short-term  line of credit  facilities,  of which $10.0 million was available at
March 31, 1998.  The $14.0 million  facility  will expire on June 15, 1998.  The
$10.0 million facility will expire on December 29, 1998.  Spinnaker  Industries,
Inc. maintains lines of credit at its subsidiaries which total $60.0 million, of
which $11.2 million was available at March 31, 1998. The Morgan Group  maintains
lines of credit  totaling $10.0 million,  of which $2.0 million was available at
March 31, 1998. 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.



<PAGE>
                                                                    Page 9 of 16


Due to certain of these restrictive  covenants and working capital  requirements
of the subsidiaries,  cash distributions  from the subsidiaries are limited.  At
March 31, 1998, $45.9 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.

 Long term debt consists of:                             3-31-98     12-31-97
                                                         -------     --------

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% (4.7% weighted average)                              46,650      47,109

Bank credit  facilities  utilized by certain  
 telephone  and  telephone  holding companies  
 through 2009,  $34.5 million at a fixed 
 interest rate averaging 9.1% and $19.0 million
 at variable interest rates averaging 8.8%                 53,483      54,633

Unsecured notes issued in connection with
 acquisitions at fixed interest rates
 averaging 9.2% with maturities through 2006               35,051      28,049

Other                                                       6,567       7,287
                                                         --------     -------
                                                          256,751     252,078
Current maturities                                        (10,801)     (9,302)
                                                         ---------    -------
                                                         $245,950    $242,776
                                                         ========    ========


F.    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).

G.     EARNINGS PER SHARE

In December  1997,  the  Registrant  adopted  Statement of Financial  Accounting
Standards  ("SFAS") No. 128, "Earnings Per Share," which changed the methodology
of calculating  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.  All earnings per share amounts
have been  presented in  accordance  with,  and where  appropriate,  restated to
conform to the SFAS No. 128 requirements.

H.     COMPREHENSIVE INCOME

Effective  January 1, 1998,  the Registrant  adopted  Statement of SFAS No. 130,
"Reporting  Comprehensive  Income".  SFAS  No.  130  establishes  standards  for
reporting and display 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 loses 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 or comprehensive  income,  net of tax, for the three months ended
March 31, 1998 and 1997 are as follows:


                                                            1998           1997
                                                           ------         -----

Net Loss                                                   $(436)         $(512)
Unrealized gains on securities                               423           --
                                                           -----          -----
Comprehensive income (loss)                                $ (13)         $(512)
                                                           -----          -----

The components of accumulated other comprehensive income, net of related tax, at
March 31, 1998 and December 31, 1997 are as follows:

                                                              1998          1997
                                                              ----          ----

Unrealized gains on securities                                $423          $--
                                                              ----          ----
Accumulated comprehensive income                              $423          $--


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


SALES AND REVENUES

Revenues  for the first  quarter  of 1998  increased  by $6.4  million or 6%, to
$115.2 million,  from the first quarter of 1997. Within the operating  segments,
multimedia,  whose revenues  increased by 28%,  contributed  $2.9 million to the
increase;  and  manufacturing,  whose revenues increased by 5%, contributed $3.2
million to the overall  increase.  Revenues of the services segment increased by
1%.

The increase in multimedia revenues is primarily attributable to the acquisition
of Upper Peninsula  Telephone Company in March 1997($2.3 million  contribution).
For  multimedia  businesses  owned  for a  comparable  period  in 1998 and 1997,
revenues increased by 6%. Within the manufacturing group, revenues for Spinnaker
increased  by $2.4  million,  or 4% from  first  quarter  1997;  Lynch  Systems'
revenues  decreased by $.7  million;  and  M-tron's  revenues  increased by $1.6
million,  or 35%. 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.

OPERATING PROFIT

Operating  profit for the first quarter of 1998 increased by $.2 million to $4.4
million,  from the first  quarter of 1997.  Operating  profit in the  multimedia
segment  increased by $1.4 million,  primarily due to Upper Peninsula  Telephone
Company acquisition.  Manufacturing's  operating profit was flat as increases in
operating profits at Spinnaker, due to manufacturing  efficiencies,  and M-tron,
due to higher revenues,  offset decreases at Lynch Systems.  Services' operating
profit decreased by nearly $.8 million,  primarily  resulting from higher claims
costs as well as increased  expenditures  for data processing and in Specialized
Transport by the Morgan  Group.  Corporate  expenses  increased by $0.5 million,
primarily  attributable to the non-cash  charge  relating to stock  appreciation
rights  ("SARs").  The SARs  charges in the first  quarter of 1998  totaled $1.1
million compared to $.3 million in 1997 comparable period.


<PAGE>
                                                                   Page 11 of 16

Consolidated   EBITDA  (earnings  before  interest,   taxes,   depreciation  and
amortization)  increased  by 14% to  $10.2  million  in 1998,  compared  to $9.0
million in the first quarter of 1997. In the multimedia segment, higher revenues
resulted  in  increased  EBITDA of $2.0  million  or 43%,  offset  by  increased
depreciation and amortization expense of $.6 million,  both primarily associated
with  the  acquisition  of  Upper  Peninsula  Telephone  Company  in  1997.  For
multimedia  businesses  owned for a comparable  period in 1998 and 1997,  EBITDA
increased  by 11%.  EBITDA  for the  services  segment  decreased  by nearly $.8
million,  primarily due to higher claims costs and  increased  expenditures  for
data  processing  and  in  Specialized   Transport  by  the  Morgan  Group.  The
manufacturing  group's EBITDA increased by $.4 million or 10%,  primarily due to
stronger  performance at Spinnaker and M-tron,  partially offset by a decline at
Lynch Systems.

OTHER INCOME (EXPENSE), NET

Investment  income in the first quarter of 1998 of $.7 million  increased by $.2
million from the first quarter of 1997.

Interest  expense  increased by $.9 million to $6.3 million in the first quarter
of 1998 from $5.4  million  in the  first  quarter  of 1997.  The  increase  was
primarily due to the increased  debt level  resulting  from the  acquisition  of
Upper  Peninsula  Telephone  Company  in  March  1997,  as well  as  Spinnaker's
acquisition of S.D.  Warren's  pressure  sensitive  adhesive-backed  label stock
business on March 17, 1998.  These  amounts in 1998 and 1997 did not include $.4
million of  capitalized  interest  associated  with the  development of Fortunet
Communications, L.P.'s personal communications services ("PCS") licenses.

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, 1998 and
1997,  represent  effective  tax rates of (42%)  and  (40%),  respectively.  The
differences from the federal statutory rate are principally due to the effect of
state income taxes and amortization of non-deductible goodwill.

MINORITY INTEREST

Minority  interest was $0.3 million  lower in the first quarter of 1998 compared
to 1997,  primarily due to decreased net profits at the Morgan Group, Inc. a 51%
owned subsidiary.

NET INCOME/LOSS

Net loss for the three months ended March 31, 1998 was ($.4) million, or ($0.31)
per share,  as compared to ($.5)  million,  or ($0.36) per share in the previous
year=s quarter.

BACKLOG/NEW ORDERS

Total  backlog of  manufactured  products at March 31,  1998 was $33.6  million,
which  represents  an increase of $2.7 million from the backlog of $30.9 million
at December 31,  1997.  Included in the current  backlog is a $16 million  glass
press order at Lynch Systems from an  international  customer.  The customer has


<PAGE>
                                                                   Page 12 of 16

currently  alerted the Company not to proceed with construction on these presses
until notified and Lynch Systems does not expect  significant  production during
1998.  The purchase  order  associated  with this order  contains a cancellation
provision  in which the  customer  pays Lynch  Systems $2.4 million in event the
customer induced delay. Lynch Systems is currently negotiating with the customer
for a  settlement  of this  cancellation  provision.  An  increase in backlog at
Spinnaker offset declining backlogs at Lynch Systems and M-tron.

LIQUIDITY/CAPITAL RESOURCES

As of March 31,  1998,  the  Company had  current  assets of $159.2  million and
current  liabilities  of $137.4  million.  Working  capital was therefore  $21.8
million as  compared to $56.0  million at December  31,  1997.  The  decrease is
primarily  due to  the  acquisition  of the  S.D.  Warren's  pressure  sensitive
adhesive  backed label stock  business,  a majority of which was financed by the
draw  down on a  working  capital  revolver,  which is  classified  as a current
liability.

First quarter capital expenditures were $4.4 million in 1998 and $3.3 million in
1997.

At March 31, 1998,  total debt was $318.2 million,  which was $37.1 million more
than the $281.1 million at the end of 1997,  primarily due to the acquisition of
S.D.  Warren.  Debt at March 31, 1998 included  $236.3 million of fixed interest
rate  debt,  at an  average  cash  interest  rate of 9.0% and $81.9  million  of
variable  interest rate debt at an average interest rate of 9.3%.  Additionally,
at March 31, 1998 the Company had $19.6  million in unused  short-term  lines of
credit of which $2.0 million of which was attributable to Morgan.  Spinnaker has
$11.2 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,
1998, the Parent Company had borrowed  $14.0 million under  short-term  lines of
credit  facilities.  The lines currently  total $24.0 million.  These funds were
primarily used to fund the bids by  partnerships  in the PCS Auctions and fund a
portion  of the  purchase  price of Upper  Peninsula  Telephone  Company.  These
short-term lines of credit expire June 15, 1998 ($14.0 million) and December 29,
1998 ($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.

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 spin-off 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,
including tax consequences,  and there is no assurance that such a spin-off will
be effected.

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.


<PAGE>
                                                                   Page 13 of 16

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.

A  subsidiary  of the  Company has a minority  position  in an entity,  Fortunet
Communications,   L.P.  ("Fortunet").   Fortunet  participated  in  the  auction
conducted by the Federal Communications Commission for 30 megahertz of broadband
spectrum  to  be  used  for  personal  communications  services,  the  so-called
"C-Block"  Auction.  In this auction,  Fortunet  acquired 30 licenses to provide
personal communications services to geographic areas of the United States with a
total population of 7.0 million.  The cost of these licenses was $216.2 million,
$194.6  million  of the cost of these  licenses  was  funded via a loan from the
United States  Government.  The loan requires  quarterly interest payments at 7%
(the Company argues  strenuously  that the interest rate should have been 6.51%,
the applicable  treasury rate at the time the licenses were  awarded),  and with
quarterly  principal  amortization in years 7 through 10. In March 1997, the FCC
suspended  installment  payments on the government  debt, which are scheduled to
resume on July 31,  1998.  As of March 31,  1998,  the  subsidiary  had invested
$598,000 in partnership  equity and $24.0 million in loans,  as well as possible
funding  commitments  to  provide an  additional  $17.6  million  in loans.  The
subsidiary is currently evaluating its funding alternatives and options in light
of the current FCC proposals  (see below) and has not yet determined how it will
go forward with regard to the possible funding commitments. There are many risks
associated with personal communications  services. In addition,  funding aspects
of acquisition and development of licenses plus the amortization of the license,
could significantly and materially impact the Company's reported net income over
the next several years.

Fortunet,  as well as  many  of the  license  holders  from  this  auction,  had
petitioned the FCC for relief in terms of (1) resetting the interest rate to the
appropriate rate at the time; (2) further reducing or delaying the required debt
payments in order to afford better access to capital  markets;  and (3) relaxing
the restrictions with regard to ownership structure and alternative arrangements
in order to afford these small businesses the opportunity to more  realistically
restructure  and build-out  their systems.  The response from the FCC, which was
announced in September 1997, and modified  somewhat in March 1998,  afforded the
license  holders a choice of four  options,  one of which was the  resumption of
current debt payments  which had been suspended in 1997.  The  ramifications  of
choosing  the other  three  courses  of  action  could  result in the  Company's
subsidiary  ultimately  forfeiting  either  30%,  50%,  or 100%  of its  current
investment in these  licenses.  The FCC has set June 8, 1998 as the date for the
bidders of the C-Block licenses to decide which option they will choose.  In the
third quarter of 1997, a 30% reserve of its  investment at that time was created
as this  represents  management's  estimate of the impairment of this investment
given  the  current  available  alternatives.  Fortunet  has not yet  reached  a
decision  with respect to these  options.  Such decision may affect the value of
Lynch's subsidiary and reported financial results.

<PAGE>

                                                                   Page 14 of 16

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 PCS, a
possible spin-off and a  refinancing/strategic  initiative program. 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, tax consequences and what actions the FCC may take with
respect to PCS. As a result, such information is subject to uncertainties, risks
and inaccuracies.

PART II OTHER INFORMATION

Item 2.     CHANGES IN SECURITY AND USE OF PROCEEDS

            As of January 2, 1998,  Registrant  granted 200 shares of its common
            stock to each of six outside  directors of  Registrant at a price of
            $84.63 per share pursuant to Registrant's  Directors Stock Plan. The
            issuance was exempt from  registration  under the  Securities Act of
            1933 (the  "Securities  Act") under Section 4(2) thereof  and/or the
            "no sale" theory. On March 5, 1998, Registrant granted 3,900 phantom
            stock  units to seven  employees  of  Registrant  at $84.63 per unit
            pursuant to Registrant's  Phantom Stock Plan.  Registrant  disclaims
            that the phantom  stock units are equity  securities.  In  addition,
            such units would be exempt from  registration  under the  Securities
            Act under Section 4(2) thereof and/or the "no sale" theory.

Item 5.     OTHER INFORMATION

            The Federal  Communications  Commission has set June 8, 1998, as the
            date for the  holders of  C-Block  PCS  licenses  to decide on which
            restructuring  option to elect.  Fortunet  Communications,  L.P.  in
            which a subsidiary of Registrant is a 49.9% limited  partner and has
            a $24.6  million  investment,  has not yet  reached a decision  with
            respect  to the  options.  Such  decision  may  affect  the value of
            Registrant's  subsidiary and reported financial results. For further
            information  on PCS,  see  Management's  Discussion  and Analysis of
            Financial  Condition  and Results of  Operation -  Liquidity/Capital
            Resources,  above,  and Item 1.I.C.  of Registrant Form 10-K for the
            year ended December 31, 1997.

Item 6.     EXHIBITS AND REPORTS ON FORM 8-K

            (a) Exhibits

                10(a)(a) - Lease Agreement between Registrant and Gabelli 
                              Funds, Inc.

                      27 - Financial Data Schedule

            (b) Reports on Form 8-K

                  As of November  18,  1997,  and April 27,  1998,  reports with
                  respect to acquisition of the assets of the pressure sensitive
                  tape  business  of S.D.  Warren  Company  by the  

<PAGE>
Page 15 of 16

                  Registrant's  approximately  63%-owned  subsidiary,  Spinnaker
                  Industries, Inc.

                  As of  February 5, 1998,  a report with  respect to a possible
                  Preferred Stock Offering by Spinnaker Industries, Inc.



<PAGE>
                                                                   Page 16 of 16

                                   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