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 June 30, 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)


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

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 July 31, 199
Common Stock, no par value                                      1,412,383



<PAGE>


                                                                        Page 2

                                      INDEX

                       LYNCH CORPORATION AND SUBSIDIARIES


PART I.     FINANCIAL INFORMATION


Item 1. Financial Statements (Unaudited)

Condensed Consolidated Balance Sheet:
     - June 30, 1999
     - December 31, 1998

Condensed Consolidated Statements of Operations:
     - Three and six months ended June 30, 1999 and 1998

Condensed Consolidated Statements of Cash Flows:
     - Six months ended June 30, 1999 and 1998

Notes to Condensed 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

Item 6. Exhibits and Reports on Form 8-K



SIGNATURES




<PAGE>

                                                                     Page
Part 1 - FINANCIAL INFORMATION -
Item 1 - Financial Statements

                       LYNCH CORPORATION AND SUBSIDIARIES
                       -----------------------------------
                     CONDENSED CONSOLIDATED BALANCE SHEET
                     -------------------------------------
                                 (In thousands)
<TABLE>
<CAPTION>


                                                                                  June  30        December 31
                                                                                     1999            1998
                                                                                 (Unaudited)          (A)
                                                                                 -----------          ---
ASSETS

CURRENT ASSETS:
<S>                                                                              <C>               <C>
   Cash and Cash Equivalents .................................................   $     145         $   1,132
   Receivables, less allowances of $353 and $395 .............................      24,309            25,320
   Inventories ...............................................................      31,477            28,396
   Deferred income tax benefits ..............................................       8,717             9,315
   Other current assets ......................................................         809             1,787
   Current assets of subsidiaries to be distributed to shareholders ..........      50,304            58,047
   Current assets of discontinued operations .................................      31,986            38,625
                                                                                 ---------         ---------
    TOTAL CURRENT ASSETS .....................................................     147,747           162,622

PROPERTY,PLANT AND EQUIPMENT:
   Land .....................................................................          672               672
   Buildings and Improvements ................................................      10,833            12,585
   Machinery and Equipment ...................................................      53,177            51,306
                                                                                 ---------         ---------
                                                                                    64,682            64,563
   Accumulated Depreciation ..................................................     (19,690)          (17,534)
                                                                                 ---------         ---------
                                                                                    44,992            47,029


EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED,NET ....................      22,472            21,075
OTHER ASSETS .................................................................       6,415             7,328
NON - CURRENT ASSETS OF SUBSIDIARIES TO BE
   DISTRIBUTED TO SHAREHOLDERS ...............................................     151,677           170,295
NON - CURRENT ASSETS OF DISCONTINUED OPERATIONS ..............................      69,491            71,651
                                                                                 ---------         ---------
    TOTAL  ASSETS ............................................................   $ 442,794         $ 480,000
                                                                                 =========         =========

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Notes payable to banks ....................................................     $48,078           $59,686
   Trade accounts payable ....................................................      19,392            18,178
   Accrued interest payable ..................................................       2,590             2,575
   Accrued liabilities .......................................................       2,454             3,580
   Customer advances .........................................................       2,714             2,406
   Current maturities of long - term debt ....................................       2,198             2,027
   Current liabilites of subsidiaries to be distributed to shareholders ......      36,272            37,240
   Current liabilites of discontinued operations .............................      15,338            18,162
                                                                                 ---------         ---------
    TOTAL CURRENT  LIABILITIES ...............................................     129,036           143,854

LONG-TERM DEBT ...............................................................     126,380           126,976
DEFERRED INCOME TAXES ........................................................       8,854             9,316
OTHER LONG TERM LIABILITIES ..................................................       1,901             2,182
MINORITY INTERESTS ...........................................................       2,010             3,999
NON - CURRENT LIABILITIES AND MINORITY INTEREST
   OF SUBSIDIARIES TO BE DISTRIBUTED TO SHAREHOLDERS .........................     139,682           147,600
NON - CURRENT LIABILITIES  OF DISCONTINUED OPERATIONS ........................       6,280             6,280

SHAREHOLDERS' EQUITY
   COMMON STOCK,NO PAR VALUE-10,000,000 SHARES
     AUTHORIZED; 1,471,191 shares issued (at stated value) ...................       5,139             5,139
   ADDITIONAL PAID - IN CAPITAL ..............................................       8,298             8,554
   RETAINED EARNINGS .........................................................      16,207            26,771
   ACCUMULATED OTHER COMPREHENSIVE INCOME ....................................         211                59
   TREASURY STOCK OF 58,873 and 52,943 SHARES,AT COST ........................      (1,204)             (730)
                                                                                 ---------         ---------
    TOTAL  LIABILITIES AND SHAREHOLDERS' EQUITY ..............................    $442,794         $ 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>
</TABLE>


<PAGE>

                                                                         Page 5
Part 1- FINANCIAL INFORMATION
-----------------------------
Item 1- Financial Statements
----------------------------

                       LYNCH CORPORATION AND SUBSIDIARIES
                       ----------------------------------
                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                 ----------------------------------------------
                                   (UNAUDITED)
                      (In thousands, except share amounts)
<TABLE>
<CAPTION>
                                                                             Three Months                 Six Months
                                                                            Ended June 30               Ended June 30
                                                                       -------------------------------------------------
                                                                         1999         1998            1999         1998
                                                                         ----         ----            ----         ----
SALES AND REVENUES ...............................................
<S>                                                                      <C>            <C>            <C>            <C>
    Manufacturing ................................................       $47,363        $49,058        $93,774        $88,563

Costs and expenses:
    Manufacturing ................................................        41,014         42,186         82,785         76,103
    Selling and administrative ...................................         5,648          5,297         10,594          9,643
                                                                     -----------    -----------    -----------    -----------
OPERATING PROFIT .................................................           701          1,575            395          2,817

Other income (expense):
    Investment Income ............................................             0              0              7             90
    Interest expense .............................................        (2,332)        (2,358)        (4,529)        (3,829)
    Loss on sales of subsidiary stock ............................             0              0              0            (58)
                                                                     -----------    -----------    -----------    -----------
                                                                          (2,332)        (2,358)        (4,522)        (3,797)
                                                                     -----------    -----------    -----------    -----------

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME
 TAXES,  MINORITY INTERESTS AND  DISCONTINUED
 OPERATIONS ......................................................        (1,631)          (783)        (4,127)          (980)
Benefit  for income taxes ........................................           645            336          1,637            395
Minority interests ...............................................           486             89          1,015            129
                                                                     -----------    -----------    -----------    -----------
LOSS FROM CONTINUING OPERATIONS BEFORE
DISCONTINUED OPERATIONS ..........................................          (500)          (358)        (1,475)          (456)

Discontinued operations:
     Loss from discontinued operations of industrial
     tape segment of Spinnaker Industries (less
     applicable income tax benefit of $106,$332,
     $753 and $883 and minority interests of
     $138, $365, $558 and $610) ..................................           (21)           (94)          (572)          (610)

     Income (loss) from operations of Lynch Interactive
     Corporation to be distributed to shareholders
     (less income tax (provision) benefit of ($776),
     ($1,583), $3,871 and ($1,656) and minority
     interests of $232, $393, $431, and $373 .....................           948          1,776         (8,517)         1,954


                                                                     -----------    -----------    -----------    -----------
NET INCOME (LOSS) ................................................   $       427    $     1,324    ($   10,564)   $       888
                                                                     ===========    ===========    ===========    ===========

   Weighted average shares outstanding ...........................     1,416,000      1,418,000      1,417,000      1,418,000
                                                                     ===========    ===========    ===========    ===========
Basic and diluted earnings per share:

    Loss from continuing operations before discontinued operations        ($0.35)        ($0.26)        ($1.04)        ($0.32)
    Income (loss) from discontinued operations ...................          0.65           1.19          (6.41)          0.95
                                                                     -----------    -----------    -----------    -----------
NET INCOME (LOSS) ................................................   $      0.30    $      0.93         ($7.46)         $0.63
                                                                     ===========    ===========    ===========    ===========
</TABLE>


<PAGE>
                                                                        Page 6

                        LYNCH CORPORATION AND SUBSIDIARIES
                   -------------------------------------------
                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                   -------------------------------------------
                                   (UNAUDITED)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                              Six Months Ended
                                                                                   June 30
                                                                           1999             1998
                                                                           ----             ----
OPERATING ACTIVITIES

<S>                                                                     <C>                <C>
Net income (loss) ...................................................   ($10,564)          $    888
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
   Depreciation and amortization ....................................      2,754              2,238
   Amortization of deferred financing charges .......................        435                312
   Minority interests ...............................................     (1,015)              (129)
   Loss on sale of stock by subsidiaries ............................          0                 58
   Net gain on sale of warehouse                                            (854)                --
   Changes in operating assets and liabilities:
     Receivables ....................................................      1,011              2,580
     Inventories ....................................................     (3,081)               421
     Accounts payable and accrued liabilities .......................        411              2,404
     Other ..........................................................        414             (1,893)
  Discontinued operations - non-cash charges and WC changes .........      6,512              2,849
  Subsidiaries to be distributed to shareholders - non-cash charges ..    (1,075)            (9,649)
                                                                        --------           --------
NET CASH FROM OPERATING ACTIVITIES ..................................     (5,052)                79
                                                                        --------           --------

INVESTING  ACTIVITIES

Capital Expenditures ................................................     (1,895)            (2,166)
Investment in Spinnaker Coating - MAINE .............................          0            (44,770)
Other ...............................................................      1,958              1,059
Investing activities of discontinued operations .....................     (1,022)            (2,920)
Investing activities of subsidiaries to be distributed to shareholders    10,852              3,752
                                                                        --------           --------
NET CASH PROVIDED BY (USED) IN INVESTING ACTIVITIES .................      9,893            (45,045)
                                                                        --------           --------
FINANCING ACTIVITIES

Issuance of long - term debt ........................................     (4,183)            39,673
Deferred financing costs ............................................       (145)              (793)
Treasury stock transactions .........................................       (474)                 0
Other ...............................................................       (697)               639
Financing activities of discontinued operations .....................        (73)                 0
Financing activities of subsidiaries to be distributed to shareholders      (256)                82
                                                                        --------           --------
NET CASH FROM (USED IN) FINANCING ACTIVITIES ........................     (5,828)            39,601
                                                                        --------           --------
Net decrease  in cash and cash equivalents ..........................       (987)            (5,365)
Cash and cash equivalents at beginning of period ....................      1,132              6,497
                                                                        --------           --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..........................        145              1,132
                                                                        ========           ========

                   See Notes to Condensed Consolidated Financial Statements.

</TABLE>

<PAGE>
                                                                        Page 7

A.     Subsidiaries of the Registrant

As of  June  30,  1999,  prior  to the  effect  of  the  distribution  of  Lynch
Interactive  Corporation  and  the  sale  of the  Industrial  Tape  Business  of
Spinnaker  Industries,  Inc.  (see  Notes  C and  D),  the  Subsidiaries  of the
Registrant are as follows:
<TABLE>
<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%
    Lynch Systems, Inc. .........................................            91.0%
      Lynch International Holding Corporation ...................            91.0%
      Lynch-AMAV LLC ............................................            68.2%

</TABLE>

<PAGE>

                                                                        Page 8

<TABLE>
<CAPTION>

                                                                              Owned by
Subsidiary                                                                      Lynch

<S>                                                                              <C>
 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)
                                                                                70.0%(V)/55.3%(O)
    Transport Services Unlimited, Inc.                                          70.0%(V)/55.4%(O)
                                                                                70.0%(V)/55.3%(O)
  Interstate Indemnity Company                                                  70.0%(V)/55.4%(O)
                                                                                70.0%(V)/55.3%(O)
  Morgan Finance, Inc.                                                          70.0%(V)/55.4%(O)
                                                                                70.0%(V)/55.3%(O)
  TDI, Inc.                                                                     70.0%(V)/55.4%(O)
                                                                                70.0%(V)/55.3%(O)
    Home Transport Corporation                                                  70.0%(V)/55.4%(O)
                                                                                70.0%(V)/55.3%(O)
    MDA Corporation                                                             70.0%(V)/55.4%(O)
                                                                                70.0%(V)/55.3%(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 Mexico,                               20.7%
L.P.
        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%

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


<PAGE>
                                                                      Page 9

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 six month  period
ended June 30, 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").  The consideration
for the sale was approximately  $105 million and 300,000  five-year  warrants to
purchase shares of Intertape common stock at $29.50 each.  Spinnaker  expects to
recognize a gain on the transactions. The agreement to sell Spinnaker Electrical
was  completed on July 30, 1999 and the  agreement to sell Central  Products was
completed on August 10, 1999. 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 $29.3 million and $29.0 million for the
three  month  period  ended June 30,  1999 and 1998 and $58.8  million and $57.8
million for the six month period ended June 30, 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 assets and  liabilities  of the  industrial  tape  businesses  of  Spinnaker
included in the accompanying  condensed  consolidated  balance sheets as of June
30, 1999 and December 31, 1998 consist of the following (in thousands):
<TABLE>
<CAPTION>
                                                         June 30, 1999  Dec. 31, 1998
                                                         -------------  -------------
<S>                                                          <C>        <C>
Accounts receivable, net .................................   $ 13,329   $ 14,815
Inventories, net .........................................     12,355     18,167
Prepaids and other .......................................      6,302      5,643
                                                                -----      -----
Current assets of discontinued operations ................   $ 31,986   $ 38,625
                                                             ========   ========
Property, plant and equipment, net .......................   $ 46,382   $ 48,312
Goodwill and other assets ................................     23,109     23,339
                                                               ------     ------
Non-current assets of discontinued operations ............     69,491     71,651
                                                               ======     ======

Accounts payable..........................................   $ 12,063   $ 13,720
Accrued liabilities ......................................      3,275      4,442
                                                                -----      -----
Current liabilities of discontinued
operations ...............................................    $15,338    $18,162
                                                               =======   =======
Non-current liabilities of discontinued
operations ...............................................    $ 6,280    $ 6,280
</TABLE>

<PAGE>
                                                                 Page 10

D.   Spin Off

On August 12, 1999,  the Board of Directors  approved a plan to  distribute  the
stock  of  Lynch  Interactive  Corporation  on  a  one  for  one  basis  to  the
shareholders of Lynch  Corporation  ("spin off").  Lynch expects to complete the
spin  off of  Lynch  Interactive  Corporation  about  September  1,  1999 (or as
promptly  thereafter as  practicable.)  The record date is expected to be August
23, 1999.  Pursuant to the spin off,  each Lynch  shareholder  would receive one
share of Interactive  stock for each share of Lynch owned.  Lynch has received a
private letter ruling from the Internal  Revenue  Service that the spin off will
be tax free to Lynch shareholders.  Interactive has filed an application to list
its stock on the American Stock Exchange.

Interactive would own all of Lynch's current  multimedia and service  businesses
while Lynch would retain the manufacturing businesses. Interactive would own the
telephone companies,  television interests and PCS interests, as well as the 55%
equity interest of The Morgan Group,  Inc. In addition,  Interactive would own a
13.6% equity interest in Spinnaker  Industries,  Inc. Lynch would own 48% equity
in Spinnaker  (60.4% of voting  interest)  after the spin off, as well as M-tron
Industries,  Inc. and Lynch Systems,  Inc.

As a result,  the Company's  multimedia and services segments are being reported
as operations to be distributed to  shareholders in the  accompanying  condensed
consolidated  financial  statements.  Accordingly,  operating  results  of Lynch
Interactive  Corporation  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 Lynch on a comparable  basis.  Interactive's  net sales for the three
month period were $54.2 million and $54.9 million and $102.9  million and $101.8
million for the six month period ended June 30, 1999 and 1998, respectively, and
$205.1  million,  $194.1  million and $106.8  million for the fiscal years ended
December 31, 1998, 1997, ad 1996 respectively.

The  net  assets  of  Interactive   included  in  the   accompanying   condensed
consolidated balance sheets as of June 30, 1999 and December 31, 1998 consist of
the following:

<TABLE>
<CAPTION>

(In thousands)                                           June 30,     December 31,
                                                           1999          1998
                                                           ----          ----
<S>                                                          <C>         <C>
Cash, cash equivalents and marketable securities .......     $19,255     $27,988
Accounts receivable, net ...............................      19,372      18,853
Deferred income taxes ..................................       4,863       4,265
Prepaids and other .....................................       6,814       6,941
                                                               -----       -----
Current assets of discontinued operations ..............    $ 50,304    $ 58,047
                                                            ========    ========

Property, plant and equipment, net .....................     $88,882     $91,183
Goodwill ...............................................      46,488      47,740
Investment in and advances to PCS license
  holders...............................................       7,960      23,360
Other Assets ...........................................       8,347       8,012
                                                               -----       -----
</TABLE>


<PAGE>
                                                                       Page 11
<TABLE>
<CAPTION>
(In thousands)                                           June 30,     December 31,
                                                           1999          1998
                                                           ----          ----
<S>                                                        <C>          <C>
Non-current assets of discontinued operations ........     $151,677     $170,295
                                                           ========     ========

Notes payable ........................................     $  3,041     $  2,037
Accounts payable .....................................        5,161        4,662
Accrued liabilities ..................................       20,222       21,902
Current portion of long term debt ....................        7,848        8,639
                                                           --------     --------
Current liabilities of discontinued operations .......       36,272       37,240
                                                           ========     ========
Long term debt .......................................      116,069      119,024
Deferred income tax ..................................        8,087       13,062
Other long term debt .................................        5,723        4,987
Minority interest ....................................        9,803       10,527
Non-current liabilities and minority interest
  of discontinued operations .........................     $139,682     $147,600
                                                           ========     ========
</TABLE>

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 leaving a carrying value of $3.4 million.

E.       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. See
Note C concerning sale of industrial tape businesses.

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.


<PAGE>
                                                                        Page 12

The operating results of the S.D. Warren's  adhesive-backed label stock business
are included in the  Consolidated  Statement of Operations  from its  respective
acquisition date. 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>
                                                           Six Months Ended
                                                               June 30,
(In thousands, except per share data)                     1999           1998
                                                         --------      --------
<S>                                                     <C>           <C>
Sales and Revenues .................................    $  93,774     $ 100,707
Operating Profit ...................................          395         3,460

Income (Loss) from Continuing Operations Before
  Income Taxes and Minority Interest ...............       (4,127)       (1,296)

Net Income (Loss) from Continuing Operations .......       (1,461)         (322)
Net Income (Loss) from Continuing
  Operations Per Share .............................    $   (1.03)    $   (0.91)
</TABLE>

F.    Inventories

Inventories  are stated at the lower of cost or market value.  At June 30, 1999,
inventories  were  valued by three  methods:  last-in,  first-out  (LIFO) - 17%,
specific identification - 80%, and first-in,  first-out (FIFO) - 3%. At December
31, 1998, the respective percentages were 15%, 82%, and 3%, respectively.

<TABLE>
<CAPTION>
(In Thousands)
                                                        June 30,       Dec. 30,
                                                          1999           1998
                                                       --------        ---------
<S>                                                     <C>              <C>
Raw material and supplies ....................          $10,009          $ 7,711
Work in process ..............................            2,456            1,273
Finished goods ...............................           19,012           19,412
                                                        -------          -------
  Total Inventories ..........................          $31,477          $28,396
                                                        =======          =======
</TABLE>

G.     Indebtedness

Spinnaker   Industries,   Inc.  maintains  revolving  lines  of  credit  at  its
subsidiaries which total $40 million,  of which $4.6 million was available at as
of August 10, 1999. These facilities were established  subsequent to the sale of
Central Products and Spinnaker  Electrical.  In addition,  Lynch maintains other
lines of credit  totaling $4.4 million.  These  facilities  generally  limit the
credit  available  under  the  lines of credit  to  certain  variables,  such as
inventories  and  receivables,  and are secured by the  operating  assets of the
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 June 30, 1999, $4,4 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.


<PAGE>
                                                                       Page 13

<TABLE>
<CAPTION>
Long term debt consists of:                               June 30,      Dec.31,
                                                            1999          1998
                                                          --------    ---------
<S>                                                      <C>          <C>
Spinnaker Industries, Inc. 10.75% Senior Secured
Note due 2006 ........................................   $ 115,000    $ 115,000

Unsecured notes issued in connection with
acquisitions at fixed interest rates averaging 9.6%
with maturities through 2000 .........................       7,500        7,500

Other ................................................       6,078        6,503
                                                         ---------    ---------
                                                           128,578      129,003
Current Maturities ...................................      (2,198)      (2,027)
                                                         ---------    ---------
                                                         $ 126,380    $ 126,976
                                                         =========    =========
</TABLE>

Proceeds from the sale of Central  Products  Company are  anticipated to satisfy
transactions  costs and repay  certain  of the  working  capital  revolver  debt
included  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.

H.    Loss on sale of subsidiary stock

During the first six months 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.

J.     Comprehensive income

Effective  January 1, 1998,  the  Registrant  adopted  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 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.



<PAGE>


                                                                    Page 14

The components of comprehensive income, net of tax, for the three and six months
ended June 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
                                         Three Months Ended         Six Months Ended
                                               June 30,                 June 30,
                                           1999     1998             1999     1998
                                           ----     ----             ----     ----
<S>                                         <C>      <C>         <C>         <C>
Net income (loss) ..................        427      1,324       $(10,564)   $    888
Unrealized gain (loss) on securities        170       --              153         423
                                            ---      ----             ---         ---
 Comprehensive income (loss) .......        597      1,324       $(10,411)   $  1,311
                                            ===      =====       ========    ========
</TABLE>

The components of accumulated other comprehensive income, net of related tax, at
June 30, 1999 and December 31, 1998 are as follows:
<TABLE>
<CAPTION>

                                              1999     1998
                                              ----     ----
<S>                                            <C>    <C>
Unrealized gain (loss) on securities .......   211    59
                                               ---    --
Accumulated comprehensive income ...........   211    59
                                               ===    ==
</TABLE>


K.       Segment Information

After the pending  dividend to  shareholders  of the stock of Lynch  Interactive
Corporation,  the Company is engaged in the manufacture of adhesive backed label
stock and other 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.

General  corporate  office  expenses  related  to  finance  and   administrative
functions  including  public  company  compliance  reporting,  bank and investor
relations,  taxes and other  than  income  taxes and  holding  company  payroll,
historically  allocated and charged to the industrial tape segment were reversed
and allocated back to continuing operations.  These expenses were not considered
to be directly attributed to discontinued operations. Expenses allocated back to
continuing operations totaled $0.4 million and $0.8 million in the three and six
months periods ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
                                           Three Months Ended     Six Months Ended
                                                June 30               June 30
                                            1999      1998          1999     1998
                                            ----      ----          ----     ----
Revenues:
Manufacturing:
<S>                                     <C>         <C>         <C>         <C>
  Adhesive-backed label stock .......   $ 38,065    $ 40,500    $ 76,656    $ 69,373
  Other manufacturing ...............      9,298       8,558      17,118      19,190
                                           -----       -----      ------      ------
  Total manufacturing ...............   $ 47,363    $ 49,058    $ 93,774    $ 88,566
                                        ========    ========    ========    ========
EBITDA (before corporate allocation):
Manufacturing:
  Adhesive-backed label stock .......      2,401       3,583       4,307       5,702
  Other manufacturing ...............       (304)         12        (250)        904
  Corporate manufacturing expenses ..        196        (631)       (477)     (1,200)
                                             ---        ----        ----      ------
  Total manufacturing ...............      2,293       2,964       3,500       5,406
Corporate expenses, gross ...........       (194)        (14)       (390)       (362)
                                            ----         ---        ----        ----
Consolidated total ..................   $  2,099     $ 2,950     $ 3,190     $ 5,044
                                        ========     =======     =======     =======
</TABLE>


<PAGE>

                                                                     Page 15
<TABLE>
<CAPTION>
                                                 Three Months Ended       Six Months Ended
                                                       June 30,                June 30,
                                                      --------                --------
Operating profit:
Manufacturing:
<S>                                                 <C>        <C>        <C>        <C>
  Adhesive-backed label stock .................     1,298      2,494      2,091      4,032
  Other manufacturing .........................      (637)      (306)      (900)       284
  Corporate manufacturing expenses ............       154       (680)      (566)    (1,298)
                                                  -------    -------    -------    -------
  Total manufacturing .........................       815      1,508        625      3,018
Unallocated corporate expense .................      (114)        67       (230)      (201)
                                                  -------    -------    -------    -------
Consolidated total ............................   $   701    $ 1,575        395      2,817
                                                  =======    =======    =======    =======

Total operating profit for reportable segments    $   701    $ 1,575        395      2,817
Other profit or loss:
  Investment income ...........................         0          0          7         90
  Interest expense ............................    (2,332)    (2,358)    (4,529)    (3,829)
Gain on sale of subsidiary stock ..............         0          0          0        (58)
 operating assets
                                                  -------    -------    -------    -------
Income (loss) from continuing operations before
income taxes, minority interests and ..........   $(1,631)   $  (783)   $(4,127)   $  (980)
discontinued operations                           =======    =======    =======    =======
</TABLE>


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

Sales and Revenues

Revenues  for the second  quarter of 1999  decreased  by $1.7  million or 3%, to
$47.4  million,  from the second  quarter of 1998.  Revenues  for the six months
ended June 30, 1999  increased by $5.2 million from the  comparable  1998 period
reflecting the S.D. Warren acquisition noted below.

Revenues from Spinnaker  Industries,  Inc.  continuing  operations  fell by $3.2
million  between  the two  quarters  due to  product  technology  transition  in
pressure sensitive label stock area partially offset by higher sales of pressure
sensitive  postage  stock.  The market's  rapid  transition  from EDP to thermal
transfer paper stock technologies has exceeded management's  expectations and as
a result caused Spinnaker to experience lower volumes and average selling prices
at Coating-Maine,  as the market balances quality and performance  against lower
priced solutions.  Unit sales of pressure sensitive postage paper stock continue
to be impacted  by the uneven  ordering  pattern of the Bureau of  Printing  and
Engraving.  Unit sales of pressure  sensitive postage paper stock for the second
quarter of 1999 represent an increase  approximately 50% from corresponding 1998
period,  however on an annual basis is still  anticipated to  approximate  prior
year volumes.  For the six month period ended June 30, 1999,  sales increased by
$6.2 million.  Spinnaker  completed the  acquisition of S.D.  Warren's  pressure
sensitive  adhesive-backed  label stock business on March 18, 1998,  revenues of
this  operation in 1998 prior to  Spinnaker's  acquisition  were $12.1  million.
Increased volume as a result of this acquisition offset the revenue decline as a
result of the product technology  transition discussed above. Revenues at M-tron
increased by $1.9  million for the three month  period due to  increased  demand
from the  telecommunications  industry  and  increased  sales  of new  products.
Revenues  for the six  month  period  increased  $1.0  million  due to the  same
factors.  Lynch  Systems'  revenues  for the second  quarter was the same as the
prior  year  at $1.1  million,  but for  the  six  months  fell by $2.0  million
reflecting lack of orders


<PAGE>
                                                                     Page 16


for  extra-large  glass press machines  which,  during the first half,  were not
offset by orders for other products.

Operating  profit for the second  quarter 1999 declined by $0.9 million from the
operating  profit in the prior year.  Spinnaker's  operating  profit declined by
$0.6 million due to lower volume,  reduction in gross margins as a result of the
lower  pricing  noted  above as well as the effect of  increased  Asian  imports
offset by gains on sale of fixed  assets  ($0.9  million).  These  factors  also
affected  the six month  period  where  operating  profit fell by $1.5  million.
Including  acquisitions  adjustments,   Spinnaker  Coating-Maine  recorded  $0.6
million operating profit for the period prior to Spinnaker's ownership. M-tron's
operating  profit  increased by $0.3  million due to increased  volume and Lynch
Systems'  operating loss increased during the second quarter by $0.3 million due
to sale of lower  margined  products,  and for the six month  period also due to
sales of lower margined  products but predominantly due to a short-fall in order
activity.


Other Income (Expense), Net

Interest  expense was  essentially  the same at $2.3  million  for the  quarter.
During the six-month period ended June 30, 1999,  interest expense  increased by
$0.7  million.  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.

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.

Tax Provision

The income tax provision  (benefit) includes federal, as well as state and local
taxes.  The tax  provision  (benefit) for the six months ended June 30, 1999 and
1998,  represents effective tax rates of (40%) for both periods. 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  interests  contribution  to the net income  (loss)  increased  by $0.4
million in 1999 and $0.9 million,  respectively,  from the respective prior year
periods of 1998 due to the  increased net losses at Spinnaker and the January 1,
1999 repurchase of M-tron minority interest.

Discontinued Operations

On August 12, 1999,  the Board of Directors  approved a plan to  distribute  the
stock  of  Lynch  Interactive  Corporation  on  a  one  for  one  basis  to  the
shareholders of Lynch  Corporation  ("spin off").  Lynch expects to complete the
spin  off of  Lynch  Interactive  Corporation  about  September  1,  1999 (or as
promptly  thereafter as  practicable.)  The record date is expected to be August
23, 1999. Pursuant to the


<PAGE>
                                                                       Page 17


spin off, each Lynch  shareholder  would receive one share of Interactive  stock
for each share of Lynch owned.  Lynch has received a private  letter ruling from
the  Internal  Revenue  Service  that  the  spin  off  will be tax free to Lynch
shareholders.  Interactive  has  filed an  application  to list its stock on the
American Stock Exchange.

Interactive would own all of Lynch's current  multimedia and service  businesses
while Lynch wold retain the manufacturing businesses.  Interactive would own the
telephone companies,  television interests and PCS interests, as well as the 55%
equity interest of The Morgan Group,  Inc. In addition,  Interactive would own a
13.6% equity interest in Spinnaker  Industries,  Inc. Lynch would own 48% equity
in Spinnaker  after the spin off, as well as M-tron  Industries,  Inc. and Lynch
Systems, Inc.

As a result,  the Company's  multimedia and services segments are being reported
as  operations  are  to be  distributed  to  shareholders  in  the  accompanying
condensed consolidated financial statements.  Accordingly,  operating results of
Lynch  Interactive  Corporation have been segregated from continuing  operations
and reported as a separate line item on the statement of operations.

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  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, to leave a
carrying  value of $3.4 million.  This  write-down  offset by operating  profits
caused the loss for the six months ended June 30, 1999.

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 year 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
second quarter of 1998, the Company  recorded $0.7 million SAR income  (per-tax)
as compared to no income or expense in 1999. SAR expense was $0.4 million in the
first six months of 1998.

Lynch has restated its prior year financial  statements of present the operating
results of Lynch Interactive on a comparable basis. Interactive's net sales were
$102.9  million and $101.8  million for the six month period ended June 30, 1999
and 1998,  respectively,  and $205.1 million,  $194.1 million and $106.8 million
for the fiscal years ended December 31, 1998, 1997, ad 1996 respectively.

<PAGE>

                                                                     Page 18


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 Income/Loss

Net loss for the six months ended June 30, 1999 was ($10.6) million,  or $(7.46)
per share,  as compared to a net income of $0.9  million,  or $1.27 per share in
the previous  year.  The reserve for the  impairment  of the  investment  in PCS
license holders was the primary cause for the swing.

Net income for the three months ended June 30, 1999 was $0.4  million,  or $0.30
per share,  lower than net income of $1.3 million,  or $0.93 per share,  for the
same period of 1998 due to lower net operating results at The Morgan Group, Inc.
(included in Lynch  Interactive),  lower investment  income at Lynch Interactive
and no income for the SAR program in 1999.

Backlog/New Orders

Total backlog of manufactured  products from  continuing  operations at June 30,
1999 was $17.2  million,  which  represents an increase of $7.4 million from the
backlog of $9.8 million at December 31, 1998.  All operating  units  contributed
significant  increase to the backlog at June 30,  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.

FINANCIAL CONDITION

Liquidity/Capital Resources

As of June 30,  1999  excluding  amounts  attributed  to Lynch  Interactive  and
Spinnaker Industries Industrial Tape Business, the Company had current assets of
$65.5 million and current  liabilities  of $77.4  million.  Working  capital was
therefore a negative  $11.9 million as compared to $22.5 million at December 31,
1998.  The decrease is primarily due to the pay down of debt. Of note,  lines of
credit currently at Lynch  Corporation with outstanding  balance of $7.3 million
at June 30,  1999 and $15.2  million at  December  31,  1998 are  expected to be
transferred to Lynch Interactive at the time of the distribution.  Proceeds from
the sale of Spinnaker  Industrial Tape Business were used to satisfy transaction
costs and repay  approximately  $18.2  million of the working  capital  revolver
debt. The balance of proceeds from the Central Products  Company,  approximately
$60 million,  are 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 Industrial
Tape  Sale  or  not  used  to  permanently  reduce   indebtedness   (other  than
subordinated  debt) shall be sued to  repurchase  the Senior Notes on a pro rata
basis as required by the Indenture.

Net proceeds from the sale of Spinnaker Electrical,  an unrestricted subsidiary,
of approximately $10 million,  are unavailable for general  purposes,  which may
include

<PAGE>
                                                                       Page 19


purchasing  the  Senior  Notes  in  the  open  market.   Other  options  include
acquisitions,  capital  expenditures to support remaining  subsidiaries,  and/or
repurchase of Spinnaker common stock.

First six months capital expenditures were $1.9 million in 1999 and $2.2 million
in 1998.

At June 30,  1999,  total debt was $176.7  million,  which was $4.1 million less
than  the  $188.7  million  at  the  end of  1998  primarily  due  to  principal
repayments. Debt at June 30, 1999 included $123.7 million of fixed interest rate
debt,  at an average cash  interest  rate of 10.6% and $45.7 million of variable
interest  rate  debt at an  average  interest  rate of 7.7%.  Additionally,  the
Company had unused  lines of credit  facilities  of which the  Spinnaker  Credit
Facility is a major portion.  The Spinnaker Credit Facility is available to fund
acquisitions  and  support  periodic  fluctuations  in working  capital.  Credit
availability   under  the  Spinnaker  Credit  Facility  is  subject  to  certain
variables,  such as  inventory  and  receivables  eligible to be included in the
borrowing  base.  The  Company is charged  an unused  credit fee every  month of
0.375% per annum. Outstanding borrowings bear interest at variable rates related
to the prime interest rate or LIBOR.  At June 30, 1999,  the combined  effective
interest  rate in effect was  7.76%.  In  conjunction  with the  disposition  of
Central Products  Company,  the Spinnaker Credit Facility was refinanced and the
aggregate facility was decreased from $60 million to $40 million. The Refinanced
Credit Facility will expire December 31, 2001. As of August 10, 1999,  aggregate
availability  under the  Refinanced  Credit  Facility  was  approximately  $30.9
million, of which approximately $17.2 million was outstanding.

Lynch  Corporation  may make  additional  acquisitions  which will  probably  be
financed with a significant  component of debt. This acquisition debt as well as
current  debt  outstanding  contains  restrictions  on  the  amount  of  readily
available  funds  that  can  be  transferred  to  Lynch   Corporation  from  its
subsidiaries.

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 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.

The assessment phase for the Company's manufacturing businesses is approximately
99% 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 90% complete and
are expected to be 100% complete in September  1999. The total cost of Year 2000
remediation for the


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                                                                    Page 20


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 but is  expected to be  completed  in
September 1999.

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  $0.1 million at June 30, 1999 (Note:  the disposition of Central
Products and Spinnaker  Electrical is initially expected to generate $75 million
of liquid  resources).  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 June 30, 1999, approximately $45.7 million, or 27% 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  second  quarter 1999 interest
expense would have changed by $0.1 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 Spinnaker,
PCS, a possible  spin-off,  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


<PAGE>
                                                                   Page 21


the  expected  performance  of  the  economy  as  it  impacts  the  Registrant's
businesses,   government   and  regulatory   actions  and  approvals,   and  tax
consequences.  As a result, such information is subject to uncertainties,  risks
and inaccuracies, which could be material.

Item 3.           Quantitative and Qualitative Disclosure About Market Risk

                  See "Market Risk" under Item 2 above.

PART II OTHER INFORMATION

Item 5. Other

     Lynch Multimedia Corporation,  a subsidiary of Registrant,  has filed a law
     suit claiming  that it is entitled to a 60%  ownership  interest in certain
     cable television franchises in Kansas having approximately 3,000 customers.

Item 6. Exhibits and Reports on Form 8-K

     (a) Exhibits

          27 - Financial Data Schedule

     (b) Reports on Form 8-K

          None




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                                                                    Page 22


                                   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
August 16, 1999